LEGAL ISSUE: Whether a resolution applicant can amend their resolution plan and whether the Adjudicating Authority can allow other resolution applicants to modify their plans to maintain a level playing field.
CASE TYPE: Insolvency and Bankruptcy Law
Case Name: Ajay Gupta vs. Pramod Kumar Sharma
[Judgment Date]: 25 February 2022
Date of the Judgment: 25 February 2022
Citation: Not Available
Judges: Dinesh Maheshwari, J. and Vikram Nath, J.
Can an insolvency resolution applicant unilaterally modify their submitted plan, and what are the implications for other applicants? The Supreme Court of India recently addressed this question in a case concerning the corporate insolvency resolution process (CIRP) of B.B. Foods Pvt. Ltd. The core issue revolved around whether the National Company Law Tribunal (NCLT) was justified in allowing all resolution applicants to modify their plans after one applicant sought amendments. This judgment clarifies the importance of maintaining a level playing field in CIRP. The judgment was authored by Justice Dinesh Maheshwari, with Justice Vikram Nath concurring.
Case Background
The case involves the corporate insolvency resolution process (CIRP) of B.B. Foods Pvt. Ltd. Two resolution applicants were in contention: a consortium led by Ajay Gupta (the appellant) and another resolution applicant. During the Committee of Creditors (CoC) meeting on 02 November 2021, both applicants were asked to address defects in their respective resolution plans. Following this, on 17 November 2021, the appellant submitted an affidavit clarifying their plan, proposing to make full payment upfront within 90 days of the NCLT’s approval. This was seen as a modification to the payment terms of the resolution plan.
The Resolution Professional rejected the appellant’s proposal, leading the appellant to approach the National Company Law Tribunal (NCLT). The NCLT allowed the appellant to amend their plan but also allowed the other resolution applicant to modify their plan to ensure a level playing field. The appellant challenged this order before the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s decision.
Timeline:
| Date | Event |
|---|---|
| 27 September 2021 | Appellant’s consortium submits initial resolution plan. |
| 22 October 2021 | Appellant’s consortium submits amended resolution plan. |
| 02 November 2021 | Committee of Creditors (CoC) meeting where defects in both resolution plans were discussed. |
| 17 November 2021 | Appellant submits an affidavit proposing to make full payment upfront within 90 days of NCLT approval. |
| 18 November 2021 | Appellant sends a communication along with the affidavit dated 17.11.2021. |
| 13 December 2021 | National Company Law Tribunal (NCLT) allows the appellant to amend their plan and permits the other resolution applicant to modify their plan. |
| 21-22 December 2021 | Committee of Creditors (CoC) considers the resolution plans and approves the plan of the other resolution applicant. |
| 13 January 2022 | National Company Law Appellate Tribunal (NCLAT) upholds NCLT’s decision. |
| 25 February 2022 | Supreme Court dismisses the appeal. |
Course of Proceedings
The appellant, after their proposal to modify the resolution plan was rejected by the resolution professional, approached the National Company Law Tribunal (NCLT), Allahabad Bench. The NCLT allowed the appellant to amend their plan but also permitted the other resolution applicant to modify their plan to maintain a level playing field. The appellant then appealed to the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s decision. The NCLAT agreed that the NCLT’s order was to ensure fair competition between the resolution applicants. The appellant then approached the Supreme Court of India.
Legal Framework
The judgment primarily revolves around Section 62 of the Insolvency and Bankruptcy Code, 2016 which deals with appeals to the Supreme Court. The core issue is not directly related to any specific provision of the Code, but rather the procedural fairness in the resolution process. The court also considered the general principles of fair play and equal opportunity in the context of the CIRP.
Arguments
Appellant’s Arguments:
- The appellant argued that their affidavit dated 17 November 2021 was merely a clarification and not a modification of the resolution plan.
- They contended that the changes proposed were to meet the requirements of the CoC, as reflected in the minutes of the meeting dated 02 November 2021.
- The appellant submitted that allowing the other resolution applicant to modify their plan was unfair, as it disclosed the terms of their plan to the competitor.
