LAW FOR ALL : once the resolution was submitted - it can not be permitted to withdraw the same

Saturday, September 18, 2021

once the resolution was submitted - it can not be permitted to withdraw the same

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 3224 of 2020

Ebix Singapore Private Limited .... Appellant

Versus

Committee of Creditors of Educomp .... Respondents

Solutions Limited & Anr.

With

Civil Appeal No. 3560 of 2020

Kundan Care Products Limited .... Appellant

Versus

Mr Amit Gupta and Ors. .... Respondents

With

Civil Appeal No. 295 of 2021

Seroco Lighting Industries Private Limited .... Appellant

Versus

Ravi Kapoor RP for Arya Filaments .... Respondents

Private Limtied & Ors.

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

This judgment has been divided into sections to facilitate analysis. Further, a

Glossary of defined terms which have been used throughout the judgment has

also been provided. The sections in the judgment are as follows:

Glossary ............................................................................................................5

A Civil Appeal No 3224 of 2020 – the Ebix Appeal ......................................11

A.1 The appeal ..........................................................................................11

A.2 Initiation of CIRP .................................................................................11

A.3 Invitation, submission and approval of Resolution Plan......................12

A.4 Investigations into financial transactions of Educomp ........................15

A.5 Applications for withdrawal of the Resolution Plan .............................20

A.6 Orders of NCLT and NCLAT...............................................................24

A.7 Present status of SFIO and CBI investigation.....................................28

B Civil Appeal No 3560 of 2020 – the Kundan Care Appeal ........................29

B.1 The appeal ..........................................................................................29

B.2 Initiation of CIRP .................................................................................30

B.3 Invitation, submission and approval of Resolution Plan......................31

B.4 Astonfield’s dispute with GUVNL ........................................................32

B.5 Withdrawal of the Resolution Plan ......................................................35

C Civil Appeal No 295 of 2021 – the Seroco Appeal....................................43

C.1 The appeal ..........................................................................................43

C.2 Initiation of CIRP .................................................................................44

C.3 Submission and Approval of Resolution Plan .....................................44

C.4 Modification of the Resolution Plan.....................................................45

D Submissions of counsel in the Ebix Appeal ..............................................48

D.1 Submissions for the appellant.............................................................48

D.2 Submissions for the first respondent...................................................56

D.3 Submissions for the second respondent.............................................64

E Submissions of counsel in the Kundan Care Appeal ................................68

E.1 Submissions for the appellant.............................................................68

E.2 Submissions for the first respondent...................................................76

E.3 Submissions for the second respondent.............................................78

F Submissions of counsel in the Seroco Appeal..........................................80

F.1 Submissions for the appellant.............................................................80

F.2 Submissions for the second and third respondents ............................82

G Purpose of a law on insolvency..............................................................84

H Nature of a Resolution Plan ......................................................................90

I Statutory framework governing the CIRP................................................115

J Withdrawal of the Resolution Plan by a successful Resolution Applicant

under the IBC ................................................................................................134

J.1 The absence of a legislative hook or a regulatory tether to enable a

withdrawal ..................................................................................................134

J.2 Terms of the Resolution Plan are not sufficient to effect withdrawals or

modifications after its submission to the Adjudicating Authority.................145

K Factual Analysis ......................................................................................158

K.1 The Ebix Appeal................................................................................158

K.1.1 Res Judicata ...............................................................................159

K.1.2 Analysis of the Resolution Plan of Ebix ......................................167

K.1.3 Duties of the RP..........................................................................175

K.2 The Kundan Care Appeal..................................................................179

K.3 The Seroco Appeal ...........................................................................183

L Conclusion...............................................................................................185

Glossary

Defined Term Definition

2013 Act Companies Act 2013

A-CoC Committee of Creditors of Astonfield Renewables

Private Limited

Adjudicating Authority National Company Law Tribunal

Amtek Auto

Committee of Creditors AMTEK Auto Limited Through

Corporation Bank v. Dinkar T Venkatasubramanian &

Ors.

Appellate Authority National Company Law Appellate Tribunal

Approval Appeal Company Appeal (AT) (Insolvency) No 587 of 2020 -

filed by E-CoC before NCLAT

Approval Application CA No 195 (PB) of 2018 - filed by E-RP before NCLT

A-RP Resolution Professional for Astonfield Renewables

Private Limited

Arya Filaments Arya Filaments Private Limited

Arya-CoC Committee of Creditors of Arya Filaments Private

Limited

Arya-RP Resolution Professional for Arya Filaments Private

Limited

Astonfield Astonfield Renewables Private Limited

Axis Axis Bank Limited

Axis Application IA No 448 (PB) of 2018 - filed by Axis before NCLT

BLRC Bankruptcy Law Reforms Committee

BLRC Report Report of the Bankruptcy Law Reforms Committee,

2015

BSE Bombay Stock Exchange

CBI Central Bureau of Investigation

CIRP Corporate Insolvency Resolution Proceedings

CIRP Regulations IBBI (Insolvency Resolution Process for Corporate

Persons) Regulations, 2016

Contract Act Indian Contract Act 1872

CSEB

Chhattisgarh State Electricity Board Gratuity and

Pension Trust and Chhattisgarh State Electricity Board

Provident Fund Trust

CSEB Application CA No 160 (PB) of 2018 - filed by E-RP before NCLT

Ebix Ebix Singapore Private Limited

Ebix Appeal Civil Appeal No 3224 of 2020

E-CoC Committee of Creditors of Educomp Solutions Limited

Educomp Educomp Solutions Limited

EMD Earnest Money Deposit

EOI Expression of Interest

E-RP Resolution Professional for Educomp Solutions Limited

Essar Steel CoC of Essar Steel India Ltd. v. Satish Kumar Gupta &

Ors.

EXIM Bank Export Import Bank of India

First Withdrawal

Application

CA 1252 (PB) of 2019 in CP (IB) No 101 (PB) of 2017 -

filed by Ebix before NCLT

Ghanshyam Mishra &

Sons

Ghanashyam Mishra and Sons Private Limited through

the Authorized Signatory v. Edelweiss Asset

Reconstruction Company Limited through the Director

& Ors.

Gujarat Urja Gujarat Urja Vikas Nigam Limited v. Amit Gupta & Ors.

GUVNL Gujarat Urja Vikas Nigam Limited

GUVNL Appeal Civil Appeal No 9241 of 2019 - filed by GUVNL before

Supreme Court

IBC Insolvency and Bankruptcy Code, 2016

IBBI Insolvency and Bankruptcy Board of India

IFC International Finance Corporation

IFC Application CA No 358 of 2018 - filed by IFC before NCLT

IM Information Memorandum

Investigation Audit

Application CA No 793 (PB) of 2018 - filed by E-RP before NCLT

IRP Interim Resolution Professional

Jaypee Jaypee Kensington Boulevard Apartments Welfare

Association & Ors. v. NBCC (India) Ltd. & Ors.

K Sashidhar K Sashidhar v. IOC

Kotak Kotak Mahindra Bank

Kundan Care Kundan Care Products Limited

Kundan Care Appeal Civil Appeal No 3560 of 2020

LOI Letter of Intent

Maharashtra Seamless Maharashtra Seamless v. Padmanabhan Venkatesh

and Ors

MCA Ministry of Corporate Affairs

MSME Micro, Small and Medium Enterprise

NCLAT National Company Law Appellate Tribunal

NCLT National Company Law Tribunal

NSE National Stock Exchange

PBG Performance Bank Guarantee

PFCL Power Finance Corporation Limited

PPA Power Purchase Agreement

Recovery of Debts Act Recovery of Debts Due to Banks and Financial

Institutions Act 1993

RFRP Request For Resolution Plan

Rhino Re Rhino Enterprises Properties Ltd. Schofield v Smith

RP Resolution Professional

SARFAESI Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act 2002

SBI State Bank of India

SBI Application CA No 639 (PB) of 2018 - filed by SBI before NCLT

Second Withdrawal

Application

CA 1310 (PB) of 2019 in CP (IB) No 101 (PB) of 2017 -

filed by Ebix before NCLT

Seroco Seroco Lighting Industries Private Limited

Seroco Appeal Civil Appeal No 295 of 2021

SFIO Serious Frauds Investigation Office

SICA Sick Industrial Companies Act 1985

Singapore Act Companies (Amendment) Act 2017

Swiss Ribbons Swiss Ribbons (P) Ltd v. Union of India

Third Withdrawal

Application

CA No 1816 (PB) of 2019 in CP (IB) No 101 (PB) of

2017 - filed by Ebix before NCLT

UBIL Union Bank of India Limited

UK Act UK Insolvency Act 1986

UNCITRAL Guide UNCITRAL Legislative Guide on Insolvency Laws

Uttara Foods Uttara Foods and Feeds (P) Ltd v. Mona Pharmachem

Withdrawal Appeal Company Appeal (AT) (Insolvency) No 203 of 2020 -

filed by E-CoC before NCLAT

PART A

A Civil Appeal No 3224 of 2020 – the Ebix Appeal

A.1 The appeal

1 This judgment arises out of an appeal from a judgment dated 29 July 2020

of the NCLAT. The NCLAT allowed the Withdrawal Appeal1 instituted by the first

respondent, E-CoC, under Section 61 of the IBC against a judgment dated 2

January 2020 of the NCLT at its Principal Bench in New Delhi.

2 The NCLT allowed the Third Withdrawal Application2 filed by Ebix under

Section 60(5) of the IBC to withdraw its Resolution Plan submitted for Educomp.

While reversing that order, the NCLAT held that the application to withdraw from

the Resolution Plan could not have been allowed since: (i) it was barred by res

judicata; and (ii) the NCLT does not have jurisdiction to permit such a withdrawal.

The correctness of the view of the NCLAT comes up for determination in the

present appeal.

A.2 Initiation of CIRP

3 On 5 May 2017, Educomp filed a petition3 under Section 10 of the IBC

seeking to initiate voluntary CIRP. The NCLT admitted this petition on 30 May

2017, and appointed an IRP. Hence, 30 May 2017 would be taken as the

‘Insolvency Commencement Date’ for the purposes of Section 5(12) of the IBC.

1 Company Appeal (AT) (Insolvency) No 203 of 2020 2 CA No 1816 (PB) of 2019 in CP (IB) No 101 (PB) of 2017 3 CP (IB) No 101 (PB) of 2017

PART A

4 E-CoC was then constituted on 28 June 2017, following which it appointed

Mr Mahender Kumar Khandelwal as the RP for Educomp on 27 July 2017. This

was confirmed by the NCLT on 12 September 2017. On 18 September 2017, the

E-RP took over information, documents, reports and records pertaining to

Educomp from the IRP.

5 On an application4 of the E-RP, the NCLT by its order dated 13 November

2017 extended the period of the CIRP by 90 days, beginning from 26 November

2017 till 24 February 2018.

A.3 Invitation, submission and approval of Resolution Plan

6 In terms of Section 25(2)(h) of the IBC, the E-RP invited EOI on 18

October 2017 from prospective bidders, investors and lenders.

7 On 10 November 2017, the last date for submission of EOIs was extended

to 17 November 2017. Commencing from 5 December 2017, the E-RP provided

access to the Virtual Data Room of Educomp to prospective Resolution

Applicants who had submitted a confidentiality undertaking and made an upfront

payment of Rs 5,00,000.

8 On 5 December 2017, the final RFRP was issued in accordance with

Section 25(2)(h) of the IBC. The last date for submission of the Resolution Plans

was 8 January 2018. The RFRP was amended on 17 January 2018 and 20

January 2018 to extend the last date for submission to 20 January 2018. On 25

4 CA No 405(PB) of 2017

PART A

January 20185

, the NCLT again extended the last date for submission of the

Resolution Plans until 27 January 2018.

9 By the last date for submission, Resolutions Plans were received by the ERP from Ebix and another entity. These were shared with the E-CoC on 29

January 2018. Following this, both the Applicants were invited to give their

presentations to the E-CoC on 2 February 2018.

10 Ebix was declared as the successful Resolution Applicant by the E-CoC on

9 February 2018. Ebix had discussions about its Resolution Plan with the E-CoC,

and submitted a revised Resolution Plan on 19 February 2018, with an

addendum on 21 February 2018.

11 Upon the directions of the E-RP, the E-CoC commenced e-voting on the

Ebix’s Resolution Plan at 7.00 pm on 21 February 2018. The voting lines were

kept open till 7.00 pm on 22 February 2018. According to the results of the evoting, in terms of the voting share percentage: (i) 74.16 per cent members of the

E-CoC voted to approve the Resolution Plan; (ii) 17.29 per cent members voted

to reject the Resolution Plan; and (iii) the remaining members, having

cumulatively 8.55 per cent share, abstained from voting on the Resolution Plan.

The Resolution Plan thus failed to achieve the minimum percentage of 75 per

cent, in accordance with Section 30(4) of the IBC (as it stood then).

12 A day later on 23 February 2018, one of the members of the E-CoC

(CSEB) informed the E-RP by an email that due to a technical error, they could

not participate in the e-voting process. CSEB had a voting share of 1.195 per

5 In applications CA No 30 of 2018 and CA No 42 of 2018

PART A

cent in the E-CoC, and wanted its affirmative vote to be recorded on the

Resolution Plan. CSEB’s vote would enhance the voting share in favour of Ebix’s

resolution plan to 75.35 per cent, thus meeting the threshold under Section 30(4).

13 The E-RP filed the CSEB Application6 under Section 60(5) to seek the

directions of the NCLT in regard to CSEB’s late vote. NCLT by its order dated 28

February 2018, directed the E-RP to file an application for approval of Ebix’s

Resolution Plan under Section 30(6) of the IBC, clarifying that the issue of

CSEB’s vote would be taken up together with the application. On 7 March 2018,

the E-RP filed the Approval Application7 seeking NCLT’s approval to Ebix’s

Resolution Plan under Section 30(6).

14 On 2 July 2018, Ebix issued a letter to the E-RP to expedite the CIRP for

Educomp. The relevant portions of the letter are extracted below:

“…we would like to submit that the resolution plan for the

Company was submitted with an expectation that the

resolution process shall be completed in a time bound

manner, and the Resolution Applicant shall get the

management control of the Company before the start of new

academic session in India i.e. April 2018, subject to being

selected as the successful applicant (as per the terms and

conditions provided in the resolution plan), and the approval

of the plan by the NCLT. This would have provided the

Resolution Applicant with sufficient time to restructure the

operations of the Company.

As you are aware, the operations of the Company are already

under stress and it would be safe to assume that no new

contracts / customers are coming up. Further, the competitors

of the Company may be trying to take undue advantage of the

situation, which may further erode the business value of the

Company and may make the revival process more difficult.

6 CA No 160 (PB) of 2018 7 CA No 195 (PB) of 2018

PART A

The above negatively impacts the commercial consideration

provided by the Resolution Applicant in the resolution plan

submitted for the Company.

As per the clause 7 of the Resolution Plan dated February 19,

2018 submitted by the Resolution Applicant, the terms of the

resolution plan is valid for six months from the date of the

submission of the plan i.e. August 19th, 2018.

In light the above and fact that delay in completion of the

resolution process is negatively impacting the commercial

consideration offered by the Resolution Applicant in the

resolution plan, we request you to ensure that the resolution

process is completed in a time bound manner. Otherwise, the

Resolution Applicant will be forced to re- consider or withdraw

the resolution plan on expiry of the term of the plan in order to

protect the interest of all its stakeholders.”

A.4 Investigations into financial transactions of Educomp

15 On 3 April 2018, an Indian online news publication, The Wire, published an

article titled “How Educomp May Have Subverted the Spirit of India’s Insolvency

and Bankruptcy Process”

. Another article titled “Educomp’s Insolvency Process

Becomes Murkier as Ebix Buys Smartclass Educational Services” was published

by The Wire on 26 April 20189

16 The E-RP has stated before this Court that based on these reports, IFC, a

financial creditor of Educomp, filed the IFC Application10 under Section 60(5) of

the IBC seeking investigation of the affairs/transactions of Educomp. On 4 May

2018, when the IFC Application came up before the NCLT, along with the CSEB

8 Manoj Gairola, “How Educomp May Have Subverted the Spirit of India’s Insolvency and Bankruptcy Process”

(The Wire, 3 April 2018) available at <https://thewire.in/business/how-educomp-may-have-subverted-the-spirit-ofindias-insolvency-and-bankruptcy-process> accessed on 26 July 2021 9 Manoj Gairola, “Educomp’s Insolvency Process Becomes Murkier as Ebix Buys Smartclass Educational

Services” (The Wire, 26 April 2018) available at <https://thewire.in/business/educomps-insolvency-processbecomes-murkier-as-ebix-buys-smartclass-educational-services> accessed on 26 July 2021 10 CA No 358 of 2018

PART A

Application and the Approval Application, it directed the E-RP to file its reply and

also directed IFC to serve a notice on Ebix.

17 Similar applications- Axis Application11 and SBI Application12, under

Section 60(5) of the IBC read with Section 213 of the 2013 Act were filed by other

financial creditors of Educomp, Axis Bank and SBI, seeking ‘appropriate

directions’ from the NCLT in view of the alleged irregularities in the conduct of the

affairs of Educomp.

18 In the meantime, on 1 August 2018, due to allegations of financial

mismanagement of Educomp between 2014-2018, the MCA directed an SFIO

investigation13 into its affairs.

19 The NCLT, by its order dated 9 August 2018, dismissed the applications

filed by IFC, Axis and SBI and directed that: (i) the E-RP shall convene a meeting

of the E-CoC within three days to discuss the subject matter of the applications;

and (ii) the E-RP and E-CoC could move an application before NCLT according

to law, if advised to do so by E-CoC.

20 Pursuant to NCLT’s order dated 9 August 2018, the E-CoC hosted its 13th

meeting on 13 August 2018, and a resolution was passed with a 77.85 per cent

vote to appoint an independent agency to conduct a Special Investigation Audit

into the affairs of Educomp. The relevant terms of the resolution are as follows:

“RESOLVED THAT a special investigation audit on the affairs

of the Company be conducted by an independent agency,

which shall be appointed by the Committee of Creditors, for

11 IA No 448 (PB) of 2018 12 CA No 639 (PB) of 2018 13 Order No 32/2018/SFIO/CL-II

PART A

period beginning from [1st January 2014] to [30th January

2018] having following scope of work:

(i) All the matters/issues (approximate 21 in number) raised in

the Annual Audit Report of the Company for the Financial

Year 2016-17 issued by Haribhakti & Co, basis which adverse

opinion has been issued;

(ii) Transactions involving alleged deliberate transfer of

business between the Company and SmartClass Educational

Services Private Limited (“SESPL”) prior to the

commencement of the insolvency process of the Company;

(iii) Transactions regarding genuineness of receivables from

Edusmart Services Private Limited including cross-verification

with payables to Educomp Solutions Limited in the books of

Edusmart Services Private Limited;

(iv) Transactions involving settlement between the Company,

Educomp Learning Hour Private Limited, Vidya Mandir

Classes Limited and ICICI Bank Limited;

(v) Transactions relating to impairment with respect to

investment made by the Company in 4 of its subsidiaries;

(vi) Transaction relating to advance received by the Company

from Educomp Raffles Higher Education Limited;

(vii) Distribution agreement with Digital Learning Solution

SDN BHD;

(viii) Transactions referred to in the applications filed by

International Finance Corporation, Axis Bank Limited and

State Bank of India with the Hon’ble National Company Law

Tribunal; and

(ix) Review of provisions against receivables done by

Educomp Solutions Limited;

(x) All other transactions/points raised in the applications filed

by Axis Bank, IFC and SBI with Hon’ble NCLT;

(xi) Any other issue, which the Committee of Creditors may

deem fit

RESOLVED FURTHER THAT the Resolution Professional,

be and is hereby authorized by the Committee of Creditors

and directed to file appropriate application/petition with the

Hon’ble National Company Law Tribunal, inter alia, seeking

consent/order of the Hon’ble NCLT on the proposed special

investigation audit to be conducted by the independent

agency.

PART A

RESOLVED FURTHER THAT given the limitations inherent

in the previous audits conducted on the Company, and in

order for the said investigation to be comprehensive, the

Resolution Professional, while filing such application/ petition,

shall also, as an additional prayer, seek consent/ order of the

Hon’ble NCLT that SESPL, other group companies of the

Company and the erstwhile customers of the Company, be

directed to cooperate with the independent agency so

appointed, or in the alternative, to refer the matter to the

Central Government to appoint an Inspector under the

Companies Act, 2013 to conduct said investigation.

RESOLVED FURTHER THAT the entire cost of the proposed

investigation (special investigation audit), shall be included in

CIRP Cost and accordingly be paid in terms of the provisions

of the Insolvency and Bankruptcy Code, 2016 and the

relevant Regulations.

RESOLVED FURTHER THAT, the independent agency to

conduct the special investigation audit, shall be appointed by

the Core Committee, comprising of SBI, IDBI Bank, Axis

Bank, IFC, Yes Bank and J&K Bank”

21 The resolution was placed before the NCLT on 20 August 2018, when it

was hearing the CSEB Application and the Approval Application. The NCLT

directed the E-RP to file an appropriate application. In accordance with the

resolution dated 13 August 2018 and NCLT’s order dated 20 August 2018, the ERP filed the Investigation Audit Application14 under Section 60(5) of the IBC

seeking directions from NCLT to carry out the Special Investigation Audit of

Educomp.

22 It is stated before us that the Investigation Audit Application was heard on

11 September 2018, 20 September 2018, 27 September 2018 and 4 October

2018. On 4 October 2018, while reserving its order in the Investigation Audit

Application, the NCLT also directed the E-RP to file an affidavit in relation to the

14 CA No 793 (PB) of 2018

PART A

transactions carried out by Educomp under Sections 43, 45, 50 and 66 of the

IBC.

23 The E-RP states that such an affidavit was filed, stating that on the basis of

the books of account and other relevant material pertaining to Educomp, no

transactions which needed to be avoided under Sections 43, 45, 50 and 66 of the

IBC were found. The E-RP also stated that since the NLCT had not issued

specific directions for the conduct of a Special Investigation Audit, no such audit

was conducted.

24 This affidavit was listed before the NCLT on 7 December 2018, along with

the Approval Application. On 10 January 2019, the NCLT reserved its orders on

the Approval Application.

25 On 12 June 2019, Educomp made a regulatory disclosure to the BSE and

NSE in relation to the ongoing investigations being conducted by agencies such

as SFIO and CBI. The material parts of the disclosure read thus:

“This is with reference to your mail dated June 10, 2019,

related to news appeared in the "Business Standard"

captioned "Transactions of debt-ridden Educomp Solutions

come under SFIO scanner".

[…]

3. It is pertinent to note that BDO India LLP carried out

transaction audit in order to ascertain if there was any

preferential, undervalued, extortionate or fraudulent

transactions falling within the ambit of Section 43, 45, 50 and

66 of the Code. The Transaction review report was prepared

by BDO India LLP in February 2018 which was further

circulated and discussed with the CoC. On examination of the

BDO Report and other relevant material available with the

Resolution Professional during the CIRP period, no

transaction was found by the Resolution Professional which

was required to be avoided in terms of the said Sections.

Further, the two land transactions as alleged in the Media

PART A

Report have not been reported by BDO in their Report and

hence, the Resolution Professional is not in a position to

comment on the same.

As regards allegation in the Media Report that "Suspect

transactions of debt-ridden Educomp Solutions have come

under the lens of Serious Fraud Investigation (SFIO), which is

probing the company for alleged fund-diversion and inflated

land deals, we would like to clarify that SFIO Investigation into

the affairs of Educomp Solutions Limited is currently ongoing

wherein the Resolution Professional has been supplying the

data/ information/ documents to them as and when required

however, no such information has been brought to the notice

of the Resolution Professional as yet. Moreover, the article

appears to be based on a false, motivated, fabricated data.”

A.5 Applications for withdrawal of the Resolution Plan

26 On 5 July 2019, Ebix filed the First Withdrawal Application15 under Section

60(5) of the IBC, for the following reliefs:

“i. Direct that the Ld. Resolution Professional supply a copy of

the Special Investigation Audit to the Resolution Applicant

forthwith;

ii. Direct that the Ld. Resolution Professional supply a copy of

the Certificates under Sections 43, 45, SO and 66 of the

Insolvency and Bankruptcy Code, 2016 to the Resolution

Professional forthwith;

iii. Withhold approval of the Resolution Plan sanctioned by the

Committee of Creditors of the Corporate Debtor, as filed

before this Hon'ble Tribunal on 11.04.2018, pending detailed

consideration of the same by the Resolution Applicant;

iv. Grant the Resolution Applicant sufficient time to reevaluate its proposals contained in the Resolution Plan,

and also to suitably revise/modify and/or withdraw its

Resolution Plan;”

(emphasis supplied)

15 CA 1252 (PB) of 2019 in CP (IB) No 101 (PB) of 2017

PART A

Ebix contends that the application was necessitated because: (i) the Approval

Application had been pending before the NCLT for 17 months, much beyond the

period envisaged in the RFRP and its Resolution Plan; (ii) Educomp’s CIRP had

been pending for 26 months, beyond the statutory period under the IBC; (iii) the

tenure of the government contracts awarded to Educomp, which was crucial to its

functioning, may have ended, leading to an erosion of its substratum; and (iv) due

to recent media reports, it had misgivings about the management and affairs of

Educomp.

27 On 10 July 2019, the NCLT dismissed the First Withdrawal Application with

the following order:

“C.A. No. 1252(PB)/2019

This is an application filed by one Ebix Singapore Ptd. Limited

seeking re-valuation of the Resolution Plan submitted by it

before the Resolution Professional.

No ground for considering the prayer sought in the application

is made out.

The application is dismissed as such.”

28 Thereafter, Ebix filed the Second Withdrawal Application16 under Section

60(5) of the IBC, seeking the following reliefs:

“i. Allow the Resolution Applicant to withdraw the Resolution

Plan dated 19.02.2018 (along with the Addendum/Financial

Proposal dated 21.02.2019) submitted by it, and as approved

by the Committee of Creditors;

ii. Direct the Ld. Resolution Professional and/or Educomp

Solutions Limited and the Committee of Creditors to refund

the Earnest Money Deposit of Rs. 2,00,00,000/- furnished by

the Resolution Applicant in respect of the Resolution Plan;

16 CA 1310 (PB) of 2019 in CP (IB) No 101 (PB) of 2017

PART A

iii. Withhold approval of the Resolution Plan sanctioned by the

Committee of Creditors of the Corporate Debtor, as filed

before this Hon'ble Tribunal on 07.03.2018 and recorded vide

order dated 1.1.04.2018, pending detailed consideration of

the same by the Resolution Applicant;”

While repeating the reasons mentioned in the First Withdrawal Application, it

provided a reason for filing the Second Withdrawal Application in the following

terms:

“xii. That the present Applicant had also filed an Application

dated 05.07.2019 bearing PB/IA/1252/2019 under Section

60(5) of the Code, seeking revision/revaluation of the

Resolution Plan. However, the same was dismissed by this

Hon'ble Tribunal, and during the course of hearing in the said

Application, this Hon'ble Court put it to the Resolution

Applicant to withdraw the Resolution Plan by way of a

separate Application. The present Application for withdrawal

of the Resolution Plan is being made in pursuance of the

same.”

29 On 5 September 2019, the NCLT dismissed the Second Withdrawal

Application with the following order:

“C.A. No. 1310(PB)/2019

In para 'B (xii)' under the caption 'facts of the case', the

following averments have been made

[…]

The italic portion of the aforesaid para shows that the prayer

for withdrawal of the Resolution Plan has been made inter

alia on the suggestion of the Court which is neither reflected

in the order nor is born out from any record. Such an

averments imputing to the Court something which has never

been said is condemnable. The cause of action cannot be

based on any such things.

Accordingly, we dismiss this application with liberty to the

applicant to file fresh one on the same cause of action, if so

advised.”

PART A

30 Thereafter, Ebix filed the Third Withdrawal Application, seeking the

following reliefs:

“i. Allow the Resolution Applicant to withdraw the Resolution

Plan dated 19.02.2018 (along with the Addendum/Financial

Proposal dated 21.02.2019) submitted by it, and as approved

by the Committee of Creditors;

ii. Direct the Ld. Resolution Professional and/or Educomp

Solutions Limited and the Committee of Creditors to refund

the Earnest Money Deposit of Rs. 2,00,00,000/- furnished by

the Resolution Applicant in respect of the Resolution Plan;

iii. Withhold approval of the Resolution Plan sanctioned by the

Committee of Creditors of the Corporate Debtor, as filed

before this Hon'ble Tribunal on 07.03.2018 and recorded vid

order dated 11.04.2018, pending detailed consideration of the

same by the Resolution Applicant;”

The earlier applications for withdrawal were referred to:

“xiv. It may be noted that, the present Applicant had also filed

an Application dated 05.07.2019 bearing PB/IA/1252/2019

under Section 60(5) of the Code, seeking revision/revaluation

and/or withdrawal of the Resolution Plan. The said application

was dismissed by this Hon'ble Tribunal on the basis that

modification/revaluation of the Resolution Plan could not be

permitted. The Applicant thereafter filed an Application

bearing PB/IA/1310/2019 seeking withdrawal of the

Resolution Plan simpliciter, which was dismissed by the

Hon'ble Tribunal vide order dated 07.09.2019, while granting

liberty to file a fresh application seeking withdrawal of the

Resolution Plan.”

The reasons for withdrawal were the same as those in the previous applications

for withdrawal.

31 On 18 September 2019, the NCLT issued notice in the Third Withdrawal

Application and directed the E-RP to place it before the E-CoC. The E-RP placed

PART A

the application before the E-CoC at the 14th meeting on 26 September 2019. The

E-CoC resolved not to allow the application for withdrawal.

A.6 Orders of NCLT and NCLAT

32 By its order dated 2 January 2020, NCLT allowed the Third Withdrawal

Application. The NCLT held that the application for withdrawal was not barred by

res judicata since in the previous proceeding relating to the First Withdrawal

Application, it had not consciously adjudicated on whether the Resolution Plan

could be withdrawn. The rationale for the order is indicated in the following

extract:

“11. No doubt there was a prayer for withdrawal of resolution

plan amongst others in CA No.1252 (PB)/2019, the prayer for

revaluation was specifically declined dismissal order dated

10.07.2019. While dismissing CA No.1252(PB)/2019 the

prayer for withdrawal of resolution plan was neither

considered nor was ever dealt with. The issue of

withdrawal of the resolution plan by the Applicant has

never been considered consciously on merit and/or

adjudicated upon in CA No.1252(PB)/2019.

12. Doctrine of Constructive Res Judicata does not apply

to the issues/points, or any "lis' between parties that has

not been decided previously, and despite being pleaded,

has not been considered by a court/tribunal and

expressly dealt with in the order so passed.

13. Even a bare perusal of the Order dated 10.07.2019 would

indicate that the issue of withdrawal of the Resolution Plan by

the Resolution Applicant was not dealt with on merit and that

no decision has either been passed or attained finality as

regards allowing the party to withdraw the Resolution Plan.

14. It is also pertinent to note here that the Resolution

Applicant had subsequently taken up the prayer for

withdrawal of the Resolution Plan in the Application bearing

CA No.1310 (PB)/2019. While dealing with the said

Application, liberty was given to the Applicant vide order

PART A

dated 01.09.2019 to re-file an application for withdrawal

of the Resolution Plan. This direction further confirms

that there was no conscious adjudication in CA

No.1252(PB)/2019 on the issue of withdrawal of the

resolution plan by the Applicant.”

(emphasis supplied)

The NCLT held that: (i) a Resolution Plan becomes binding after it is approved by

it as the Adjudicating Authority; (ii) under Section 30(2) of the IBC, the

Adjudicating Authority has the power to examine whether the Resolution Plan can

be effectively enforced and implemented; and (iii) in the ‘present circumstances’,

an unwilling successful Resolution Applicant would be unable to effectively

implement the Resolution Plan. The relevant parts of the order are extracted

below:

“20. In the instant case the Resolution Plan is still pending

before the Adjudicating Authority for approval. Under the

provisions of Section 31 of the Code, a Resolution Plan

becomes binding only after acceptance of a plan by the

Adjudicating Authority.

[…]

23. Section 30(2)(d) of the Code mandates the Adjudicating

Authority to ensure that there are effective means of

enforcement and implementation of the Resolution Plan.

Similarly, the proviso to sub-section (1) of Section 31 of the

Code mandates Adjudicating Authority to ensure effective

implementation of the resolution plan. The object. in approval

of the resolution plan is to save the corporate debtor and to

put it back on its feet. An unwilling and reluctant resolution

applicant, who has withdrawn his resolution plan, neither

can put the corporate debtor back to its feet nor the

effective implementation of its resolution plan can be

ensured.

24. No doubt the withdrawal of the resolution plan at this

advance stage has caused great prejudice to the

creditors/stake holders and legal consequences on the

withdrawal of the resolution plan shall follow as per law. The

Resolution Professional and CoC are free to take action as

PART A

per law consequent upon withdrawal of the resolution plan by

the resolution applicant including on the issue of refund of the

earnest money deposited by the applicant.

25. Be that as it may compelling an unwilling and

reluctant resolution applicant to implement the plan may

lead to uncertainty. The object of the Code is to ensure that

the Corporate Debtor keep working as a going concern and to

safeguard the interest of all the stake holders. The provisions

of the Code mandate the Adjudicating Authority to ensure that

the successful resolution applicant starts running the

business of the Corporate Debtor afresh. Besides Court ought

not restrict a litigant's fundamental right to carry on business

in its way under Article 19(1)(g) of the Constitution. Once the

applicant is unwilling and reluctant and itself has chosen

to withdraw its resolution plan, a doubt arises as to

whether the resolution applicant has the capability to

implement the said plan. Uncertainty in the

implementation of the resolution plan cannot also be

ruled out.”

(emphasis supplied)

The NCLT also directed that Educomp’s CIRP be extended by a period of 90

days, commencing from 16 November 2019.

33 As a consequence of its order allowing the Third Withdrawal Application,

the NCLT also dismissed the Approval Application on 3 January 2020 as being

infructuous.

34 E-CoC filed the Withdrawal Appeal assailing NCLT’s order dated 2

January 2020. On 3 February 2020, the NCLAT stayed the order dated 2 January

2020. The Approval Appeal17 was also filed by the E-CoC under Section 61 of the

IBC, assailing NCLT’s order dated 3 January 2020.

