The Hon’ble Supreme Court (“SC”) has held in its judgment dated September 13, 2021, in the matter of Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (Civil Appeal No. 3224 of 2020) that a submitted resolution plan is binding and irrevocable as between the Committee of Creditors (“CoC”) and the successful resolution applicant in terms of the provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. (“CIRP Regulations”) and that once the resolution plan is approved by the CoC and submitted to the adjudicating authority; the successful resolution applicant cannot withdraw or modify the resolution plan.

Facts
The National Company Law Tribunal (“Adjudicating Authority”) by way of its order dated May 30, 2017, admitted the petition filed by Educomp Solutions Limited (“Educomp”) under Section 10 of the IBC for the initiation of voluntary Corporate Insolvency Resolution Process (“CIRP”) and thereafter, Ebix Singapore Private Limited was declared as the successful resolution applicant (“Ebix/ Appellant”). However, during the pendency of the application for approval of resolution plan, Ebix filed two applications for withdrawal of the resolution plan (“First Withdrawal Application” and “Second Withdrawal Application”) which were both dismissed by the Adjudicating Authority. In the First Withdrawal Application under Section 60(5) of the IBC, Ebix sought the direction of the Adjudicating Authority to grant sufficient time to re-evaluate its proposals contained in the resolution plan and suitably revise/modify and/or withdraw its resolution plan and the Adjudicating Authority dismissed the First Withdrawal Application. The Second Withdrawal Application was also dismissed and Ebix was given the liberty to file a fresh application on the same cause of action.

Pursuant to this, Ebix filed another withdrawal application (“Third Withdrawal Application”) and the Adjudicating Authority by order dated January 2, 2020, allowed the Third Withdrawal Application and held that a resolution plan becomes binding only after it is approved by the Adjudicating Authority and in the present circumstances on account of the pending SFIO and CBI investigations, an unwilling successful resolution applicant would be unable to effectively implement the resolution plan (“NCLT Order”). Thereafter, an appeal was preferred by the CoC of Educomp before the National Company Law Appellate Tribunal (“NCLAT”), against the NCLT Order, and the NCLAT, by way of its order dated July 29, 2020, set aside the NCLT Order allowing the Third Withdrawal Application (“NCLAT Order”). Thereafter, Ebix filed the present Appeal (“Appeal”) before the SC under Section 61 of the IBC against the NCLAT Order.

Issues
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.

Arguments
Contentions raised by the Appellant:

• The Appellant is not bound by the resolution plan until it is approved by the Adjudicating Authority, in terms of the CIRP documents read with the scheme of the IBC and that Section 31(1) of the IBC provides that the resolution plan is “binding…on all stakeholders” only upon the approval of the Adjudicating Authority.
• The CIRP documents, that is, invitation of Expression of Interest (“EOI”), the Request for Resolution Plan (“RFRP”), sanction letter and resolution plan take effect of a binding contract only upon the approval of the Adjudicating Authority and the terms of the resolution plan indicate that the resolution plan is valid only for a period of six months.
• Events after the submission of the resolution plan like inordinate lapse of time and that the affairs of Educomp were also being investigated by the SFIO and the CBI, provided further evidence that the affairs of Educomp were severally mismanaged and hence susceptible to criminal investigations.
• The resolution plan was based on certain considerations that were fundamental to the Appellant’s bid for the business of Educomp. However, due to the inordinate delay in the completion of the CIRP, the tenure of the government contracts awarded to Educomp, which were crucial to its functioning, may have ended, leading to an erosion of its substratum.
• The Appellant was not provided with material information relating to the financial position of Educomp after the submission of the resolution plan, as a consequence of which, there was an impairment of a fair process in the conduct of a commercial transaction. Section 29(2) of the IBC provides that all relevant information should be provided to the resolution applicant and that the resolution applicant’s right to complete and accurate information relating to the Corporate Debtor has been recognized under the UNCITRAL Legislative Guide on Insolvency Laws (“UNCITRAL Guide”).
• The Adjudicating Authority is empowered under the IBC to permit the withdrawal of a resolution plan prior to its approval under Section 31 of the IBC.

Contentions raised by the respondents:

• The IBC is a complete code as held by the SC in M/s Embassy Property Developments Private Limited v. State of Karnataka & Others [(2020) 13 SCC 308] and M/s Innoventive Industries Limited v. ICICI Bank & Another [(2018) 1 SCC 407]. It does not envisage withdrawal of resolution plans after mutual negotiations between the resolution applicant and the CoC, which culminates into a binding agreement.
• Non-implementation of resolution plans after approval from the Adjudicatory Authority under Section 31 attracts prosecution under Section 74(3) of the IBC.
• Permitting the withdrawal would push Educomp towards liquidation, which would in turn risk thousands of crores of public monies owed to the public sector banks during the economic crisis caused by the Covid-19 pandemic.
• The Appellant had conducted its own due diligence in accordance with the RFRP and hence its arguments that the substratum or commercial viability has eroded due to the subsequent circumstances is facetious.
• The scope of judicial review with the Adjudicatory Authority under Section 31 of the IBC is confined to parameters delineated in Section 30(2) of the IBC, which does not envisage the withdrawal or unwillingness of the resolution applicant to continue with a CoC approved resolution plan.