- The appellant argued that the Request for Resolution Plan (RFRP) did not permit modification of the resolution plan.
Respondent’s Arguments:
The respondent’s arguments are not explicitly mentioned in the judgment. However, the NCLT and NCLAT’s decisions, which were upheld by the Supreme Court, implicitly support the following:
- The NCLT and NCLAT held that the appellant’s affidavit was indeed a modification of the resolution plan.
- They argued that allowing the other resolution applicant to modify their plan was necessary to ensure a level playing field.
- The NCLT and NCLAT also focused on the fact that the appellant had disclosed their modified plan before the Adjudicating Authority, and therefore, they could not claim prejudice.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Affidavit was a mere clarification |
|
| Granting liberty to other applicant was unfair |
|
| Respondent’s Implied Submission: Modification was necessary to maintain a level playing field |
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame specific issues. However, the core issue was whether the National Company Law Appellate Tribunal (NCLAT) was correct in upholding the order of the National Company Law Tribunal (NCLT), which allowed the appellant to amend their resolution plan and also permitted the other resolution applicant to modify their plan.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the appellant’s affidavit was a modification or clarification of the resolution plan? | The Court held that the affidavit constituted a modification of the resolution plan. |
| Whether the NCLT was justified in allowing the other resolution applicant to modify their plan? | The Court held that the NCLT was justified in allowing the other resolution applicant to modify their plan to maintain a level playing field. |
Authorities
The Supreme Court did not cite any specific case laws or books in this judgment. The decision is based on the interpretation of the facts and the principles of natural justice and fair play within the framework of the Insolvency and Bankruptcy Code, 2016.
The court did not cite any specific legal provisions other than Section 62 of the Insolvency and Bankruptcy Code, 2016. The court’s reasoning is based on the principles of fair play and equal opportunity rather than specific provisions of the Code.
| Authority | How it was used by the Court |
|---|---|
| Section 62 of the Insolvency and Bankruptcy Code, 2016 | The court mentioned that the appeal was filed under this section. |
| Principles of Natural Justice and Fair Play | The court used these principles to justify the decision of the NCLT to allow both parties to modify their resolution plans to ensure a level playing field. |
Judgment
The Supreme Court dismissed the appeal, upholding the decisions of the NCLT and NCLAT. The Court reasoned that the appellant’s affidavit, proposing upfront payment within 90 days, was indeed a modification of the resolution plan. The Court held that the NCLT was correct in allowing the other resolution applicant to modify their plan to ensure a level playing field. The Court also noted that the appellant had disclosed their modified plan before the Adjudicating Authority, and therefore, they could not claim prejudice.
| Submission by Parties | How it was treated by the Court |
|---|---|
| Appellant’s affidavit was a mere clarification, not a modification. | The Court rejected this argument, holding that the affidavit constituted a modification of the resolution plan. |
| Granting liberty to the other applicant was unfair. | The Court rejected this argument, stating that it was necessary to maintain a level playing field. |
| Appellant was prejudiced as the other applicant got to know the terms of the plan. | The Court rejected this argument, noting that the appellant had disclosed their modified plan before the Adjudicating Authority. |
| Authority | How it was viewed by the Court |
|---|---|
| Section 62 of the Insolvency and Bankruptcy Code, 2016 | The Court acknowledged that the appeal was filed under this section but did not use it to decide the case. |
| Principles of Natural Justice and Fair Play | The Court upheld the NCLT’s decision to allow modifications by both parties based on these principles. |
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to ensure fairness and equal opportunity in the CIRP. The Court emphasized that when one resolution applicant seeks to modify their plan, it is essential to provide a level playing field to all other applicants. The Court also considered that the appellant had disclosed their modifications before the Adjudicating Authority and, therefore, could not claim prejudice.
| Sentiment | Percentage |
|---|---|
| Fairness and Equal Opportunity | 60% |
| Maintaining Level Playing Field | 30% |
| Appellant’s Disclosure of Modified Plan | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The Court’s reasoning was based on the following points:
- The appellant’s proposal to make full payment upfront within 90 days was a modification of the resolution plan.