17 Company Appeal (AT) (Insolvency) No 587 of 2020

PART A

35 By its order dated 29 July 2020, NCLAT set aside the order of the NCLT

allowing the withdrawal of the resolution plan. On the issue of res judicata, the

NCLAT held that there being no appeal against the order of the Adjudicating

Authority rejecting the First Withdrawal Application, the issue had attained finality.

The NCLAT held:

“82…in view of the dismissal of said CA 1252(PB)/2019 by

the Adjudicating Authority and the said order which had

attained finality and more so in the absence of any 'Appeal'

being filed against the said order, then the dismissal order of

CA 1252 of 2019 order dated 10.7.2019 binds the 1st

Respondent/'Resolution Applicant' as an 'Inter-se' party.

[…]

84.…the Adjudicating Authority in the particular

circumstances of the present case has no power to grant

/reserve liberty to bring a fresh application and hence, the

subsequent application filed by the 1st Respondent

/'Resolution Applicant is barred by the principle of 'Res

Judicata' notwithstanding the liberty to file fresh one.”

On the merits of the application for withdrawal, the NCLAT held that: (i) once the

Resolution Plan was approved by the CoC, the NCLT did not have jurisdiction to

permit its withdrawal; (ii) the Adjudicating Authority could not enter upon the

wisdom of the decision of the CoC to approve the Resolution Plan; (iii) the

Resolution Applicant had accepted the conditions of the Resolution Plan and no

change could be permitted; (iv) orders have already been reserved in the

Approval Application; (v) no Special Investigation Audit had been conducted; (vi)

Section 32A of the IBC grants full immunity to the Resolution Applicant from any

offences committed before the commencement of the CIRP; and (vii) Ebix had

participated in the process from August 2018 to January 2019 when orders had

been reserved on the Approval Application, and hence it could not claim any right

based on delay.

PART A

A.7 Present status of SFIO and CBI investigation

36 In an email dated 17 February 2020, the E-RP informed the E-CoC that the

CBI conducted a search of the premises of Educomp on 11 February 2020 and

seized numerous documents (a list was enclosed with the email). By another

email dated 19 February 2020, the E-RP informed the E-CoC that CBI had

resumed its search for documents at Educomp’s office.

37 In the 16th meeting of the E-CoC on 30 March 2020, the E-RP provided the

following updates in relation to the CBI and SFIO investigations:

(i) The CBI search at the premises of Educomp on 11 February 2020, was

conducted upon a complaint by SBI on behalf of a consortium of banks;

(ii) Since the initiation of an enquiry by the MCA on 1 August 2018, the SFIO

has requisitioned documents/information, which have been provided;

(iii)The last communication from the SFIO was received on 27 February 2020;

and

(iv)In response to the grievance of some members of the E-CoC that the ERP had only informed them of the investigations at a belatedly, the

Chairperson of the E-CoC justified it by stating that the communication

could only take place once the relevant investigation was completed.

However, for future references, the Chairperson took note of the

suggestion that the E-RP would add all members of the E-CoC to a

WhatsApp group, where real-time updates could be shared.

PART B

At the meeting, the E-CoC also passed a resolution with 77.05 per cent majority

vote directing the E-RP to invoke and forfeit the EMD of Rs 2 crores furnished by

Ebix in accordance with Clause 1.9.1 of RFRP. The E-RP issued a letter to IDBI

on 1 April 2020 for encashment of the EMD.

38 In the 17th meeting of the E-CoC on 8 May 2020, the E-RP provided further

updates in relation to the CBI and SFIO investigations, noting that they were still

ongoing and no further action was required to be taken.

39 The E-RP has informed this Court that the last communication received

from the SFIO was on 4 September 2020. The investigations by the CBI and

SFIO are continuing.

B Civil Appeal No 3560 of 2020 – the Kundan Care Appeal

B.1 The appeal

40 This appeal arises under Section 62 of the IBC from a judgment dated 30

September 2020 of the NCLAT. The NCLAT dismissed an appeal18 instituted by

the appellant, Kundan Care, under Section 61 of the IBC against an order dated

3 July 2020 of the NCLT.

41 The NCLT had dismissed an application19 filed by Kundan Care under

Section 60(5) of the IBC to withdraw its Resolution Plan submitted for the fourth

respondent – Corporate Debtor, Astonfield. In appeal, the NCLAT upheld the

NCLT’s decision, relying on its judgment impugned in the Ebix Appeal. It held that

18 Company Appeal (AT) (Insolvency) No 653 of 2020 19 IA No 1679 of 2019 in CP No (IB)-940 (ND) of 2018

PART B

an application filed by a Resolution Applicant to withdraw from the Resolution

Plan approved by the CoC could not be allowed since: (i) there was no provision

in the IBC for it; (ii) the Resolution Plan is enforceable as a contract against the

Resolution Applicant; and (iii) the Resolution Applicant was estopped from

withdrawing.

42 The correctness of this view of the NCLAT now comes up for

determination in the present appeal. While issuing notice on 16 November 2020,

this Court had directed for an ad-interim stay on the judgment of the NCLAT,

which continues till date.

B.2 Initiation of CIRP

43 On 20 November 2018, Astonfield filed a petition20 under Section 10 of the

IBC seeking to initiate voluntary CIRP. The NCLT admitted this petition on 27

November 2018 and appointed an IRP.

44 A CoC was then constituted, which consisted of the second and third

respondents, EXIM Bank and PFCL. The A-CoC appointed the first respondent,

Mr Amit Gupta, as the RP and his appointment was confirmed by the NCLT on 1

February 2019.

20 CP No (IB)-940 (ND) of 2018

PART B

B.3 Invitation, submission and approval of Resolution Plan

45 On 20 February 2019, A-RP invited prospective resolution applicants to

submit their EOIs in accordance with Regulation 36 of the CIRP Regulations and

Form G was also published. Form G was amended by the A-RP, with due

approval from the A-CoC, on 2 May 2019 and 17 May 2019.

46 A-RP received nine EOIs, out of which seven were found to be eligible.

However, Kundan Care did not submit its EOI within the time prescribed by the ARP, and its belated submission was rejected by the A-RP.

47 Thereafter, A-RP issued the RFRP on 6 March 2019 to the prospective

Resolution Applicants who had been selected. Further, the IM was issued on 13

March 2019. Based on this, two Resolution Plans were received by the A-RP on

31 May 2019, which were then discussed with the A-CoC.

48 In the interim, Kundan Care filed an application21 before the NCLT

challenging the A-RP’s rejection of its belated EOI. A-RP received the notice of

this application on 30 August 2019. By order dated 6 September 2019, the NCLT

allowed Kundan Care’s application. Thereafter, it was provided access to the

RFRP, IM and other documents pertaining to Astonfield in the data room.

49 Kundan Care submitted its Resolution Plan for consideration on 16

September 2019. The Resolution Plan was placed before the A-CoC, which

requested Kundan Care to submit a revised proposal. Kundan Care then

submitted an updated draft of its Resolution Plan on 29 October 2019.

21 CA No 1119 of 2019

PART B

50 A-RP then conducted the 17th meeting of the A-CoC on 11 November

2019, to discuss the Resolution Plans submitted by Kundan Care and one more

prospective Resolution Applicant (who had also submitted a revised Resolution

Plan after negotiations with the A-CoC). Thereafter, Kundan Care submitted a

revised version of its Resolution Plan on 12 November 2019, along with an

addendum on 13 November 2019.

51 The A-CoC voted on the Resolution Plans on 14 November 2019, where

the Resolution Plan submitted by Kundan Care was approved with a majority of

99.28 per cent, with 0.72 per cent abstaining. On 15 November 2019, the A-RP

issued a Letter of Award to Kundan Care. Kundan Care also deposited a PBG of

Rs 5 Crores with the A-RP/A-CoC.

52 A-RP then filed an application22 for approval of the Resolution Plan under

Section 31 of the IBC before the NCLT, along with Form H, as mandated under

the CIRP Regulations. This application is currently pending adjudication before

the NCLT.

B.4 Astonfield’s dispute with GUVNL

53 Before proceeding further, it is important to discuss the dispute arising out

of Astonfield’s PPA with GUVNL. The PPA was signed on 30 April 2010, came

into force in December 2012. and was valid for a period of 25 years. Crucially,

22 CA No 1526 of 2019

PART B

this PPA was the only agreement entered into by Astonfield and formed the

entirety of its business.

54 When CIRP was initiated against Astonfield, GUVNL issued a notice of

default under Article 9.2.1(e) of the PPA, stating that the initiation of insolvency

was an “event of default”. This was challenged before the NCLT by A-RP23 and

EXIM Bank24 through applications under Section 60(5) of the IBC.

55 It is important to note that Kundan Care was aware of this dispute, and

made specific references to it in its Resolution Plan. Under the heading of “PPA

Risk”, it noted:

“GUVNL had served notices to terminate the Agreement

since the Company is undergoing the process of Insolvency.

However as per the Order of the Hon'ble NCLT dated 29

August 2019 (CA) 700/ND/2019 & CA 701/ND/2019) it is

concluded that the Power Purchase Agreement (PPA) is an

"instrument" for the applicability of Section 238 of the IBC,

2016 and clauses 9.2.1 e read with 9.3.1 of the PPA under

reference are inconsistent within the ambit of Section 238

of/BC, 2016, provisions of/BC, 2016 and process initiated

under /BC shall have an overriding effect over the PPA.

Further, the Hon'ble NCLAT vide order dated 15 October

2019 has clearly stated that even in the event of Liquidation

of the Corporate Debtor the appellant, Gujarat Urja Vikas

Nigam Limited, cannot terminate the Power Purchase

Agreement under the Code. Also, the Liquidator shall ensure

that the Corporate Debtor remains a going concern. It is

therefore very evident and clear that the Power Purchase

Agreement cannot be terminated and has to continue even

after the Resolution Plan has been approved by the Hon'ble

NCLT.”

23 CA No 700 of 2019 24 CA No 701 of 2019

PART B

56 On 29 August 2019, the NCLT allowed the applications and set aside the

notice of default issued by GUVNL. It held that allowing the termination of the

PPA would adversely affect the ‘going concern’ status of Astonfield. However, it

held that if Astonfield was to undergo liquidation subsequently, the termination

would be permitted.

57 The NCLT’s judgment was challenged by GUVNL in an appeal25 before the

NCLAT. By judgment dated 15 October 2019, the NCLAT dismissed the appeal

and partly upheld the decision of the NCLT, in as much as it disallowed the

termination of the PPA during the CIRP. However, it reversed the NCLT’s

findings and held that even if Astonfield were to undergo liquidation, the

termination of the PPA would not be allowed.

58 GUVNL challenged NCLAT’s judgment in the GUVNL Appeal26 before this

Court. When the present appeal was filed by Kundan Care, the GUVNL Appeal

was pending before this Court. However, it has been disposed by a judgment

dated 8 March 2021, in the following terms:

“165 Given that the terms used in Section 60(5)(c) are of wide

import, as recognized in a consistent line of authority, we hold

that the NCLT was empowered to restrain the appellant from

terminating the PPA. However, our decision is premised upon

a recognition of the centrality of the PPA in the present case

to the success of the CIRP, in the factual matrix of this case,

since it is the sole contract for the sale of electricity which was

entered into by the Corporate Debtor. In doing so, we

reiterate that the NCLT would have been empowered to set

aside the termination of the PPA in this case because the

termination took place solely on the ground of insolvency. The

jurisdiction of the NCLT under Section 60(5)(c) of the IBC

cannot be invoked in matters where a termination may take

25 Company Appeal (AT) Insolvency No 1045 of 2019 26 Civil Appeal No 9241 of 2019

PART B

place on grounds unrelated to the insolvency of the corporate

debtor. Even more crucially, it cannot even be invoked in the

event of a legitimate termination of a contract based on an

ipso facto clause like Article 9.2.1(e) herein, if such

termination will not have the effect of making certain the

death of the corporate debtor. As such, in all future cases,

NCLT would have to be wary of setting aside valid contractual

terminations which would merely dilute the value of the

corporate debtor, and not push it to its corporate death by

virtue of it being the corporate debtor‘s sole contract (as was

the case in this matter‘s unique factual matrix).”

Hence, this Court held that GUVNL would not be allowed to terminate its PPA

with Astonfield since: (i) the termination was solely on account of Astonfield

entering into insolvency proceedings; and (ii) being its sole contract, the PPA’s

termination would necessarily result in the corporate death of Astonfield, which

would derail the entire CIRP.

B.5 Withdrawal of the Resolution Plan

59 On 17 December 2019, Kundan Care filed an application under Section

60(5) of the IBC seeking permission of the NCLT to withdraw its Resolution Plan,

which had been previously approved by the A-CoC and was pending confirmation

by the NCLT under Section 31 of the IBC. In its application, it prayed for the

following reliefs:

“a) Allow the present application and permit the Applicant to

withdraw its Resolution Plan as submitted and approved by

the CoC on 14.11.2019;

b) Direct that the Performance Bank Guarantee submitted by

the Applicant be cancelled/revoked/returned/refunded to the

Applicant;”

PART B

In its application, Kundan Care stated that there was no bar under the IBC on it

withdrawing its Resolution Plan before it was confirmed by the NCLT. It sought to

withdraw its Resolution Plan on account of four reasons:

(i) That there was uncertainty in relation to the PPA with GUVNL, since the

GUVNL Appeal was pending before this Court. It noted that the PPA was

central to the CIRP, and its termination would affect its Resolution Plan.

Further, it noted that GUVNL had unilaterally refused permission to

Astonfield to change the solar panels which had been damaged in the

floods of 2017, and had not made any payments to Astonfield for the

electricity being supplied currently;

(ii) That due to heavy floods in the State of Gujarat during 2019, the solar

panels and other equipment at the Project Site of Astonfield had been

damaged. Further, it alleged that there was stagnant water at the Project

Site, which continued to deteriorate them;

(iii)That Astonfield’s insurance claim of Rs 46.40 crores in relation to floods in

2017 had been repudiated by the insurer. Further, it also noted that this

may also adversely affect the claim for the floods in 2019; and

(iv)That the IM issued by A-RP represented that since Astonfield had not

availed the benefit of “Accelerated Depreciation” under the PPA, hence, it

was entitled to a sum of Rs 6.614 crores from GUVNL, which was a

“Trade Receivable”. However, it noted that Kundan Care had

subsequently discovered a previous judgment of this Court upon identical

facts, where it was noted that the Project Developer shall not be entitled to

a higher/revised tariff in case of not availing “Accelerated Depreciation”.

PART B

60 On 6 January 2020, Kundan Care filed an additional affidavit outlining the

additional costs it would face on account of: (i) deterioration of the solar panels

due to GUVNL unilaterally not permitting their replacement, thereby leading to

additional cost of Rs 30 crores (against an initial expected cost of Rs 9 crore); (ii)

Astonfield’s Plant not producing electricity at its optimum level, thereby leading to

a loss of revenue up to Rs 150 lacs per month; and (iii) CIRP costs on account of

delay in CIRP, thereby leading to a loss of Rs 12 lacs per month (approx.). It

noted:

“5. I say and submit that after submission of the Resolution

plan, the Applicant's representatives had visited the site again

and found that almost all the solar panels installed at the

Project site are required to be changed/replaced at a total

cost of over INR 30 crores instead of INR 9 crores

ascertained by the Applicant at the time of submission of the

Plan.

[…]

17. I say and submit that the plant is capable of generating

18133200 KWH/Units of Electricity per annum (11.5 MW *

365 days * 24 hours* 1000 (from MW to KW) * 18% CUF =

18133200 KWH/Units), when operating at the optimum

capacity which would only be possible after

change/replacement of solar panels, inverters etc. as

contemplated in the Resolution Plan. This translates to

generation revenue of roughly INR 1800 lacs per annum or

roughly INR 150 lacs per month which is being incurred by

the Project.

18. I say and submit that in addition to the aforesaid

generation loss, a sum of INR 12 lacs (approx.) is being

incurred towards monthly CIRP cost on account of the delay

in the CIR process.”

PART B

61 Thereafter, Kundan Care also filed an application for impleadment27 in the

GUNVL Appeal pending before this Court, along with an application for

directions28 praying, in exercise of this Court’s jurisdiction under Article 142 of the

Constitution of India, for the following reliefs:

“a) Set aside/quash the Notice dated 28.03.2019 issued by

Gujarat Urja Vikas Nigam Limited to Astonfield Solar (Gujarat)

Private Limited and declare that the Applicant/Corporate

Debtor shall be free to change/replace the solar

panels/modules and other equipment of the Project, as may

be deemed fit by the Applicant/Corporate Debtor;

b) Declare that the Power Purchase Agreement dated

30.04.2010 executed between Gujarat Urja Vikas Nigam

Limited and Astonfield Solar (Gujarat) Private Limited shall

stand extended by the period of moratorium declared under

IBC during the CIR Process;

c) In alternate to prayers a) and b), permit the Applicant to

withdraw its Resolution Plan dated 12.11.2019 and direct that

the Performance Bank Guarantee submitted by the Applicant

to the Committee of Creditors shall stand cancelled/revoked

and/or returned/refunded to the Applicant;”

62 While the GUVNL appeal and its application remained pending, on 14 May

2020, Kundan Care requested the NCLT to take up its application for an early

hearing. Following this, the application was listed on 15 June 2020.

63 On 12 June 2020, A-RP filed its reply to Kundan Care’s application and

additional affidavit, where it opposed the withdrawal of the Resolution Plan after

its approval by the A-CoC and stated that:

(i) In relation to the ongoing dispute with GUVNL, Kundan Care was aware of

the same when it submitted the Resolution Plan;

27 IA No 9679 of 2020 28 IA No 9682 of 2020

PART B

(ii) In relation to the damage to the solar panels, it pointed out that the A-RP

had informed Kundan Care about the floods in 2019 and an Operation and

Management Agency had been hired to clear the water at the Project Site,

which had been done;

(iii)In relation to the repudiation of the insurance claim, the RFRP or IM never

guaranteed that the claim would be successful. In any case, the A-RP was

actively pursuing the challenge to its repudiation;

(iv)In relation to the “Accelerated Depreciation”, that the same had been listed

as a “doubtful debt” by the A-RP in the IM. Further, in any case, Kundan

Care would have done their own due diligence surrounding it; and

(v) In relation to Astonfield’s Plant not operating at full capacity, the IM issued

by A-RP noted that the floods in 2017 had affected the Plant and it may not

be able to operate at full capacity.

64 Kundan Care filed its rejoinder to the A-RP’s reply on 29 June 2020, in

which they argued that the Resolution Plan proposed by them and approved by

the A-CoC, was no longer “feasible” and “viable” commercially, in accordance

with Section 30(2)(d) read with proviso to Section 31(1) of the IBC, due to the

intervening circumstances before its confirmation by the NCLT which had

materially altered the financial projections. Hence, the NCLT should allow it to

withdraw the Resolution Plan. In the alternative, Kundan Care proposed renegotiation of the Resolution Plan by stating the following:

“55. That Para 78 of the Reply is the Prayer Clause, which is

wrong and denied. The Prayer Clause of C.A. No.

16798/2019 is reiterated and reaffirmed. Alternatively, and

without prejudice to the above, it is prayed that the Applicant

PART B

may be permitted to re-negotiate the financial proposal with

the CoC”

65 The A-CoC also filed its reply to Kundan Care’s application on 30 June

2020, where it stated that: (i) NCLT could not adjudicate upon the application

since Kundan Care had filed another application before this Court in the GUVNL

Appeal; and (ii) in any case, Kundan Care knew of the risks while entering the

CIRP and should not be allowed to withdraw at such a belated stage.

66 The NLCT passed an order dated 3 July 2020, by which it rejected Kundan

Care’s application by noting that: (i) it did not have jurisdiction to permit

withdrawal; and (ii) the matter was also sub judice before this Court by the virtue

of Kundan Care’s application in the GUVNL Appeal. The order stated:

“IA 1679/2019

Counsels for the Resolution Applicant, COC and IRP are

present.

The Resolution Applicant has prayed to withdraw the

resolution plan which was submitted before this Tribunal after

approval of the COC. After careful consideration of the

matter, we are of the view that the NCLT has no jurisdiction to

permit withdrawal of the resolution plan which has been

placed before the authority with due approval of the COC.

Notwithstanding this fact, it has been pointed out by the

Counsel for the COC that another matter is subjudiced before

the Hon'ble Supreme Court in which inter-alia a similar

request has been made. This has been submitted by the

Cotinsel for the COC on page 31 of the reply filed by COC in

response to the application.

Keeping this in view, it will not be appropriate for this Tribunal

to deal with an issue which is already subjudiced before the

Hon'ble Supreme Court. The Application is hereby rejected.”

PART B

67 In view of the NCLT’s order, Kundan Care made an oral request for

withdrawal of its application to this Court when the GUVNL Appeal was listed on

20 July 2020. This request was allowed by this Court.

68 Thereafter, the appellant filed an appeal before the NCLAT, challenging

the order dated 3 July 2020 passed by the NCLT. NCLAT did not issue notice in

the appeal, but heard the submissions of all parties at the stage of admission and

directed them to file their written submissions.

69 By the impugned judgment dated 30 September 2020, the NCLAT

dismissed the appeal by Kundan Care, relying on the judgment impugned in the

Ebix Appeal. It noted:

“7. Be it seen that the CIRP process undertaken involves

filing of Expression of Interest by the prospective Resolution

Applicants which may ultimately manifest in the form of

prospective Resolution Plan after negotiations as regards

improvement or revision in terms of the proposed Resolution

Plan. This process is in the nature of a bidding process

where, based on consideration of the provisions of a

Resolution Plan with regard to financial matrix, capacity of the

Resolution Applicant to generate funds, infusion of funds,

upfront payment, the distribution mechanism and the period

over which the claims of various stake holders are to be

satisfied besides the feasibility and viability of the Resolution

Plan, a Resolution Applicant emerges as the highest bidder

(Hl) eliminating the Resolution Plans of Resolution Applicants,

which are ranked H2 and H3. The approval of a Resolution

Plan by the Committee of Creditors with requisite majority has

the effect of eliminating H2 and H3 from the arena. Though,

such approved Resolution Plan would be binding on the

Corporate Debtor and all stake holders only after the

Adjudicating Authority passes an order under Section 31 of

the I&B Code approving the Resolution Plan submitted by

Resolution Professional with the approval of Committee of

Creditors in terms of provisions of Section 30(6) of the I&B

Code, it does not follow that the Successful Resolution

Applicant would be at liberty to withdraw the Resolution Plan

duly approved by the Committee of Creditors and laid before

the Adjudicating Authority for approval thereby sabotaging the

PART B

entire Corporate Insolvency Resolution Process, which is

designed to achieve an object. A Resolution Applicant whose

Resolution Plan stands approved by Committee of Creditors

cannot be permitted to alter his position to the detriment of

various stake holders after pushing out all potential rivals

during the bidding process. This is fraught with disastrous

consequences for the Corporate Debtor which may be

pushed into liquidation as the CIRP period may by then be

over thereby setting at naught all possibilities of insolvency

resolution and protection of a Corporate Debtor, more so

when it is a going concern. That apart, there is no express

provision in the I&B Code allowing a Successful Resolution

Applicant to stage a U-tum and frustrate the entire exercise of

Corporate Insolvency Resolution Process. The argument

advanced on behalf of the Appellant that there is no provision

in the I&B Code compelling specific performance of

Resolution Plan by the Successful Resolution Applicant has

to be repelled on four major grounds:-

(i) There is no provision in the l&B Code entitling the

Successful Resolution Applicant to seek withdrawal after its

Resolution Plai1 stands approved by the Committee of

Creditors with requisite majority;

(ii) The successful Resolution Plan incorporates contractual

terms binding the Resolution Applicant but it is not a contract

of personal service which may be legally unenforceable;

(iii) The Resolution Applicant in such case is estopped from

wriggling out of the liabilities incurred under the approved

Resolution Plan and the principle of estoppel by conduct

would apply to it;

(iv) The value of the assets of the Corporate Debtor is bound

to have depleted because of passage of time consumed in

Corporate Insolvency Resolution Process and in the event of

Successful Resolution Applicant being permitted to walk out

with impunity, the Corporate Debtor's depleting value would

leave all stake holders in a state of devastation.”

The NCLAT held that withdrawal of a Resolution Plan by the Resolution

Application after its approval by the CoC cannot be permitted since: (i) it

contravenes the principles of IBC, which require the CIRP to be conducted in a

time-bound manner in order to maximise the value of the assets of the Corporate

Debtor; (ii) permitting Kundan Care to withdraw would sabotage the CIRP, where

PART C

the A-CoC had previously rejected other prospective Resolution Applicants in

favor of Kundan Care; (iii) there is no specific provision in the IBC for allowing

withdrawal; (iv) the Resolution Plan incorporated contractual terms binding the

Resolution Applicant, and it is not akin to a contract of personal service which is

legally unenforceable; (v) by the virtue of principle of estoppel of conduct, Kundan

Care is estopped from withdrawing; and (vi) the withdrawal may lead to the

Astonfield’s liquidation, and the value of its assets were bound to have depleted

in the interim.

C Civil Appeal No 295 of 2021 – the Seroco Appeal

C.1 The appeal

70 This is an appeal under Section 62 of the IBC from an order dated 10

December 2020 of the NCLAT. By its judgment, the NCLAT dismissed an

appeal29 instituted by Seroco, under Section 61 of the IBC against an order dated

23 October 2020 of the NCLT.

71 The NCLT dismissed an application30 by Seroco under Section 60(5)

seeking permission to modify its Resolution Plan submitted for the Corporate

Debtor – Arya Filaments. NCLT relied on the impugned judgment in the Kundan

Care Appeal. Further, it noted that while the application prayed for a modification

of the Resolution Plan, its title was “Application for withdrawal under section 60(5)

of the Insolvency and Bankruptcy Code, 2016”.

29 Company Appeal (AT) (Insolvency) No 1054 of 2020 30 IA No 96 of 2020 in CP (IB) No 29 of 2018

PART C

72 In appeal, the NCLAT partly upheld the NCLT’s decision and held that

Seroco could not be allowed to modify or withdraw the Resolution Plan approved

by the Arya-CoC since: (i) it was the sole Resolution Applicant in the CIRP; (ii)

Arya Filaments was an MSME; and (iii) it was aware of Arya Filaments’ financial

condition when it submitted the Resolution Plan. However, it set aside the

NCLT’s decision in relation to the costs imposed on Seroco.

C.2 Initiation of CIRP

73 The second respondent, Kotak, being a financial creditor of Arya

Filaments, filed a petition31 under Section 7 of the IBC seeking to initiate CIRP.

74 By an order dated 17 August 2018, the NCLT initiated CIRP against Arya

Filaments and appointed the first respondent, Mr Ravi Kapoor, as the IRP.

Thereafter, a CoC was constituted, which consisted of Kotak Mahindra and the

third respondent, UBIL. The Arya-CoC then appointed Mr Ravi Kapoor as the RP.

C.3 Submission and Approval of Resolution Plan

75 The Arya-RP thereafter invited Resolutions Plans for Arya Filaments.

Seroco, being a company formed by the former employees of Arya Filaments,

submitted a Resolution Plan on 13 March 2019 where, inter alia, they offered to

pay Rs 6,79,22,000. This was the only Resolution Plan which was received.

31 CP (IB) No 29 of 2018

PART C

76 At its 4th meeting held on 16 April 2019, the Arya-CoC noted that Seroco’s

Resolution Plan needed some improvements and directed it to submit a revised

Plan. Seroco’s revised Resolution Plan was then approved by the Arya-CoC in its

5th meeting held on 10 May 2019, with 100 per cent approval.

77 On or about 15 May 2019, the Arya-RP filed an application32 under

Section 30(6) before NCLT for confirmation of the Resolution Plan. Form H under

the CIRP Regulations was filed by way of an affidavit on 5 June 2020.

C.4 Modification of the Resolution Plan

78 On 9 June 2020, Seroco addressed a letter to the Arya-RP and Arya-CoC

highlighting that their Resolution Plan was based on the economic conditions

which prevailed at that time, which had been significantly altered due to the onset

of the COVID-19 pandemic. In particular, it highlighted that:

(i) The physical condition of Arya Filament’s machinery would have

deteriorated;

(ii) Financial losses must have been suffered by Arya Filaments during the

COVID-19 pandemic;

(iii)Demand/sale of Arya Filaments’ products must have suffered during

pandemic; and

(iv)Due to the pandemic, the funds of Seroco have also been drastically

reduced.

32 IA No 280 of 2019 in CP (IB) No 29 of 2018

PART C

It submitted a revised Resolution Plan to be considered by the Arya-CoC. In the

revised Resolution Plan, Seroco offered to pay, inter alia, an amount of Rs

5,29,22,000. It also requested the Arya-RP and Arya-CoC to file the revised

Resolution Plan before the NCLT, and keep the proceedings on the confirmation

of the previous Resolution Plan in abeyance.

79 Thereafter, on 10 July 2020, Seroco filed an application before the NCLT

praying for the following reliefs:

“a) permit the Applicant to revise the Resolution Plan dated

13.3.2020 in terms of letter dated 09/06/2020 at Annexure C

hereto;

b) direct the Respondent No. 2 to consider the modified

resolution plan as per Letter at Annexure C and vote afresh

on the same;

c) direct the Respondent No.1 to provide an updated

Information Memorandum providing financial condition of the

Corporate Debtor as on 1/07/2020;

d) during the hearing of this Application, stay the

implementation, operation and execution of the Resolution

Plan dated 13.3.2020 of the Applicant;”

It noted that its Resolution Plan was filed eighteen months ago and was based on

an IM published two years previously, following which the conditions had

materially altered. Hence, Seroco stated that while it was genuinely interested in

Arya Filaments, its changed circumstances meant that it could not pay the entire

consideration envisaged in the Resolution Plan approved by the Arya-CoC

earlier.

80 Seroco’s application was listed before the bench of the NCLT which was

hearing the Arya-RP’s application for confirmation of the Resolution Plan. By a

PART C

common order on 23 October 2020, the NCLT allowed the Arya-RP’s application

and confirmed Seroco’s Resolution Plan which had been approved by the AryaCoC. In relation to Seroco’s application for modification, it noted:

“18. It is the matter of record that the instant application was

filed subsequent to the filling of the above stated IA ie. IA 280

of 2019 filed under Section 30(6) of the IB Code. It is stated

by the Applicant that the Resolution Plan, so submitted by the

Applicant, is based on the Information Memorandum which

was published two years ago. Considering the time of two

years and outbreak of Covid-19, the Applicant is not aware of

the current financial condition of the Corporate Debtor and is

now not in a position to bear the costs/losses of the Corporate

Debtor and hence, is seeking for withdrawal of the Resolution

Plan. This story is not believable as the Corporate Debtor,

being a MSME, has filed the plan considering the financial

‘condition of the Corporate Debtor and have shown his

interest to take the Company. Hence, having no knowledge of

the financial condition does not arise at all.

19. It is pertinent to mention herein that in view of the

judgement passed by Hon’ble NCLAT in Kundan Care

Products Ltd vs. Mr. Amit Gupta Resolution Professional andOrs (Company Appeal (AT) (Insolvency) No. 653 of 2020),

the Resolution Plan, once submitted, cannot be withdrawn as

there is no provision in the IB Code which allows withdrawal

of an approved Resolution Plan & the successful Resolution

Plan incorporates contractual terms binding the Resolution

Applicant but it is not a contract of personal service which

may be legally unenforceable.

20. Moreover, there is an ambiguity in the instant application

with regard to the relief sought for, as the title of the

application states “Application for withdrawal under section

60(5) of the Insolvency and Bankruptcy Code, 2016” whereas

the prayer, as stated above, has no whisper regarding the

withdrawal of the Resolution Plan.”

Hence, it rejected Seroco’s application and imposed costs of Rs 50,000.

81 Seroco filed an appeal against the NCLT’s judgment, which came to be

dismissed by the NCLAT by its impugned order dated 10 December 2020, where

it noted:

PART D

“2. After hearing learned counsel for the Appellant and having

regard to the Judgments rendered by this Appellate Tribunal

holding that the Successful Resolution Applicant cannot be

permitted to withdraw the approved Resolution Plan coupled

with the fact that the Appellant in the instant case being the

sole Resolution Applicant in the Corporate Insolvency

Resolution Process (CIRP) of the Corporate Debtor which

has been classified as an MSME and admittedly having

knowledge of the financial health of the Corporate Debtor as

a promoter or a connected person cannot be permitted to

seek revision of the approved Resolution Plan on that ground

which would not be a material irregularity within the ambit of

Section 61(3) of the Insolvency and Bankruptcy Code, 2016.

We are of the considered opinion that there is no merit in this

appeal and the same is liable to be dismissed.”

Considering Arya Filament’s position as an MSME, Seroco being a company

formed by its former employees (who would have been aware of its financial

condition) and also being the sole Resolution Applicant, the NCLAT refused to

permit modification/withdrawal of the Resolution Plan.

D Submissions of counsel in the Ebix Appeal

D.1 Submissions for the appellant

82 Mr K V Vishwanathan, learned Senior Counsel appearing on behalf of Ebix

submitted that a successful Resolution Applicant may be permitted to withdraw

the resolution plan (pending approval of the Adjudicating Authority), on account

of: (a) subsequent developments in relation to Educomp (which in this case relate

to investigations of fraud and mismanagement during the pre-CIRP period); and

(b) due to an inordinate lapse of time, which has resulted in the complete erosion

of the fundamental commercial substratum underlying the Resolution Plan.

PART D

Further, he argues that the NCLAT did not correctly apply the doctrine of

constructive res judicata. He has made the following submissions:

(i) Ebix is not bound by the Resolution Plan prior to the approval of the

Adjudicating Authority, in terms of the CIRP documents read with the

scheme of IBC. In this regard, our attention was drawn to:

(a) Section 31(1) of the IBC, which provides that the Resolution Plan is

“binding…on all stakeholders” only upon approval by the Adjudicating

Authority;

(b) Section 74(3) of the IBC, which provides that a person can be

prosecuted or punished for contravening the Resolution Plan only after

its approval by the Adjudicating Authority;

sanction letter and Resolution Plan take effect of a binding contract only

upon the approval of the Adjudicating Authority and the execution of

definitive agreements thereafter;

(d) Clause 1.1.6 of the RFRP provides that the Plan submitted by Ebix will

have to be approved by the Adjudicating Authority and will be binding

on all the stakeholders in relation to the Corporate Debtor and Ebix,

only after it has been approved by the Adjudicating Authority;

(e) Clause 1.10(1) of the RFRP provides that Ebix shall be responsible for

the implementation and supervision of the Resolution Plan from the

date of approval by the Adjudicating Authority; and

(f) Clause 2.2.9 of the RFRP provides that Ebix shall, pursuant to approval

by the Adjudicating Authority, execute definitive agreements;

PART D

(ii) The Resolution Plan constitutes an offer qualified by time and cannot be

enforced against the parties after such a long period of time has elapsed.

