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INTRODUCTION
To ensure there is economic stability and growth in our country, the Insolvency and Bankruptcy Code, 2016 ("IBC") was introduced with an aim to establish an efficient and sophisticated framework for insolvency proceedings. One of the main features of IBC is that the Committee of Creditors ("CoC") has been given the power to decide the course of action regarding the Corporate Debtor's ("CD") future, whether they choose to revive it or to liquidate it. In Corporate Insolvency Resolution Process ("CIRP"), the Resolution Applicants ("RA") submit their Resolution Plans ("Plans") to the Resolution Professional ("RP") as stated under section 30 of the IBC. The plans which are submitted by the RA's are important documents as they contain details on how the CD shall be dealt as a going concern and how the debts of the Financial and Operation creditors shall be paid, if the plan is implemented. One of these submitted plans are either accepted or rejected by the CoC as per the powers given under section 30(4) of the IBC and the plan is subsequently submitted to the Adjudicating Authority ("AA") for scrutiny as per section 31 of the IBC.
There exist certain legal gaps at the stage of consideration of plan by the AA. The question that comes into picture at this stage of proceedings is whether the AA has the power or the RA's have the right to modify, amend, reconsider, or withdraw the submitted plan after the same has been approved by CoC. The author wishes to address this issue as it impacts important features of IBC such as time bound CIRP and judicial scrutiny of commercial efficacy of CoC which are crucial factors for the stakeholders involved in the process.
JUDICIAL VIEWPOINT REGARDING ALTERATIONS OR WITHDRAWAL OF RESOLUTION PLAN
In most of the decisions passed by the AA's and the Hon'ble Supreme Court of India, importance has been given to commercial wisdom of the CoC. The Hon'ble Supreme Court in the case of Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd., had emphasized that a plan once accepted by the CoC cannot be withdrawn from the consideration of the AA. The Hon'ble Supreme Court gave the following observation stating that the plan is not a contract, but a product of mechanism provided in IBC. Further, it has also been highlighted that Regulation 38(3) of CIRP Regulations states that a plan must be feasible, viable and should be implementable within the timelines specified under IBC. A plan's implementation cannot be withdrawn at the will of a successful RA as such an open-ended interpretation on modifications/withdrawal would mean that the plan could fail at any stage of the proceedings even after the same is approved AA.
The National Company Law Appellate Tribunal ("NCLAT") in the case of Kalinga Allied Industries India Private Limited v. Hindustan Coils Limited, held that "There is no provision in the code or regulation which provides that while exercising the power under Section 31 of the I&B Code the Adjudicating Authority can direct the COC to consider the Resolution Plan of such person who has not been part of CIRP. Otherwise also if such procedure is adopted then the CIRP will be frustrated. Once the Resolution Plan has been opened and fundamentals and financials of the Plan and offer made therein were disclosed to all the participants including RP".
Similarly in the case of Steel Strips Wheels Limited. v. Shri Avil Menezes, Resolution Professional of AMW Autocomponent Limited and Others, the NCLAT followed the line of reasoning laid down in the case of Ebix, it was stated that: "Learned Counsel for the Respondent No.3 has emphasized that the plan which is being submitted by Respondent No.3 is of much higher value and is favourable to the Corporate Debtor. After approval of the Resolution Plan by the CoC by requisite vote and after expiry of CIRP, it is not open for the CoC to contend that it is ready to consider the plan of Respondent No.3 which according to it may be better plan."
The Hon'ble Supreme Court in the case of Vallal RCK v. Siva Industries and Holdings Limited, once again emphasised on the supremacy of the commercial wisdom of the CoC. It was stated by the Court that: "This Court has consistently held that the commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the IBC. It has been held that there is an intrinsic assumption, that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. When 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stakeholders to permit settlement and withdraw CIRP, in our view, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority finds the decision of the CoC to be wholly capricious, arbitrary, irrational and de hors the provisions of the statute or the Rules."
The NCLAT in the matter of Piya Puri & Ors. v Mr. Debhashish Nanda & Ors., held that a plan approved by CoC cannot be remanded back to be revised on the grounds of procedural deviations. It was stated that "That being so, no clear nexus between the alleged material irregularity in the procedure followed and resultant prejudice caused to the interest of the minority Homebuyers in the class of creditors has been established. It is well recognized that rules of procedure being handmaid of justice, the object and intent of such procedures should be to advance the cause of justice and not become a tool to manipulate the process. The CIRP proceedings in the present case has already been a protracted affair. Remanding the matter back to CoC on the grounds of the procedural deviations raised by a dissenting minority in class of creditors would render the CIRP a never-ending process. This would militate against the core objective of the IBC to ensure insolvency resolution in a time bound manner."