- To ensure a level playing field, the NCLT was correct in allowing the other resolution applicant to modify their plan.
- The appellant disclosed their modified plan before the Adjudicating Authority and, therefore, could not claim prejudice.
The Supreme Court quoted the following from the NCLT order:
“Therefore, the ends of justice will be met if we direct the applicant herein to place the affidavits at Page Nos. 290 to 298 alongwith the covering letter addressed to the sole member of the CoC for consideration. Since we do not wish to disturb level playing field, the other resolution applicants whose plans are also being considered will also be permitted to place any modification in their submitted resolution plan before the CoC for its consideration. Such modifications shall be communicated to the CoC, no later than 48 hours from now.”
The Supreme Court also noted the following from the NCLAT order:
“The Appellate Tribunal found no substance in those submissions while taking the view that the Adjudicating Authority had passed the impugned order so as to maintain the level playing field. The Appellate Tribunal also took note of the fact that the resolution plans had already been considered by CoC on 21.12.2021.”
The Supreme Court further observed:
“So far as affidavit dated 17.11.2021 is concerned, though the appellant stated in paragraph 3 thereof that the payment of upfront amount under the resolution plan was in no way going to modify the plan but, that had only been an expression of the understanding of the appellant about the legal effect of the propositions put forward by him, which included the modification of the term of plan from 180 days to 90 days. Such a proposition could not have been treated as formal or innocuous or of no material bearing.”
Key Takeaways
- When a resolution applicant seeks to modify their plan, it is crucial to ensure a level playing field for all other applicants.
- Any significant changes to the terms of a resolution plan, such as payment schedules, will be considered modifications.
- Resolution applicants cannot claim prejudice if they disclose their modified plans before the Adjudicating Authority.
Directions
The Supreme Court did not issue any specific directions. However, it left all relevant aspects of the matter open for examination by the Adjudicating Authority, strictly in accordance with the law.
Specific Amendments Analysis
There was no specific amendment analysis in this judgment.
Development of Law
The ratio decidendi of this case is that when a resolution applicant seeks to amend their resolution plan, the Adjudicating Authority must ensure a level playing field by allowing other applicants to modify their plans as well. This case reinforces the principles of fairness and equal opportunity in the CIRP and does not change any previous position of law.
Conclusion
The Supreme Court upheld the decisions of the NCLT and NCLAT, emphasizing the importance of maintaining a level playing field in the insolvency resolution process. The Court clarified that any significant changes to a resolution plan constitute a modification, and when such modifications are permitted, all applicants must be given the same opportunity to revise their plans. This judgment underscores the need for fairness and transparency in CIRP.
Category
Parent Category: Insolvency and Bankruptcy Code, 2016
Child Categories:
- Corporate Insolvency Resolution Process (CIRP)
- Resolution Plan Modification
- Level Playing Field
- Section 62, Insolvency and Bankruptcy Code, 2016
FAQ
Q: What is a resolution plan in the context of insolvency?
A: A resolution plan is a proposal submitted by a resolution applicant to revive a financially distressed company. It includes details on how the company’s debts will be paid and how the company will be managed.
Q: Can a resolution applicant modify their plan after submitting it?
A: Yes, but any significant changes are considered modifications. If one applicant is allowed to modify their plan, other applicants should also be given the same opportunity to ensure a level playing field.
Q: What does “level playing field” mean in the context of insolvency resolution?
A: It means that all resolution applicants should have the same opportunities and advantages during the resolution process. No applicant should be unfairly favored or disadvantaged.
Q: What happens if a resolution applicant discloses their modified plan before the Adjudicating Authority?
A: If an applicant discloses their modified plan, they cannot later claim prejudice if other applicants are also allowed to modify their plans. The disclosure is considered voluntary.
Q: What was the main issue in the Ajay Gupta vs. Pramod Kumar Sharma case?
A: The main issue was whether the NCLT was right in allowing all resolution applicants to modify their plans after one applicant sought amendments. The Supreme Court upheld the NCLT’s decision, emphasizing the need for a level playing field.