The Supreme Court has in Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd. finally put to rest the variegated stances concerning the withdrawal of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (the “Code”). In unequivocal terms, the Court ruled that an attempt to withdraw a resolution plan following its acceptance by the committee of creditors (“CoC”) is antithetical to the scheme of the Code. Before this decision, there was a lot of confusion (as discussed here in an earlier post on this Blog) due to lack of a clear judicial precedent on the issue of withdrawal of the resolution plan by the successful resolution applicant during the mid-stage, i.e., after receiving the CoC approval but before being approved by the adjudicating authority. It was only in late 2018 that the first such request for withdrawal came up for adjudication before the National Company Law Tribunal (“NCLT”). In contrast, in recent times, there has been a surge in the frequency of such requests. This post seeks to highlight the legitimacy of such requests in light of Ebix Singapore and presents a compelling approach to the question posed.
Pre-Ebix Singapore Confusion
Even before Ebix Singapore, the NCLT has already touched upon the issue. However, a consistent position seemed to be lacking owing to wide discretion exercised in this matter. Instances where withdrawal was allowed included Panama Petrochem Ltd. v. Aryavart Chemicals Private Ltd., wherein the NCLT noted that though the process of withdrawal should be discouraged, it can however be permitted upon appraising the totality of circumstances, i.e., when certain alternatives such as the option to consider another resolution plan is available, and when subsequent changes take place in the financial capability of the resolution applicant. Similarly, the NCLT in Suraksha Asset Reconstruction Ltd. v. Shailen Shah observed that the resolution plan should specify the term for which it remains valid and, where such term is not mentioned, the adjudicating authority has the jurisdiction to permit withdrawal by giving due regard to the circumstances as prevailing at that time. Further, in support of this argument, it was held that since civil courts do not have the jurisdiction to entertain any application in relation to insolvency resolution or liquidation proceedings, relief (such as the permission to withdraw a plan) to a resolution applicant can be granted by adjudicating authority under section 60(5) of the Code. Later on, the resolution professional filed an appeal against this decision of the NCLT and it was overturned subsequently by the National Company Law Appellate Tribunal (“NCLAT”) in Committee of Creditors of Wind World (India) Ltd. v. Suraksha Asset Reconstruction Ltd., in light of the judgement pronounced in Ebix Singapore.
Yet another slightly peculiar instance where the withdrawal was permitted is the case of Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP. Herein, on the facts, it was observed that the production capacity and feasibility of the business of the corporate debtor was not accurately presented to the resolution applicant at the time of the plan’s approval by the CoC. The NCLAT further noted that since the resolution professional was obliged to provide updated information to the resolution applicant and, having failed to do so, the plan itself contravened the provisions of the Code, in particular section 30(2)(e). Overall, the essence of this decision is that instances where misleading information is provided to the resolution applicant, coupled with its unwillingness thereafter, could be a sufficient ground for permitting withdrawal.
Instances where withdrawal was disallowed have been equally prevalent. The NCLAT in Committee of Creditors of Educomp Solutions Ltd. v. Ebix Singapore Pte. Ltd., while emphasising that the adjudicating authority cannot intervene in the majority decision of the CoC, overturned the view taken by the adjudicating authority allowing the withdrawal. In a similar vein, in Kundan Care Products Limited v. Amit Gupta, the NCLAT noted that withdrawal of resolution plan is not permissible as doing this was ‘fraught with disastrous consequences’ to the debtor, as it would push it into liquidation. This apparent divergence in views has been finally settled in Ebix Singapore as discussed hereinafter.
The Case of Ebix Singapore
In Ebix Singapore, the Supreme Court reached a conclusion of not permitting withdrawal in any case, finding support from two major considerations, viz. the nature of the resolution plan, and the legislative framework surrounding the concept of withdrawal:
Nature of Resolution Plan
As a prelude to answering the question of withdrawal, the Court ponders on the nature of the resolution plan approved by the CoC under section 30(4) of the Code after considering and weighing the plan’s feasibility and viability against the evaluation matrix drawn up under regulation 2(ha) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (the “CIRP Regulations”). It was argued by the appellants and respondents alike that submission of the resolution plan by the resolution applicant is tantamount to an offer. However, while appellants contended that the CoC-approved plans are contingent contracts conditional on the approval of the adjudicating authority, the respondents argued that a contract is concluded as soon as the CoC accords its approval to the plan.
