Withdrawal of Resolution Plan: Reaffirming the Primacy of CoC vis-à-vis the EBIX case

Ayush Raj*

INTRODUCTION

In a landmark judgment in the case of Ebix Singapore Pvt. Ltd. v. Community of Creditors of Educomp Solutions Limited & Ors., (hereinafter “the Case”),the Supreme Court has cleared the dust surrounding the withdrawal of the Resolution Plan (hereinafter “RP”) submitted by Resolution Applicant (hereinafter “RA”) after getting the requisite approval and validity by the Committee of Creditors (hereinafter “CoC”) as stipulated u/s 30(4) of the Insolvency and Bankruptcy Code, 2016 (hereinafter “the Code”). The RP is a framework to revive the Corporate Debtor (hereinafter “CD”) provided u/s 30(1) of the Code. The Supreme Court held that once submitted to the adjudicating authority, the RP cannot be backtracked and it becomes binding on all the stakeholders. This article holistically discusses the Supreme Court’s landmark ruling and analyses it from various related facets. The author provides a multi-dimensional interpretation of the nuances in the corporate insolvency process, identifying and highlighting the future significance of this judgment.

BACKGROUND AND FACTUAL MATRIX

Educomp preferred an application u/s 10 of the Code for a voluntary Corporate Insolvency Resolution Process (hereinafter “CIRP”) to the NCLT (“adjudicating authority”). After fulfilling mandated statutory procedures Ebix was declared as the successful RA. Thereafter, Ebix filed two withdrawal applications u/s 60(5) of the Code to re-evaluate and amend the RP, but both these applications were declined by the adjudicating authority. Subsequently, Ebix filed the third application that formed the basis of the present case.

Ebix sought to retract the RP after it got approved by the CoC and approached the adjudicating authority for the same in the course of its pendency before the adjudicating authority on the grounds of, (i), exorbitant delay on the part of NCLT to approve the RP, even exceeding the time cap of 6 months mandated under the Request for Resolution Plan (RFRP) and, (ii), the ongoing investigations against the Educomp for alleged financial and managerial errors in the company. At this juncture, the NCLT swiftly allowed the withdrawal application filed by Ebix and ruled that the RP becomes non-revocable and binding only after it gets approved by the adjudicating authority.

REVERSAL OF THE NCLT RULING

Pursuant to this decision, Educomp preferred an appeal to NCLAT praying to uphold the status quo and reverse the NCLT Order that allowed the withdrawal of the RP. The NCLAT found merits in the said appeal and accordingly, reversed the NCLT Order and held that “Adjudicating Authority after approval of the ‘Resolution Plan’ by the ‘Committee of Creditors had no jurisdiction to entertain or to permit the withdrawal application filed by the Ebix/Resolution Applicant”. Aggrieved by the NCLAT judgment, Ebix filed a Civil Appeal u/s 61 of the Code requesting the Apex Court to affirm the NCLT Order and contending the NCLAT judgment on the following grounds:

1. The RP is not binding until and unless approved by the adjudicating authority

2. Section 31 of the Code delegates requisite powers to the adjudicating authority to allow the withdrawal of the RP before final approval

3. Unwarranted delay and pending criminal investigation by government authorities against the CD, post-approval by CoC are pressing reasons to file a withdrawal application.

   
   

ARGUMENTS OF THE PARTIES AND THE OBSERVATIONS OF THE COURT

• Relating Resolution Plan & Contract Agreement: A Failed Attempt

It was argued by both the parties that the RP is a specific form of contract, the only contrast in their arguments was that the appellant contended that the RP is a contingent contract whose validity rests on the approval granted by the adjudicating authority while the respondents submitted that the contract is satisfied as and when the CoC approves the RP. The Court pondered over the submissions made by the parties regarding the interrelation between RP and contract. The arguments of the parties sought to prove that RPs imitate contractual nature by submitting that granting RFRP is an invitation to offer, the RP is an offer and lastly, approval by CoC is the acceptance of the offer. Additionally, the Bench was invited to have its attention on the contention that the terms & conditions of the RP form a consideration to that contract. However, it is pertinent to mention that the Court diligently refuted the contentions of the parties to declare the RP as any type of contract.

