‘NCLT cannot allow changes to successful resolution plan’

Krishnadas Rajagopal New Delhi | Updated on September 13, 2021

SC says this will create another tier of deals wholly unregulated by the IBC

The Supreme Court, on Monday, held that the National Company Law Tribunal (NCLT) cannot permit withdrawals or modifications to a successful resolution plan, once it has been submitted to it after due compliance with the procedural requirements and timelines, solely at the behest of the resolution applicant.

This will only create another tier of negotiations wholly unregulated by the Insolvency and Banking Code (IBC), the court observed.

“Since the 330 days outer limit of the Corporate Insolvency Resolution Proceedings (CIRP) under Section 12(3) of the IBC, including judicial proceedings, can be extended only in exceptional circumstances, this open-ended process for further negotiations or a withdrawal, will have a deleterious impact on the corporate debtor, its creditors, and the economy at large as the liquidation value depletes with the passage of time,” observed a Bench of Justices DY Chandrachud and MR Shah in a 190-page judgment.

The court said the NCLT cannot read too much into its residual powers under the IBC and create procedural remedies that have substantive outcomes on the process of insolvency.

Ebix resolution plan

The judgment, authored by Justice Chandrachud, concerned the NCLT’s decision to allow Ebix Singapore Private Limited to withdraw its resolution plan submitted for Educomp Solutions.

The National Companies Law Appellate Tribunal had, however, reversed the NCLT order, saying the latter did not have jurisdiction to permit such withdrawal. The correctness of the NCLAT decision had come up in appeal before the Supreme Court.

Dismissing the appeal filed by Ebix, Justice Chandrachud wrote: “We hold that the existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of Committee of Creditors-approved resolution plans, at the behest of the successful resolution applicant, once the plan has been submitted to the adjudicating authority… A submitted resolution plan is binding and irrevocable as between the CoC and the successful resolution applicant in terms of the provisions of the IBC and the CIRP Regulations.”

Tether under the IBC

The court said that in future if the legislature were to recognise the concept of withdrawals or modifications to a resolution plan after it has been submitted to the NCLT, it must specifically provide for a tether under the IBC.

“This tether must be coupled with directions on narrowly defined grounds on which such actions are permissible and procedural directions, which may include the timelines in which they can be proposed, voting requirements and threshold for approval by the CoC (as the case may be).

“They must also contemplate at which stage the corporate debtor may be sent into liquidation by the Adjudicating Authority or otherwise, in the event of a failed negotiation for modification and/or withdrawal. These are matters for legislative policy,” the Supreme Court advised.

Published on September 13, 2021

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