Refuting the contentions of both sides, the Court concluded that the resolution plan is distinct from a traditional contract on various counts, such as the former being binding even on non-signatories under section 31(1) of the Code, reliance being placed on S.K. Gupta v. K.P. Jain. The Court stated that it was the statutory scheme of the Code that gave a binding colour to the CoC-approved plan and not the consent of the parties. For the same reason, a CoC-approved plan cannot be termed a statutory contract either. The Court further found strength in the report of the Bankruptcy Law Reforms Committee that regards a resolution plan approved by the CoC interchangeably as a financial agreement, revival plan or a solution, signifying a deliberate effort to not term it as a contract.
As a necessary corollary to the conclusion that a CoC-approved plan is not governed by the Contract Act and common law principles of contract law, the Court held that contract law principle of force majeure could not be invoked to withdraw the resolution plan, even if a force majeure clause formed part of the terms of the resolution plan. A reference was made to similar observations regarding the invocation of the force majeure clause in Committee of Creditors, AMTEK Auto Ltd. v. Dinkar T. Venkatasubramanian.
The Legislative Framework Surrounding the Withdrawal
On this aspect, the Court noted, first, that withdrawal as prescribed under the Code is only allowed for applications admitted under sections 7, 9 and 10 of the Code, and this avenue is not available for resolution applicants. Withdrawal under section 12A is allowed only when it upholds the interests of the CoC, is time bound, and takes note of the expenses that are borne in the resolution process till the withdrawal stage. When section 12A, or for that matter the Code, is silent on the conception of withdrawal post-CoC approval, then allowing for such recourse would be in teeth of the rule of casus omissus.
Second, the Court commented on the proficiency of the resolution applicant in the resolution process. It noted that in the whole process, resolution plans are invited by the resolution professional through a competitive bidding process, wherein bidders present their proposals manifesting their intent to turn around the distressed state of the debtor. A prospective resolution applicant submits its proposal once it has analysed the risks in the business of the corporate debtor, perusing all the financial information available through informational utilities and information memorandum. Therefore, it is evident that once the resolution applicant has agreed to be bound by the objectives of the Code, it cannot, at a later stage, demand for those rights that are conspicuously omitted by the legislature. Considering the nature of the whole process, if withdrawal, in any case, is allowed by the Court, then that certainly would disturb the statutory timelines and, in furtherance of that, would also impair the interests of other creditors. Hence, when CIRP Regulations specify a model timeline for completion of the resolution process, and also with speed being the essence of the Code, allowing such a turnaround would be at odds with the objectives of the Code.
Third, it underlined the significance of the role of the CoC in the corporate insolvency resolution process. The Court reiterated CoC of Essar Steel Ltd. v. Satish Kumar Gupta, wherein it was held that the members of the CoC are experts, and that the technicality of the plan should be dealt with only by them. In essence, it observed that the adjudicating authority is not bestowed with such power to allow withdrawal, and the limited judicial review is for ensuring compliance with section 30(2) of the Code. That said, it also clarified that no such residuary power of allowing withdrawal is vested with the adjudicating authority under section 60(5) of the Code, as the power under said section cannot be exercised for activities that are consciously omitted.
Clearly, the legislative framework is silent on the withdrawal of the resolution plan. Further considering that where timely resolution forms an essential element of the whole process, Ebix Singapore, in express words, stated that enabling withdrawal would only create unforeseeable hurdles with deleterious impact on the corporate debtor, its creditors, and the economy at large. While the Court rejected outright every possible argument in support of permitting a withdrawal, it was, however, cognizant of the fact that long delays in approval of a plan by adjudicating authority can have a broad negative impact on the commercial assessment that parties undertake. For that, it directed the adjudicating authorities to be conscious of this fact and to endeavour to strictly adhere to the timelines as stipulated under the Code.
On the foregoing, while it is appreciable that the sanctity of the resolution process should be upheld by not permitting withdrawal once the plan has been approved by the CoC, at the same time the authors suggest that instances such as Metalyst Forging should form an exception to Ebix Singapore. Therefore, in cases where the information provided in the information memorandum by the resolution professional, which the resolution applicant has acted upon, does not represent the true picture of the state of affairs vis-a-vis the corporate debtor, the remedy of modification or withdrawal should be allowed.
– Gaurav Chaliya & Krishan Singhal