In this regard, the following terms of the documents underlying the CIRP

were highlighted:

(a) Clause 1.1.5 of the RFRP, which invites Resolution Plans from

prospective Resolution Applicants. Further, Clause 1 of the covering

letter for submission of the Resolution Plan provides that Ebix is setting

out the offer in relation to the insolvency resolution of Educomp;

(b) The Resolution Plan was valid only for six months, since Clause 1.8.3

of the RFRP invites resolution plans/offers with a validity of six months;

that it is valid for a period of six months from the date of submission.

The appellant is a liberty to withdraw the resolution plan if there is delay

of several months beyond the period of six months. It was emphasized

that the Resolution Plan is a qualified offer which is not open to

acceptance for an indefinite period. Reliance was placed on the

decision of this Court in Riya Travel & Tours (India) (P) Ltd. v. C.U.

Chengappa33 to support this proposition;

(d) The CSEB Application for the approval of the resolution plan continues

to be pending before the Adjudicating Authority, while the Approval

Appeal is pending before the Appellate Authority. A period of eighteen

months has passed from the date of submission of the resolution plan

(i.e., 19 February 2018) and twenty-seven months from the CIRP

33 (2001) 9 SCC 512

PART D

commencement date. Such severe and inordinate delay is

impermissible under Section 12 of the IBC and justifies the withdrawal

of the Plan;

(e) The delay in the approval was on account of the actions of members of

the E-CoC, who had sought a special audit of Educomp due to the

concerns relating to mismanagement of its affairs. Several members

had filed applications (IFC, Axis Bank and SBI) before the Adjudicating

Authority in this regard. The Adjudicating Authority by orders dated 13

August 2018, 20 August 2018 and 31 August 2018 took cognizance of

these applications and directed them to be placed before the E-CoC.

The E-CoC approved the Investigation Audit Application filed on its

behalf before the Adjudicating Authority for conducting a special audit

by 77.85 per cent votes;

(f) SFIO initiated investigation against Educomp. Ebix became aware of

the investigation only through disclosures made to NSE/BSE and

regulators on 12 June 2019;

(g) Ebix had sent a notice dated 2 July 2018 to the E-CoC/E-RP stating

that the severe delays in the CIRP have prejudiced the commercial

considerations underlying the Resolution Plan and, in any case, the

Resolution Plan was valid only for six months. It urged the E-CoC/E-RP

to expedite the process for obtaining the Adjudicating Authority’s

approval. Thereafter, Ebix filed the First Withdrawal Application for

seeking information relating to the financial position and other

commercial aspects of Educomp. After the dismissal of the First

PART D

Withdrawal Application, the appellant filed the Second and Third

Withdrawal Applications for withdrawal of its Resolution Plan; and

(h) The above sequence of events shows that Ebix had no role to play in

the delays plaguing the CIRP of Educomp. Section 12 of the IBC

stipulates that the insolvency resolution process should be completed in

270 days with an outer limit of 330 days. This Court in CoC of Essar

Steel India Ltd. v. Satish Kumar Gupta & Ors.34 has held that “[i]t is

only in such exceptional cases that time can be extended, the general

rule being that 330 days is the outer limit within which resolution of the

stressed assets of the corporate debtor must take place beyond which

the corporate debtor is to be driven into liquidation”;

(iii)The events that have taken place subsequent to the submission of

Resolution Plan justify its withdrawal. In this regard, it was urged on behalf

of Ebix that:

(a) The Resolution Plan was based on certain considerations that were

fundamental to the Ebix’s bid for the business of Educomp, and were

crucial for keeping the business of Educomp as a going concern. These

were the government contracts and IP driven solutions in the education

and health industries. However, due to the inordinate delay in the

completion of the CIRP, many of the government contracts may have

ended. Further, various technology driven solutions and intellectual

property owned and operated by Educomp, which Ebix had sought to

acquire, were no longer valid;

34 (2020) 8 SCC 531

PART D

(b) The E-CoC passed a resolution with 77.85 per cent votes to conduct a

special audit into the affairs of Educomp, which shows that evidence is

available to conclude that the affairs of the company were

mismanaged, which materially affect the economic considerations

underlying the Resolution Plan;

CBI, which provides further evidence that the affairs of Educomp were

severally mismanaged and are susceptible to criminal investigations;

(d) There has been a lapse of over three years resulting in an erosion of

vital business prospects of Educomp; and

(e) The implementation and viability of a Resolution Plan is to be assessed

at the time of consideration of such plan by the competent

Court/Tribunal, and not at the time of submission of the Plan. The

subsequent events that have transpired after the submission of the

Resolution Plan are relevant for evaluating the commercial viability and

the capability to implement the plan. In the present case, the

substratum forming the basis of the resolution plan has been eroded by

the occurrence of the abovementioned events. Thus, the successful

Resolution Applicant has the right to withdraw the Resolution Plan in

such circumstances;

(iv)Material information relating to the financial position and affairs of Ebix was

not provided to Ebix after the submission of the Resolution Plan, as a

consequence of which, there is an impairment of a fair process in the

conduct of a commercial transaction. In this context:

PART D

(a) Section 29(2) of the IBC, provides that all relevant information should

be provided to the Resolution Applicant;

(b) Regulation 36 of the CIRP Regulations provides that the IM prepared

under Section 29 of the IBC should contain information relating to, inter

alia: (1) “assets and liabilities…”; (2) “the latest annual financial

statement”; and (3) details of “…ongoing investigations or proceedings

initiated by Government and statutory authorities”. While this

information is relevant for the preparation of the Resolution Plan, there

is a continuing obligation to disclose such information if there is a

substantial delay in the CIRP (beyond the period prescribed under

Section 12 of the IBC) qua the Corporate Debtor;

relating to the Corporate Debtor has been recognized under the

UNCITRAL Guide. The principle of “equality of information” to all

stakeholders, including the resolution applicant, has been underlined in

the BLRC Report; and

(d) The E-CoC/E-RP withheld information relating to mismanagement of

affairs of Educomp between 2014-2018, and also in relation to the

investigation into the affairs of Educomp by governmental authorities;

(v) The Adjudicating Authority has the power to permit the withdrawal of the

Resolution Plan. Under Section 31 of the IBC, it has the power to

independently satisfy itself that the “Resolution Plan as approved by the

CoC… meets the requirements as referred to in sub-section (2) of Section

30”. Section 30(2)(d) of the IBC provides that the Adjudicating Authority

PART D

can assess whether adequate provisions have been made for the

“implementation and supervision of the resolution plan”. This Court in K

Sashidhar v. IOC35 has emphasized that the Adjudicating Authority has

the discretion to reject the Resolution Plan if it does not conform to the

stated requirements of Section 30(2)(d). The proviso to Section 31(1) of

the IBC expressly prohibits the Adjudicating Authority from approving a

plan that is incapable of being effectively implemented. The NCLAT, in the

impugned judgement, has not considered whether the exercise of the

jurisdiction by the Adjudicating Authority under Section 31(1) read with

Section 30(2)(d) was valid. In the present circumstances, the Resolution

Plan is no longer capable of being implemented due to the erosion of the

commercial basis of the Resolution Plan and an inordinate lapse of time;

(vi)The NCLT had good and valid reasons allowing for the withdrawal of the

resolution plan since:

(a) There was no approval by the E-CoC with the requisite majority of 75

per cent. When the voting took place on the resolution plan submitted

by the Appellant on 22 February 2018, there was a shortage in the

votes required to achieve the statutory requirement of 75 per cent of

votes in the E-CoC. On 23 February 2018, one of the financial creditors

who was not present at the meeting of the E-CoC intimated its

agreement with the resolution plan and accordingly the Approval

Application was filed on 7 March 2018. Orders have been reserved on

the Approval Application on 10 January 2018; and

35 (2019) 12 SCC 150

PART D

(b) Fulfilment of the Plan cannot be foisted on an unwilling Applicant. This

view of the NCLT is consistent with the legal position which vests it with

the power to permit a withdrawal from a resolution plan for good and

substantial reasons; and

(vii) The doctrine of res judicata does not bar the relief that Ebix had sought in

its Third Withdrawal Application of its Resolution Plan. The First

Withdrawal Application arose from a different cause of action, namely

seeking information and re-evaluation of the financial position of Educomp

due to a lapse of time. The order dated 10 July 2019 passed by the

Adjudicating Authority in the First Withdrawal Application had only

adjudicated the issue relating to the non-disclosure of information and

material sought by Ebix, and had not considered the relief of withdrawal of

Resolution Plan. This was also confirmed in the express finding of the

Adjudicating Authority in its order dated 2 January 2020, which was

appealed before the NCLAT.

D.2 Submissions for the first respondent

83 Mr Shyam Divan, learned Senior Counsel appearing on behalf of E-CoC,

has urged the following submissions:

(i) Ebix submitted its Resolution Plan on 27 January 2018, after month-long

negotiations. Meetings between the E-CoC and Ebix were conducted on

17 February 2018, 19 February 2018 and 21 February 2018. Addendums

were submitted on 21 February 2018. The mutually approved and

PART D

negotiated plan was put to vote, and approved by 75.36 per cent of the ECoC. This constituted a binding contract between Ebix and the E-CoC;

(ii) The IBC is a complete code as held by this Court in M/s Embassy

Property Developments Pvt. Ltd. v. State of Karnataka & Ors.36 and

M/s Innoventive Industries Ltd. v. ICICI Bank & Anr.37. It does not

envisage withdrawals of Resolution Plans after mutual negotiations

between the Resolution Applicant and the CoC, which culminates into a

binding agreement. The Adjudicating Authority cannot contravene the text

to invoke the spirit/object of the IBC without a conscious statutory

prescription, as held by this Court in Gujarat Urja Vikas Nigam Limited v.

Amit Gupta38;

(iii)The basic tenets of any insolvency law are to ensure the sanctity of the

prescribed processes and timelines. Maximization of the value of assets

and resolution of the Corporate Debtor are the core objectives of the IBC,

as held by this Court in Swiss Ribbons (P) Ltd v. Union of India39.

Enabling withdrawals, especially at the tail end of the process, would push

financially distressed Corporate Debtors into liquidation;

(iv)The Specific Relief (Amendment) Act 2018, as is evinced from the speech

of the Union Minister of Law & Justice before the Rajya Sabha while

introducing the amendments, shifted the paradigm on contract

enforcement in India where specific performance is now the norm, rather

than the exception;

36 (2020) 13 SCC 308 37 (2018) 1 SCC 407 38 2021 SCCOnLine SC 194, para 181 39 (2019) 4 SCC 17, paras 27-28

PART D

(v) The resolution process involves significant public money, resources and

time. Enabling withdrawals would undermine the goals of predictability and

finality, which the legislature had recognized as the need of the hour in the

Rajya Sabha debates on the IBC;

(vi)Non-implementation of Resolution Plans after approval from the

Adjudicatory Authority under Section 31 of the IBC, pertinently on a narrow

scope of judicial review, is liable to criminal prosecution under Section

74(3) of the IBC. This Court should not allow a successful Resolution

Applicant to withdraw from a duly concluded contract;

(vii) The consequences of permitting a withdrawal by Ebix would push

Educomp towards liquidation, which would risk thousands of crores of

public monies owed to public sector banks during the economic crisis

caused by the COVID-19 pandemic;

(viii)Permitting withdrawal of an approved Resolution Plan would tread on the

exclusive domain of the CoC, which has the power to determine the

feasibility and viability of a Resolution Plan. The mandate of Section

30(2)(d) of the IBC, which envisages ‘implementation and supervision of

the resolution plan’, would be breached if the Court would allow

withdrawals by holding that an unwilling Resolution Applicant would make

a Resolution Plan itself un-implementable;

(ix)The scope of judicial review with the Adjudicatory Authority, under Section

31 of the IBC, is confined to parameters delineated in Section 30(2), which

does not envisage the withdrawal or unwillingness of the Resolution

Applicant to continue with a CoC-approved Resolution Plan. The

PART D

Adjudicating Authority, as a creature of the statute, cannot exercise

jurisdiction beyond the scope of the IBC or second-guess the commercial

wisdom of the CoC, as held by this Court in Essar Steel (supra), after

noting the observations of this Court in K Sashidhar (supra);

(x) The Supreme Court, in Essar Steel (supra) and K Sashidhar (supra), has

held that the Adjudicating Authority cannot trespass upon the majority

decision of the CoC, except on the grounds enumerated under Section

30(2)(a) to (e) of the IBC;

(xi)The provisions of the RFRP were designed to ensure predictability and

finality. The provisions which elucidated this aim were:

(a) Clause 1.13.5, which did not envisage any change or supplemental

information to the Resolution Plan, after the submission date;

(b) Clause 1.8.4, which stated that a submitted Resolution Plan shall be

irrevocable; and

permitted to withdraw the Resolution Plan;

(xii) The RFRP did not envisage six months to be the validity of the Resolution

Plan. Clause 1.8.3, which stipulated a minimum six-month validity of the

Resolution Plan, is relatable to the acceptance of the plan by the E-CoC

and not the Adjudicating Authority. This is evident from the clauses of the

RFRP which stipulate that the submitted plan is irrevocable;

(xiii)The resolution process belies the claim that withdrawals were permissible

after the six-month period. The process was delineated in the following

terms:

PART D

(a) Clause 1.3.1 and 1.3.2 empowers the E-RP to issue an invitation to

prospective resolution applicants, subject to, inter alia, non-disclosure

agreements and participation fees;

(b) Clause 1.3.6, read with Clause 1.9.1, enables a party to submit a

Resolution Plan upon payment of an earnest money deposit of Rs 2

crore. Along with the Resolution Plan, the Resolution Applicant was

required to submit an undertaking accepting the terms of the RFRP,

including the minimum six-month period of Resolution Plan validity;

Resolution Plan becomes a binding contract between the E-CoC and

Ebix, since the earnest money deposit needs to be replaced with a

performance guarantee, which is 10 per cent of the Resolution Plan

value. Any violation of the concluded contract, which would be the

approved Resolution Plan in this case, would give the E-CoC the right

to invoke the performance guarantee;

(d) The above clauses, in addition to clause 1.8.3, read with 1.9.5, evince

that the six-month validity is with respect of the EMD alone, and is

hence only related to a period until acceptance by the E-CoC;

(e) The consequence of approval by the Adjudicating Authority under

Section 31 of the IBC is that the parties enter into definitive binding

agreements, the implementation of the Resolution Plan commences

and the performance guarantee is returned. A Section 31-approval

binds all stakeholders to a concluded contract between the Ebix and

the E-CoC;

PART D

(f) The CoC or the RP do not have the authority to impose a time limit on

the Adjudicating Authority. Therefore, it would not be plausible to

construe Clause 1.8.3 to impose a maximum validity period on a

Resolution Plan; and

(g) In any event, Ebix had waived the term of validity of the plan being six

months by pursuing the plan after six months, i.e., from August 2018 till

reserving of orders by the Adjudicating Authority in January 2019, and

not raising any claims till July 2019. Therefore, Ebix is estopped from

raising the plea, after the purported expiry of the validity period;

(xiv)Clause 1.1.6 of the RFRP, which reiterated Section 31 of the IBC and

states that the Resolution Plan will be binding on all stakeholders only after

the approval of the Adjudicating Authority, does not militate against ECoC’s proposition that the CoC-approved Resolution Plan is a concluded

contract. This is because:

(a) Section 30(4) of the IBC does not contemplate any statutory exit after

the approval of the Resolution Plan by the CoC, which determines its

feasibility and viability;

(b) Clause 1.1.6 paraphrases Section 31(1) of the IBC, which merely

makes the Resolution Plan binding on all other stakeholders. The

Adjudicating Authority’s approval under Section 31(1) amounts to a

‘super-added imprimatur’ to the concluded terms between the CoC and

the Successful Resolution Applicant; and

declares a submitted Resolution Plan to be irrevocable, and Clause

PART D

1.10(l), which prohibits withdrawal of a submitted Resolution Plan,

belies the claim that the Resolution Plan is binding on the Successful

Resolution Applicant only after approval of the Adjudicating Authority;

(xv) The delay in the resolution process is not attributable to the E-CoC. It

cannot be cited to allow Ebix to withdraw from a legally binding plan;

(a) The E-CoC approved the submitted Resolution Plan within 270 days, and

it was promptly filed before the Adjudicating Authority in March 2018. The

orders on the plan approval were reserved in January 2019 and

pronounced only in January 2020. The delay cannot be attributable to the

E-CoC or used to withdraw from a plan which provided a 90 per cent

haircut; and

(b) actus curiae neminem gravabit, i.e., the act of Court shall harm no man,

is a settled principle in law;

(xvi)Ebix’s argument that the substratum or commercial viability has eroded

due to the subsequent circumstances is facetious since:

(a) Ebix had conducted its own due diligence, in accordance with the

RFRP. Section 29 of the IBC also enabled the appellant to access to an

IM on Educomp, which would include all relevant information, including

financial position and pending disputes. Clause 1.13.7 of the RFRP

also stipulates that failure to conduct adequate due diligence is not a

ground to relieve the Resolution Applicant from its obligations under a

submitted Resolution Plan;

(b) Ebix continued to be interested in Educomp as late as 1 June 2020,

when it addressed a letter stating that the software licenses for online

PART D

education, issued by Educomp, have become even more relevant in the

circumstances of the pandemic;

Educomp was filed in May 2018 and disposed of by August 2018,

which was prior to the Adjudicating Authority reserving its orders on the

Resolution Plan. In any event, no such audit by the Special

Investigation Team was undertaken;

(d) According to the information available with the E-CoC, the E-RP had

provided all the information available with Educomp regarding the CBI

and SFIO investigations, on a best effort basis. Additionally, Ebix was

also appearing before the NCLT when the E-CoC sought an

investigation into the affairs of Educomp, as recorded in the order of the

NCLT dated 9 August 2018;

(e) Ebix had evaluated the business and business conduct of Educomp,

before submitting a Resolution Plan worth Rs 314 crores, against an

admitted financial debt worth Rs 3003 crores. This 90 per cent haircut

indicates that the appellant was aware of the conditions of Educomp;

and

(f) In any event, Section 32A of the IBC grants immunity to a Resolution

Applicant from any offences committed by the Corporate Debtor, prior

to the commencement of the CIRP, and provides certainty that the

assets of the Corporate Debtor, as represented, would be available in

the same manner as at the time of submission of a Resolution Plan.

Section 25(2)(j) of the IBC empowers and obligates the RP to file

PART D

applications for avoidance of certain transactions, to protect the

interests of the Resolution Applicant; and

(xvii) The Third Withdrawal Application is barred by res judicata since the

grounds raised by Ebix were rejected by the NCLT in the First Withdrawal

Application on 10 July 2019. The liberty granted by the NCLT to file a fresh

application on 5 September 2019 was with respect to filing a proper

pleading without defects, and not on merits. This conditional liberty cannot

be construed as a waiver of the objection of res judicata. In any event, the

issue of limited validity of the approved Resolution Plan and delay of

seventeen months, is barred by the principles of constructive res judicata.

84 In the alternative, if Ebix were to succeed before this Court, the learned

Senior Counsel on behalf of the E-CoC has prayed that this Court exercise its

powers under Article 142 of the Constitution of India, and extend the limitation

period for conducting the insolvency process by three to four months for a fresh

process to be initiated, subject to the consent of the E-CoC.

D.3 Submissions for the second respondent

85 Supporting the submissions of the E-CoC, Mr Nakul Dewan, learned

Senior Counsel, has appeared on behalf of the E-RP. He has submitted that:

(i) Upon the approval of a Resolution Plan by the CoC, a concluded contract

comes into existence between the Resolution Applicant and CoC. Any

withdrawal of the Resolution Plan would violate the concluded contract;

PART D

(ii) In the present case, Clauses 1.9.3 and 1.9.5, give the right to the E-CoC to

invoke the PBG submitted by Ebix if it attempts to renege from its

contractual obligation to implement the Resolution Plan;

(iii) The withdrawal would also be in violation of the objective of the IBC, as

noted by this Court in Swiss Ribbons (supra), which is to ensure the

revival and continuation of the Corporate Debtor. The withdrawal of the

Resolution Plan at a belated stage, would lead to the Corporate Debtor

going into liquidation;

(iv)The withdrawal of a Resolution Plan after its approval by the CoC is not

contemplated by:

(a) The UNCITRAL Guide, according to which the role of judicial authorities

is limited to approving the Resolution Plan after ensuring that it was

approved by the CoC properly. It does not envisage that the role of the

judicial authorities would extend to questioning the commercial wisdom

of the CoC, much less allow for the withdrawal of the Resolution Plan at

the behest of the Resolution Applicant;

(b) The BLRC Report: (1) notes that the UNCITRAL Guide was used as a

benchmark by Parliament while enacting the IBC; (2) opined that the

CoC should be the driving force behind the resolution of the Corporate

Debtor; and (3) does not discuss the withdrawal of a Resolution Plan;

limits the grounds of challenge. In Singapore, the Singapore Act allows

challenges to the Resolution Plan, without envisaging withdrawal;

PART D

(d) The Resolution Plan is a contract executed under the aegis of the IBC

and hence the statute must be interpreted so as to further its objectives.

Reliance for this proposition is placed on the following English

decisions: (1) Allied Domecq (Holdings) Ltd v. Allied Domecq First

Pension Trust Ltd40; (2) Reinwood Ltd v. L Brown & Sons Ltd41; (3)

Doleman v. Shaw42; and (4) Standard Life Assurance Ltd v. Oak

Dedicated Ltd43; and

(e) If the Parliament while enacting the IBC intended to permit the

withdrawal of the Resolution Plan after its approval by the CoC or

NCLT, it would have provided for such an eventuality. Section 12A was

inserted by amendment for situations involving a withdrawal from the

CIRP. On the contrary, Section 74 provides for penalties in case the

Resolution Applicant does not comply with the Resolution Plan;

(v) Ebix’s argument, that the RFRP which provides that the Resolution Plan

must be approved within six months would also include its approval by the

Adjudicating Authority, is contrary to the IBC since the parties, through an

agreement, cannot impose a restriction/condition on a judicial authority;

(vi)In any case, Ebix has actively pursued the Resolution Plan even after the

period of six months by communicating with the E-CoC/E-RP, arguing in its

favor in the Approval Application and by extending the EMD. The First

Withdrawal Application was filed only on 5 July 2019, after the expiry of

40 [2008] Pens. L.R. 425, paras 24 and 38 41 [2008] 1 W.L.R. 696, paras 5 and 11 42 [2009] Bus. L.R. 1175, paras 40 and 56 43 [2008] EWHC 222 (Comm), para 16

PART D

nearly one year from the expiry of the period of six months on 19 August

2018;

(vii) The investigations by the SFIO and CBI were initiated after the filing of the

Approval Application before the NCLT. Since the E-RP was not aware of

any discrepancies or illegalities committed by the former management of

Educomp, information about such activities could not have been provided

to intending Resolution Applicants under Section 29 of the IBC. Section 29

only envisages that the RP will provide information to prospective

Resolution Applicants on a best-effort basis;

(viii)Ebix is a professional corporate entity, and through the express

provisions of its own Resolution Plan, has stated that it has significant

previous experience in the revival of stressed assets. Before submitting its

Resolution Plan for Educomp, Ebix was provided access to the Virtual

Data Room by the E-RP and conducted its due diligence. Hence, it should

not be allowed to seek a withdrawal, by arguing that certain facts were not

within its knowledge; and

(ix)In view of the decision of this court in Nagabhushanammal v. C

Chandikeswaralingam44, the Third Withdrawal Application was barred by

the principles of res judicata since it sought the same prayer which was

raised in the First Withdrawal Application, and rejected by the NCLT in its

order dated 10 July 2019.

44 (2016) 4 SCC 434, para 15

PART E

E Submissions of counsel in the Kundan Care Appeal

E.1 Submissions for the appellant

86 Mr Ramji Srinivasan, learned Senior Counsel appearing on behalf of

Kundan Care, has urged the following submissions:

(i) The IBC vests the Adjudicating Authority with inherent powers to direct

withdrawal:

(a) Section 60(5)(c) of the IBC vests the Adjudicating Authority with wide

powers and jurisdiction to “entertain and dispose of any question of law or

facts, arising out of or in relation to” the CIRP. Rule 11 of the NCLT Rules

2016 also endows the NCLT with inherent powers. This Court, in Gujarat

Urja (supra), has held that disputes arising in relation to insolvency can be

adjudicated under Section 60(5)(c). Accordingly, the dismissal of Kundan

Care’s application on “lack of jurisdiction” is impermissible. Declining to go

into merits of its application amounts to an impermissible refusal to

exercise jurisdiction, as noted by this Court in National Thermal Power

Corporation Ltd. v. Siemens Atkeingesellschaft45;

(b) The NCLT erred in rejecting Kundan Care’s contention by confining its

jurisdiction to Section 31(1) of the IBC which specifically deals with

approval or rejection of Resolution Plans;

disposing off Kundan Care’s application seeking withdrawal were

circumscribed by Section 61(3) of the IBC, which concerns appeals against

45 AIR 2007 SC 1491, para 5

PART E

approval of a Resolution Plan. Kundan Care sought to invoke jurisdiction

under Section 61(1) of the IBC which provides a right of appeal against

any order of the NCLT;

(d) The facts and circumstances, on the basis of which the ‘feasibility and

viability’ of the Resolution Plan were approved by the A-CoC in its

commercial wisdom, have changed. Since the edifice of the A-CoC’s

satisfaction had altered, the NCLT has power to look into the facts which

warrant withdrawal or modification of the Resolution Plan;

(e) The legislative background of Section 31 of the IBC does not contemplate

circumstances that could arise after submission of the Resolution Plan to

the Adjudicating Authority. The UNCITRAL Guide and the BLRC Report

place the viability of the Corporate Debtor at the heart of the insolvency

process. The CIRP mandates interests of stakeholders to be better

preserved by reorganization than liquidation. The BLRC Report was relied

upon by this Court in K Sashidhar (supra) to propound the principle of

“commercial wisdom of the CoC” which the Adjudicating Authority cannot

interfere with as the creditors, as the loss-making party in the insolvency,

are best placed to determine the terms of the resolution. However, this

principle does not touch upon instances where there is a conflict between

the CoC and the Resolution Applicant where the latter will prima facie

suffer a loss. The Resolution Applicant has no stake in the process until

their Plan is approved by the NCLT and the probability of a complete loss,

prior to the approval of the Plan, is justiciable;

PART E

(f) The IBC contemplates strict timelines, and therefore did not envisage a

scenario of withdrawal, prior to approval of the Resolution Plan under

Section 31(1) of the IBC. This Court, in Essar Steel (supra), held that the

330-day outer limit is directory which has resulted in Kundan Care’s Plan

remaining pending before the NCLT for over a year, resulting in unviability

and losses. Therefore, Section 31 cannot be asserted while adjudicating a

plea for withdrawal or modification of a plan due to intervening factors

having a material adverse effect in this case;

(g) Kundan Care’s Resolution Plan was contingent on the continuance of the

PPA with GUVNL. If the contingency does not arise, the Plan would

become impossible. This Plan was accepted by the A-CoC on this

contingency. Therefore, disabling withdrawals or modifications would in

fact violate the commercial wisdom of the A-CoC;

(h) The Resolution Plan has become unviable and impossible to implement. If

mandatorily implemented, Astonfield is bound to suffer losses and

eventually declare itself insolvent. These events hinder its effective

implementation and warrant the Plan’s rejection by the A-CoC since the

first proviso of Section 31(1), read with Sub-section (2)(d) warrants a

determination by the Adjudicating Authority of the Resolution Plan’s

effective implementation. The determination by the Adjudicating Authority

under Section 31(1) cannot be equated to that of a rubberstamp where a

holistic analysis is precluded;

(i) BLRC’s Interim Report of February 2015 mentions that ‘viability’ is

determined by providing that the cost of financial arrangement (resolution

PART E

amount invested by the Resolution Application) should be lower than the

Net Present Value of future cash flows of the Corporate Debtor. In Kundan

Care’s calculation, the computed Net Present Value for future cash flow of

Astonfield demonstrates loss and a potential repeated CIRP; and

(j) The proposition that a Resolution Plan approved by the CoC cannot be

withdrawn or modified under any circumstance, no matter the extent of

impossibility or unviability that may have arisen subsequently, is seriously

flawed and is likely to lead to draconian and absurd consequences. In the

event that the basis of the Resolution Plan is completely eroded, a

Resolution Applicant’s failure to implement the Plan would invite penal

prosecution under Section 74 of the IBC and a repeated CIRP. This will

discourage prospective Resolution Applicants from coming forward with

their Plans in the future, thus defeating the very purpose and object behind

the IBC;

(ii) There is no concluded and binding contract between the Resolution Applicant

and the CoC, prior to approval by the Adjudicating Authority:

(a) There is no concluded contract between the Resolution Applicant and the

CoC until the NCLT approves of the same. Section 7 of the Contract Act

requires the acceptance of offer to be absolute, unconditional and

unqualified. Clauses 1.1.9, 1.2, 1.9.4 and 2.2.6 of the RFRP record the fact

that the Plan would be binding only after the approval of the Adjudicating

Authority;

(b) The RFRP is in the nature of an invitation to offer. Kundan Care’s

Resolution Plan is an offer that is made in pursuance of the RFRP. A

PART E

contract is concluded and becomes binding between the parties, only upon

the communication of its acceptance under Regulation 39(5) of the CIRP

Regulation, after the approval of the Adjudicating Authority under Section

31 of the IBC. It would be incorrect to term it as a concluded contract,

since it would have unforeseeable public ramifications;

acceptance is a settled principle in contract law and the Adjudicating

Authority can give effect to this under Section 60(5) of the IBC;

(d) Arguendo, if there is a concluded contract, it has become void under

Sections 32 and 35 of the Contract Act. Clause 1.8.3 of the RFRP provided

that the Plan must be valid for not less than six months. On this

representation, Kundan Care prepared financial projections on the

assumption that they would take over the project on 1 January 2020 and

make it operational by 1 April 2020. The projections were based on the

continuation of GUVNL’s PPA with Astonfield till 2037. Kundan Care even

furnished revised projections based on the assumption that they would be

able to take over the project by 30 September 2020 and make it

operational by 1 January 2021. Owing to this delay, Kundan Care had

noted that its original projections for the year 2038 went from a cumulative

profit of Rs 886.53 lakhs to a cumulative loss of Rs 760.71 lakhs. The ARP’s statement was recorded by the NCLT on 20 February 2020 that

Astonfield is incurring a daily loss of Rs 5 lakhs. This takes the cumulative

loss of Astonfield to Rs 1647.24 lakhs;

PART E

(e) Sl.No. 5.1 of Kundan Care’s Resolution Plan also clearly stated that they

would be at liberty to withdraw the Resolution Plan in the event that there

is any change in the information provided in the IM or new information is

available, which constitutes a ‘material adverse change’. Kundan Care

contends that this was specifically introduced due to GUVNL’s attempts to

terminate the PPA. The A-CoC was not obligated to accept this provision

in the Plan, but since it has, the provision must be enforced;

(f) Withdrawal was necessitated because of uncertainty over the continuation

of the sole contract of Astonfield, deterioration of the assets of Astonfield

owing to the floods in Gujarat, repudiation of Astonfield’s insurance claim

due to the alleged failure of the A-RP to provide supporting documents and

misrepresentation in respect of trade receivables towards non-availing the

benefit of accelerated depreciation; and

(g) Kundan Care had also demonstrated good faith since it sought to withdraw

the Resolution Plan on 17 December 2019, soon after GUVNL Appeal was

listed before this Court. This interim application for withdrawal was filed

within a month of the A-RP submitting the plan to the Adjudicating

Authority. The NCLAT erred in noting that this was a ploy on behalf of

Kundan Care to frustrate the CIRP after pushing out all rivals during the

bidding process;

(iii)Alternatively, the CoC-approved Resolution Plan is a contingent contract

under Section 32 of the Indian Contract Act:

PART E

(a) The contract has become void since the contingency of certainty of PPA

with GUVNL within a specified time through approval of the NCLT has

become impossible;

(b) GUVNL’s Appeal against the continuation of the PPA, resolved by this

Court in Gujarat Urja (supra), compounded by the COVID-19 pandemic

and the lockdown, is primarily responsible for the delay in the conclusion of

the CIRP. The delay, as of 14 July 2021, in concluding the CIRP is 608

days. The CIRP costs (Rs 12 lakhs per month approx.) are also increasing,

which have to be borne entirely by Kundan Care. The NCLT should have

considered the alternative prayer of permission to re-negotiate the financial

proposal with the CIRP;

of offer’, as was held analogously by this Court in Haridwar Singh v.

Bagun Sumbrui46 which held that the contract was not concluded in the

absence of the confirmation by the Government of the conditional

acceptance by the Divisional Forest Officer. A statutory reading of

Resolution Plans as contingent contracts under Section 7 and 32 of the

Contract Act would align with the intention of the IBC in attracting investors

to make offers as conditional acceptance of the Plan, until it becomes

binding upon approval under Section 31(1) of the IBC; and

(d) Only section 31(1) of the IBC makes the Resolution Plan binding on all

stakeholders, including the Resolution Applicant and the CoC. This view is

bolstered by the fact that criminal sanctions for non-implementation on a

46 (1973) 3 SCC 889

PART E

Resolution Applicant under Section 74(2) of the IBC are applicable only

after approval of the Resolution Plan under Section 31(1). Regulation 36-

A(7)(f) of the CIRP Regulations also states that the refundable deposit can

be forfeited only in case of discovery of any false information or record by

the prospective Resolution Applicant. Regulation 36-B(4A) also states that

the non-refundable deposit shall be forfeited only on failure to perform after

approval of the Plan under Section 31 of the IBC. The impugned

judgement’s effect is to make it binding prior to the Adjudicating Authority’s

approval which does violence to the unambiguous language of S.31(1).

