September 14, 2021
ABBREVIATIONS & ACRONYMS USED
|Committee of Creditors||CoC|
|Corporate Insolvency Resolution Process||CIRP|
|The Insolvency and Bankruptcy Board of India||IBBI|
|Insolvency and Bankruptcy Code, 2016||the Code|
|National Company Law Appellate Tribunal||NCLAT|
|National Company Law Tribunal||NCLT|
A CIRP was initiated by Educomp on May 5, 2017, under Section 10 of the Code and was admitted by the NCLT on May 30, 2017. Resolution Plans were invited and the plan by Ebix received 74.16% vote of the COC, falling just short of the 75% requirement (as it was then). However, a member who had earlier abstained from voting later voted in favour of the plan, and Ebix was declared the successful resolution applicant.
Ebix later filed several withdrawal applications before the NCLT to withdraw its resolution plan for the following reasons:
After the second withdrawal application, the NCLT directed Ebix to place the application for withdrawal of the resolution plan before the CoC, and the CoC disallowed withdrawal. Regardless, later the NCLT allowed the third withdrawal application, holding that a resolution plan becomes binding only after it is approved by the NCLT. It added that the NCLT has the power to examine the ‘effective enforceability’ of a resolution plan; and since the resolution applicant was reluctant to go through with the resolution, it would hamper the effective implementation of the plan. It also directed the extension of the CIRP by 90 days. The NCLAT set aside the order of the NCLT, and held that there being no appeal against the order of dismissal of the first withdrawal application, the matter had attained finality and the doctrine of res judicata applied.
Absence of a Provision
The Supreme Court noted the objectives of the Code. The court then traced the evolution of Section 12A. Based on that, it held that no provision or legislation for withdrawal of a resolution plan existed in the Code, and such withdrawal cannot be allowed through judicial interpretation. It noted that the Code is silent on the withdrawal of a resolution plan. It applied the rule of interpretation casus omissus (‘a situation omitted from or not provided for by statute or regulation and therefore governed by the common law’), and held that judicial construction cannot fill an omission in a statute. The court acknowledged that the UNCITRAL Guide also does not provide for allowing withdrawal of a resolution plan. Instead, it insists on laying down a detailed procedure for even amendments to a resolution plan, if at all the legislature wishes to allow amendments to the submitted plans.
In addition, it also held that the CoC had already rejected the withdrawal proposal, and it was done in the exercise of its commercial wisdom, which is non-justiciable. The Adjudicating Authority could not have interfered with it by allowing an action which was legally not available. Allowing it would amount to “transgressing into the domain of the legislature”.
Terms of a Resolution Plan
The Supreme Court rejected the argument that a resolution plan is only binding after it is approved by the NCLT, holding that even though it is true, even before such approval it is not a mere draft contract. Rather, it is a product of the Code, which has a binding effect on the CoC and the resolution applicant after it has been approved by the CoC and is pending the approval of the NCLT.
The court also discussed how Form H under the CIRP Regulations, which is a compliance certificate, provides for certain contingencies and pondered upon the argument that based on these contingencies, a resolution applicant must be allowed to insert a stipulation within the resolution plan regarding the circumstances in which it would withdraw it, such as a ‘Material Adverse Event’. It rejected the argument because contingencies provided for in Form H cannot strike root provisions of the Code.
The Supreme Court noted that allowing the withdrawal of a submitted resolution plan would result in down-grading of both — the amounts of subsequent resolution plans and the liquidation value. Further, the court condemned the delays by the NCLT and the multiplicity of proceedings, and insisted that Adjudicating Authorities be time-sensitive and adhere to timelines.
~ By Vinisha Jain
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