Further in the case of Rajesh Kumar & Ors. v Rabindra Kumar Mintri & Anr., the NCLAT ruled that "Regarding the issue of viability and feasibility of the resolution plan, when the CoC approved the Resolution Plan in its commercial wisdom, it is presumed that the approval was given to a viable and feasible plan. The Resolution Plan being approved, this Tribunal also cannot interfere with the commercial wisdom. Approval of the CoC suggest that the plan is viable and feasible".
The NCLAT in the case of Hem Singh Bharana v M/s Pawan Doot Estate Pvt. Ltd. & Ors, dealt with the issue whether a plan can be withdrawn under Section 12A of the IBC, even after the approval of CoC. The NCLAT in its judgement observed that " Regulation making Authority was well aware about the entire process under the Code, including approval of the Plan by the CoC and filing of the Application before the Adjudicating Authority for approval of the Resolution Plan. Had it intended that 12A Application can be entertained even after Resolution Plan is approved by the CoC, the proviso would not have confined to issue invitation for Expression of Interest, rather, it could have been conveniently mentioned that after approval of Resolution Plan Applicant should justify withdrawal. It was never intended that after approval of Resolution Plan by CoC, Application under Section 12A can be entertained. Hence, the Regulation is framed in that manner."
The NCLAT in the case of Kalinga Allied Industries India Private Limited v. Committee of Creditors reiterated on the objectives and the basis on which the IBC was drafted on the basis of which it ruled that after a plan is approved by the CoC it is binding. It was stated that "the ‘Maximization of Value of Assets’ ought to be ‘within the specified timeline's and if it is not a ‘timebound process’, the entire scope and objective of the Code would fail merely because there is another higher offer made by a third party, the CoC cannot consider another Plan of a third party who did not participate in the CIRP Proceedings. For all the ongoing reasons, this Tribunal is of the earnest view that once Plan is submitted for approval, it is binding between the CoC and the SRA, unless there is any material irregularity or is against the provisions of Section 30(2) of the Code the Adjudicating Authority cannot, in its limited jurisdiction, interfere."
The NCLAT followed the same line of reasoning as laid down in the case of Kalinga, in the case of Express Resorts and Hotels Ltd. v. Amit Jain, RP, Neesa Leisure Ltd.,[1] In addition to that it was stated in the judgement that "mere fact that certain other offers have been received after the approval of the Resolution Plan, CoC cannot have a change of heart and start clamouring before the Adjudicating Authority that they have no objection to sending back the Resolution Plan for reconsideration. This will be permitting an unending process, since by passing of time situation keeps on changing. After coming to know about the financial offer in a Plan, which has been approved by the CoC, any subsequent offer by any entity, who did not participate in the process earlier, cannot be entertained."
As observed in the case of Kalinga, the AA stated that the decision of the CoC, to adopt a plan cannot be interfered with unless there is a material irregularity, or it does satisfy the conditions provided under section 30(2) of IBC. The Hon'ble Supreme Court had discussed this viewpoint in the case of Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors wherein it was stated that "Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) and subsection (4) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation."
The NCLAT in the case of Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP & Ors.,[2] had allowed withdrawal of a plan even after the same had been approved by the CoC as the Corporate Debtor's scope of business was misrepresented to the bidders. It was observed by NCLAT that "An insolvency law should ensure that adequate information is available in respect of the debtor's situation, providing incentives to encourage the debtor to reveal its positions and, where appropriate, sanctions for failure to do so. The availability of this information will enable those responsible for administering and supervising insolvency proceedings (courts or administrative agencies, the insolvency representative) and creditors to assess the financial situation of the debtor and determine the most appropriate solution. The Adjudicating Authority observed that the Resolution Professional's disassociation with the '2016 MM Report', in fact, constitutes an acceptance of the position that the '2016 MM Report' and the contents thereof are misleading and unreliable. Having made it available on VDR is contrary to the Resolution Professional's obligations under the I&B Code and the Regulations thereunder. In the aforesaid background, the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench rightly observed that the 'Insolvency and Bankruptcy Code' do not confer any power and jurisdiction on the Adjudicating Authority to compel specific performance of a plan by an unwilling resolution applicant. In absence of fact that there was any procedural infirmity and having not proceeded in the manner as was required, we hold that the plan approved was violative of Section 30(2)(e) of the 'I&B Code', having contravened the provisions of the 'I&B Code'." C
Further, in the case of Committee of Creditors of AMTEK Auto Limited Through Corporation Bank v. Dinkar T Venkatasubramanian & Ors it was stated that "The role of the adjudicating authority under sub-section (1) of Section 31 comes into being upon the approval of the resolution plan by the CoC under sub-section (4) of Section 30. The function which is assigned by the statute to the adjudicating authority is to determine whether the resolution plan which has been approved by the CoC meets the requirements of sub-section (2) of Section 30. Upon being satisfied that the resolution plan meets those requirements, the adjudicating authority 'shall by order approve the resolution plan'. Before passing an order of approval the adjudicating authority has to satisfy itself that the resolution plan has provisions for its effective implementation."