This is further supported by the provisions of the IBC as noted by this

Court in ArcelorMittal India Private Limited v. Satish Kumar Gupta47,

that disapproval by the CoC of a Plan on the grounds of Section 29A of the

IBC is still appealable by the Resolution Applicant before the NCLT, and

therefore an approved Plan by CoC can still be replaced by another Plan

which has been able to satisfy the criteria under section 29A before the

NCLT. In other words, a Plan approved by the CoC does not result in a

concluded contract because it is replaceable by another party.

87 In the course of the final stage of the hearings, Kundan Care submitted

that it had mutually negotiated a settlement with A-RP/A-CoC and requested the

exercise of this Court’s powers under Article 142 of the Constitution of India for a

one-time relief of modification, which would enable them to arrive at a mutually

acceptable modification to the Resolution Plan.

47 Civil Appeal No. 9402 of 2018

PART E

E.2 Submissions for the first respondent

88 Mr Nakul Dewan, learned Senior Counsel appeared on behalf of the A-RP

in the Kundan Care Appeal. He has also appeared on behalf of the E-RP in the

Ebix Appeal, both being collectively disposed of by this judgement. He has made

the following submissions, in addition to the arguments recorded above in the

Ebix Appeal:

(i) There is no direct provision with respect to withdrawal of a Resolution Plan

under the IBC by a Resolution Applicant, once approved by the CoC.

Consequently, the Adjudicating or Appellate Authority has no jurisdiction to

direct withdrawals or modification of Resolution Plans;

(ii) Section 12 of the IBC provides for a time bound period of 180 days

extendable up to 330 days for the completion of the CIRP. Permitting the

Resolution Applicant to withdraw the Resolution Plan after the approval of

the CoC sets at naught the entire time period subsumed in negotiating and

voting upon a Resolution Plan;

(iii)Kundan Care was permitted to submit its Resolution Plan in spite of a

failure to submit an EOI in time. Kundan Care was aware of the pending

litigation regarding the continuance of the PPA with GUVNL and had

negotiated with the A-CoC on that basis. Yet, Kundan Care filed an

application to withdraw its Plan within a month of its approval and filing

before the Adjudicating Authority. The plea of withdrawal is an

opportunistic tactic for re-negotiation;

(iv)Clause 1.8.4 of the RFRP stated that a submitted Resolution Plan shall be

irrevocable. The format of the cover letter annexed to the RFRP also

PART E

makes statements on the binding effect of the submission and its

irrevocability. The LOI issued by Kundan Care also states that the

Resolution Applicant will not be permitted to withdraw;

(v) Clause 1.6.2 of the RFRP explicitly stated that any ‘Condition Precedents’

to the Plan had to be set out, for the CoC to specifically consider. Any

walk-away conditions also had to be conspicuously set out with a heading,

and under a consolidated paragraph. Sl. No.5.1 of the Resolution Plan was

not set out in this format, which clearly evinces that it is being deployed as

an afterthought to evade the consequences of a submitted Resolution

Plan. In any event, none of the claims of Kundan Care constitute a material

adverse change that they did not account for, after perusing the IM;

(vi)Sl.No. 5.1 of Kundan Care’s Resolution Plan was not introduced as a

condition precedent to the Resolution Plan. Sl.No. 12 of the Form H, that is

required to be mandatorily submitted by the RP to the Adjudicating

Authority, as per Regulation 39(4) of the CIRP Regulations expressly

stipulates ‘Conditionalities’ that need to be specified, for the benefit of the

Adjudicating Authority. Attempts at subsequent modification and

withdrawal are not supported by the Resolution Plan, the RFRP or the

provisions of the IBC;

(vii) The CIRP costs currently stand at Rs 2.5 crore which Kundan Care had

committed to paying in full. As of 26 July 2021, the unpaid CIRP cost is Rs

1.66 crores which would probably be payable from the pending insurance

claim. A table detailing the financial health of Astonfield for the last three

PART E

years was also annexed, to bolster the claim that financial health has

improved and profits can still be generated; and

(viii)The delay in approval of the Resolution Plan by the Adjudicating Authority

is an imponderable which cannot be used to resile from a binding contract.

The delay is also not attributable to the A-RP or the A-CoC.

E.3 Submissions for the second respondent

89 Mr V Giri, learned Senior Counsel appearing for EXIM Bank on behalf of

the A-CoC, has made the following submissions:

(i) A Resolution Plan approved by the CoC is submitted by the RP to the

NCLT under Section 30(6) of the IBC. Once the NCLT is satisfied that the

Resolution Plan complies with the requirements of Section 30(2), it grants

its approval to the Plan, which becomes binding on all the stakeholders

involved in the Resolution Plan. Thus, in the above scheme of things, IBC

does not contemplate withdrawal of Resolution Plan once it has been

approved by the CoC;

(ii) The penal provision under Section 74(3) is applicable to a successful

Resolution Applicant as it is a stakeholder in the CIRP. The existence of a

penal provision indicates that the legislature intended to deter and

discourage withdrawals of Resolution Plans;

(iii)CIRP is a time bound process of 180 days, which can be further extended

up to 330 days. If a successful Resolution Applicant is allowed to withdraw

its Resolution Plan, it will set the clock back on the time spent on receiving

PART E

the Resolution Plan, evaluating it under Section 30(2) of the IBC, putting it

to vote before the CoC and finally obtaining its approval from the

Adjudicating Authority;

(iv)Withdrawal of the Resolution Plan at this stage would result in the failure of

the CIRP and Astonfield will go into liquidation. IBC envisages liquidation

as the last resort;

(v) The process of issuing the RFRP and proposal of a Resolution Plan, and

its subsequent approval by the CoC is statutorily mandated. The formats of

the documents underlying the CIRP process are also provided by the

statute and the Regulations made thereunder. There is some room for

maneuverability provided to the parties to negotiate the terms of the

documents, however, that does not make any difference to the statutorily

prescribed nature of the documents; and

(vi)The approval of the Resolution Plan under Section 30(3) of the IBC by the

CoC creates a binding contract between the CoC and the successful

Resolution Applicant because:

(a) The proposed Resolution Plan has been approved by the CoC and has

been further submitted before the NCLT by the RP;

(b) A Resolution Applicant is aware of the conditions stipulated under the

IM and conducts its own due diligence. It is given an opportunity to

raise queries on the information that is provided in the IM. Thus, once

the Resolution Applicant decides to submit a Resolution Plan and a

substantial time and effort is spent by the RP and the CoC in the

process of finalizing and approving a Resolution Plan, it cannot simply

PART F

withdraw the Resolution Plan without being subjected to necessary

consequences;

parties to enter into a contract. The resulting contract is conditional only

upon the approval by the NCLT;

(d) Pursuant to the approval of the Resolution Plan by the CoC, the CoC

issues an unconditional LOI to the successful Resolution Applicant

stating that it has been selected as the successful Resolution Applicant

subject to the approval of the NCLT. The successful Resolution

Applicant accepts the LOI and submits a PBG. The successful

Resolution Applicant is required to state that the LOI is “accepted

unconditionally”. It is only after the LOI is unconditionally accepted by

the successful Resolution Applicant and the PBG is furnished, that the

RP makes an application to the NCLT for approval of the Resolution

Plan; and

(e) Contracting parties cannot renege on their promise to perform the

contract without facing any consequences.

F Submissions of counsel in the Seroco Appeal

F.1 Submissions for the appellant

90 Mr Tirth Nayak has made the following submissions on behalf of Seroco:

(i) The Resolution Plan was submitted on the basis of information that was

provided under the IM issued by the Arya-RP in August 2018. Over 18

PART F

months have passed since the Resolution Plan was submitted. The

inordinate delay in the approval of the Resolution Plan by the NCLT, along

with the outbreak of COVID-19 pandemic, has substantially affected the

valuation of Arya Filaments, apart from impacting its business operations

and financial position. Thus, Seroco is entitled to re-evaluate and modify

the Resolution Plan based on such considerations;

(ii) The delay cannot be attributed to Seroco;

(iii)The value of assets and the working capital funds of Arya Filaments have

plummeted due to the losses that have occurred in the past eighteen

months rendering the implementation of the current Resolution Plan

impossible, thereby making it necessary to modify the Plan to suit the

current circumstances;

(iv)Seroco was not made aware of the updated financial status of Arya

Filaments. It will be unjust if it is made to abide by a Resolution Plan that

was submitted eighteen months ago based on the IM that was issued over

twenty-four months ago;

(v) Clause 5.3.2. of the BLRC Report provides that the “RP must provide the

most updated information about the entity as accurate as is reasonably

possible to this range of solution providers. In order to do this, the RP has

to be able to verify claims to liabilities as well as the assets disclosed by

the entity. The RP has the power to appoint whatever outside resources

that she may require in order to carry out this task including accounting

and consulting services…”. Seroco cannot be expected to make a huge

PART F

investment in Arya Filaments without being given information on its current

financial status;

(vi)Seroco is genuinely interested in investing in Arya Filaments, however,

due to the change in circumstances, it is incapable of paying the entire

consideration as was stipulated under the current Resolution Plan; and

(vii) A Resolution Plan is an offer under Section 2(a) of the Contract Act. The

Resolution Applicant becomes bound by the offer only if the Resolution

Plan is approved by the NCLT. At present, the Plan is still under the

consideration of the NCLT. Thus, Seroco can withdraw or seek

modification of the Plan.

F.2 Submissions for the second and third respondents

91 Mr Jayant Mehta appearing on behalf of the Arya-CoC, consisting of Kotak

and UBIL, has supported the arguments of the E-CoC and A-CoC. He has urged

the following additional submissions:

(i) There is no scope for modification of a Resolution Plan, once it has been

submitted by the RP to the Adjudicating Authority, after voting by the CoC.

The only ground sought by Seroco for modification of the submitted

Resolution Plan here is the exigency that has arisen due to the pandemic.

This is evinced from the fact that the application for modification was made

within 2 months of the outbreak of the pandemic;

(ii) The Resolution Plan of Seroco was approved by the Arya-CoC on 10 May

2019 and submitted to the Adjudicating Authority for approval on 14 May

PART F

2019. When Seroco filed their application before the NCLT for modification

of the Resolution Plan, Kotak and UBIL, by their emails dated 13 July 2020

and 17 July 2020 respectively, had informed the Arya-RP that they record

their disapproval for any such attempts at modification of the Resolution

Plan which sought to reduce the resolution amount payable to secured

creditors by Rs 1.5 crore;

(iii)There has been no material change in the assets or valuation of Arya

Filaments. Seventy-five per cent of the funds were to be generated by

Seroco by the sale of the Arya Filament’s assets; and

(iv)The following authorities were cited to elucidate on the power of the

Adjudicating Authority, which is tightly circumscribed by the IBC, and

designed to uphold the commercial wisdom of the CoC: K Sashidhar48

(supra), Essar Steel49 (supra), Committee of Creditors AMTEK Auto

Limited Through Corporation Bank v. Dinkar T Venkatasubramanian

& Ors.50, Kalparaj Dharamshi v. Kotak Investment Advisors Ltd.51,

Jaypee Kensington Boulevard Apartments Welfare Association &

Ors. v. NBCC (India) Ltd. & Ors.52 and Ghanashyam Mishra and Sons

Private Limited through the Authorized Signatory v. Edelweiss Asset

Reconstruction Company Limited through the Director & Ors.

53 An

appeal under Section 61(3) of IBC, is therefore not maintainable for a

Resolution Applicant seeking modification of its approved Resolution Plan.

48 Paras 52-58, 62, 68, 65 49 Paras 65, 67, 69 and 88 50 (2021) 4 SCC 457 51 2021 SCC OnLine SC 204, para 143 52 2020 SCC OnLine SC 1192, para 170 53 2021 SCC OnLine SC 313, paras 55-57, 67, 77

PART G

The Adjudicating Authority in allowing any such modification, cannot do

indirectly, what the statute does not permit it to do directly.

92 The rival submissions in the three appeals shall now be considered.

G Purpose of a law on insolvency

93 An examination of the raison d’etre of the IBC must necessarily precede its

analytical interpretation. A purposive interpretation of the statute, as is argued by

the contesting parties, cannot be evinced without examining the aims and

objectives of the legislation. The IBC was introduced as a water-shed moment for

insolvency law in India that consolidated processes under several disparate

statutes such as the 2013 Act, SICA, SARFAESI, Recovery of Debts Act,

Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920,

into a single code. A comprehensive and time-bound framework was introduced

with smooth transitions between reorganization and liquidation, with an aim to

inter alia maximize the value of assets of all persons and balance the interest of

all stakeholders54.

94 Before we analyse the framework of the statute, the UNCITRAL Guide,

which was instructive for the Indian experience on drafting the IBC55, provides

some critical guidance on what an insolvency law represents. Notably, the

UNCITRAL Guide explicitly refrains from prescribing mandates for the specific

choices (procedural or substantive) that an insolvency law should provide.

54 Statement of Objects and Reasons, IBC, 2016 55 3.3.1, The report of the Bankruptcy Law Reforms Committee Volume I: Rationale and Design (November

2015), available at <https://ibbi.gov.in/BLRCReportVol1_04112015.pdf> accessed on 20 August 2021

PART G

Instead, it clarifies that each jurisdiction evolves its own insolvency regime based

on its social, political and economic goals. It notes56:

“15. Since an insolvency regime cannot fully protect the

interests of all parties, some of the key policy choices to be

made when designing an insolvency law relate to defining the

broad goals of the law (rescuing businesses in financial

difficulty, protecting employment, protecting the interests of

creditors, encouraging the development of an entrepreneurial

class) and achieving the desired balance between the specific

objectives identified above. Insolvency laws achieve that

balance by reapportioning the risks of insolvency in a

way that suits a State’s economic, social and political

goals. As such, an insolvency law can have widespread

effects in the broader economy…..

[…]

17. There is no universal solution to the design of an

insolvency law because States vary significantly in their

needs, as do their laws on other issues of key

importance to insolvency, such as security interests,

property and contract rights, remedies and enforcement

procedures. Although there may be no universal solution,

most insolvency laws address the range of issues raised by

the key objectives discussed above, albeit with different

emphasis and focus. Some laws favour stronger recognition

and enforcement of creditor rights and commercial bargains

in insolvency and give creditors more control over the conduct

of insolvency proceedings than the debtor (sometimes

referred to as “creditor-friendly” regimes). Other laws lean

towards giving the debtor more control over the proceedings

(referred to as “debtor-friendly” regimes), while yet others

seek to strike a balance in the middle…..” (emphasis

supplied)

95 With this legislative guidance from international law, the BLRC was

commissioned by the Government of India for submitting a report with

recommendations of reforms for the existing regime and a draft of the proposed

Insolvency and Bankruptcy Code. In November 2015, the BLRC Report

56 Pgs 14-16 of the UNCITRAL Legislative Guide to an Insolvency Law, available at

<https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf> accessed on

20 August 2021

PART G

published its report in two volumes, with the first volume57 delineating the

rationale and the second volume providing the design of the proposed legislation.

96 The BLRC report noted that the insolvency regime was due for a major

overhaul as the recovery rates in India were among the lowest in the world58 and

a revamped, coherent code was envisaged with speed and predictability woven

into its underlying design to ensure higher recovery rates and immediate

liquidation, in the event of a failed resolution. As noted by this Court in Essar

Steel (supra), the insolvency regime in India was overhauled after the provisions

of SICA, SARFAESI and Recovery of Debts Act, in spite of providing for

expeditious determination, were used by defaulting companies to enjoy extended

moratorium periods and failure to enforce timelines meant legal proceedings

would drag on for years and not result in recovery of stressed assets59. Similarly,

in its observation on “Speed is of Essence”, the BLRC report elaborated the

commercial purpose of a revamped insolvency regime in the following terms60:

“Speed is of essence for the working of the bankruptcy code,

for two reasons. First, while the “calm period” can help keep

an organisation afloat, without the full clarity of ownership and

control, significant decisions cannot be made. Without

effective leadership, the firm will tend to atrophy and fail. The

longer the delay, the more likely it is that liquidation will be the

only answer. Second, the liquidation value tends to go down

with time as many assets suffer from a high economic rate of

depreciation.

From the viewpoint of creditors, a good realisation can

generally be obtained if the firm is sold as a going concern.

Hence, when delays induce liquidation, there is value

destruction. Further, even in liquidation, the realisation is

lower when there are delays. Hence, delays cause value

57 supra note 55 58 Executive Summary, BLRC Report, supra note 55 59 Para 118, Essar Steel (supra) 60 Executive Summary, BLRC Report, supra note 55

PART G

destruction. Thus, achieving a high recovery rate is primarily

about identifying and combating the sources of delay.”

In identifying the sources of delay, adjudicating mechanisms were identified as

one of the two important sources of delay which need to be equipped with the

right resources. In order to respond to the rapid changes in the economy, the

BLRC report recommended the formation of an IBBI which would function as a

regulator and formulate regulations that dynamically detail the procedural norms

of the working of the IBC with the necessary immediacy. It is also important for

this Court, as a constitutional authority which determines questions of law

concerning the IBC framework, to note that a rapid liquidation may sometimes be

preferable to a protracted CIRP. This sentiment was stressed in the BLRC

Report, in its concluding statement in the Executive Summary, which noted:

“Conclusion

The failure of some business plans is integral to the process

of the market economy. When business failure takes place,

the best outcome for society is to have a rapid re-negotiation

between the financiers, to finance the going concern using a

new arrangement of liabilities and with a new management

team. If this cannot be done, the best outcome for society is a

rapid liquidation. When such arrangements can be put into

place, the market process of creative destruction will work

smoothly, with greater competitive vigor and greater

competition.

India is in the process of laying the foundations of a mature

market economy. This involves well drafted modern laws, that

replace the laws of the preceding 100 years, and high

performance organisations which enforce these new laws.

The Committee has endeavored to provide one critical

building block of this process, with a modern insolvency and

bankruptcy code, and the design of associated institutional

infrastructure which reduces delays and transaction costs.

We hope that the implementation of this report will increase

GDP growth in India by fostering the emergence of a modern

credit market, and particularly the corporate bond market.

PART G

GDP growth will accelerate when more credit is available to

new firms including firms which lack tangible capital. While

many other things need to be done in achieving a sound

system of finance and firms, this is one critical building block

of that edifice.”

97 A reading together of the UNCITRAL Guide and the BLRC Report clarifies,

in no uncertain terms, that the procedure designed for the insolvency process is

critical for allocating economic coordination between the parties who partake in,

or are bound by the process. This procedure produces substantive rights and

obligations. For instance, the composition of the CoC, the method and

percentage of its voting, the timelines for CIRP, the obligation on the RP to file

specific forms after every stage of the process and the obligation to explain to the

Adjudicating Authority reasons for any deviations from the timeline while

submitting a Resolution Plan, and other such procedural requirements create a

mechanism which tightly structures the conduct of all participants in the

insolvency process. This process invariably has an impact on the conduct of the

Resolution Applicant who participates in the process and consents to be bound

by the RFRP and the broader insolvency framework. An analysis of the

framework of the statute and regulations provides an insight into the dynamic and

comprehensive nature of the statute. Upholding the procedural design and

sanctity of the process is critical to its functioning. The interpretative task of the

Adjudicating Authority, Appellate Authority, and even this Court, must be

cognizant of, and allied with that objective. The UNCITRAL Guide has echoed

PART G

this position by noting the interplay between the procedural design of the

insolvency law and the corresponding institutional infrastructure by observing61:

“27. While the institutional framework is not discussed in any

detail in the Legislative Guide, some of the issues are

touched upon below. Notwithstanding the variety of

substantive issues that must be resolved, insolvency laws are

highly procedural in nature. The design of the procedural

rules plays a critical role in determining how roles are to be

allocated between the various participants, in particular in

terms of decision-making. To the extent that the insolvency

law places considerable responsibility upon the institutional

infrastructure to make key decisions, it is essential that that

infrastructure be sufficiently developed to enable the required

decisions to be made.”

98 Any claim seeking an exercise of the Adjudicating Authority’s residuary

powers under Section 60(5)(c) of the IBC, the NCLT’s inherent powers under

Rule 11 of the NCLT Rules 2016 or even the powers of this Court under Article

142 of the Constitution must be closely scrutinized for broader compliance with

the insolvency framework and its underlying objective. The adjudicating

mechanisms which have been specifically created by the statute, have a narrowly

defined role in the process and must be circumspect in granting reliefs that may

run counter to the timeliness and predictability that is central to the IBC. Any

judicial creation of a procedural or substantive remedy that is not envisaged by

the statute would not only violate the principle of separation of powers, but also

run the risk of altering the delicate coordination that is designed by the IBC

framework and have grave implications on the outcome of the CIRP, the

economy of the country and the lives of the workers and other allied parties who

61 page 20, UNCITRAL Guide, supra note 56

PART H

are statutorily bound by the impact of a resolution or liquidation of a Corporate

Debtor.

H Nature of a Resolution Plan

99 Before we advert to whether withdrawals or modifications by successful

Resolution Applicants are permissible under the IBC, we must begin by

understanding the nature of a Resolution Plan. “Resolution Plan” has been

defined in Section 5(26) of the IBC in the following terms:

“(26) “resolution plan” means a plan proposed by resolution

applicant for insolvency resolution of the corporate debtor as

a going concern in accordance with Part II;

Explanation.—For the removal of doubts, it is hereby clarified

that a resolution plan may include provisions for the

restructuring of the corporate debtor, including by way of

merger, amalgamation and demerger;”

The Explanation to the provision was added by the Insolvency and Bankruptcy

Code (Amendment) Act 2019. Further, the term “Resolution Applicant” was

substituted for “any person” by the Insolvency and Bankruptcy Code

(Amendment) Act 2018.

100 The term “Resolution Applicant” has been defined in Section 5(25) of the

IBC as follows:

“(25) “resolution applicant” means a person, who individually

or jointly with any other person, submits a resolution plan to

the resolution professional pursuant to the invitation made

under clause (h) of sub-section (2) of Section 25 or pursuant

to Section 54-K, as the case may be”

PART H

101 The IBC provides a roadmap for the entire CIRP in Chapter II of Part II.

This process is tightly regulated to include, inter alia, timelines of the CIRP

specified by Section 12, duties of the RP to provide adequate information to

propose a Resolution Plan in Section 29 and restrictions on who can be a

Resolution Applicant in Section 29A. Thereafter, Section 30 provides for the

submission of a Resolution Plan, and it reads as follows:

“30. Submission of resolution plan.—(1) A resolution applicant

may submit a resolution plan along with an affidavit stating

that he is eligible under Section 29-A to the resolution

professional prepared on the basis of the information

memorandum.

(2) The resolution professional shall examine each resolution

plan received by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process

costs in a manner specified by the Board in priority to the

payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors

in such manner as may be specified by the Board which shall

not be less than—

(i) the amount to be paid to such creditors in the event of a

liquidation of the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors, if

the amount to be distributed under the resolution plan had

been distributed in accordance with the order of priority in

sub-section (1) of Section 53,

whichever is higher, and provides for the payment of debts of

financial creditors, who do not vote in favour of the resolution

plan, in such manner as may be specified by the Board,

which shall not be less than the amount to be paid to such

creditors in accordance with sub-section (1) of Section 53 in

the event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby

clarified that a distribution in accordance with the provisions

of this clause shall be fair and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby

declared that on and from the date of commencement of the

Insolvency and Bankruptcy Code (Amendment) Act, 2019, the

PART H

provisions of this clause shall also apply to the corporate

insolvency resolution process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected

by the Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61 or

Section 62 or such an appeal is not time barred under any

provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court

against the decision of the Adjudicating Authority in respect of

a resolution plan;

corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for

the time being in force;

(f) conforms to such other requirements as may be specified

by the Board.

Explanation.—For the purposes of clause (e), if any approval

of shareholders is required under the Companies Act, 2013

(18 of 2013) or any other law for the time being in force for

the implementation of actions under the resolution plan, such

approval shall be deemed to have been given and it shall not

be a contravention of that Act or law.

(3) The resolution professional shall present to the committee

of creditors for its approval such resolution plans which

confirm the conditions referred to in sub-section (2).

(4) The committee of creditors may approve a resolution plan

by a vote of not less than sixty-six per cent of voting share of

the financial creditors, after considering its feasibility and

viability the manner of distribution proposed, which may take

into account the order of priority amongst creditors as laid

down in sub-section (1) of Section 53, including the priority

and value of the security interest of a secured creditor, and

such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a

resolution plan, submitted before the commencement of the

Insolvency and Bankruptcy Code (Amendment) Ordinance,

2017, where the resolution applicant is ineligible under

Section 29-A and may require the resolution professional to

invite a fresh resolution plan where no other resolution plan is

available with it:

PART H

Provided further that where the resolution applicant referred

to in the first proviso is ineligible under clause (c) of Section

29-A, the resolution applicant shall be allowed by the

committee of creditors such period, not exceeding thirty days,

to make payment of overdue amounts in accordance with the

proviso to clause (c) of Section 29-A:

Provided also that nothing in the second proviso shall be

construed as extension of period for the purposes of the

proviso to sub-section (3) of Section 12, and the corporate

insolvency resolution process shall be completed within the

period specified in that sub-section.

Provided also that the eligibility criteria in Section 29-A as

amended by the Insolvency and Bankruptcy Code

(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to

the resolution applicant who has not submitted resolution plan

as on the date of commencement of the Insolvency and

Bankruptcy Code (Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of the

committee of creditors in which the resolution plan of the

applicant is considered:

Provided that the resolution applicant shall not have a right to

vote at the meeting of the committee of creditors unless such

resolution applicant is also a financial creditor.

(6) The resolution professional shall submit the resolution

plan as approved by the committee of creditors to the

Adjudicating Authority.”

Once a Resolution Applicant submits a Resolution Plan under sub-Section (1) of

Section 30, the RP must assess whether it conforms with all the requirements of

sub-Section (2). Having satisfied itself, the RP under sub-Section (3) must then

present those Resolution Plans to the CoC which fulfill the criteria under subSection (2). The CoC will then proceed to decide on the approval of the

Resolution Plan, with a majority vote of sixty-six percent, after satisfying itself that

the requirements under sub-Section (4) have been met, including testing the

Resolution Plan for its feasibility and viability. A Resolution Applicant may attend

this meeting of the CoC under sub-Section (5), but it does not have a right to vote

PART H

unless it is also a financial creditor. The Resolution Plan approved by the CoC

under sub-Section (4) is then placed by the RP before the Adjudicating Authority

for its approval under sub-Section (6).

102 Other than the IBC, the process is also regulated by the CIRP Regulations

created under the IBC. Regulation 37 provides an illustration of the solutions

which can be proposed in a Resolution Plan. Regulation 38 provides for the

mandatory contents of a Resolution Plan, which are similar to the pre-conditions

mentioned in Section 30(2) of the IBC. Regulation 39 provides for the process of

approval of a Resolution Plan by the CoC, and under sub-Regulation (3), the

CoC has to evaluate every Resolution Plan based on an “evaluation matrix” it has

come up with under Regulation 5(ha).

103 Having briefly taken an overview of the process, we now understand that

there are broadly three stages: (i) the first stage is prior to and ends with the

approval of the Resolution Plan by the CoC; (ii) the second stage is the interim

period between the Resolution Plan’s approval by the CoC and before its

confirmation by the Adjudicating Authority; and (iii) the third stage is after the

approval of the Resolution Plan by the Adjudicating Authority. In the first stage,

the relationship between the parties is explicitly governed by the provisions of the

IBC – such as the right of a prospective Resolution Applicant to seek the IM and

RFRP upon submission of its EOI, which may have been rejected by the RP (as it

happened in the Kundan Care Appeal). In the third stage, the same holds true

since Section 31(1) makes the Resolution Plan binding upon all the stakeholders

and its violation will attract a penalty under Section 74 of the IBC. However, what

we are assessing right now is the interim second stage between both of those. To

PART H

understand the relationship of the parties therein, it becomes important to

understand the exact “nature” of the Resolution Plan after it has been submitted

to the Adjudicating Authority and before it has been approved under Section

31(1).

104 To summarize the arguments of the parties, the appellants have argued

that Resolution Plans are in the nature of an offer, which becomes binding as a

concluded contract only once the Adjudicating Authority has approved the

Resolution Plan. Section 7 of the Contract Act requires the acceptance of offer to

be absolute, unconditional and unqualified. Since the approval by the CoC is

effectively conditional upon the confirmation of the Plan by the Adjudicating

Authority, it cannot be said that there is absolute acceptance of the Resolution

Plan. Alternatively, it has been argued that Resolution Plans approved by the

CoC are contingent contracts, whose enforceability is conditional upon the

approval of the Adjudicating Authority in accordance with Section 32 of the

Contract Act. The Respondents (RPs and the CoCs) have argued that a

concluded contract comes into being when the Resolution Plan is approved by

the CoC and a successful Resolution Applicant cannot renege from their

contractual obligation to implement the Resolution Plan. In furtherance of this

argument, Mr Shyam Divan appearing for the E-CoC made a reference to the

Specific Relief (Amendment) Act 2018, which has brought a change to the regime

on contract enforcement in India by making specific performance the norm rather

than the exception.

105 The determination of the nature of the Resolution Plan would help us

establish the source of the legal force of the Resolution Plan – whether it is the

PART H

statute, i.e., the IBC or the law of contract. The insolvency process, as governed

by the IBC, does not merely structure the conduct of all the participants in the

process after finalization and approval of a Resolution Plan by a CoC, but also

the conduct stemming from the very first steps of inviting prospective Resolution

Applicants. The RP, with the approval of the CoC62, invites prospective

Resolution Applicants through an RFRP. Once an unconditional EOI has been

received from prospective Resolution Applicants who are otherwise eligible under

Section 29A, the RP prepares an IM as per the provisions of Section 29 which

furnishes all relevant information of the Corporate Debtor to enable prospective

Resolution Applicants to make an informed decision, before proposing a

Resolution Plan. As a consequence of the IBC and its regulations, prospective

Resolution Applicants, who are not disqualified under Section 29A, propose

drafts of their Resolution Plans. The RP examines the Resolution Plan against

the contours of Section 30(2) and submits only the eligible plans to the CoC63.

Prior to the IBBI (CIRP) (Fourth Amendment) Regulations 2020, which now

requires the CoC to vote on all Plans simultaneously after recording its

deliberations on the feasibility and viability of each Plan, Regulation 39(3) earlier

enabled the CoC to approve a Resolution Plan with “such modifications as it

deems fit”. This meant that the prospective Resolution Applicants and the CoC

would indulge in several rounds of negotiations, within a strict time-frame, to

arrive at a mutually agreeable Resolution Plan which was then subject to voting

by the CoC. Subsequent to the voting, the RP would submit the plan to the

Adjudicating Authority along with receipt of the PBG and a compliance certificate

62 Section 25(2)(h), IBC 63 Regulation 39(2), CIRP Regulations

PART H

in the form of Form H. Each of the stages detailed above correspond to several

rights and obligations on all parties that are specifically created by the statute.

106 Since the interpretation of the IBBI (CIRP)(Fourth Amendment)

Regulations 2020 and the impact on the Resolution Applicants and the CoC to

negotiate the terms of the Resolution Plan is not before this Court and the

present appeal essentially seeks to determine the nature of the Resolution Plan

after its approval by the CoC and prior to its approval by the Adjudicating

Authority, this Court will proceed to determine of the nature of such a Plan, on the

assumption of the law as it stood then, i.e., Regulation 39(3) which directed that

“[t]he committee shall evaluate the resolution plans received under sub-regulation

(1) strictly as per the evaluation matrix to identify the best resolution plan and

may approve it with such modifications as it deems fit”

64. This power of the CoC

to suggest modifications invariably entailed an element of negotiation with the

Resolution Applicants, who would make suitable revisions and re-submit their

Resolution Plans. The scope of a commercial bargain with the Resolution

Applicants evinces a sense of a negotiated agreement that is arrived between the

parties, which resembles an exercise of contractual freedom by the CoC and the

Resolution Applicant.

107 If this court were to hold that CoC-approved Resolution Plans are indeed

contracts, their provisions would still have to conform to the statutory provisions

of the IBC. However, such an interpretation would entail that CoC-approved

Resolution Plans are at the intersection of the IBC and the Contract Act. This

64 As substituted by the Notification No. IBBI/2018-19/GN/REG031, dated 3rd July, 2018 (w.e.f. 04-07-2018).

Prior to this substitution, Regulation 39(3) stated “the committee may approve any resolution plan with such

modifications as it deems fit.”

PART H

would mean that certain principles of contract law, for example those relating to

discharge, penalties, remedies and damages would become applicable to CoCapproved Resolution Plans. For instance, in the United States, plans confirmed

by courts have been characterized as contracts, whose breach can even give rise

to contractual remedies. In In re Hoffinger Indus, Inc65, a bankruptcy court in

Arkansas has held that “a confirmed plan should be enforceable and amenable to

damages between contractually bound parties.” Indeed, it has been argued

before us that Resolution Plans should be enforced through the contractual

remedy of specific performance. Further, a determination that Resolution Plans

are contracts in the period between approval by the CoC and the approval of the

Adjudicating Authority would require us to analyse whether all elements of

contract formation have been satisfied, including the question of whether the

acceptance of the Resolution Plan by the CoC fulfils the criteria laid down under

Section 7 of the Contract Act or whether the conditionality of seeking approval

from the Adjudicating Authority makes the Resolution Plan a contingent contract.

Our intent of laying down the consequences of our determination of Resolution

Plans as contracts is to highlight the importance of ascertaining the nature of a

CoC-approved Resolution Plan, prior to its approval by the Adjudicating Authority.

108 The text of the IBC does not specify whether Resolution Plans at the

second stage of the process, i.e., in the intervening period of submission to and

approval by the Adjudicating Authority, are pure contracts. As noted previously,

by specifications such as eligibility for resolution applicants, the contents of the

IM and duties of the RP to prospective Resolution Applicants and statutory

65 327 B.R. 389 (Bankr. E.D. Ark. 2005), United States Bankruptcy Court, E.D. Arkansas

PART H

procedures on timelines and voting, strictly govern the insolvency process even

prior to the submission of the Plan to the Adjudicating Authority. The CoC, who

the appellants allege is in the nature of a free contracting party, is governed by

the binding principles of the statute with regard to the contents and nature of the

statutory plan that it approves under Section 30(4) and even its own composition.