Observations of the Supreme Court
Statutory period of 330 days prescribed under the IBC:

The SC noted its decision in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta [2020) 8 SCC 531] which, 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, that is, no person should suffer because of the fault of the court or the delay in the procedure. The SC observed that the previous statutory experiments for insolvency had failed because of delay as a result of extended legal proceedings and hence it chose to only strike down the word ‘mandatorily’, keeping the rest of Section 12(3) of the IBC intact. Therefore, the SC held that 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.

Adverting to the issue of withdrawal or modification of resolution plan by a successful resolution applicant under the IBC, the SC observed:

Absence of clear legislative provision:

The SC observed that in absence of a clear legislative provision, the SC 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 under Section 31 of the IBC. 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.

Commercial Wisdom of the CoC and judicial restraint:

The SC observed that in Essar Steel India Limited (supra), a three judge Bench of the SC, affirmed a two judge Bench decision in K Sashidhar v. India Overseas Bank [2019) 12 SCC 150], prohibiting the Adjudicating Authority from second-guessing the commercial wisdom of the parties or directing unilateral modification to the resolution plans. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as the IBC. 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 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.

Impact of Covid-19 Pandemic:

In the wake of the Covid-19 Pandemic, since several resolution plans remained pending before adjudicating authorities, the legislature had provided relief by way of imposing temporary suspension on the initiation of CIRP under Sections 7, 9 and 10 of the IBC for defaults arising for six months from March 25, 2020 (extendable by one year). This was followed by an amendment through the Insolvency and Bankruptcy Code (Second Amendment) Act, 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 April 20, 2020, with effect from March 29, 2020, and excluded such delays for the purposes of adherence to the otherwise strict timeline. In view of the above, the SC noted that there has been a clamour 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 of the IBC, on account of the economic slowdown that impacted every business in the country. However, no legislative relief for enabling withdrawals or re-negotiations has been provided, in the last eighteen months. Thus, in the absence of any provision under the IBC allowing for withdrawal of the resolution plan by a successful resolution applicant, vesting the Appellant with such a relief through a process of judicial interpretation would be impermissible.

Further, regarding the contention of the Appellant that the clauses under RFRP accepted by the CoC were binding on the CoC and the CoC approved resolution plan was voidable at the instance of the Appellant on account of inordinate delay in the approval of the submitted plan with the Adjudicating Authority; the SC rejected the argument of the Appellant and observed that the 6 months’ time period under the RFRP relates to the validity of the resolution plan for the period of negotiation with the CoC and not for a period after the resolution plan is submitted for the approval of the Adjudicating Authority. The court held that 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. The time which may be taken before the Adjudicating Authority is an imponderable which none of the parties can predict.

The SC also rejected the argument of the Appellant that its position changed manifestly because of new allegations which came up in relation to the financial conduct of Educomp and observed that the Appellant was responsible for conducting its own due diligence of Educomp and could not use that as a reason to revise/modify the 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 the CIRP and it cannot be prosecuted for such offences from the date the resolution plan has been approved by the Adjudicating Authority under Section 31 of the IBC, if the resolution plan results in a change of management or control of the corporate debtor, subject to certain conditions.

Decision of the Supreme Court

The SC while dismissing the present Appeal held that the residuary powers conferred on the Adjudicating Authority under the IBC cannot be exercised to create procedural remedies which have substantive outcomes on the process of insolvency. 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, would create another tier of negotiations and trigger litigations not akin to the object of the IBC, and thereby would risk delaying the insolvency process under the IBC.

VA View:

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. The existing framework only enables Adjudicating Authority to permit withdrawals from the CIRP under Section 12A of the IBC and Regulation 30A of the CIRP Regulations.

Even the UNCITRAL Guide does not contain any provisions for withdrawal of a submitted plan, and it only discusses the possibilities of amending a resolution plan. The UNCITRAL Guide indicates 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 plan. If the legislature 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. Since the IBC does not provide for the withdrawal of a resolution plan by the successful resolution applicant; providing a resolution applicant with such a relief through a process of judicial interpretation would bring in the evils which the IBC sought to obviate.

For more information please write to Mr. Bomi Daruwala at [email protected]

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