The NCLAT in the case of M/s. Sansar Texturisers Pvt. Ltd. v M/s. Polycoat India Pvt. Ltd, declined to approve the plan approved by the CoC on the grounds that it was selective towards certain creditors and was in direct breach of the waterfall mechanism provided under section 53 of IBC. The bench considered it was violative of section 30(2)(e) and 30(2)(f) of IBC.
The AA in the case of Rathi Graphics Technologies Limited v Rajkumar Rathi & Ors, enunciated on the principles equity and natural justice while deciding upon the powers of the AA to review the plan after the approval of CoC. The AA while referring to Regulation 36 to 39D of the CIRP Regulations, 2016 stated that "These provisions clearly establish that concept of fair play has been in-built though it is restricted to only a person who is genuinely interested in participating in the insolvency resolution proceedings which can be evident from actions of such PRAs. Further, this mechanism also shows that one other settled principle of natural justice/legal principle that 'no one should be rendered remediless' has also been institutionalized and that too when such aggrieved PRA cannot submit a resolution plan because as per the provision of Regulation 39(1) of CIRP Regulations, 2016 only a prospective resolution applicant in final list may submit the resolution plan. This provision also demolishes the view that the actions of the CoC cannot be reviewed by Adjudicating Authority as commercial wisdom of CoC is supreme and not justiciable as well. This provision also indicates that the process of approval of resolution plan and decision of approval of resolution plan are two different aspects where first aspect can be examined/revied by Adjudicating Authority and if the action of CoC is found to be arbitrary or unreasonable then the whole process including the approved resolution plan by CoC can be set aside and if it is not so then such provision would become meaningless." Further it was also observed that "As per our understanding, it means that equity will not allow a remedy contrary to the law meaning thereby that application by law and equity are subservient to each other and wherever the law needs to be followed, it must be followed. Thus, in respect of the matters governed by the provisions of Section 30(2) and Section 53 of IBC, these provisions are to be given effect and any deviation from these specific provisions of law cannot be made on the ground of equity. However, wherever there is no such prescription in any provisions of law, the principle of equity remains applicable, and it is the judicial forum who has to use its discretion to apply principles of equity to serve the interests of justice. Thus, this contention of the CoC is not acceptable as it cannot be said that equity is alien to IBC, 2016 altogether as the application of principle of equity has been found to be applicable." In the end, the NCLT referred to the provisions which govern the duties of CoC which are section 30(2) and 30(4) of the IBC and within these provisions principles of natural justice exists. Therefore, if there is any indication that there has been a violation by RP/CoC, the plan accepted by CoC can be rejected by the AA as per section 31(2) of IBC, 2016.
Recently, in the case of Noble Marine Metals Co. WLL v Kotak Mahindra Bank,[3] NCLAT explained if a plan does not fall within the parameters under section 30(2)(e) of the IBC, then the plan can be sent back by the AA to the CoC for its review.
ANALYSIS AND CONCLUSION
The overview of the cases cited above indicates that when it comes to deciding the future of the CD, the decision of the CoC is considered supreme. But the supremacy of CoC's decision comes with certain limitation which is provided under section 30(2) of the IBC. If the AA believes that the plan approved by the CoC is against the parameters provided under section 30(2) of the IBC or against the waterfall mechanism provided under section 53 of the IBC or there was a material irregularity or the decision was found to be discriminatory or against the principles of equity. Further, with a view to ensure that the timelines of the CIRP are adhered to during CIRP, an amendment was made to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 which introduced Regulation 39(1A)(a)[4] which prescribes that a plan can permit only one modification to a plan, provided that the request for plan allows for such modification. Therefore, it cannot be said that a plan once approved by CoC cannot be interfered with by AA provided it is within the provisions of IBC.
FOOTNOTES
[1] Express Resorts and Hotels Ltd. v. Amit Jain, RP, Neesa Leisure Ltd, Company Appeal (AT) (Insolvency) No.1158 of 2022. [2] Committee of Creditors of Metalyst Forging Ltd. v. Deccan Value Investors LP & Ors, Company Appeal (AT) (Insolvency) 1276 of 2019. [3] Noble Marine Metals Co WLL v. Kotak Mahindra Bank Ltd., Company Appeal (AT) (Insolvency) No. 653 of 2022. [4] Regulation 39(1A)(a) of the CIRP Regulations has been introduced vide Notification No. IBBI/2021-22/GN/REG078, dated September 30, 2021.