109 Section 30(4) provides that the consent of all the members of the CoC,

though a unanimous vote is not required and a sixty-six per cent vote is sufficient

for approval of a resolution plan. The constitution of the CoC is based on specific

scenarios envisaged in the statute and accounts for varying compositions, based

on factors such as the nature and quantum of debt owed. For example, if it

comprises of operational creditors alone, the percentage of debt owed between

the operational and financial creditors and other such variables impact voting

thresholds inter se members of the CoC. A sixty-six per cent vote of the CoC is

required to approve a Resolution Plan. The dissenting creditors are deemed to

have given their approval and are bound by the decision of the majority of the

CoC. The dissenting creditors are bound as a result of the statutory provision and

not because they have actually consented to be parties to such an arrangement.

Other elements governing the Resolution Plan indicate that the entire process

from initiation and leading up to its acceptance by the CoC takes place within the

framework of the IBC. In addition, the IBC provides penalties for non-compliance

with the Resolution Plan after its approval under Section 31 and forfeiture of the

PBG for failing to implement the Resolution Plan or contributing to the failure of

its implementation. The violation of the terms of the Resolution Plan does not

give rise to a claim of damages, rather it leads to prosecution and imposition of

PART H

100

punishment under Section 74 of the IBC. On the contrary, a CoC’s withdrawal of

the CIRP under Section 12A is coupled with a requirement of payment of CIRP

costs, but no damages are statutorily payable to the Resolution Applicant,

irrespective of the stage of the withdrawal.

110 The CoC even with the requisite majority, while approving the Resolution

Plan must consider the feasibility and viability of the Plan and the manner of

distribution proposed, which may take into account the order of priority amongst

creditors as laid down in sub-section (1) of section 53 of the IBC. The CoC

cannot approve a Resolution Plan proposed by an applicant barred under Section

29A of the IBC. Regulation 37 and 38 of the CIRP Regulations govern the

contents of a Resolution Plan. Furthermore, a Resolution Plan, if in compliance

with the mandate of the IBC, cannot be rejected by the Adjudicating Authority and

becomes binding on its approval upon all stakeholders – including the Central

and State Government, local authorities to whom statutory dues are owed,

operational creditors who were not a part of the CoC and the workforce of the

Corporate Debtor who would now be governed by a new management. Such

features of a Resolution Plan, where a statute extensively governs the form,

mode, manner and effect of approval distinguishes it from a traditional contract,

specifically in its ability to bind those who have not consented to it. In the pure

contractual realm, an agreement binds parties who are privy to the contract. In

the context of a resolution Plan governed by the IBC, the element of privity

becomes inapplicable once the Adjudicating Authority confirms the Resolution

Plan under Section 31(1) and declares it to be binding on all stakeholders, who

are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a

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101

commentator has noted that the purpose of bankruptcy law is to actually solve a

specific ‘contracting failure’ that accompanies financial distress. Such a

contracting failure arises because “financial distress involves too many parties

with strategic bargaining incentives and too many contingencies for the firm and

its creditors to define a set of rules of every scenario.” Thus, insolvency law

recognizes that parties can take benefit of such ‘incomplete contract’ to hold each

other up for their individual gain. In an attempt to solve the issue of

incompleteness and the hold-up threat, the insolvency law provides procedural

protections i.e., “the law puts in place guardrails that give the parties room to

bargain while keeping them from taking position that veer toward extreme hold

up”

66.

111 It may be useful to refer to how this Court has analyzed instruments that

are analogous to a Resolution Plan. In SK Gupta v. KP Jain67, this Court while

discussing the nature of compromise or arrangements entered between a

company and its creditors or members observed that such a compromise or

arrangement once sanctioned by the court is not merely an agreement between

parties because it binds even dissenting creditors or members through statutory

force. This Court made the following observations:

“12…The scheme when sanctioned does not merely

operate as an agreement between the parties but has

statutory force and is binding not only on the company but

even dissenting creditors or members, as the case may be.

The effect of the sanctioned scheme is “to supply by recourse

to the procedure thereby prescribed the absence of that

66 Anthony J. Casey, ‘Chapter 11’s Renegotiation Framework and the Purpose of Corporate Bankruptcy’,

Columbia Law Review Vol 120 No 7, available at <https://columbialawreview.org/content/chapter-11srenegotiation-framework-and-the-purpose-of-corporate-bankruptcy/> accessed on 5 September 2021 67 (1979) 3 SCC 54

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individual agreement by every member of the class to be

bound by the scheme which would otherwise be necessary to

give it validity” [see J.K. (Bombay) Pvt. Ltd. v. New Kaiser-iHind Spg. & Wvg. Co. Ltd. [AIR 1970 SC 1041 : (1969) 2

SCR 866, 891 : (1970) 40 Com Cas 689] ]..”

(emphasis supplied)

112 While the above observations were made in the context of a scheme that

has been sanctioned by the Court, the Resolution Plan even prior to the approval

of the Adjudicating Authority is binding inter se the CoC and the successful

Resolution Applicant. The Resolution Plan cannot be construed purely as a

‘contract’ governed by the Contract Act, in the period intervening its acceptance

by the CoC and the approval of the Adjudicating Authority. Even at that stage, its

binding effects are produced by the IBC framework. The BLRC Report mentions

that “[w]hen 75% of the creditors agree on a revival plan, this plan would be

binding on all the remaining creditors”68. The BLRC Report also mentions that,

“the RP submits a binding agreement to the Adjudicator before the default

maximum date”69. We have further discussed the statutory scheme of the IBC in

Sections I and J of this judgement to establish that a Resolution Plan is binding

inter se the CoC and the successful Resolution Applicant. Thus, the ability of the

Resolution Plan to bind those who have not consented to it, by way a statutory

procedure, indicates that it is not a typical contract.

113 The BLRC Report, which furnished the first draft of the IBC and elaborated

on the aims behind the overhaul of the insolvency regime, refers to a CoCapproved Resolution Plan as a ‘binding contract’ in one instance and refers to it

as a ‘binding agreement’ in other instances. The report also refers to a CoC-

68 Page 13, BLRC Report, supra note 55 69 Page 92, BLRC Report, supra note 55

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approved Resolution Plan as a ‘financial arrangement’70, ‘revival plan’71 or a

‘solution’72. The interchangeability of the terms – ‘agreement’, ‘contract’, ‘financial

arrangement’, ‘revival plan’ and ‘solution’ indicates that there is no clear intention

of the BLRC in characterizing the nature of the Resolution Plan as a contract.

The binding effect of the Resolution Plan has the consequence of preventing the

CoC or the Resolution Applicant to renege from its terms after the plan has been

approved by the CoC through a voting mechanism. The fleeting mention of a

‘binding contract’ on one occasion in the BLRC Report (which was a prelegislative text that underwent subsequent modifications by the Legislature) to

indicate the binding nature of the Resolution Plan and the finality of negotiations

once it is approved by the CoC, does not establish the legal nature of the

document, especially when it is not complemented by the text and design of the

IBC.

114 Certain stages of the CIRP resemble the stages involved in the formation

of a contract. Echoes of the process involved in the formation of a contract

resonate in the steps antecedent to the approval of a Resolution Plan such as: (i)

the issuance of an RFRP may be equated to an invitation to offer; (ii) a

Resolution Plan can be considered as a proposal or offer; and (iii) the approval

by the CoC may be similar to an acceptance of offer. The terms of the Resolution

Plan contain a commercial bargain between the CoC and Resolution Applicant.

There is also an intention to create legal relations with binding effect. However, it

is the structure of the IBC which confers legal force on the CoC-approved

70 Page 21, BLRC Report, supra note 55 71 Page 13, BLRC Report, supra note 55 72 Pages 21, 75 and 126, BLRC Report, supra note 55

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Resolution Plan. The validity of the Resolution Plan is not premised upon the

agreement or consent of those bound (although as a procedural step the IBC

requires sixty-six percent votes of creditors), but upon its compliance with the

procedure stipulated under the IBC.

115 It was argued for the E-RP that a Resolution Plan is a contract executed in

furtherance of a statutory regime under the IBC. A question arises whether a

Resolution Plan can be classified as a ‘statutory contract’. This Court has defined

a statutory contract in India Thermal Power Ltd. v. State of MP73 in the

following terms:

“11. Section 43 empowers the Electricity Board to enter into

an arrangement for purchase of electricity on such terms as

may be agreed. Section 43-A(1) provides that a generating

company may enter into a contract for the sale of

electricity generated by it with the Electricity Board. As

regards the determination of tariff for the sale of electricity by

a generating company to the Board, Section 43(1)(2) provides

that the tariff shall be determined in accordance with the

norms regarding operation and plant-load factor as may be

laid down by the authority and in accordance with the rates of

depreciation and reasonable return and such other factors as

may be determined from time to time by the Central

Government by a notification in the Official Gazette. These

provisions clearly indicate that the agreement can be on such

terms as may be agreed by the parties except that the tariff is

to be determined in accordance with the provision contained

in Section 43-A(2) and notifications issued thereunder.

Merely because a contract is entered into in exercise of

an enabling power conferred by a statute that by itself

cannot render the contract a statutory contract. If

entering into a contract containing the prescribed terms

and conditions is a must under the statute then that

contract becomes a statutory contract. If a contract

incorporates certain terms and conditions in it which are

statutory then the said contract to that extent is

statutory. A contract may contain certain other terms and

conditions which may not be of a statutory character and

73 (2000) 3 SCC 379

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which have been incorporated therein as a result of

mutual agreement between the parties. Therefore, the

PPAs can be regarded as statutory only to the extent that

they contain provisions regarding determination of tariff and

other statutory requirements of Section 43-A(2)…”

(emphasis supplied)

116 The above observations were in the context of a PPA entered into under

the provisions of Electricity Supply Act 1948. Section 43-A(1) of the Act

stipulated that the generating company may enter into a contract with the

Electricity Board. Thus, the judgement pre-supposes the existence of a subsisting

contract. The controversy in the case was whether the PPA could be

characterized as a statutory contract. To say that a Resolution Plan is a statutory

contract, we must first consider whether the IBC envisages the CoC-approved

Resolution Plan as a contract. There is no provision under the IBC referring to a

Resolution Plan as a contract, unlike Section 43-A(1) of the Electricity Supply Act

1948 which mentions that a contract may be entered into between the concerned

parties. The legal force of a Resolution Plan arises due to the framework

provided under the IBC. The mechanisms of the IBC provide sufficient guidance

on the conduct of all participants in the process and the binding effect of the CoCapproved Resolution Plan is evidenced by the execution of a PBG furnished by

the successful Resolution Applicant, in compliance with the CIRP Regulations.

This PBG is returnable once the Adjudicating Authority approves the Resolution

Plan under Section 31 and makes it binding on all stakeholders. Therefore, the

IBC and its regulations institute sufficient safeguards to ensure the binding effect

of a CoC-approved Resolution Plan. In our discussion in Sections I and J below,

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we further elaborate on the nature of a CoC-approved Resolution Plan and the

code of conduct that is permissible by the statutory framework.

117 While insolvency regimes are specific to each jurisdiction, it may be useful

to analyze how Resolution Plans or similar instruments are characterized in

foreign jurisdictions.

118 Certain precedents from other jurisdictions have been cited by Mr Nakul

Devan for the E-RP, to argue that contracts entered into, in furtherance of a

statutory regime have to be interpreted in accordance with the objective and

intent of the concerned statute. It has been submitted that the Resolution Plan is

one variety of such a statutory contract. However, since we have arrived at the

decision that Resolution Plans are not statutory contracts, it is not required for us

to analyze whether terms of the Resolution Plan can be given effect to, as terms

of a contract, as long as they further the statutory objective. It is also important to

note that India adopts a unique insolvency framework where third-parties have

the right to participate in an insolvency regime and acquire the Corporate Debtor

as a going concern. In several jurisdictions, the insolvency arrangements are

between the debtor and the creditors, which has a closer resemblance to

‘repayment plans’ by corporate debtors, as envisaged by the IBC under Section

105 and broadly prescribed under Chapter III as opposed to ‘resolution plans’

that are not proposed by debtors. In any event, an analysis of such arrangements

is detailed below.

119 In the United Kingdom, the UK Act allows the directors, administrator or

liquidator of a company to propose a company voluntary arrangement or a ‘CVA’

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(similar to Section 10 of the IBC), which has to be approved by creditors having

seventy-five per cent of the vote share. Section 5(2)(b)74 of the UK Act provides

that once the CVA is approved, the company and the creditors are bound by it.

Professor Roy Goode in his authoritative treatise Principles of Corporate

Insolvency Law75 observes that, “[t]he wording of s.5(2)(b), discussed below, has

led the courts to characterise the relationship between the parties to a CVA as

essentially contractual in nature and its scope and effect are determined by its

terms, which fall to be interpreted by application of the ordinary principles of

contractual interpretation.” In some judgements of the Court of Appeal, English

Courts have held that a CVA creates a contractual obligation76, is a statutory

contract77, or has a contractual effect and is subject to ordinary principles of

interpretation applying to contracts78. However, the position on this issue is not

completely settled. In a recent decision of the High Court of Justice79, it was held

that the CVA is not a contract. Crucially the court made the following

observations:

“83. Further, and as noted by Mr Pymont QC in SHB

Realisations Ltd, a voluntary arrangement is not formed or

analysed as a contract. Certain legal principles applicable

to contracts, for example their interpretation, are applied

to voluntary arrangements; that is no less true of other

instruments which are not contracts. Other principles of

contract law, for example those relating to penalties, are

not applicable to voluntary arrangements. Mr Pymont QC

concluded that a voluntary arrangement is not a contract.

74“5 …(2) The voluntary arrangement— (b) binds every person who in accordance with the rules — (i) was

entitled to vote in the qualifying decision procedure by which the creditors' decision to approve the voluntary

arrangement was made, or (ii) would have been so entitled if he had had notice of it — as if he were a party to

the voluntary arrangement.”

75 Roy Goode, Principles of Corporate Insolvency Law (5th edn., Sweet and Maxwell, 2018) 76 Re TBL Realisations Plc, Oakley-Smith v Greenberg, [2004] B.C.C. 81 (Court of Appeal) 77 Tucker v Gold Fields Mining LCC, [2010] B.C.C. 544 (Court of Appeal) 78 Heis v Financial Services Compensation Scheme Ltd, [2018] EWCA Civ 1327 (Court of Appeal) 79 Re Rhino Enterprises Properties Ltd. Schofield v Smith [2020] EWHC 2370 (Ch).

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Characterising a CVA as a hypothetical agreement or by

reference to a statutory hypothesis neatly and accurately

makes clear that a CVA is different from, and is not in fact, a

contract.”

(emphasis supplied)

120 In Singapore, under Section 210 (3AA and 3AB) of the Singapore Act, a

compromise or arrangement between the company and its creditors becomes

binding when the requisite majority of creditors agree to it and it is approved by

the court. The Singapore Court of Appeal has referred to such a scheme of

arrangement as a ‘contractual scheme’80. Subsequently, a controversy arose

before the Singapore Court of Appeal on whether a scheme can be substantially

amended after it has been approved by the court. The court observed that the

answer to this question depends upon the nature of schemes of arrangement;

whether the schemes derived their efficacy from the order of the court or the

statute. The court observed that under the English approach81, a scheme

approved by the majority of the creditors derives its efficacy from the statute and

is a statutory contract. Thus, the court has a limited jurisdiction and cannot make

substantial alterations to such a scheme. However, the court noted that in

Australia, the scheme operates as an order of the court. The court held that its

previous decision which referred to a scheme of arrangement as a ‘contractual

scheme’ does not mean that in Singapore such schemes are considered as

statutory contracts. The court chose to follow the Australian approach holding

that a scheme takes effect as an order of the court and like any other court order,

it can be altered, in certain circumstances. The court observed:

80 Daewoo Singapore Pte Ltd v CEL Tractors Private Limited, [2001] 4 SLR 35 (Court of Appeal) 81 Kempe and Another v. Ambassador Insurance Co., [1998] 1 W.L.R. 271

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“66. ….We would also add, in respect of the latter concern,

that a court order is in no way less binding than a statutory

contract on the parties to a scheme of arrangement, and it is

trite law as well as common sense that a court order cannot

be altered at will by the parties who are subject to the

order….”

121 In Australia, as noted above, the scheme of arrangement operates as a

court order82. The Supreme Court of New South Wales, rejecting the English

approach of characterizing schemes (different from CVAs) as statutory contracts,

observed:

“46..

[….]

(b) In Australia, [the] authorities [namely, Hill v Anderson

Meat Industries Ltd [1971] 1 NSWLR 868, Caratti and Bond

Corp Holdings Ltd v Western Australia (1992) 7 ACSR 472]

establish that an approved scheme does indeed derive its

force from the court order, [and] not from the antecedent

resolutions of members and creditors.”

122 Under the United States Bankruptcy Code, a restructuring plan becomes

binding once it is confirmed by the court in terms of Section 1141. There are

decisions of the bankruptcy courts in the United States which indicate that such

restructuring plans are characterized as contracts83. It has been held that a

confirmed plan is binding on the debtor and the plan proponent and has the same

effect as contract84. However, commentators have noted that the United States

Bankruptcy Code’s, “embrace of a contractual paradigm is somewhat

inconsistent…Both bankruptcy courts and the Code itself are far more

82 Caratti v Hillman [1974] WAR 92 (Supreme Court of Wester Australia) 83 In re Hoffinger Indus, Inc, 327 B.R. 389 (Bankr. E.D. Ark. 2005), United States Bankruptcy Court, E.D.

Arkansas 84 In Re Shenandoah Realty Partners, L.P. v. Ascend Health Care, Inc, 287 BR 867 (US Bankruptcy Court, WD)

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sympathetic to ex post than to ex ante contracting”85. It has been further

observed that, “there are a few provisions in the Bankruptcy Code inviting parties

to “otherwise agree” by contract and in some contexts the Code explicitly

overrides ex ante contracts”, these include provisions of the Code overriding ipso

facto clauses in pre-bankruptcy contracts which stipulate that a necessary

condition of default is filing of an insolvency or bankruptcy petition86.

123 The above discussion indicates the law in other jurisdictions, irrespective

of differing frameworks, is not completely settled on whether instruments akin to

Resolution Plans are pure contracts. To recapitulate, in the United Kingdom,

while schemes of arrangement are characterized as statutory contracts, the law

on CVAs, which are similar to the insolvency process initiated under Section 10

of the IBC, is not clear with the High Court of Justice noting that it is not a

contract87, even though principles of interpretation applicable to contracts may be

used for constructing the language of such CVAs. In Singapore, the English

approach of denoting schemes as statutory contracts was rejected and it was

held that the schemes operate as orders of court. A similar position was taken

under the Australian law. The Singapore and Australian courts specifically

indicate that schemes are more than mere contracts with a “super-added

imprimatur” by a court, rather they envisage an active role to be played by court

in supervising the schemes to the extent of making substantial alterations to it, if

required. In the United States, restructuring plans have been equated to

85 David Skeel and George Triantis, ‘Bankruptcy’s Uneasy Shift to a Contractual Paradigm’, Faculty Scholarship

at Penn Law, (2018), available at

<https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=2993&context=faculty_scholarship> accessed on

5 September 2021 86 Ibid. 87 Rhino supra note 78

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contracts, but as noted above there has been some inconsistency in relation to

upholding the contractual bargain.

124 The lack of an apparent international consensus on the issue of whether

instruments like CoC-approved Resolution Plans are contracts, prior to the

Court’s sanction, is also attributable to the peculiarity of the insolvency regime in

each jurisdiction. This Court will have to be wary of transplanting international

doctrines that are evolved as responses to the specific features of a jurisdiction’s

insolvency regime, without identifying an analogous framework in our insolvency

regime.

125 The absence of any specific provision in the IBC or the regulations

referring to a CoC-approved Resolution Plan as a contract and the lack of clarity

in the BLRC report regarding the nature of such a Resolution Plan, constrains us

from arriving at the conclusion that CoC-approved Resolution Plans will be

governed by the Contract Act and common law principles governing contracts,

save and except for the specific prohibitions and deeming fictions under the IBC.

Regulation 39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth

Amendment) Regulations 2020 and applicable to the three appellants before us,

enabled a framework where a draft Resolution Plan would involve several rounds

of negotiations and revisions between the Resolution Applicant and the CoC,

before it is approved by the latter and submitted to the Adjudicating Authority88.

However, this statutorily-enabled room for commercial negotiation is not enough

to over-power the other elements of regulation that detract from the view that

88 “(3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the

evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit:

Provided that the committee shall record its deliberations on the feasibility and viability of the resolution plans"

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CoC-approved Resolution Plans are contracts. CoC-approved Resolution Plans,

before the approval of the Adjudicating Authority under Section 31, are a function

and product of the IBC’s mechanisms. Their validity, nature, legal force and

content is regulated by the procedure laid down under the IBC, and not the

Contract Act. The voting by the CoC also occurs only after the RP has verified

the contents of the Resolution Plan and confirmed that it meets the conditions of

the IBC and the regulations therein. The amended Regulation 39(3)89 further

regulates the conduct of the CoC on voting on Resolution Plans and has

introduced the requirement of simultaneous voting. The IBBI’s Discussion Paper

issued on 27 August 2021 has invited comments on regulating the process on

revisions that can be made to resolution plans submitted to the CoC90. These

developments bolster the conclusion that the mechanism prior to submission of a

CoC-approved resolution plan is subject to continuous procedural scrutiny by the

IBC and cannot be considered as a simple contractual negotiation between two

parties. Section J below details how a common law remedies of withdrawal or

modification on account of frustration or force majeure are not applicable to CoCapproved Resolution Plans owing to the nature of the IBC. Similarly, the whole

host of remedies such as liquidated and unliquidated damages, restitution,

novation and frustration, unless specifically provided by the IBC, are not available

89“39….(3)The committee shall-

(a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix; (b) record its

deliberations on the feasibility and viability of each resolution plan; and

(3A) Where only one resolution plan is put to vote, it shall be considered approved if it receives requisite votes.

(3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the

highest votes, but not less than requisite votes, shall be considered as approved:

Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the

committee shall approve any one of them, as per the tie-breaker formula announced before voting:

Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote

on the resolution plan that received the highest votes, subject to the timelines under the Code……….”

90 available at <https://www.ibbi.gov.in/uploads/whatsnew/fbe59358a8c440d001f3b950be4a1c67.pdf> accessed

on 5 September 2021

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to a successful Resolution Applicant whose Plan has been approved by the CoC

and is awaiting the approval of the Adjudicating Authority. The Insolvency Law

Committee Report of February 2020 has recommended the CIRP process to

mandate Resolution Plans to provide for the apportionment of the profit or loss

accrued by the Corporate Debtor during the CIRP91. These reports are

periodically commissioned by the parliament to review the functioning of the

Code and suggest amendments. However, if the intention was to view a CoCapproved Resolution Plan as a contract, the principles of unjust enrichment would

have been sufficient to address the issue and an amendment may not be

considered necessary. A Resolution Applicant, as a third party partaking in the

insolvency regime, seeks to acquire the business of the Corporate Debtor without

the entirety of its debts, statutory liabilities and avoiding certain transactions with

third parties. These benefits are a function of the coercive mechanisms of the IBC

which enable a third party to acquire the assets of a Corporate Debtor without its

liabilities, for a negotiated amount of the debt that is owed by the Corporate

Debtor. Typically, resolution amounts envisage payment of a fraction of debt that

is owed to the creditors and the business is acquired as a going concern with its

employees. The Resolution Plan is drafted in a way that it is implementable in the

future and brings about a quietus to the CIRP. Enabling Resolution Applicants to

seek remedies that are not specified by the IBC, by seeking recourse to the

Contract Act would be antithetical to the IBC’s insolvency regime. The elements

of contractual interpretation can be relied upon to construe the language of the

terms of the Resolution Plan, in the event of a dispute, but not to re-fashion and

91 Pages 55-56, Report of the Insolvency Law Committee (February 2020), Ministry of Corporate Affairs,

available at <https://www.mca.gov.in/Ministry/pdf/ICLReport_05032020.pdf> accessed on 20 August 2021

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distort the mechanism of the IBC altogether. This Court in Laxmi Pat Surana v.

Union Bank of India92 has held that the IBC is a self-contained Code. Thus,

importing principles of any other law or a statute like the Contract Act into the IBC

regime would introduce unnecessary complexity into the working of the IBC and

may lead to protracted litigation on considerations that are alien to the IBC. To

give an example, the CoC can forfeit the PBG furnished by the successful

Resolution Applicant under certain circumstances in terms of the RFRP and

Resolution Plan including, inter alia, on the ground that the Resolution Applicant

has failed to implement the resolution or has contributed to its failure. Regulation

36B (4A) of CIRP regulations provides for the furnishing of such performance

security once the plan is approved by creditors. The Regulations do not provide

that the performance security has to be a reasonable estimate of loss as is

expected of penalty clauses under contract law, rather the explanation provides

that the performance security should be of “such nature, value, duration and

source, as may be specified in the request for resolution plans with the approval

of the committee, having regard to the nature of resolution plan and business of

the corporate debtor”. Further, in the event that the CoC enters into a settlement

with the Corporate Debtor and withdraws from the CIRP under Section 12A,

Regulation 30A provides for only payment of insolvency costs and not

compensation or damages to Resolution Applicant for investing time and money

in the process. The parties may resort to invoking principles of frustration or force

majeure to evade implementation of the Resolution Plan leading to unnecessary

litigation. This Court in Amtek Auto (supra), had curbed a similar attempt by a

92 (2020) SCC OnLine SC 1187

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successful Resolution Applicant who had relied on a force majeure clause in its

Resolution Plan to seek a direction compelling the CoC to negotiate a

modification to its Resolution Plan. The Court held that there was no scope for

negotiations between the parties once the Resolution Plan has been approved by

the CoC. Thus, contractual principles and common law remedies, which do not

find a tether in the wording or the intent of the IBC, cannot be imported in the

intervening period between the acceptance of the CoC and the approval by the

Adjudicating Authority. Principles of contractual construction and interpretation

may serve as interpretive aids, in the event of ambiguity over the terms of a

Resolution Plan. However, remedies that are specific to the Contract Act cannot

be applied, de hors the over-riding principles of the IBC.

I Statutory framework governing the CIRP

126 The CIRP is a time bound process with a specific aim of maximizing the

value of assets. IBC and the regulations made under it lay down strict timelines

which need to be adhered to by all the parties, at all stages of the CIRP. The

CIRP is expected to be completed within 180 days under Section 12(1) of the

IBC. In terms of sub-Section (2) and (3) of Section 12, an extension can be

sought from the Adjudicating Authority for extending this period up to 90 days.

The first proviso to Section 12(3) clarifies that such an extension can only be

granted once. In Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta93, this

Court had held that the time taken in legal proceedings in relation to the CIRP

must be excluded from the timeline mentioned in Section 12. Since this could

93 (2019) 2 SCC 1, para 86

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extend the CIRP indefinitely, the Insolvency and Bankruptcy Code (Amendment)

Act 2019, inserted a second proviso to Section 12(3) with effect from 16 August

2019 to state that the CIRP in its entirety must be mandatorily completed within

330 days from the insolvency commencement date, including the time taken in

legal proceedings. A legislative amendment that takes away the basis of a judicial

finding is indicative of the strong emphasis of the IBC on its timelines and its

attempt to thwart the prospect of stakeholders engaging in multiple litigations,

solely with the intent of causing undue delay. Delays are also a cause of concern

because the liquidation value depletes rapidly, irrespective of the imposition of a

moratorium, and a delayed liquidation is harmful to the value of the Corporate

Debtor, the recovery rate of the CoC and consequentially, the economy at large.

In Essar Steel (supra) a three judge Bench of this Court, emphasized the

rationale of the Insolvency and Bankruptcy Code (Amendment) Act 2019, which

introduced the second proviso to Section 12(3). The court adverted to the BLRC

report which underscored delays in legal proceedings as the cause of the failure

of the previous insolvency regime under the SICA and the recovery mechanism

in SARFAESI. It also extracted a Speech of the Union Minister in the Rajya

Sabha to explain the proposal for the amendment in 2019, which was to avoid the

same pitfalls in the IBC. The Court, speaking through Justice R F Nariman,

noted:

“119. The speech of the Hon'ble Minister on the floor of the

House of the Rajya Sabha also reflected the fact that with the

passage of time the original intent of quick resolution of

stressed assets is getting diluted. It is therefore essential to

have time-bound decisions to reinstate this legislative intent.

It was also pointed out on the floor of the House that the

experience in the working of the Code has not been

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encouraging. The Minister in her speech to the Rajya Sabha

gives the following facts and figures:

“Now, regarding the Corporate Insolvency Resolution Process

(CIRP), under the Code, I want to give you data again as of

30-6-2019. First, I will talk about the status of CIRPs. Number

of admitted cases is 2162; number of cases closed on appeal,

which I read out about, is 174; number of cases closed by

withdrawal under Section 12-A, is 101, I have given you a

slightly later data; number of cases closed by resolution is

120; closed by liquidation, 475; and ongoing CIRPs are 1292.

So, now, I would like to mention the number of days of

waiting. I would like to mention here the details of the ongoing

CIRPs, along with the timelines. Ongoing CIRPs are 1292,

the figure just now I gave you. Over 330 days, 335 cases;

over 270 days, 445 cases; over 180 days and less than 270

days, 221 cases; over 90 days but less than 180 days, 349

cases; less than 90 days, 277 cases. The number of days

pending includes time, if any, excluded by the tribunals. So,

that gives you a picture on what is the kind of wait and,

therefore, why we want to bring the amendments for this

speeding up.”

[…]

123. As the speech of the Hon'ble Minister on the floor of the

House only indicates the object for which the amendment was

made and as it contains certain data which it is useful to

advert to, we take aid from the speech not in order to

construe the amended Section 12, but only in order to explain

why the Amending Act of 2019 was brought about.”

127 The decision in Essar Steel (supra) while reiterating the rationale of the

IBC for ensuring timely resolution of stressed assets as a key factor, had to defer

to the principles of actus curiae neminem gravabit, i.e., no person should suffer

because of the fault of the court or the delay in the procedure. In spite of this

Court’s precedents which otherwise strike down provisions which interfere with a

litigant’s fundamental right to non-arbitrary treatment under Article 14 by

mandatory conclusion of proceedings without providing for any exceptions, this

Court refused to strike down the second proviso to Section 12(3) in its entirety. It

noted that the previous statutory experiments for insolvency had failed because

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of delay as a result of extended legal proceedings and chose to only strike down

the word ‘mandatorily’, keeping the rest of the provision intact. Therefore, the law

as it stands, mandates the conclusion of the CIRP – including time taken in legal

proceedings, within 330 days with a short extension to be granted only in

exceptional cases. However, the Court has warned that this discretion must be

exercised sparingly and only in the following situations:

“127…Thus, while leaving the provision otherwise intact, we

strike down the word “mandatorily” as being manifestly

arbitrary under Article 14 of the Constitution of India and as

being an excessive and unreasonable restriction on the

litigant's right to carry on business under Article 19(1)(g) of

the Constitution. The effect of this declaration is

that ordinarily the time taken in relation to the corporate

resolution process of the corporate debtor must be completed

within the outer limit of 330 days from the insolvency

commencement date, including extensions and the time taken

in legal proceedings. However, on the facts of a given case, if

it can be shown to the Adjudicating Authority and/or Appellate

Tribunal under the Code that only a short period is left for

completion of the insolvency resolution process beyond 330

days, and that it would be in the interest of all stakeholders

that the corporate debtor be put back on its feet instead of

being sent into liquidation and that the time taken in legal

proceedings is largely due to factors owing to which the fault

cannot be ascribed to the litigants before the Adjudicating

Authority and/or Appellate Tribunal, the delay or a large part

thereof being attributable to the tardy process of the

Adjudicating Authority and/or the Appellate Tribunal itself, it

may be open in such cases for the Adjudicating Authority

and/or Appellate Tribunal to extend time beyond 330 days.

Likewise, even under the newly added proviso to Section 12,

if by reason of all the aforesaid factors the grace period of 90

days from the date of commencement of the Amending Act of

2019 is exceeded, there again a discretion can be exercised

by the Adjudicating Authority and/or Appellate Tribunal to

further extend time keeping the aforesaid parameters in mind.

It is only in such exceptional cases that time can be extended,

the general rule being that 330 days is the outer limit within

which resolution of the stressed assets of the corporate

debtor must take place beyond which the corporate debtor is

to be driven into liquidation.”

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128 The evolution of the IBC framework, through an interplay of legislative

amendments, regulations and judicial interpretation, consistently emphasizes the

predictability and timeliness of the IBC. The legislature and the IBBI have been

proactive to introduce amendments to the procedural framework, that respond to

changes in the economy. For instance, Regulation 40(c), which came into effect

on 20 April 2020, was inserted in the CIRP Regulations to take into account the

delay that may be caused to the CIRP on account of the lockdown being imposed

by the Central Government due to the COVID-19 pandemic. Regulation 40(c)

provides that the delay in completing any activity related to the CIRP because of

imposition of lockdown will not be counted for the purposes of the timeline that

has been stipulated under the statutory framework. If the CIRP is not completed

within the prescribed timeline, the Corporator Debtor is sent into liquidation. This

understanding of the evolution of the law is critical to our task of judicial

interpretation. We cannot afford to be swayed by abstract conceptions of equity

and ‘contractual freedom’ of the parties to freely negotiate terms of the Resolution

Plan with unfettered discretion, that are not grounded in the intent of the IBC.

129 The IBC and the regulations provide a detailed procedure for the

completion of CIRP. An application for initiation of CIRP is filed either by the

financial creditor, operational creditor or the Corporate Debtor itself under

Sections 7, 9 and 10 of the IBC, respectively. Once the application is admitted by

the Adjudicating Authority, it passes the following orders under Section 13(1) of

the IBC: (i) declaration of a moratorium for the purposes referred to in Section 14

of the IBC; (ii) causing a public announcement to be made for the initiation of

CIRP and issuing a call for submissions of claims as may be specified under

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Section 15 of the IBC; and (iii) appointing an IRP in accordance with Section 16

of the IBC.

130 Section 13(2) provides that the public announcement is to be made

immediately after the appointment of an IRP. The word ‘immediately’ here means

not later than three days from the date of appointment as provided in the

explanation to Regulation 6(1) of the CIRP Regulations. Section 15 of the IBC

lists down the information that should be included in the public announcement of

CIRP. It should specify the last date up to which the claims, i.e., a right of

payment or right to remedy as defined under Section 3(6) of the IBC, can be

made by creditors, workmen and employees. Regulation 6(2)(c) provides that the

last date of submission of claims shall be fourteen days from the date of

appointment of the IRP. The public announcement also specifies the date on

which the CIRP shall close, which is the one hundred and eightieth day from the

date of the admission of the application under Sections 7, 9 or 10, as may be

applicable. Regulation 6 of the CIRP Regulations stipulates additional

requirements relating to how the public announcement is to made.

131 On receipt of claims from the operational creditors, financial creditors,

workmen and employees, the IRP prepares a list of creditors after verifying the

claims. Regulation 13(1) provides that the verification of all the claims is to be

done within seven days from the last date of receipt of the claims. Thereafter, the

IRP constitutes a CoC in accordance with Section 21(1) of the IBC. Regulation 17

of the CIRP Regulations stipulates that the IRP must submit a report certifying

the constitution of the CoC within two days of the claims being verified. The IRP

is required to hold the first meeting of the CoC within seven days of filing of the

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report under the said regulation. If the appointment of the RP by the CoC is

delayed, the IRP is to perform the functions of the RP from the fortieth day of the

insolvency commencement date till the RP is appointed under Section 22 of the

IBC.

132 The CoC, in its first meeting, appoints the RP in terms of Section 22(2) of

the IBC. Section 23(1) provides that the RP is responsible for conducting the

entire CIRP and managing the operations of the Corporate Debtor during the

CIRP period. The RP continues to manage the operations of the Corporate

Debtor after the expiry of CIRP period until an order approving the resolution is

passed by the Adjudicating Authority under Section 31(1) of the IBC or a

liquidator is appointed under Section 34 of the IBC. The intent of this Section is to

ensure that the Corporate Debtor remains a going concern until the Resolution

Plan is approved by the Adjudicating Authority. The powers and duties of the RP

are listed under Section 23(2) of the IBC.

133 The significant, if not the most important, duty of the RP is to solicit

Resolution Plans. The RP is empowered to invite prospective Resolution

Applicants who fulfil the criteria as laid down by the RP and approved by the

CoC, considering the complexity and the scale of the business operations of the

Corporate Debtor and other such conditions specified by the IBBI, to submit a

Resolution Plan or Plans under Section 25(2)(h) of the IBC. Further, a person

should not be ineligible to be a Resolution Applicant under Section 29A of the

IBC. Section 5(25) defines a Resolution Applicant in the following terms:

"resolution applicant" means a person, who individually or

jointly with any other person, submits a resolution plan to the

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resolution professional pursuant to the invitation made under

clause (h) of sub-section (2) of section 25; or pursuant to

section 54K, as the case may be.”

134 The first step in the process of soliciting a Resolution Plan is the

preparation of an IM containing relevant information as specified by the IBBI for

formulating a Resolution Plan in accordance with Section 29(1) of the IBC. The

contents of the IM are specified under Regulation 36(2) of the CIRP Regulations.

Regulation 36(1) of the CIRP Regulations specifies the timelines within which the

RP must submit the IM to members of the CoC, which is within two weeks of his

appointment but not later than the fifty-fourth day from the insolvency

commencement date, whichever is earlier. Thereafter, the RP issues an invitation

of EOI not later than the seventy-fifth day from the insolvency commencement

date to seek expressions of interest from eligible prospective Resolution

Applicants in terms of Regulation 36A of the CIRP Regulations. A prospective

Resolution Applicant is required to submit an unconditional EOI within the time

stipulated under the invitation, which shall not be less than fifteen days from the

date of the issue of invitation. The RP conducts a due diligence of the Resolution

Applicant based on material available on record in terms of Regulation 36A(8) of

the CIRP Regulations. Thereafter, the RP issues a provisional list of eligible

prospective Resolution Applicants within ten days of the last date for submission

of EOIs to the CoC and to all the prospective Resolution Applicants who had

submitted the EOI. Regulation 36A also specifies the timeline within which any

objection can be made against the inclusion or exclusion of a prospective

Resolution Applicant on the list, which is five days from the issue of the list. The

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RP is required to publish a final list of prospective Resolution Applicants within

ten days of the last date for the receipt of objections by the CoC.

135 Under Regulation 36B of the CIRP Regulations, the RP has to issue the

IM, evaluation matrix for consideration of the Resolution Plan and an RFRP

within five days of the date of issue of the provisional list of Resolution Applicants

to every prospective Resolution Applicant on the list and any other prospective

Resolution Applicants who have contested their non-inclusion in the list.

Regulation 36B stipulates that the RFRP shall contain detailed steps of each

process and the manner and purposes of interaction between the RP and the

prospective resolution applicant along with the corresponding timelines. A

minimum of thirty days is given to the prospective Resolution Applicant to submit

a Resolution Plan. A Resolution Plan is defined under Section 5(26) of the IBC:

“resolution plan" means a plan proposed by resolution

applicant for insolvency resolution of the corporate debtor as

a going concern in accordance with Part II;

Explanation.--For the removal of doubts, it is hereby clarified

that a resolution plan may include provisions for the

restructuring of the corporate debtor, including by way of

merger, amalgamation and demerger;”

136 The timeline for the submission of Resolution Plans can be extended by an

RP with the approval of the CoC. The RFRP must require the resolution applicant

to furnish a performance security in case their Resolution Plan is approved by the

CoC under Regulation 36B(4A). The performance security shall stand forfeited if,

after the approval of the Resolution Plan by the Adjudicating Authority, the

Resolution Applicant fails to implement or contributes to the failure of

implementation of the plan. Under the regulation, a performance security is

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defined as “security of such nature, value, duration and source, as may be

specified in the request for resolution plans with the approval of the committee,

having regard to the nature of resolution plan and business of the corporate

debtor”. Regulations 37 and 38 list down the mandatory contents of the

Resolution Plan.

137 The RP is required to review the Resolution Plan submitted in terms of

Section 30(2) of the IBC, which provides that:

“Section 30 - Submission of resolution plan

[…]

(2) The resolution professional shall examine each resolution

plan received by him to confirm that each resolution plan--

(a) provides for the payment of insolvency resolution process

costs in a manner specified by the Board in priority to the

payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors

in such manner as may be specified by the Board which shall

not be less than--

(i) the amount to be paid to such creditors in the event of a

liquidation of the corporate debtor under section 53; or

(ii) the amount that would have been paid to such creditors, if

the amount to be distributed under the resolution plan had

been distributed in accordance with the order of priority in

sub-section (1) of section 53, whichever is higher and

provides for the payment of debts of financial creditors, who

do not vote in favour of the resolution plan, in such manner as

may be specified by the Board, which shall not be less than

the amount to be paid to such creditors in accordance with

sub-section (1) of section 53 in the event of a liquidation of

the corporate debtor.

Explanation 1.--For the removal of doubts, it is hereby

clarified that a distribution in accordance with the provisions

of this clause shall be fair and equitable to such creditors.

Explanation 2.--For the purposes of this clause, it is hereby

declared that on and from the date of commencement of the

Insolvency and Bankruptcy Code (Amendment) Act, 2019, the

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provisions of this clause shall also apply to the corporate

insolvency resolution process of a corporate debtor--

(i) where a resolution plan has not been approved or rejected

by the Adjudicating Authority;

(ii) where an appeal has been preferred under section 61 or

section 62 or such an appeal is not time barred under any

provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court

against the decision of the Adjudicating Authority in respect of

a resolution plan;

Corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution

plan;

(e) does not contravene any of the provisions of the law

for the time being in force;

(f) conforms to such other requirements as may be

specified by the Board.

Explanation.-- For the purposes of clause (e), if any approval

of shareholders is required under the Companies Act, 2013

(18 of 2013) or any other law for the time being in force for

the implementation of actions under the resolution plan, such

approval shall be deemed to have been given and it shall not

be a contravention of that Act or law.”

(emphasis supplied)

Sub-Section (3) of Section 30 of the IBC provides that the RP shall present

Resolution Plans which conform to the above requirements before the CoC for

approval. Sub-Section (4) of Section 30 stipulates that the CoC may approve a

Resolution Plan by a vote of not less than sixty-six per cent after considering the

feasibility and viability of the plan and any such requirements specified by the

IBBI.

138 The CoC has been given wide powers under the IBC. It can direct the

Corporate Debtor into liquidation any time before the approval by the Adjudicating

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Authority, under Section 33(2) of the IBC. Further, under Section 12A of the IBC

the Adjudicating Authority may allow withdrawal of the application submitted

under Sections 7, 9 or 10 of the IBC for initiation of the CIRP (i.e., initiation of the

CIRP by the financial creditor, operational creditor and the corporate applicant,

respectively) if the withdrawal is approved by ninety per cent of the voting share

of the CoC. Dealing with the question whether a successful Resolution Applicant

can retreat through the route provided under Section 12A of the IBC, a threejudge Bench of this Court in Maharashtra Seamless v. Padmanabhan

Venkatesh94 observed that, “[t]he exit route prescribed in Section 12A is not

applicable to a Resolution Applicant. The procedure envisaged in the said

provision only applies to applicants invoking Sections 7, 9 and 10 of the code”.

However, this Court left the question whether a successful Resolution Applicant

“altogether forfeits their right to withdraw from such process [CIRP] or not”, open

for subsequent judicial determination95.

139 In terms of Regulation 39(4), the RP shall endeavour to submit the

Resolution Plan approved by the CoC before the Adjudicating Authority for its

approval under Section 31 of the IBC, at least fifteen days before the maximum

period for completion of CIRP. Section 31(1) provides that the Adjudicating

Authority shall approve the Resolution Plan if it is satisfied that it complies with

the requirements set out under Section 30(2) of the IBC. Essentially, the

Adjudicating Authority functions as a check on the role of the RP to ensure

compliance with Section 30(2) of the IBC and satisfies itself that the plan

94 (2020) 11 SCC 467 95 Para 29, Ibid.

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approved by the CoC can be effectively implemented as provided under the

proviso to Section 31(1) of the IBC. Once the Resolution Plan is approved by the

Adjudicating Authority, it becomes binding on the Corporate Debtor and its

employees, members, creditors, guarantors and other stakeholders involved in

the Resolution Plan. Section 31(1) of the IBC is extracted below:

“Section 31 - Approval of resolution plan

(1) If the Adjudicating Authority is satisfied that the resolution

plan as approved by the committee of creditors under subsection (4) of section 30 meets the requirements as referred

to in sub-section (2) of section 30, it shall by order approve

the resolution plan which shall be binding on the corporate

debtor and its employees, members, creditors, including the

Central Government, any State Government or any local

authority to whom a debt in respect of the payment of dues

arising under any law for the time being in force, such as

authorities to whom statutory dues are owed, guarantors and

other stakeholders involved in the resolution plan.

Provided that the Adjudicating Authority shall, before passing

an order for approval of resolution plan under this subsection, satisfy that the resolution plan has provisions for

its effective implementation.”

(emphasis supplied)

A contravention of a Resolution Plan binding under Section 31 is punishable

under Section 74 (3) of the IBC. Section 74 (3) of the IBC provides thus:

“Section 74 - Punishment for contravention of moratorium or

the resolution plan

[….]

(3) Where the corporate debtor, any of its officers or creditors

or any person on whom the approved resolution plan is

binding under section 31, knowingly and wilfully contravenes

any of the terms of such resolution plan or abets such

contravention, such corporate debtor, officer, creditor or

person shall be punishable with imprisonment of not less than

one year, but may extend to five years, or with fine which

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shall not be less than one lakh rupees, but may extend to one

crore rupees, or with both.”

140 If the Resolution Plan is rejected by the Adjudicating Authority, the

Corporate Debtor goes into liquidation in accordance with Section 33(1) of the

IBC. The order of the Adjudicating Authority rejecting a Resolution Plan and

directing liquidation under Section 33 of the IBC can be appealed only on the

grounds of material irregularity or fraud, as stipulated under Section 61(4) of the

IBC. The order of the Adjudicating Authority approving a Resolution Plan can be

appealed before the NCLAT under Section 61(3) of the IBC only on the grounds

specified in that section. The grounds of appeal are as follows:

“Section 61 - Appeals and Appellate Authority

[….]

(3) An appeal against an order approving a resolution plan

under section 31 may be filed on the following grounds,

namely:--

(i) the approved resolution plan is in contravention of the

provisions of any law for the time being in force;

(ii) there has been material irregularity in exercise of the

powers by the resolution professional during the corporate

insolvency resolution period;

(iii) the debts owed to operational creditors of the corporate

debtor have not been provided for in the resolution plan in the

manner specified by the Board;

(iv) the insolvency resolution process costs have not been

provided for repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteria

specified by the Board.

(4) An appeal against a liquidation order passed under

section 33, or sub-section (4) of section 54L, or sub-section

(4) of section 54N, may be filed on grounds of material

irregularity or fraud committed in relation to such a liquidation

order.”

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141 Under Regulation 39(5) of the CIRP Regulations, the RP is required to

send a copy of the order of the Adjudicating Authority accepting or rejecting the

Resolution Plan on a ‘forthwith basis’. Regulation 39(5A) specifies that within

fifteen days of the date of the order of Adjudicating Authority approving the

Resolution Plan, the RP must inform each claimant about the principle or

formulae for the payment of debts under the Resolution Plan.

142 As noted above, Section 12 of the IBC stipulates the timeline within which

the CIRP is to be completed. The RP on the instructions of the CoC may make

an application for extension of the CIRP. Regulation 40A of the CIRP Regulations

provides a detailed model timeline for CIRP which accounts for all the procedural

eventualities that are permitted by the statute and the regulations. Regulation

40A is extracted below:

“40-A. Model time-line for corporate insolvency resolution

process.—The following Table presents a model timeline of

corporate insolvency resolution process on the assumption that

the interim resolution professional is appointed on the date of

commencement of the process and the time available is

hundred and eighty days:

Section/Regulation Description of

Activity

Norm Latest

Timeline

Section 16(1) Commencement

of CIRP and

appointment of

IRP

…. T

Regulation 6(1) Public

announcement

inviting claims

Within 3 Days

of Appointment

of IRP

T+3

Section

15(1)(c)/Regulations

6(2)(c) and 12 (1)

Submission of

claims

For 14 Days

from

Appointment of

IRP

T+14

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130

Regulation 12(2) Submission of

claims

Up to 90th day

commencement

T+90

Regulation 13(1) Verification of

claims received

under

Regulation 12(1)

Within 7 days

from the receipt

of the claim

T+21

Verification of

claims received

under

Regulation 12(2)

T+97

Section 21(6A)

(b)/Regulation 16-A

Application for

appointment of

Within 2 days

from verification

of claims

received under

Regulation

12(1)

T+23

Regulation 17(1) Report certifying

constitution of

CoC

T+23

Section

22/Regulation 19(2)

1st meeting of

the CoC

Within 7 days of

filing of the

report certifying

constitution of

the CoC, but

with five days'

notice.

T+30]

Section 22(2) Resolution to

appoint RP by

the CoC

In the first

meeting of the

CoC

T+30

Section 16(5) Appointment of

On approval by

the AA

……

Regulation 17(3) IRP performs the

functions of RP

till the RP is

appointed.

If RP is not

appointed by

40th day of

commencement

T+40

Regulation 27 Appointment of

valuer

Within 7 days of

appointment of

RP, but not

later than 47th

day of

commencement

T+47]

Section

12(A)/Regulation

Submission of

application for

withdrawal of

Before issue of

EoI

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131

30-A application

admitted

CoC to dispose

of the application

Within 7 days of

its receipt or 7

days of

constitution of

CoC, whichever

is later.

W+7

Filing application

of withdrawal, if

approved by

CoC with 90%

majority voting,

by RP to AA

Within 3 days of

approval by

CoC

W+10

Regulation 35-A RP to form an

opinion on

preferential and

other

transactions

Within 75 days

of the

commencement

T+75

RP to make a

determination on

preferential and

other

transactions

Within 115

days of

commencement

T+115

RP to file

applications to

AA for

appropriate relief

Within 135

days of

commencement

T+135

Regulation 36 (1) Submission of

IM to CoC

Within 2 weeks

of appointment

of RP, but not

later than 54th

day of

commencement

T+54

Regulation 36-A Publish Form G Within 75 days

commencement

T+75

Invitation of EoI

Submission of

EoI

At least 15

days from issue

of EoI (Assume

15 days)

T+90

Provisional List

of RAs by RP

Within 10 days

from the last

T+100

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132

day of receipt

of EoI

Submission of

objections to

provisional list

For 5 days from

the date of

provisional list

T+105

Final List of RAs

by RP

Within 10 days

of the receipt of

objections

T+115

Regulation 36-B Issue of RFRP,

including

Evaluation

Matrix and IM

Within 5 days of

the issue of the

provisional list

T+105

Receipt of

Resolution Plans

At least 30

days from issue

of RFRP

(Assume 30

days)

T+135

Regulation 39(4) Submission of

CoC approved

Resolution Plan

to AA

As soon as

approved by

the CoC

T+165

Section 31(1) Approval of

resolution plan

by AA

T=180

AA: Adjudicating Authority; AR: Authorised Representative;

CIRP: Corporate Insolvency Resolution Process; CoC:

Committee of Creditors; EoI: Expression of Interest; IM:

Information Memorandum; IRP: Interim Resolution

Professional; RA: Resolution Applicant; RP: Resolution

Professional; RFRP: Request for Resolution Plan.”

143 The statutory framework governing the CIRP seeks to create a mechanism

for resolving insolvency in an efficient, comprehensive and timely manner. The

IBC provides a detailed linear process for undertaking CIRP of the Corporate

Debtor to minimize any delays, uncertainty in procedure and disputes. The roles

and responsibilities of the important actors in the CIRP are clearly defined under

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the IBC and its regulations. In Innoventive Industries Ltd v. ICICI Bank96 a

three judge Bench of this Court observed that “one of the important objectives of

the Code is to bring the insolvency law in India under a single unified umbrella

with the object of speeding up of the insolvency process”. Recently, in Gujarat

Urja97 (supra) a three judge Bench of this Court observed that a “delay in

completion of the insolvency proceedings would diminish the value of the debtor’s

assets and hamper the prospects of a successful reorganization or liquidation.

For the success of an insolvency regime, it is necessary that insolvency

proceedings are dealt with in a timely, effective and efficient manner”. The

stipulation of timelines and a detailed procedure under the IBC ensures a timely

completion of CIRP and introduces transparency, certainty and predictability in

the insolvency resolution process. The UNCITRAL Guide also states that the

insolvency law of a jurisdiction should be transparent and predictable. It notes the

value of such predictability in the following terms98:

“11. An insolvency law should be transparent and predictable.

This will enable potential lenders and creditors to understand

how insolvency proceedings operate and to assess the risk

associated with their position as a creditor in the event of

insolvency. This will promote stability in commercial relations

and foster lending and investment at lower risk premiums.

Transparency and predictability will also enable creditors to

clarify priorities, prevent disputes by providing a backdrop

against which relative rights and risks can be assessed and

help define the limits of any discretion. Unpredictable

application of the insolvency law has the potential to

undermine not only the confidence of all participants in

insolvency proceedings, but also their willingness to make

credit and other investment decisions prior to insolvency. As

far as possible, an insolvency law should clearly indicate all

provisions of other laws that may affect the conduct of the

96 (2018) 1 SCC 407, para 13. 97 (2021) SCC OnLine 194, para 71. 98 Page 13, UNCITRAL Guide, supra 56

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insolvency proceedings (e.g. labour law; commercial and

contract law; tax law; laws affecting foreign exchange, netting

and set-off and debt for equity swaps; and even family and

matrimonial law).”

This Court should proceed with caution in introducing any element in the

insolvency process that may lead to unpredictability, delay and complexity not

contemplated by the legislature. With this birds’-eye view of the framework of

insolvency through the CIRP, we proceed to answer the question of law raised in

this judgement - whether a Resolution Applicant is entitled to withdraw or modify

its Resolution Plan, once it has been submitted by the Resolution Professional to

the Adjudicating Authority and before it is approved by the latter under Section

31(1) of the IBC.

J Withdrawal of the Resolution Plan by a successful Resolution

Applicant under the IBC

J.1 The absence of a legislative hook or a regulatory tether to enable a

withdrawal

144 The analysis of the statutory framework governing the CIRP and periodic

reports of the Insolvency Law Committee indicates that it is a creditor-driven

process. The aim of the process, in preferential order, is to: first, enable

resolution of the debt by maintaining the corporate debtor as a going concern, in

order to preserve the business and employment of the personnel; second,

maximize the value of the assets of the corporate debtor and enable a higher

pay-back to its creditors than under liquidation; and third, enable a smoother and

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faster transition to liquidation in the event that a time bound CIRP fails, in a bid to

avert further deterioration of value.

145 Since the aim of the statute is to preserve the interests of the corporate

debtor and the CoC, it was recognized that settlements between the corporate

debtor and the CoC may be in the best interests of all stakeholders since

insolvency is averted. Two decisions of two judge Benches of this Court, in

Lokhandwala Kataria Construction (P) Ltd v. Nisus Finance and Investment

Managers LLP99 and Uttara Foods and Feeds (P) Ltd v. Mona

Pharmachem100, (prior to the insertion of Section 12A which enabled withdrawal

of the CIRP on account of settlement between the parties), had refused to

effectuate this remedy by exercising inherent powers of the Adjudicating Authority

under Rule 11 of the NCLT Rules 2016 or the power of parties to make

applications to the Adjudicating Authority under Rule 8 of the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules 2016. In Uttara Foods

(supra) this Court had granted a one-time relief under Article 142 of the

Constitution since all the parties were present before it and had presented it with

signed consent terms. This course of action, in refraining from the exercise of

inherent powers to effect procedures and remedies that were not specifically

envisaged by the statute, was explicitly affirmed by the Insolvency Law

Committee Report dated March 2018101 which proceeded to suggest

amendments to the IBC and recommended a ninety per cent voting threshold by

the CoC for withdrawals of a CIRP and a specific amendment to Rule 8 of the

99 (2018) 15 SCC 589 100 (2018) 15 SCC 587 101 Pages 5 and 101, Report of the Insolvency Law Committee, Ministry of Corporate Affairs (March 2018)

available at <https://ibbi.gov.in/uploads/resources/ILRReport2603_03042018.pdf> accessed on 20 August 2021

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then existing CIRP Rules to enable parties to file such applications. This report

led to the insertion of Section 12A which vested the CoC with the power to

withdraw the CIRP or vote on such withdrawal, if sought by the Corporate Debtor.

This provision was introduced with retrospective effect on 6 June 2018.

Significantly, no such exit routes have been contemplated for the Resolution

Applicant. It is relevant to note that the newly inserted and then unamended

Regulation 30A (w.e.f. 4 July 2018) of the CIRP Regulations stipulated that

withdrawal under Section 12A can be allowed through submitting an application

to the IRP or RP (as the case maybe) before the invitation for EOI is issued to the

public. The CoC was to consider the application within seven days of its

constitution and an approval for such application required approval of the ninety

per cent of the voting share of the CoC. However, on 14 December 2018, a two

judge Bench of this Court, held in Brilliant Alloys (P) Ltd v. S Rajagopal102 that

Regulation 30A is directory, and not mandatory in nature since Section 12A of the

IBC does not stipulate a deadline by which a withdrawal from the CIRP can be

made. Thus, in exceptional cases withdrawals from the CIRP under Section 12A

of IBC could be permitted even after the invitation of EOI has been issued.

Regulation 30A of the CIRP Regulations was then amended by the IBBI

(Insolvency Resolution Process for Corporate Persons) (Second Amendment)

Regulations 2019, w.e.f. 25 July 2019 to reiterate the decision of this Court. The

newly amended provision allows for withdrawals even after the invitation for

expression of interest has been issued, provided that the applicant states the

reasons justifying such withdrawal. Similarly, on 25 January 2019, a two judge

102 (2018) SCC OnLine SC 3154

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Bench of this Court in Swiss Ribbons (supra) interpreted the true import of

Section 12A and clarified that if the CoC is not yet constituted, a party can

approach the Adjudicating Authority, which may in exercise of its inherent powers

under Rule 11 of the NCLT Rules 2016, allow or reject an application for

withdrawal or settlement. On 25 July 2019, the IBBI (Insolvency Resolution

Process for Corporate Persons) (Second Amendment) Regulations, 2019

amended Regulation 30A in terms of this decision in interpreting Section 12A and

now specifically provides the procedure under the IBC that relates to affecting a

withdrawal under Section 12A before the constitution of the CoC. The applicant

submits an application for withdrawal through the IRP, directly before the

Adjudicating Authority, since the CoC is not yet constituted to consider such an

application. To ensure that the process for withdrawal is timely and efficient, the

present Regulation 30A provides that the IRP shall submit an application for

withdrawal of the CIRP prior to the constitution of the CoC to the Adjudicating

Authority on behalf of the applicant within three days of the receipt. Alternatively,

if the application for withdrawal is made after the constitution of the CoC, such

application will be considered by the CoC within seven days of its receipt. If the

CoC approves such an application with ninety per cent voting share, it is to be

submitted to the Adjudicating Authority within three days of approval. Further, the

application for withdrawal has to be accompanied by a bank guarantee towards

estimated expenses relating to costs of the IRP (in case of a withdrawal prior to

constitution of the CoC) or insolvency resolution process costs (where withdrawal

is after constitution of the CoC). It is clear that withdrawal of the CIRP is allowed

only if it upholds the interests of the CoC, is time-bound, and takes into

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consideration how the expenses relating to the insolvency process up to

withdrawal shall be borne. Thus, even the exit under Section 12A of the CoC,

which is not available to the Resolution Applicant, is regulated by procedural

provisions indicating that the legislature has applied its mind to the timelines and

costs involved in the CIRP. Pertinently, the regulations do not provide for any

costs that are payable to the prospective Resolution Applicants or a successful

Resolution Applicant, who must have incurred a significant expense in

participating in the process. This Court, in Maharashtra Seamless (supra) had

denied relief to a Resolution Applicant who had sought to invoke Section 12A to

resile from its Resolution Plan. The nature of the statute indicates the clarity of its

purpose – primacy of the interests of the creditors who are seeking to cut their

losses through a CIRP. Traditional models and understandings of equity or

fairness that seek reliefs which are misaligned with the goals of the statute and

upset the economic coordination envisaged between the parties, cannot be read

into the statute through judicial interpretation. While parties have the freedom to

negotiate certain commercial terms of the Resolution Plan to gain wide support,

their ability to negotiate is circumscribed by the governing statute. A court cannot

interpret the negotiated arrangements that are represented in the Resolution Plan

in a manner that hampers the objectives of the IBC which is a speedy,

predictable and timely resolution. The Resolution Applicant is deemed to be

aware of the IBC and its mechanisms before it steps into the fray and consents to

be bound by its underlying objectives. A Resolution Applicant, after obtaining the

financial information of the Corporate Debtor through the informational utilities

and perusing the IM, is assumed to have analyzed the risks in the business of the

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Corporate Debtor and submitted a considered proposal. It cannot demand

vesting of certain powers and rights which have been conspicuously omitted by

the legislature under the statute, in furtherance of the policy objectives of the IBC.

A court may not be able to lay down such detailed guidance on how a

mechanism for withdrawal, if any, may be provided to a successful Resolution

Applicant without disturbing the statutory timelines and adequately evaluating the

interests of creditors and other stakeholders, which is ultimately a matter of

legislative policy. In Essar Steel (supra), a three judge Bench of this Court,

affirmed a two judge Bench decision in K Sashidhar103(supra), prohibiting the

Adjudicating Authority from second-guessing the commercial wisdom of the

parties or directing unilateral modification to the Resolution Plans104. These are

binding precedents. Absent a clear legislative provision, this court will not, by a

process of interpretation, confer on the Adjudicating Authority a power to direct

an unwilling CoC to re-negotiate a submitted Resolution Plan or agree to its

withdrawal, at the behest of the Resolution Applicant. The Adjudicating Authority

can only direct the CoC to re-consider certain elements of the Resolution Plan to

ensure compliance under Section 30(2) of the IBC, before exercising its powers

of approval or rejection, as the case may be, under Section 31105. In

Government of Andhra Pradesh v. P Laxmi Devi106, while determining the

constitutionality of a statute, this Court observed that it should be wary of

transgressing into the domain of the legislature, especially in matters relating to

economic and regulatory legislation. This Court observed:

103 Para 62, supra note 35 104 Paras 64-73, supra note 35 105 Para 73, Essar Steel supra note 34 106 (2008) 4 SCC 720

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“80. As regards economic and other regulatory legislation

judicial restraint must be observed by the court and greater

latitude must be given to the legislature while adjudging the

constitutionality of the statute because the court does not

consist of economic or administrative experts. It has no

expertise in these matters, and in this age of

specialisation when policies have to be laid down with

great care after consulting the specialists in the field, it

will be wholly unwise for the court to encroach into the

domain of the executive or legislative (sic legislature)

and try to enforce its own views and perceptions.”

(emphasis supplied)

146 Judicial restraint must not only be exercised while adjudicating upon the

constitutionality of the statute relating to economic policy but also in matters of

interpretation of economic statutes, where the interpretative maneuvers of the

Court have an effect of transgressing into the law-making power of the legislature

and disturbing the delicate balance of separation of powers between the

legislature and the judiciary. Judicial restraint must be exercised in such cases as

a matter of prudence, since the court neither has the necessary expertise nor the

power to hold consultations with stakeholders or experts to decide the direction of

economic policy. A court may be inept in laying down a detailed procedure for

exercise of the power of withdrawal or modification by a successful Resolution

Applicant without impacting the other procedural steps and the timelines under

the IBC which are sacrosanct. Thus, judicial restraint must be exercised while

intervening in a law governing substantive outcomes through procedure, such as

the IBC. In this case, if Resolution Applicants are permitted to seek modifications

after subsequent negotiations or a withdrawal after a submission of a Resolution

Plan to the Adjudicating Authority as a matter of law, it would dictate the

commercial wisdom and bargaining strategies of all prospective Resolution

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Applicants who are seeking to participate in the process and the successful

Resolution Applicants who may wish to negotiate a better deal, owing to myriad

factors that are peculiar to their own case. The broader legitimacy of this course

of action can be decided by the legislature alone, since any other course of action

would result in a flurry of litigation which would cause the delay that the IBC

seeks to disavow.

147 The IBC is silent on whether a successful Resolution Applicant can

withdraw its Resolution Plan. However, the statutory framework laid down under

the IBC and the CIRP Regulations provide a step-by-step procedure which is to

be followed from the initiation of CIRP to the approval by the Adjudicating

Authority. Regulation 40A describes a model-timeline for the CIRP that accounts

for every eventuality that may arise between the commencement of the CIRP and

approval of the Resolution Plan by the Adjudicating Authority, including the

different stages for pressing a withdrawal of the CIRP under Section 12A. Even a

modification to the RFRP is envisaged by the CIRP Rules and is subject to a

timeline. The absence of any exit routes being stipulated under the statute for a

successful Resolution Applicant is indicative of the IBC’s proscription of any

attempts at withdrawal at its behest. The rule of casus omissus is an established

rule of interpretation, which provides that an omission in a statute cannot be

supplied by judicial construction. Justice GP Singh in his authoritative treatise,

Principles of Statutory Interpretation107, defines the rule of casus omissus as:

“It is an application of the same principle that a matter

which should have been, but has not been provided for in

107GP Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015)

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a statute cannot be supplied by courts, as to do so will

be legislation and not construction. But there is no

presumption that a casus omissus exists and language

permitting the court should avoid creating a casus omissus

where there is none.”

(emphasis supplied)

The treatise further discusses that a departure from this rule is only allowed in

cases where words have been accidently omitted or the omission has an effect of

making any part of the statute meaningless. Further, only such words can be

supplied to the statute which would have certainly been inserted by the

Parliament, had the omission come to its notice. The relevant paragraph is

extracted below:

“As already noticed it is not allowable to read words in a

statute which are not there, but “where the alternative lies

between either supplying by implication words which appear

to have been accidentally omitted, or adopting a construction

which deprives certain existing words of all meaning, it is

permissible to supply the words”. A departure from the rule of

literal construction may be legitimate so as to avoid any part

of the statute becoming meaningless. Words may also be

read to give effect to the intention of the Legislature which is

apparent from the Act read as a whole. Application of the

mischief rule or purposive construction may also enable

reading of words by implication when there is no doubt about

the purpose which the Parliament intended to achieve. But

before any words are read to repair an omission in the Act, it

should be possible to state with certainty that these or similar

words would have been inserted by the draftsman and

approved by Parliament had their attention been drawn to the

omission before the Bill passed into law.”

In the wake of the COVID-19 pandemic, several Resolution Plans remained

pending before Adjudicating Authorities due to the lockdown and significant

barriers to securing a hearing. An Ordinance was swiftly promulgated on 5 June

2020 which imposed a temporary suspension of initiation of CIRP under Sections

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7, 9 and 10 of the IBC for defaults arising for six months from 25 March 2020

(extendable by one year). This was followed by an amendment through the IBC

(Second Amendment) Act 2020 on 23 September 2020 which provided for a

carve-out for the purpose of defaults arising during the suspended period. The

delays on account of the lockdown were also mitigated by the IBBI (Insolvency

Resolution Process for Corporate Persons) (Third Amendment) Regulations

2020, which inserted Regulation 40C on 20 April 2020, with effect from 29 March

2020, and excluded such delays for the purposes of adherence to the otherwise

strict timeline. Recently, the IBC (Amendment) Ordinance 2021 was promulgated

with effect from 04 April 2021 providing certain directions to preserve businesses

of MSMEs and a fast-track insolvency process. There has been a clamor on

behalf of successful Resolution Applicants who no longer wish to abide by the

terms of their submitted Resolution Plans that are pending approval under

Section 31, on account of the economic slowdown that impacted every business

in the country. However, no legislative relief for enabling withdrawals or renegotiations has been provided, in the last eighteen months. In the absence of

any provision under the IBC allowing for withdrawal of the Resolution Plan by a

successful Resolution Applicant, vesting the Resolution Applicant with such a

relief through a process of judicial interpretation would be impermissible. Such a

judicial exercise would bring in the evils which the IBC sought to obviate through

the back-door.

148 It is pertinent to note that even the UNCITRAL Guide does not contain any

provisions for withdrawal of a submitted Plan. It only discusses the possibilities of

amending a Resolution Plan. The UNCITRAL Guide indicates that it

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contemplates that the Legislature should choose if it wants to allow any

amendments to a submitted Resolution Plan. In the event, it does, it should lay

down the detailed steps of proposing amendments to a submitted resolution

plan108. In fact, even the scope of negotiations between the Resolution Applicant

and the CoC has to be specifically envisaged by the statute109. Further, the

UNCITRAL Guide envisages that amendments can be made to the Resolution

Plan after it is approved by the creditors only in limited circumstances. It mentions

that, “[a]n insolvency law may include limited provision for a plan to be modified

after it has been approved by creditors (and both before and after confirmation) if

its implementation breaks down or it is found to be incapable of performance,

whether in whole or in part, and the specific problem can be remedied”110. If

permitted by the statute, the recommendations strongly urge the establishment of

a mechanism for amendment after approval by creditors which details

requirements of, inter alia, approval by creditors of the modification and

consequences of failure to secure approval to the amendments111. The BLRC

Report has relied on the UNCITRAL Guide while designing the IBC112 and it is a

critical tool for ascertaining legislative choice and intent. Parliament has not

introduced an explicit provision under the IBC for allowing any amendment of the

Resolution Plan after approval of creditors, let alone a power to withdraw the

108 IV.A.52., page 225, and Recommendation 155: “155. The insolvency law should permit amendment of a plan

and specify the parties that may propose amendments and the time at which the plan may be amended, including

between submission and approval, approval and confirmation, after confirmation and during implementation,

where the proceedings remain open.” of the UNCITRAL Guide, supra note 56 109 Ibid. 110 IV. A. 66, page 230 of the UNCITRAL Guide, supra note 56 111 Recommendation 156: “The insolvency law should establish the mechanism for approval of amendments to a

plan that has been approved by creditors. That mechanism should require notice to be given to the creditors and

other parties affected by the proposed modification; specify the party required to give notice; require the approval

of creditors and other parties affected by the modification; and require the rules for confirmation (where

confirmation is required) to be satisfied. The insolvency law should also specify the consequences of failure to

secure approval of proposed amendments.”, UNCITRAL Guide, supra note 56 112 3.3.1, supra note 55

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Resolution Plan at that stage. At the same time, the Corporate Debtor and the

CoC have been empowered to withdraw from the CIRP. If it intended to permit

parties to amend the Resolution Plan after submission to the Adjudicating

Authority, based on its specific terms of the Resolution Plan, it would have

adopted the critical safeguards highlighted by the UNCITRAL.

J.2 Terms of the Resolution Plan are not sufficient to effect withdrawals

or modifications after its submission to the Adjudicating Authority

149 It has been contended by the three appellants that a Resolution Plan only

becomes binding when it is approved by the Adjudicating Authority under Section

31(1) of the IBC. Further, since Section 74(3) of the IBC, provides that a person

can be prosecuted or punished for contravening the Resolution Plan only after its

approval by the Adjudicating Authority, the successful Resolution Applicant is

entitled to withdraw the Plan, on the terms of its contractual provisions, as long as

it is not made binding under Section 31(1) of the IBC. We have held in Section H

that a CoC-approved Resolution Plan is a creature of the IBC and cannot be

construed as a pure contract between two consenting parties, prior to its approval

under Section 31 of the IBC. In this section, independent of the above finding, we

proceed to examine the contention that the terms of a Resolution Plan can

reserve the right to modify or withdraw its contents after submission to the

Adjudicating Authority.

150 The approval of the Adjudicating Authority under Section 31(1) of the IBC

has the effect of making the Resolution Plan binding on all stakeholders. These

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stakeholders include the employees of the corporate debtor whose terms of

employment would be governed by the Resolution Plan, the Central and State

Governments who would receive their tax dues on the basis of the terms of the

Resolution Plan and local authorities to whom dues are owed. These

stakeholders are not direct participants in the CIRP but are bound by its

consequence by virtue of the approval of the Resolution Plan, under Section

31(1) of the IBC. Section 31(1) ensures that the Resolution Plan becomes

binding on all stakeholders after it is approved by the Adjudicating Authority. The

language of Section 31(1) cannot be construed to mean that a Resolution Plan is

indeterminate or open to withdrawal or modification until it is approved by the

Adjudicating Authority or that it is not binding between the CoC and the

successful Resolution Applicant. Regulation 39(4) of CIRP Regulations mandates

that the RP should endeavour to submit the Plan at least fifteen days before the

statutory period of the CIRP under Section 12 is due to expire along with a

receipt of a PBG and a compliance certificate as Form H. It is pertinent to note

that sub-Section (3) to Section 12 mandates that the CIRP process, including

legal proceedings, must be concluded within 330 days. This three-hundred-andthirty-day period can be extended only in exceptional circumstances, if the

process is at near conclusion and serves the object of the IBC, as held by a three

judge Bench of this Court in Essar Steel (supra). Therefore, after accounting for

all statutorily envisaged delays which the RP has to explain in its Form H and

otherwise through Regulation 40B, the procedure envisages a fifteen-day window

between submission of Resolution Plan and its approval or rejection by the

Adjudicating Authority. This clearly indicates that the statute envisages a certain

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level of finality before the Resolution Plan is submitted for approval to the

Adjudicating Authority. Even the CoC is not permitted to approve multiple

Resolution Plans or solicit EOIs after submission of a Resolution Plan to the

Adjudicating Authority, which would possibly be in contemplation if the Resolution

Applicant was permitted to withdraw from, or modify, the Plan after acceptance

by the CoC. Regulation 36B(4A) requires the furnishing of a performance security

which will be forfeited if a Resolution Applicant fails to implement the Plan. This is

collected before the Adjudicating Authority approves the Plan. Notably, the

regulations also direct forfeiture of the performance security in case the

Resolution Applicant “contributes to the failure of implementation”, which could

potentially include any attempts at withdrawal of the Plan.

151 The report of the BLRC also notes that the negotiations in the CIRP must

be time bound and it envisages that one of the ways in which the CIRP comes to

a close is that the RP is able to obtain a binding agreement from the CoC113.

Such a binding agreement is placed before the Adjudicating Authority, which

orders the closure of the CIRP. If the Adjudicating Authority does not receive a

binding agreement, it can send the Corporate Debtor into liquidation. The

relevant paragraphs are extracted below:

“5.3.4 Rules to close the IRP

The Committee agrees that it is critical for the Code to

preserve the time value of the entity by ensuring that

negotiations in the IRP are time bound. The Code states that

the IRP has a default maximum time limit that is strictly

adhered to, regardless of whether the creditors committee

has identified a solution. On the other side, the Committee is

also of the view that, if a solution can be identified within a

113 5.3.4, BLRC Report, supra note 55

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shorter time frame, the process must accommodate closing

the IRP in a shorter time period also. The Committee

proposes that the IRP can come to a close in either of

two ways. Either the RP is able to get a binding

agreement from the majority of the creditors committee

or the calm period reaches the default maximum date set by

the Adjudicator at the start of the IRP. If either condition is

met, the Adjudicator will issue an order to close the IRP.

However, the orders will vary depending upon the condition. If

the RP submits a binding agreement to the Adjudicator

before the default maximum date, then the Adjudicator

orders the IRP case to be closed. If the Adjudicator does

not receive a binding agreement by this date, the

Adjudicator issues an order to close the IRP case along

with an order to liquidate the entity.”

(emphasis supplied)

152 The binding nature, as between the CoC and the successful Resolution

Applicant, of the Resolution Plan submitted for approval by the Adjudicating

Authority is further evidenced from the fact that the CoC issues a LOI to a

successful Resolution Applicant stating that it has been selected as the

successful Resolution Applicant and its Plan would be submitted to the

Adjudicating Authority for its approval. The successful Resolution Applicant is

typically required to accept the LOI unconditionally and submit a PBG.

Sequentially, the issuance of an LOI is followed by its unconditional acceptance

by the successful Resolution Applicant. In Amtek Auto (supra), this court

thwarted a similar attempt by a successful Resolution Applicant who had relied

on certain open-ended clauses in its Resolution Plan to seek a direction

compelling the CoC to negotiate a modification to its Resolution Plan. The

Resolution Plan had been approved by the Adjudicating Authority and the

Resolution Applicant’s IA was not entertained. The Resolution Applicant had then

sought to challenge the approval of the Resolution Plan under Section 61(3) of

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the IBC by seeking the same relief. This Court rejected the claim and observed

that, “[t]o assert that there was any scope for negotiations and discussions after

the approval of the resolution plan by the CoC would be plainly contrary to the

terms of the IBC”.

153 Regulation 38(3) mandates that a Resolution Plan be feasible, viable and

implementable with specific timelines. A Resolution Plan whose implementation

can be withdrawn at the behest of the successful Resolution Applicant, is

inherently unviable, since open-ended clauses on modifications/withdrawal would

mean that the Plan could fail at an undefined stage, be uncertain, including after

approval by the Adjudicating Authority. It is inconsistent to postulate, on the one

hand, that no withdrawal or modification is permitted after the approval by the

Adjudicating Authority under Section 31, irrespective of the terms of the

Resolution Plan; and on the other hand, to argue that the terms of the Resolution

Plan relating to withdrawal or modification must be respected, in spite of the

CoC’s approval, but prior to the approval by the Adjudicating Authority. The

former position follows from the intent, object and purpose of the IBC and from

Section 31, and the latter is disavowed by the IBC’s structure and objective. The

IBC does not envisage a dichotomy in the binding character of the Resolution

Plan in relation to a Resolution Applicant between the stage of approval by the

CoC and the approval of the Adjudicating Authority. The binding nature of a

Resolution Plan on a Resolution Applicant, who is the proponent of the Plan

which has been accepted by the CoC cannot remain indeterminate at the

discretion of the Resolution Applicant. The negotiations between the Resolution

Applicant and the CoC are brought to an end after the CoC’s approval. The only

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conditionality that remains is the approval of the Adjudicating Authority, which has

a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan in

terms of Section 30 (2) of the IBC. If the requirements of Section 30(2) are

satisfied, the Adjudicating Authority shall confirm the Plan approved by the CoC

under Section 31(1) of the IBC.

154 If the appellants’ claim were to succeed, a clause enabling a Resolution

Applicant to withdraw/seek modification for reasons such as a ‘Material Adverse

Event’ could also be set up by a Resolution Applicant when it is being prosecuted

under Section 74 (3). It was contended before us that Form H, which is a

compliance certificate that is to be submitted by the RP to the Adjudicating

Authority along with the Resolution Plan, mentions that the RP can enter details

as to whether the Resolution Plan is subject to any conditionalities under Clause

12. Thus, the argument goes that this permits the Resolution Applicant to

stipulate in the Resolution Plan certain contingencies under which it can withdraw

the Plan, for instance if there is an occurrence of an ‘Material Adverse Event’. A

form is subservient to the statute. The conditionalities contemplated in Form H

could be those which do not strike at the root of the IBC. They can include

commercial conditions and business arrangements with the CoC. However,

conditions for withdrawal or re-negotiation of the Resolution Plan cannot pass the

test of ‘viability’ and ‘implementability’ as they would make the resolution process

indeterminate and unpredictable. A two judge Bench of this Court in K Sashidhar

(supra), while discussing the jurisdiction of the Adjudicating Authority under

Section 31 to evaluate a Resolution Plan, has observed that the Resolution Plan

should “be an overall credible plan, capable of achieving timelines specified in the

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Code generally, assuring successful revival of the corporate debtor and

disavowing endless speculation”

114. Section 30(2)(d) of the IBC and Regulation

38 of the CIRP Regulations also provide that the Resolution Plan should be

implementable. In the absence of specific statutory language allowing for

withdrawals or even modifications by the successful Resolution Applicant, it

would be difficult to imply the existence of such an option based on the terms of

the Resolution Plan, irrespective of, and especially when they do not form a part

of Clause 12 in Form H, as is the case in all the three Resolution Plans that are in

dispute in this present appeal.

155 The Insolvency and Bankruptcy Law Committee in its report released in

March 2018115 noted that many conditional Resolution Plans were being

approved by the Adjudicating Authority on account of the uncertainty on statutory

clearances, such as by the Competition Commission of India, and the approval

by the Adjudicating Authority was being regarded as a “single window approval”.

This was in contravention of the intent of the IBC. The relevant extracts of the

report are reproduced below:

“16.1 Regulation 37(l) of the CIRP Regulations states that a

resolution plan shall provide for obtaining necessary

approvals from the Central and State Governments and other

authorities. However, the timeline within which such

approvals are required to be obtained, once a resolution plan

has been approved by the NCLT, has not been provided in

the Code or the CIRP Regulations. The Committee

deliberated that as the onus to obtain the final approval would

be on the successful resolution applicant as per the resolution

plan itself, the Code should specify that the timeline will be as

specified in the relevant law, and if the timeline for approval

under the relevant law is less than one year from the approval

114 Para 60 supra note 35 115 supra note 100

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of the resolution plan, then a maximum of one year will be

provided for obtaining the relevant approvals, and section 31

shall be amended to reflect this.

16.2 Further, the Committee noted that there is no

provision in the Code on the requirement to obtain an

indication on the stance of the concerned regulators or

authorities, if required, on the resolution plan prior to the

resolution plan being approved by the NCLT. It was

brought to the attention of the Committee that this was

resulting in several conditional resolution plans being

approved by the NCLT, and that the approval by the

NCLT was being regarded as a ‘single window approval.’

This not being the intent of the Code, the Committee

deliberated on introduction of a mechanism for obtaining

preliminary observations from the concerned regulators

and authorities in relation to a resolution plan approved

by the CoC and submitted to the NCLT for its approval,

but prior to the NCLT’s approval.”

(emphasis supplied)

The Insolvency and Bankruptcy Law Committee in its report dated February

2020116 stated that the current practice of obtaining governmental approvals after

the approval of the Resolution Plan has created an uncertainty about the

implementation of the Resolution Plan. The committee suggested that this

uncertainty can be mitigated if amendments are made to the IBC to provide that

once the Resolution Plan is approved by the CoC, it will be shared with the

governmental and regulatory authorities, for approvals that are necessary for

running the business of the Corporate Debtor. If no objections are raised within

forty-five days, it would be deemed that they have granted an approval. If

objections are raised or conditional approvals are granted, the Resolution

Applicant should attempt to clear the objections or meet the conditions before

placing the Resolution Plan before the Adjudicating Authority. This Plan would

116 supra note 90

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thereafter be placed before the Adjudicating Authority for its approval. The

committee further suggested that this timeline of forty-five days should be

excluded from calculating the timelines under Section 12 of the IBC. The

relevant extract is reproduced below:

“14.8. To enable approvals or no-objections to be taken within

the scheme of the Code, the Committee decided that

amendments should be made to the Code such that once a

resolution plan is approved by the CoC, it should be sent

to all concerned government and regulatory authorities

whose approvals are core to the continued running of the

business of the corporate debtor, for their approvals or

objections. If they do not raise their objections within

forty-five days, they will be deemed to have no

objections. This plan would then be placed before the

Adjudicating Authority for its approval. If the government

and regulatory agencies raise any objections or grant

conditional approvals, the resolution applicant can

attempt to clear the objections or meet the conditions for

approval before placing the plan for the approval of the

Adjudicating Authority, where this can be done within the

time limit provided under Section 12. However, where this

is not possible, the plan may still be placed before the

Adjudicating Authority for its approval, and the successful

resolution applicant should clear the objections or comply with

the conditions for approval within a period of one year from

the approval of the resolution plan.

14.9. To ensure that this aligns with the time-line for

resolution provided in the Code, the Committee

recommended that the window of forty-five days given to

government and regulatory agencies should be excluded

from the computation of the time limit under Section 12

of the Code. Although some members of the Committee

were of the view that this time-line should ideally run

concurrently with the CIRP period, the Committee felt that this

exclusion would be justified since it would streamline the

process of gaining government approvals considerably, which

would lead to more value maximising resolutions, offsetting

value lost, if any, in this forty-five day period in which the

corporate debtor will be run as a going concern.”

(emphasis supplied)

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154

The aim to tighten timelines for receiving regulatory approvals through the

provision of in-principal approvals, prior to the approval of the Adjudicating

Authority, indicates that the statutory framework under the IBC has consistently

attempted to avoid situations which may introduce unpredictability in the

insolvency resolution process and has sought to make the process as linear as it

can be. Further, the recommendations made in the Insolvency Law Committee

Report of February 2020117 discussed above indicate that the aim is to ensure

that the Resolution Plan placed before the Adjudicating Authority should reach a

certain finality, even in the context of governmental approvals. A conditionality

which allows for further negotiations, modification or withdrawal, once the

Resolution Plan is approved by the CoC would only derail the time-bound

process envisaged under the IBC.

156 Regulation 40A envisages a model-time line for the CIRP. Any deviation

from this timeline needs to be specifically explained by the RP in Clause 10 of

Form H. Regulation 40B imposes a time-limit on the RP for filing the requisite

forms at different stages of the CIRP, including forms seeking extensions on

account of delays at any stage. The failure to fill these forms within the stipulated

deadline results in disciplinary action against the RP by the IBBI. Further, as

discussed in Section I of the judgement, various mandatory timelines have been

imposed for undertaking specific actions under the CIRP. If the legislature

intended to allow withdrawals or subsequent negotiations by successful

Resolution Applicants, it would have prescribed specific timelines for the exercise

of such an option. The recognition of a power of withdrawal or modification after

117 supra note 90

PART J

155

submission of a CoC-approved Resolution Plan, by judicial interpretation, will

have the effect of disturbing the statutory timelines and delaying the CIRP,

leading to a depletion in the value of the assets of a Corporate Debtor in the

event of a potential liquidation. Hence, it is best left to the wisdom of the

legislature, based on the experiences gained from the working of the enactment,

to decide whether the option of modification or withdrawal at the behest of the

Resolution Applicant should be permitted after submission to the Adjudicating

Authority; if so, the conditions and the safeguards subject in which it can be

allowed and the statutory procedure to be adopted for its exercise.

157 Based on the plain terms of the statute, the Adjudicating Authority lacks

the authority to allow the withdrawal or modification of the Resolution Plan by a

successful Resolution Applicant or to give effect to any such clauses in the

Resolution Plan. Unlike Section 18(3)(b) of the erstwhile SICA which vested the

Board for Industrial and Financial Reconstruction with the power to make

modifications to a draft scheme for sick industrial companies, the Adjudicating

Authority under Section 31(2) of the IBC can only examine the validity of the plan

on the anvil of the grounds stipulated in Section 30(2) and either approve or

reject the plan. The Adjudicating Authority cannot compel a CoC to negotiate

further with a successful Resolution Applicant. A rejection by the Adjudicating

Authority is followed by a direction of mandatory liquidation under Section 33.

Section 30(2) does not envisage setting aside of the Resolution Plan because the

Resolution Applicant is unwilling to execute it, based on terms of its own

Resolution Plan.

PART J

156

158 Further, no such power can be vested with the Adjudicating Authority

under its residuary jurisdiction in terms of Section 60 (5)(c). In a decision of a

three judge Bench of this Court in Gujarat Urja (supra), it was held that, “the

NCLT’s residuary jurisdiction [under Section 60(5)(c)] though wide, is

nonetheless defined by the text of the IBC. Specifically, the NCLT cannot do what

the IBC consciously did not provide it the power to do”. Further, the court

observed that “this Court must adopt an interpretation of the NCLT’s residuary

jurisdiction which comports with the broader goals of the IBC”

118. The effect of

allowing the Adjudicating Authority to permit withdrawals of resolution plans that

are submitted to it, would be to confer it with a power that is not envisaged by the

IBC and defeat the objectives of the statute, which seeks a timely and predictable

insolvency resolution of Corporate Debtors.

159 After the amendment to Section 12 in 2019 which mandate a 330 days

outer-limit for conclusion of the CIRP (which can be breached only under

exceptional circumstances as held in Essar Steel (supra)), it would be

antithetical to the purpose of the IBC to allow the Adjudicating Authority to use its

plenary powers under Section 60(5)(c) to potentially extend these timelines to

enable the CoC to either issue a fresh RFRP if the Resolution Plan is withdrawn

by a successful Resolution Applicant or direct further negotiations with the

Resolution Applicant who is seeking a modification of the plan, whose failure

could result in withdrawal as well. The likely consequence of a withdrawal by a

successful Resolution Applicant after going through the stages of the CIRP for

nearly 180 days (provided all statutory timelines have been strictly followed)

118 Para 163-164, supra note 38

PART J

157

would inevitably be a delayed liquidation after the value of the assets has further

depreciated. In the event of intervening delays on account of litigation or

otherwise, the delay would be even more severe. If a CoC, could be compelled

by the Adjudicating Authority to negotiate with the successful Resolution

Applicant, it would have to resign itself to a commercial bargain at a much lower

value. If Parliament intended to permit such withdrawals/modifications sought by

successful Resolution Applicants as being beneficial to the economic policy,

which it has sought to pursue while enacting the IBC, it would have prescribed

timelines for setting the clock-back or directing immediate liquidation if the

withdrawals occur after a certain period. For instance, under Regulation 36B (5)

any modification to the RFRP or the evaluation matrix is deemed as a fresh issue

of the RFRP and the timeline for submission of Resolution Plan starts afresh.

Parliament has not legislated to provide for the eventuality argued by the

appellants.

160 Permitting the Adjudicating Authority to exercise its residuary powers

under Section 60(5) to allow for further modifications or withdrawals at the behest

of the successful Resolution Applicant, would be in the teeth of the decision of

this Court in Essar Steel (supra) which held that “[s]ection 60(5)(c) cannot be

used to whittle down Section 31(1) of the IBC, by the investment of some

discretionary or equity jurisdiction in the Adjudicating Authority outside Section

30(2) of the Code, when it comes to a resolution plan being adjudicated upon by

the Adjudicating Authority”

119.

119 Para 68-69, supra note 34

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158

K Factual Analysis

161 We have held in Section H of this judgement that Resolution Plans are not

in a nature of a traditional contract per se, and the process leading up to their

formulation and acceptance by the CoC is comprehensively regulated by the

insolvency framework. In Section J, we have further held that the IBC framework,

does not enable withdrawals or modifications of Resolution Plans, once they

have been submitted by the RP to the Adjudicating Authority after their approval

by the CoC. In any event, and without affecting the legal position formulated

above, we will also deal with the submissions of the parties that the contractual

terms of their respective Resolution Plans enabled withdrawal or re-negotiation of

terms. We will be undertaking an analysis on whether the individual Resolution

Applicants before us had specifically negotiated with the respective CoCs for a

right of modification or withdrawal and are contractually entitled to the same in

the present case.

K.1 The Ebix Appeal

162 Before we begin our analysis on the factual matrix pertaining to Ebix’s

Appeal, we must deal with the preliminary issue alleged by the respondents

during the course of the Ebix Appeal- whether the Third Withdrawal Application

by Ebix was barred by res judicata; while this will not have a bearing on the final

outcome of the appeal, we shall analyze it briefly.

PART K

159

K.1.1 Res Judicata

163 To begin our inquiry, it is important to first consider the contours of the

principle of res judicata. In Indian law, the principle has been recognized in

Section 11 of the Code of Civil Procedure 1908. Section 11, in so far as is

relevant, reads as follows:

“11. Res judicata.—No Court shall try any suit or issue in

which the matter directly and substantially in issue has been

directly and substantially in issue in a former suit between the

same parties, or between parties under whom they or any of

them claim, litigating under the same title, in a Court

competent to try such subsequent suit or the suit in which

such issue has been subsequently raised, and has been

heard and finally decided by such Court.

[…]

Explanation IV.—Any matter which might and ought to have

been made ground of defence or attack in such former suit

shall be deemed to have been a matter directly and

substantially in issue in such suit.

Explanation V.—Any relief claimed in the plaint, which is not

expressly granted by the decree, shall, for the purposes of

this section, be deemed to have been refused.

[…]”

164 In Satyadhyan Ghosal v. Deorajin Debi120, a three judge Bench of this

Court, speaking through Justice KC Das Gupta, explained the doctrine of res

judicata in the following terms:

“7. The principle of res judicata is based on the need of giving

a finality to judicial decisions. What it says is that once a res

is judicata, it shall not be adjudged again. Primarily it applies

as between past litigation and future litigation. When a matter

— whether on a question of fact or a question of law — has

been decided between two parties in one suit or proceeding

120 (1960) 3 SCR 590

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160

and the decision is final, either because no appeal was taken

to a higher court or because the appeal was dismissed, or no

appeal lies, neither party will be allowed in a future suit or

proceeding between the same parties to canvass the matter

again. This principle of res judicata is embodied in relation to

suits in Section 11 of the Code of Civil Procedure; but even

where Section 11 does not apply, the principle of res judicata

has been applied by courts for the purpose of achieving

finality in litigation. The result of this is that the original court

as well as any higher court must in any future litigation

proceed on the basis that the previous decision was correct.”

From the above extract, it is clear that while res judicata may have been codified

in Section 11, that does not bar its application to other judicial proceedings, such

as the one in the present case.

165 Before proceeding further, it is important to compare the reliefs sought by

Ebix in the First, Second and Third Withdrawal Applications. They have been

tabulated below, for an easy comparison:

First Withdrawal

Application

Second Withdrawal

Application

Third Withdrawal

Application

i. Direct that the Ld.

Resolution Professional

supply a copy of the Special

Investigation Audit to the

Resolution Applicant

forthwith;

ii. Direct that the Ld.

Resolution Professional

supply a copy of the

Certificates under Sections

43, 45, SO and 66 of the

Insolvency and Bankruptcy

Code, 2016 to the Resolution

Professional forthwith;

iii. Withhold approval of the

Resolution Plan sanctioned

by the Committee of

Creditors of the Corporate

Debtor, as filed before this

Hon'ble Tribunal on

11.04.2018, pending detailed

i. Allow the Resolution

Applicant to withdraw the

Resolution Plan dated

19.02.2018 (along with the

Addendum/Financial

Proposal dated 21.02.2019)

submitted by it, and as

approved by the Committee

of Creditors;

ii. Direct the Ld. Resolution

Professional and/or Educomp

Solutions Limited and the

Committee of Creditors to

refund the Earnest Money

Deposit of Rs. 2,00,00,000/-

furnished by the Resolution

Applicant in respect of the

Resolution Plan;

iii. Withhold approval of the

Resolution Plan sanctioned

by the Committee of Creditors

i. Allow the Resolution

Applicant to withdraw the

Resolution Plan dated

19.02.2018 (along with the

Addendum/Financial

Proposal dated 21.02.2019)

submitted by it, and as

approved by the Committee

of Creditors;

ii. Direct the Ld. Resolution

Professional and/or Educomp

Solutions Limited and the

Committee of Creditors to

refund the Earnest Money

Deposit of Rs. 2,00,00,000/-

furnished by the Resolution

Applicant in respect of the

Resolution Plan;

iii. Withhold approval of the

Resolution Plan sanctioned

by the Committee of Creditors

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161

consideration of the same by

the Resolution Applicant;

iv. Grant the Resolution

Applicant sufficient time to reevaluate its proposals

contained in the Resolution

Plan, and also to suitably

revise/modify and/or withdraw

its Resolution Plan;

of the Corporate Debtor, as

filed before this Hon'ble

Tribunal on 07.03.2018 and

recorded vide order dated

1.1.04.2018, pending detailed

consideration of the same by

the Resolution Applicant;

of the Corporate Debtor, as

filed before this Hon'ble

Tribunal on 07.03.2018 and

recorded vid order dated

11.04.2018, pending detailed

consideration of the same by

the Resolution Applicant;

From the above table, it is clear that the prayers in the Second and Third

Withdrawal Applications were identical. Further, prayer (iii) of both corresponds to

prayer (iii) of the First Withdrawal Application, in almost identical terms, while

prayer (ii) was not present in the First Withdrawal Application at all. At the same

time, prayers (i) and (ii) in the First Withdrawal Application have not been

repeated in the Second and Third Withdrawal Applications. However, what is at

issue is prayer (iv) of the First Withdrawal Application and prayer (i) of the

Second and Third Withdrawal Applications. Through the former, Ebix sought

permission to re-evaluate its Resolution Plan and to suitably “revise/modify

and/or withdraw” it, while through the latter, Ebix sought permission to withdraw

its Resolution Plan. Now we must analyse whether this would attract the principle

of res judicata.

166 In a judgment of this Court in Sheodan Singh v. Daryao Kunwar121, a four

judge Bench of this Court elaborated on the various conditions which must be

satisfied before the doctrine of res judicata can apply in a given case. Justice KN

Wanchoo, speaking for the Court, held:

121 (1966) 3 SCR 300

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162

“9. A plain reading of Section 11 shows that to constitute a

matter res judicata, the following conditions must be satisfied,

namely—

(i) The matter directly and substantially in issue in the

subsequent suit or issue must be the same matter which

was directly and substantially in issue in the former suit;

(ii) The former suit must have been a suit between the

same parties or between parties under whom they or any

of them claim;

(iii) The parties must have litigated under the same title in the

former suit;

(iv) The court which decided the former suit must be a court

competent to try the subsequent suit or the suit in which such

issue is subsequently raised; and

(v) The matter directly and substantially in issue in the

subsequent suit must have been heard and finally

decided by the court in the first suit…”

(emphasis supplied)

167 In the present case, conditions (i) is not in dispute since the parties were

the same. As regards (ii), in the First Withdrawal Application, the prayer was to

enable Ebix to re-evaluate its proposals and to revise/modify and also withdraw

its Resolution Plan. A prayer for withdrawal of the Resolution Plan was raised in

the Second and Third Withdrawal Applications. Conditions (iii) and (iv) are also

not in issue. What remains to be assessed is compliance with condition (v), i.e.,

whether Ebix’s prayer in the First Withdrawal was in fact “heard and decided

finally”. While dismissing the First Withdrawal Application, the NCLT had held:

“This is an application filed by one Ebix Singapore Ptd.

Limited seeking re-valuation of the Resolution Plan submitted

by it before the Resolution Professional.

No ground for considering the prayer sought in the application

is made out.

The application is dismissed as such.”

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163

NCLT dismissed the First Withdrawal Application in a summary manner. Further,

the order does not make mention of the prayer to “revise/modify and/or withdraw”

of the Resolution Plan, but only refers to its re-evaluation.

168 The meaning of the phrase “heard and finally decided” was considered by

a judgment of a two judge Bench of this Court in Krishan Lal v. State of J&K122,

where it was held that the matter must have been heard on merits to have been

“heard and finally decided”. Justice BL Hansaria, speaking for the Court, held:

“12. Insofar as the second ground given by the High

Court — the same being bar of res judicata — it is clear

from what has been noted above, that there was no

decision on merits as regards the grievance of the

appellant; and so, the principle of res judicata had no

application. The mere fact that the learned Single Judge

while disposing of the Writ Petition No. 23 of 78 had observed

that:

“This syndrome of errors, omissions and oddities, cannot be

explained on any hypothesis other than the one that there is

something fishy in the petitioner's version….”

which observations have been relied upon by the High Court

in holding that the suit was barred by res judicata do not at all

make out a case of applicability of the principle of res

judicata. The conclusion of the High Court on this score is

indeed baffling to us, because, for res judicata to operate

the involved issue must have been “heard and finally

decided”. There was no decision at all on the merit of the

grievance of the petitioner in the aforesaid writ petition

and, therefore, to take a view that the decision in earlier

proceeding operated as res judicata was absolutely

erroneous, not to speak of its being uncharitable.”

(emphasis supplied)

122 (1994) 4 SCC 422

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169 In Daryao v. State of U.P.123, a Constitution Bench of this Court held that

orders dismissing writ petitions in limine will not constitute res judicata. It was

noted that while a summary dismissal may be considered as a dismissal on

merits, it would be difficult to determine what weighed with the Court without a

speaking order. Justice PB Gajendragadkar, speaking for the Court, held:

“26...If the petition is dismissed in limine without passing a

speaking order then such dismissal cannot be treated as

creating a bar of res judicata. It is true that, prima facie,

dismissal in limine even without passing a speaking order in

that behalf may strongly suggest that the Court took the view

that there was no substance in the petition at all; but in the

absence of a speaking order it would not be easy to decide

what factors weighed in the mind of the Court and that makes

it difficult and unsafe to hold that such a summary dismissal is

a dismissal on merits and as such constitutes a bar of res

judicata against a similar petition filed under Article 32…”

170 Another two judge Bench of this Court, in its judgment in Erach Boman

Khavar v. Tukaram Shridhar Bhat124, has held that the doctrine of res judicata

can only apply when there has been a conscious adjudication of the issue on

merits. Justice Dipak Misra, speaking for the Court, held:

“39. From the aforesaid authorities it is clear as crystal that to

attract the doctrine of res judicata it must be manifest

that there has been a conscious adjudication of an issue.

A plea of res judicata cannot be taken aid of unless there

is an expression of an opinion on the merits. It is well

settled in law that principle of res judicata is applicable

between the two stages of the same litigation but the question

or issue involved must have been decided at earlier stage of

the same litigation.”

(emphasis supplied)

123 (1962) 1 SCR 574 124 (2013) 15 SCC 655

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171 Res judicata cannot apply solely because the issue has previously come

up before the court. The doctrine will apply where the issue has been “heard and

finally decided” on merits through a conscious adjudication by the court. In the

present case, the NLCT’s order dismissing the First Withdrawal Application

makes it clear that it had only considered only that part of prayer (iv) which

related to re-evaluation of the Resolution Plan, possibly because Ebix had hoped

to re-evaluate the Resolution Plan on the basis of the information received as a

consequence of prayers (i) and (ii) and those prayers were rejected since such

information was not available.

172 In the impugned judgment, the NCLAT has relied upon Explanation (V) to

Section 11 to state that since withdrawal was also prayed for as a relief in prayer

(iv) of the First Withdrawal Application, it would have also been assumed to have

been rejected. Mulla’s The Code of Civil Procedure states that Explanation V can

only apply upon the fulfilment of two conditions: (i) the relief claimed must have

been substantial, and not merely auxiliary; and (ii) the relief claimed must have

been one which the Court is bound to grant, and not one which it is discretionary

for the Court to grant125.

173 In Jaswant Singh v. Custodian of Evacuee Property126, a two judge

Bench of this Court held that res judicata will only apply if the cause of action the

same and that the party also had an earlier opportunity to apply for the relief it is

now seeking. Justice ES Venkataramiah held:

125 Sir Dinshaw Fardunji Mulla, The Code of Civil Procedure (18th edn, LexisNexis) 126 (1985) 3 SCC 648

PART K

166

“14…It is well-settled that in order to decide the question

whether a subsequent proceeding is barred by res judicata it

is necessary to examine the question with reference to the (i)

forum or the competence of the Court, (ii) parties and their

representatives, (iii) matters in issue, (iv) matters which ought

to have been made ground for defence or attack in the former

suit, and (v) the final decision…A cause of action for a

proceeding has no relation whatever to the defence which

may be set up, nor does it depend upon the character of the

relief prayed for by the plaintiff or the applicant. It refers

entirely to the grounds set forth in the plaint or the application

as the case may be as the cause of action or in other words

to the media upon which the plaintiff or the applicant asks the

court to arrive at a conclusion in his favour. In order that a

defence of res judicata may succeed it is necessary to

show that not only the cause of action was the same but

also that the plaintiff had an opportunity of getting the

relief which he is now seeking in the former proceedings.

The test is whether the claim in the subsequent suit or

proceedings is in fact founded upon the same cause of action

which was the foundation of the former suit or proceedings…”

(emphasis supplied)

174 The prayer for withdrawal of the Resolution Plan in the First Withdrawal

Application was not substantial and one that the Court was bound to grant, since

it was contingent upon a re-evaluation, which in itself was contingent upon

receiving the information sought in prayers (i) and (ii). Since the latter two

contingencies never arose, the NCLT did not apply its mind to the prayer for

withdrawal independently. When it filed the Second Withdrawal Application, it

was dismissed on a technical ground and not on its merits. When a revised Third

Withdrawal Application was filed, the NCLT then adjudicated it on its merits and

allowed it. Hence, since the NCLT did not adjudicate Ebix’s prayer for withdrawal

of their Resolution Plan on its merits while dismissing the First Withdrawal

Application, the opportunity to seek the relief was not available to Ebix in a real

sense. Therefore, we reverse the finding of the NCLAT on this issue and hold

that Ebix’s Third Withdrawal Application was not barred by res judicata.

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K.1.2 Analysis of the Resolution Plan of Ebix

175 To briefly recount the relevant facts for determination of the dispute over

the terms of the resolution plan – the CIRP of Educomp commenced on 30 May

2017. After consultation with the E-CoC, the E-RP invited EOIs on 18 October

2017. The RFRP was issued on 5 December 2017, and was revised on 17

January 2018 and 20 January 2018. Ebix submitted its draft Resolution Plan after

the last date of 27 January 2018, and after securing an extension from the

Adjudicating Authority, on 29 January 2018. Ebix took the benefit of an extension

of time which was granted to it to submit its Resolution Plan. In the absence of an

extension of time, it would not have been permitted to enter the fray. After

multiple rounds of negotiations, on 9 February 2018, Ebix was declared the

successful Resolution Applicant and a LOI was issued by the E-CoC. On 17

February 2018, Ebix’s Resolution Plan was approved by a 74.16 per cent voting

share of the E-CoC, which was subsequently upgraded to 75.35 per cent by

CSEB’s vote being added belatedly on 23 February 2018. While it is true that the

votes of CSEB were received in favour of the Resolution Plan on a later date, all

the parties including Ebix proceeded on the notion that the Resolution Plan has

been approved by the requisite majority of seventy-five per cent of the voting

share of the E-CoC as was required then (now the requisite percentage has been

reduced to sixty-six per cent pursuant to an amendment). Thus, the CSEB

Application filed before the NCLT seeking a clearance of its delayed vote was a

mere formality and there was no controversy raised in relation to that application

at that stage. In fact, the Approval Application for the approval of the Resolution

Plan was filed before the NCLT on the basis that the Plan has been duly

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168

approved by the requisite majority of the CoC. No objections were raised against

the Approval Application on the ground that the threshold of seventy-five per cent

of votes was not met. The Resolution Plan dated 19 February 2018 and the

addendum dated 21 February 2018 for a total bid amount of Rs 400 crores were

then submitted by the E-RP to the Adjudicating Authority for approval on 7 March

2018.

176 Owing to the intervening applications for investigation into the accounts of

Educomp (pertinently, no internal special audit has been conducted till date), Ebix

filed the First Withdrawal Application on 5 July 2019, on account of a delay in

approval of seventeen months. Thereafter, it filed the Second and Third

Withdrawal Applications.

177 Ebix has alleged before this Court that it is entitled to withdraw its

Resolution Plan by relying on: (i) the terms of the RFRP, which indicates that the

Resolution Plan is binding on the Resolution Applicant only after approval by the

Adjudicating Authority under Section 31; (ii) the terms of the Resolution Plan

which indicate that the Plan was valid for six months; and (iii) the principles of

contract law to urge frustration on account of fraud and an erosion of the

commercial substratum.

178 Clause 1.8.3 of the RFRP, produced below, invited Resolution Plans with a

validity of not less than six months:

“1.8.3 A Resolution Plan once made/submitted must be valid

for a period not less than 6 (six) months from the Resolution

Plan Submission Date including any revisions to such

Resolution plan Submission Date (“Resolution Plan Validity

Period”). In case of extension of the Resolution Plan

Submission Date by the Resolution Professional, the validity

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period of the Resolution Plan shall also be deemed to be valid

for a period of 6 (six) months from such revised Resolution

Plan Submission date.

If any Resolution Plan as approved by the CoC and submitted

to the Adjudicating Authority is rejected by the Adjudicating

Authority, then the Resolution Professional and the CoC shall

act in accordance with the instructions/directions issued by

the Adjudicating Authority.”

Ebix urges that in compliance with the above clause of the RFRP, Clause 7 of its

Resolution Plan specified that it shall be valid for a term of six months from the

date of submission:

“7. Term of the Resolution Plan

This Resolution Plan proposed by the Resolution Applicant is

valid for a term of six months from the date of submission of

this plan”

Ebix urges that these matching terms of the offer (the RFRP) and the acceptance

(the Resolution Plan) are binding on the E-CoC and the Resolution Plan is

voidable and revocable at the instance of Ebix, upon the failure to seek timely

approval under Section 31.

179 This submission of Ebix cannot be accepted since the terms of the RFRP

or the Resolution Plan relate to the validity of the Resolution Plan for the period of

negotiation with the E-CoC and not for a period after the Resolution Plan is

submitted for the approval of the Adjudicating Authority. The time which may be

taken before the Adjudicating Authority is an imponderable which none of the

parties can predict. In fact, this is emphasized by Clause 1.3.7 of the RFPF which

contains a schedule of the Resolution Plan submission process. As regards the

approval of the Adjudicating Authority, it provides clearly that there is no time-line:

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170

“1.3.7 Schedule of Resolution Plan Submission Process

[…]

11. Approval of NCLT regarding the Resolution Plan of

Successful Resolution Applicant – As per NCLT.”

Parties cannot indirectly impose a condition on a judicial authority to accept or

reject its Plan within a specified time period, failing which the CIRP process will

inevitably come to an end. In this case, the draft Resolution Plan of Ebix was

submitted on 29 January 2018 and remained valid for the term of the multiple

rounds of negotiations with the E-CoC, until its submission to the Adjudicating

Authority on 7 March 2018, which was within the six-month period envisaged in

the Plan.

180 Even if it were to be assumed, for the sake of argument, that the term in

the submitted Resolution Plan was in the nature of a qualified offer which would

expire after six months of its submission, failing the imprimatur of the Adjudicating

Authority under Section 31 which would make it binding on all parties, the

surrounding terms of the RFRP and the subsequent legal materials including the

LOI and the Compliance Certificate (Form H) under CIRP Regulations make it

clear that there was no scope to resile from the implementation of the Resolution

Plan, once it had been submitted to the Adjudicating Authority, except in the

event of a rejection. Clause 1.9.3 of the RFRP required Ebix to replace its EMD

with a PBG equivalent to ten per cent of the Resolution Plan value, if it were to be

declared as the ‘successful Resolution Applicant’. This PBG can be invoked

under Clause 1.9.5 of the RFRP if the Resolution Applicant fails to implement the

Resolution Plan. Further, Clause 1.8.4 of the RFRP states that “[a] Resolution

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171

Plan submitted by a Resolution Respondent shall be irrevocable”. Clause 1.10(l)

of the RFRP also provides that a successful Resolution Applicant is not permitted

to withdraw an approved Resolution Plan:

“Clause 1.10 of the RFRP

“By procuring this RFRP and obtaining access to the Data

room and Information Memorandum, in accordance with the

terms of this RFRP, the Resolution Respondent is deemed to

have made the following acknowledgements and

representations:

[...]

(l) The Resolution Respondent upon declaration as

Successful Resolution Respondent shall remain

responsible for the implementation and supervision of

the Resolution Plan from the date of approval by the

Adjudicating Authority, and will not be permitted to

withdraw the Resolution Plan and the Resolution

Professional, PwC or the CoC assume no responsibility or

liability in this respect.”

(emphasis supplied)

Ebix’s submission that Clause 1.10(l) is applicable only upon approval of the

Adjudicating Authority is not plausible since the Resolution Plan becomes binding

on all stakeholders as a consequence of the approval under Section 31. The ERP’s argument holds much weight when it is argued that Clause 1.10(l) cannot

be construed to infer that the Adjudicating Authority would declare Ebix as the

‘Successful Resolution Applicant’ once again, which would then impose the

obligation of barring withdrawals for the first time. Mr Nakul Dewan, learned

Senior Counsel for the E-RP, has also submitted before us that the validity of the

Resolution Plan being six months was not mentioned as a specific conditionality

in Form H that was submitted by the E-RP along with the Resolution Plan to the

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Adjudicating Authority, which evinces that the six-month validity was only vis-àvis the acceptance by the E-CoC.

181 Ebix has also tried to argue that its position has changed manifestly

because of new allegations which have come up in relation to the financial

conduct of Educomp. However, in this regard, it is pertinent to note Clause 1.3.2

of the RFRP which directs prospective Resolution Applicants to conduct their own

due diligence. In so far as is relevant, it reads:

“1.3.2 The Resolution Applicant(s) shall be provided access

to the electronic as well as physical data room ("Data Room")

established and maintained by the Company acting through

the Resolution Professional and coordinated by PwC in order

to conduct a due diligence of the business and operations of

the Company”

Similarly, Clause 1.13.6 also requires prospective Resolution Applicants to

conduct independent investigations:

“1.13.6 This RFRP does not purport to contain all the

information required by the Resolution Applicant. The

Resolution Applicant should conduct independent

investigations and analysis and should check the accuracy,

reliability and completeness of the information in this RFRP

and obtain independent advice from appropriate sources,

prior to making an assessment of the Company.”

Ebix was responsible for conducting their own due diligence of Educomp and

could not use that as a reason to revise/modify their approved Resolution Plan. In

any event, Section 32A of the IBC grants immunity to the Corporate Debtor for

offences committed prior to the commencement of CRIP and it cannot be

prosecuted for such offences from the date the Resolution Plan has been

approved by the Adjudicating Authority under Section 31, if the Resolution Plan

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results in a change of management or control of the Corporate Debtor subject to

certain conditions. Section 32A reads as follows:

“32A. (1) Notwithstanding anything to the contrary contained

in this Code or any other law for the time being in force, the

liability of a corporate debtor for an offence committed prior to

the commencement of the corporate insolvency resolution

process shall cease, and the corporate debtor shall not be

prosecuted for such an offence from the date the resolution

plan has been approved by the Adjudicating Authority under

section 31, if the resolution plan results in the change in the

management or control of the corporate debtor to a person

who was not-

(a) a promoter or in the management or control of the

corporate debtor or a related party of such a person; or

(b) a person with regard to whom the relevant investigating

authority has, on the basis of material in its possession,

reason to believe that he had abetted or conspired for the

commission of the offence, and has submitted or filed a report

or a complaint to the relevant statutory authority or Court:

[…]

(2) No action shall be taken against the property of the

corporate debtor in relation to an offence committed prior to

the commencement of the corporate insolvency resolution

process of the corporate debtor, where such property is

covered under a resolution plan approved by the Adjudicating

Authority under section 31, which results in the change in

control of the corporate debtor to a person, or sale of

liquidation assets under the provisions of Chapter III of Part II

of this Code to a person, who was not –

(i) a promoter or in the management or control of the

corporate debtor or a related party of such a person; or

(ii) a person with regard to whom the relevant investigating

authority has, on the basis of material in its possession,

reason to believe that he had abetted or conspired for the

commission of the offence, and has submitted or filed a report

or a complaint to the relevant statutory authority or Court.

[…]

(3) Subject to the provisions contained in sub-sections (1) and

(2), and notwithstanding the immunity given in this section,

the corporate debtor and any person, who may be required to

provide assistance under such law as may be applicable to

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such corporate debtor or person, shall extend all assistance

and co-operation to any authority investigating an offence

committed prior to the commencement of the corporate

insolvency resolution process.”

Thus, in any case even if it is found that there was any misconduct in the affairs

of Educomp prior the commencement of the CIRP, Ebix will be immune from any

prosecution or punishment in relation to the same. The submission that Ebix has

been placed in a prejudicial position due to the initiation of investigation into the

affairs of Educomp by the CBI and SFIO is nothing but a red herring since such

investigations have no bearing on Ebix.

182 Finally, it is also important to note that no clause of Ebix’s own Resolution

Plans provides them with a right to revise/withdraw their Resolution Plan after its

approval by the E-CoC, but before its confirmation by the Adjudication Authority.

Clause 9.1 permits withdrawal in the event the Resolution Plan is not approved in

its entirety by the NCLT, while Clause 9.7 allows for an amendment for the

purposes of implementation of the Resolution Plan but only when the E-CoC

approves it with a seventy-five per cent vote. Hence, Ebix did not have any right

under their own Resolution Plan to revise/withdraw it.

183 It is also pertinent to note that Ebix did not stop pursuing their Resolution

Plan after the expiry of six months, if the true import of the commercial bargain

was a withdrawal of the Resolution Plan after six months of its submission. The

First Withdrawal Application was filed on 10 September 2019, which was after

one year of the alleged expiry of the six-month period. Therefore, even if the

submitted Resolution Plan was considered as a conditional offer the terms did not

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enable a withdrawal of the Resolution Plan in the event that the Adjudicating

Authority does not approve it under Section 31 within six months of its

submission.

184 Before we conclude our analysis on the substantive arguments raised by

Ebix, we will be briefly dealing with its arguments that the RP had failed in its

obligation to provide information under Section 29 of the IBC.

K.1.3 Duties of the RP

185 Appearing on behalf of Ebix, Mr KV Vishwanathan has argued before this

Court that the E-RP failed in its duties under Section 29 of the IBC when it failed

to inform Ebix about the ongoing investigations against Educomp. While this

argument was made in order to justify Ebix’s withdrawal of its Resolution Plan,

which we have already rejected, we shall assess it nonetheless. On behalf of the

E-RP, Mr Nakul Dewan has appeared and argued that the obligation on an RP to

provide information under Section 29 has to be understood on a “best effort

basis”.

186 Section 29 of the IBC places a duty upon the RP to provide an IM to the

Resolution Applicant, containing such information which may be relevant to the

Resolution Applicant to draft its Resolution Plan. It states:

“29. Preparation of information memorandum.—(1) The

resolution professional shall prepare an information

memorandum in such form and manner containing such

relevant information as may be specified by the Board for

formulating a resolution plan.

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(2) The resolution professional shall provide to the resolution

applicant access to all relevant information in physical and

electronic form, provided such resolution applicant

undertakes—

(a) to comply with provisions of law for the time being in force

relating to confidentiality and insider trading;

(b) to protect any intellectual property of the corporate debtor

it may have access to; and

clauses (a) and (b) of this sub-section are complied with.

Explanation.—For the purposes of this section, “relevant

information” means the information required by the resolution

applicant to make the resolution plan for the corporate debtor,

which shall include the financial position of the corporate

debtor, all information related to disputes by or against the

corporate debtor and any other matter pertaining to the

corporate debtor as may be specified.”

187 The BLRC Report elucidates the duties of the RP:

“1. The RP must provide the most updated information

about the entity as accurately as is reasonably possible

to this range of solution providers. In order to do this, the

RP has to be able to verify claims to liabilities as well as the

assets disclosed by the entity. The RP has the power to

appoint whatever outside resources that she may require in

order to carry out this task, including accounting and

consulting services.

2. The information collected on the entity is used to

compile an information memorandum, which is signed

off by the debtor and the creditors committee, based on

which solutions can be offered to resolve the insolvency.

In order for the market to provide solutions to keep the entity

as a going concern, the information memorandum must be

made available to potential financiers within a reasonable

period of time from her appointment to the IRP. If the

information is not comprehensive, the RP must put out

the information memorandum with a degree of

completeness of the information that she is willing to

certify.

For example, as part of the information memorandum, the RP

must clearly state the expected shortfall in the coverage of

the liabilities and assets of the entity presented in the

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information memorandum. Here, the asset and liabilities

include those that the RP can ascertain and verify from the

accounts of the entity, the records in the information system,

the liabilities submitted at the start of the IRP, or any other

source as may be specified by the Regulator.

3. Once the information memorandum is created, the RP

must make sure that it is readily available to whoever is

interested to bid a solution for the IRP. She has to inform the

market (a) that she is the RP in charge of this case, (b) about

a transparent mechanism through which interested third

parties can access the information memorandum, (c) about

the time frame within which possible solutions must be

presented and (d) with a channel through which solutions can

be submitted for evaluation. The Code does not specify

details of the manner or the mechanism in which this should

be done, but rather emphasises that it must be done in a

time-bound manner and that it is accessible to all possible

interested parties.”

(emphasis supplied)

188 Similarly, the UNCITRAL Guide notes:

“5. Duties and functions of the insolvency representative

[…]

(e) Obtaining information concerning the debtor, its assets,

liabilities and past transactions (especially those taking place

during the suspect period), including examining the debtor

and any third person having had dealings with the debtor…”

189 Under the IBC, there is a duty upon the RP to collect as much information

about the Corporate Debtor as is accurately possible to do. When such

information is communicated through an IM to the Resolution Applicant, the RP

must be careful to clarify when its information is not comprehensive and what

factors may cause a change.

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190 In the present case, Ebix has alleged that the E-RP did not inform it of the

financial investigations into the conduct of Educomp in a timely fashion. To

assess this claim, it is important to underline a few dates:

(i) 5 December 2017 – E-RP provided Virtual Data Room access to Ebix and

other prospective Resolution Applicants in relation to Educomp, and the

final RFRP was issued;

(ii) 7 March 2018 – E-RP filed the Approval Application before NCLT in

relation to Ebix’s Resolution Plan, after its approval by the E-CoC;

(iii)3 April 2018 and 26 April 2018 – two articles are published in The Wire in

relation to financial mismanagement of Educomp;

(iv)4 May 2018 – the IFC Application came up before NCLT, having been filed

by a financial creditor of Educomp seeking investigation of the

affairs/transactions, in which the E-RP was directed file its reply and IFC

was directed to serve a notice on Ebix;

(v) 12 June 2019 – Educomp made regulatory disclosures to the BSE and

NSE in relation to the ongoing investigations by SFIO and CBI; and

(vi)5 July 2019 – Ebix filed the First Withdrawal Application.

191 Ebix cannot dispute that E-RP had provided it the relevant information

required under Section 29 to formulate its Resolution Plan. The issues in relation

to financial investigations into the conduct of Educomp arose when the two

articles were published by The Wire, both of which were after the Approval

Application had been filed by the E-RP. Further, Ebix was aware of all the

proceedings before the NCLT since the various applications were often listed

along with the Approval Application, in which it continued to appear. Finally, Ebix

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has brought nothing on record to prove that E-RP knew of the SFIO and CBI

investigations before a regulatory disclosure was made by Educomp. Hence, it

cannot be stated that the E-RP had faltered in its duty to provide relevant

information to Ebix.

K.2 The Kundan Care Appeal

192 The CIRP of Astonfield commenced on 27 November 2018. On 1 May

2019, GUVNL issued a default notice under Article 9.3.1(e) of the PPA, taking the

initiation of the CIRP as an event of default for the termination of the PPA. The

validity of the default notice was adjudicated upon by the NCLT in a judgment

dated 29 August 2019. The NCLT set aside the default notice on the ground that

the termination of the PPA would adversely affect the “going concern” status of

Astonfield. On 15 October 2019, the NCLAT dismissed an appeal filed by

GUVNL. On 29 October 2019, Kundan Care submitted a Resolution Plan for

being considered by the A-CoC, which was followed by a final version on 12

November 2019. On 14 November 2019, the Resolution Plan submitted by

Kundan Care was approved by the A-CoC with a vote of 99.28 per cent. On 15

November 2019, a Letter of Award was issued by the A-RP to Kundan Care, and

the Resolution Plan was submitted to the NCLT for approval to under Section 31

of the IBC.

193 On 27 November 2019, GUVNL moved this Court in appeal against the

order of the NCLAT dated 15 October 2019 (this Court eventually dismissed the

appeal). During the pendency of the appeal, the appellant moved an application

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before the NCLT for withdrawal of its Resolution Plan and for return of its PBG. In

view of the pendency of the appeal before this Court, NCLT deferred

consideration of the Resolution Plan till the disposal of the appeal. On the request

of Kundan Care, their application was listed for hearing and dismissed on 3 July

2020 for want of jurisdiction to enable withdrawals. This decision of the NCLT

was confirmed by the NCLAT on 30 September 2020. While Kundan Care’s

appeal against this decision of the NCLAT was pending before this Court,

Gujarat Urja (supra) was decided by this Court on 8 March 2021.

194 Kundan Care had initially sought to rely on Clause 5.1 of their Resolution

Plan to argue that it had reserved the right to modify or withdraw its submitted

Resolution Plan in the event of a ‘material adverse change’ which affects

Astonfield. Clause 5.1 reads as follows:

“5.1 Basis of Preparation

The preparation of the Resolution Plan is based on the

Information Memorandum provided to the Resolution

Applicant by the Resolution Professional. If at any time before

or after submission of this Resolution Plan, should the

information on the basis of which this Resolution Plan has

been prepared, change, or new information becomes

available, or if there is a material adverse change i.e. shall

there have occurred any fact, matter, event, circumstance,

condition or change which materially and adversely affects, or

could reasonably be expected to materially and adversely

affect: individually or in aggregate, the business, operations,

assets, liabilities, conditions (whether financial, trading or

otherwise), prospects or operating results of the Corporate

Debtor, the Resolution Applicant shall have the right to

reconsider, revise and/or withdraw the Resolution Plan on

assessment of such additional information and/or make a

fresh submission of resolution plan at its sole discretion”

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However, the A-RP has pointed out to the court that the LOI awarded to Kundan

Care clearly stipulated that the submitted Resolution Plan is irrevocable and there

were no conditionalities mentioned in the Form H that was submitted to the

Adjudicating Authority. Clause 9 of Kundan Care’s Resolution Plan confirms this

position, since it states:

“9 Condition Precedent

THERE ARE NO CONDITION PRECEDENT FOR

APPROVAL OF THIS RESOLUTION PLAN”

This is also reaffirmed by the fact that Clause 1.6.2 of the RFRP issued by the ARP, specifically indicated that the A-CoC may reject a Resolution Plan if it did not

agree with any of the conditions precedent in the nature of “walk away

conditions”. Clause 1.6.2 states:

“1.61 The CoC reserves the right to reject the Resolution

Plan, if any of the Conditions Precedent (as defined in Format

VA - Resolution Plan), are not acceptable to the CoC. The

Conditions Precedent, if any, in a Resolution Plan would

mean the 'walk-away conditions' and shall be required to be

specifically mentioned as such in the said Plan, with a

conspicuous heading and placement of a paragraph in the

Plan, and all such conditions shall be placed in a consolidated

manner in the said paragraph.”

This indicates that the condition of a material adverse event could be exercised

only until the A-CoC was considering the Resolution Plan, and not after it had

been submitted to the Adjudicating Authority.

195 During the course of the hearing of the present appeal, the compilation of

additional documents has been filed by Kundan Care. On 5 July 2021, Kundan

Care had addressed a communication to EXIM Bank and PFCL “seeking a

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revision/renegotiation of the resolution amount/financial proposal” of Kundan

Care for the resolution of Astonfield. Responding to the above communication,

EXIM Bank has addressed a letter dated 12 July 2021 stating that a meeting was

held by “the lenders” (EXIM Bank and PFCL) on 9 July 2021, on a without

prejudice basis to deal with the issues raised by Kundan Care in their letter dated

5 July 2021. Responding to the request of Kundan Care, it has been stated that:

“4… lenders were prima facie agreeable to deliberate the

financial proposal seeking revision in resolution plan amount

in the COC convened by the RP post the directions of the

Hon'ble Supreme Court in accordance with the processes laid

down by the IBC”.

Pursuant to the above exchange of communications, a joint request has been

made by Mr Ramji Srinivasan, learned Senior Counsel appearing on behalf of

Kundan Care and Mr V Giri, learned Senior Counsel appearing on behalf of the

A-CoC in the following terms:

“In view of the letter dated 12 July 2021 issued by the lenders

who are members of the CoC, the appellant may be permitted

to withdraw Civil Appeal 3560/2020 with liberty to the RA and

the CoC to file the revised plan (in terms of the letter dated 12

July 2021) before the NCLT (through the RP) for approval.

The CoC shall convene and take a call on the revised plan

within one week and the NCLT shall dispose of the matter

within two weeks upon receiving IA from RP for approval of

revised plan.”

196 This Court had been informed that EXIM Bank and PFCL represent 98 per

cent of the financial creditors of Astonfeld. In view of the above agreement which

has been arrived at, we deem it appropriate to exercise our jurisdiction under

Article 142 of the Constitution of India for a one-time relief and direct that:

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(i) The A-CoC shall convene and take a decision on the proposal submitted

by Kundan Care on 5 July 2021, and the response by EXIM Bank and

PFCL dated 12 July 2021;

(ii) In the event, that a revised Resolution Plan is agreed upon by the A-CoC,

it shall be submitted through the A-RP for the approval of the NCLT within

a week thereafter. In the event that a revised Resolution Plan is not

agreed upon, the original Resolution Plan, as submitted before the NCLT

on 15 November 2019, shall prevail; and

(iii)The NCLT shall dispose of the application with the revised Resolution Plan

expeditiously, and preferably within a period of two weeks from the date of

receipt of an application from the A-RP for the approval of the revised

Resolution Plan.

197 We clarify that the above directions have been issued in view of the

submission which has been urged as noted, and shall not amount to any finding

by this Court on the issues raised with regard to modification or withdrawal of

Resolution Plans at the behest of the Resolution Applicant.

K.3 The Seroco Appeal

198 The CIRP of Arya Filaments, an MSME, was instituted on 17 August 2018.

Seroco submitted a draft Resolution Plan on 13 March 2019 for an amount of Rs

6.79 crores (approx.). Subsequent to meetings with the Arya-CoC and revisions

to the Resolution Plan, Seroco’s plan was approved by the Arya-CoC on 10 May

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2019. On 15 May 2019, the Arya-RP filed the Resolution Plan for approval before

the NCLT. Form H was filed by Arya-RP on 5 June 2020.

199 Seroco addressed a letter to Arya-RP and Arya-CoC on 9 June 2020

seeking a modification of the Resolution Plan and the resolution amount to Rs

5.29 crores (approx.) on account of the economic slowdown caused by the

COVID-19 pandemic, and subsequently filed applications before the NCLT and

an appeal before the NCLAT seeking a modification of the Resolution Plan on

account of the original being filed over eighteen months ago.

200 Seroco has relied on the terms of its Resolution Plan which envisage

payment to the Arya-CoC by sale of land and building, and old/unusable/spare

plant and machineries to urge that there has been a frustration of the contract

because of the economic slowdown which must have impacted the value of these

assets. The proposed revised solution envisages a further haircut to the AryaCoC where Rs 1.5 crores less would be paid, over an extended timeline. There

are no terms in the Resolution Plan or the Form H submitted by Arya-RP that

could provide such a benefit to Seroco. To the contrary, Clause 19(vii) of the

Resolution Plan provides that the preliminary approval of the Resolution Plan by

the Arya-CoC is binding on Seroco:

“19. Others:

[…]

(vii) We understand that the preliminary approval of the

resolution pian is the prerogative of the Committee of

Creditors and the final approval of the same lies with the

Hon'ble Adjudicating authority i.e. NCLT and we undertake

that the decision of the Committee of Creditors and NCLT will

be final and binding on us.”

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Therefore, there is no scope to grant reliefs even on the terms of the Resolution

Plan. As held in Section H of this judgement, common law remedies available

under the Contract Act are not available to the parties since a submitted

Resolution Plan is not a contract which can be otherwise voidable on account of

frustration, force majeure or other such instances. Hence, parties can only seek

reliefs that are specifically envisaged in the IBC.

L Conclusion

201 This Court is cognizant that the extraordinary circumstance of the COVID19 pandemic would have had a significant impact on the businesses of Corporate

Debtors and upon successful Resolution Applicants whose Plans may not have

been sanctioned by the Adjudicating Authority in time, for myriad reasons. But the

legislative intent of the statute cannot be overridden by the Court to render

outcomes that can have grave economic implications which will impact the

viability of the IBC.

202 The residual powers of the Adjudicating Authority under the IBC cannot be

exercised to create procedural remedies which have substantive outcomes on

the process of insolvency. The framework, as it stands, only enables withdrawals

from the CIRP process by following the procedure detailed in Section 12A of the

IBC and Regulation 30A of the CIRP Regulations and in the situations recognized

in those provisions. Enabling withdrawals or modifications of the Resolution Plan

at the behest of the successful Resolution Applicant, once it has been submitted

to the Adjudicating Authority after due compliance with the procedural

requirements and timelines, would create another tier of negotiations which will

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be wholly unregulated by the statute. Since the 330 days outer limit of the 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, would 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. A failed negotiation for modification after submission, or

a withdrawal after approval by the CoC and submission to the Adjudicating

Authority, irrespective of the content of the terms envisaged by the Resolution

Plan, when unregulated by statutory timelines could occur after a lapse of time,

as is the case in the present three appeals before us. Permitting such a course of

action would either result in a down-graded resolution amount of the Corporate

Debtor and/or a delayed liquidation with depreciated assets which frustrates the

core aim of the IBC.

203 If the legislature in its wisdom, were to recognize the concept of

withdrawals or modifications to a Resolution Plan after it has been submitted to

the Adjudicating Authority, it must specifically provide for a tether under the IBC

and/or the Regulations. 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.

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204 In the present framework, even if an impermissible understanding of equity

is imported through the route of residual powers or the terms of the Resolution

Plan are interpreted in a manner that enables the appellants’ desired course of

action, it is wholly unclear on whether a withdrawal of a CoC-approved

Resolution Plan at a later stage of the process would result in the Adjudicating

Authority directing mandatory liquidation of the Corporate Debtor. Pertinently, this

direction has been otherwise provided in Section 33(1)(b) of the IBC when an

Adjudicating Authority rejects a Resolution Plan under Section 31. In this context,

we hold that the existing insolvency framework in India provides no scope for

effecting further modifications or withdrawals of CoC-approved Resolution Plans,

at the behest of the successful Resolution Applicant, once the plan has been

submitted to the Adjudicating Authority. A Resolution Applicant, after obtaining

the financial information of the Corporate Debtor through the informational utilities

and perusing the IM, is assumed to have analyzed the risks in the business of the

Corporate Debtor and submitted a considered proposal. 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. In the case of Kundan Care, since both, the Resolution Applicant

and the CoC, have requested for modification of the Resolution Plan because of

the uncertainty over the PPA, cleared by the ruling of this Court in Gujarat Urja

(supra), a one-time relief under Article 142 of the Constitution is provided with the

conditions prescribed in Section K.2.

205 It would also be sobering for us to recognize that whilst this Court has

declared the position in law to not enable a withdrawal or modification to a

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successful Resolution Applicant after its submission to the Adjudicating Authority,

long delays in approving the Resolution Plan by the Adjudicating Authority affect

the subsequent implementation of the plan. These delays, if systemic and

frequent, will have an undeniable impact on the commercial assessment that the

parties undertake during the course of the negotiation. The thirty-second report of

the Ministry of Corporate Affairs’ Standing Committee on Finance (2020-2021) on

the ‘Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions’127

represented a despondent state of affairs with regard to pendency of applications

before the Adjudicating Authority. It noted128:

127 Standing Committee on Finance, Seventeenth Lok Sabha, Ministry of Corporate Affairs, ‘Implementation of

Insolvency and Bankruptcy Code- Pitfalls and Solutions: Thirty-second Report’ (August 2021) <available at

https://www.ibbi.gov.in/uploads/whatsnew/fc8fd95f0816acc5b6ab9e64c0a892ac.pdf> accessed on 20 August

2021

128 Ibid., page 6

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In its observations, the Report noted that a delay in the resolution process with

more than seventy-one per cent cases pending for more than 180 days is in

deviation of the original objective and timeline for CIRP that was envisaged by

the IBC129. The delays were attributable to: (i) the NCLT taking considerable time

in admitting CIRPs; (ii) late and unsolicited bids by Resolution Applicants after the

original bidder becomes public upon passage of the deadline for submission of

the Plan; and (iii) multiplicity of litigation and the appellate process to the NCLAT

and the Supreme Court130. Such inordinate delays cause commercial uncertainty,

degradation in the value of the Corporate Debtor and makes the insolvency

process inefficient and expensive. We urge the NCLT and NCLAT to be sensitive

to the effect of such delays on the insolvency resolution process and be

cognizant that adjournments hamper the efficacy of the judicial process. The

NCLT and the NCLAT should endeavor, on a best effort basis, to strictly adhere

to the timelines stipulated under the IBC and clear pending resolution plans

forthwith. Judicial delay was one of the major reasons for the failure of the

insolvency regime that was in effect prior to the IBC. We cannot let the present

insolvency regime meet the same fate.

129 Ibid., Page 20-21 130 Ibid., Page 23-25

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206 In light of the above, the appeals preferred by Ebix (Civil Appeal 3224 of

2020) and Seroco (Civil Appeal 295 of 2021) stand dismissed. The parties to the

appeal preferred by Kundan Care (Civil Appeal 3560 of 2020) shall abide by the

directions issued by this Court in exercise of its Article 142 powers as a one-time

relief, as specified in paragraph 196 (Section K.2) of this judgement.

207 Pending application(s), if any, shall stand disposed of.

…….………….…………………...........................J.

[Dr Dhananjaya Y Chandrachud]

…….…………………………...............................J.

[M. R. Shah]

New Delhi;

September 13, 2021.

LAW FOR ALL

LawforAll

advocatemmmohan

WELCOME TO LEGAL WORLD

Saturday, September 18, 2021

once the resolution was submitted - it can not be permitted to withdraw the same