The Court rightfully reasoned that the RP inherently varies from a contract as Section 31(1) of the Code makes it binding even on the non-signatories. The Court relied upon the BLRC Report and the case of S.K Gupta v. K.P Jain to conclusively decline any possibility of the RP being termed and treated as a contract. Additionally, the silence of the Code on the intermixing nature of the RP and the contract formed a major basis for rejecting the above-said contention of the parties.

• Interpretation of the Code and Statutory Mandate

Another prominent argument of the appellants was that significant material information regarding the financial positions and the mismanagement therein was concealed by the respondents that could have significantly altered the stance of their company and their interest in the CIRP. It was further contended that non-disclosure of such material information has an immense bearing on this case and it is a violation of fair process as envisaged in the UNCITRAL Guide. Moreover, the appellants relied on Section 29(2) of the Code to argue that the CD is mandated to provide all material information and any deviation from it derogates the standard and fair statutory procedure.

In contrast, the Respondents relied on M/s Innoventive Industries Limited v. ICICI Bank & Another, in order to establish that the IBC is a complete and comprehensive Code that does not contemplate revoking the RP after it has been mutually agreed upon between the parties and approved by the CoC. In this regard, the respondents placed their reliance on Section 31 of the Code read with Section 29(2) to contend that the judicial discretion provided under the Code does not equip the adjudicating authority to decide on withdrawal applications after being sanctioned by the CoC. Moreover, it was submitted by the respondents that neither BLRC nor UNCITRAL permit these withdrawal applications, also the delay is not attributable to the CoC in any manner.

The Court observed that the validity of RP being six months was not mentioned in the RP and further talking about the legislative framework pertaining to withdrawal request the Court noted that withdrawals u/s 7, 9, and 10 are not available for RA and that Section 12A permits withdrawal only when it suits the interests of the CoC and within the time period. Furthermore, the Court observed that the participation in CIRP itself manifests the intent, interest, and inclination of the RA to revive the CD, and the RA is deemed to have known and analyzed the pros and cons of bidding and final allotment thereafter.

The author believes that the Supreme Court was justified in commenting about the process of CIRP as it reflected the voluntary agreement of the RA to participate in the process and hence, the RA cannot claim the right to withdraw its hands at the time when the statute deliberately neglected it. Moreover, allowing withdrawal from the process not only attacks the legislative intent but also hamper the interest of the creditors. It is because the adjudicating authority can only examine the resolution plan and look into its proper compliance under Section 30(2) of the Code post submission of CoC approved RP. Therefore, self-delegation of powers to the adjudicating authority and RP would harm the sanctity of the Code. Furthermore, it would also lead to questioning the commercial wisdom of CoC, thereby derogating their interest and strategies. Additionally, this shall vitiate the whole process and all the progress including the petition to adjudicating authority for CIRP initiation, appointment of RP, and moratorium procedure would result in a nullity, thereby further delaying the resuscitation of the CD.

• Role of Judicial Construction: A Case of Successful Restraint

It is also pertinent to note that the Court emphasized the need to diligently exercise judicial restraint on the issues pertaining to technical and economic interpretation. The author is of the opinion that the Apex Court has rightfully stated to take utmost caution while dealing with economic statutes as it would unnecessarily lead to encroachment on the statutory authorities as the existing framework provides no scope for withdrawal of successfully approved RP and the backdoor launching of the same by the judiciary would lead to a judicial overreach. Moreover, the Court is also devoid of the requisite expertise over these kinds of matters. The CoC has the required dexterity and it has been conferred such rights under the Code itself, therefore, it is more prudent to leave these issues on the wisdom of the CoC. The Bench relied on the judgment of Essar Steel India Ltd. v. Satish Kumar Gupta. In this regard, the Court also observed that governed by the rule of casus omissus; it is well established that a statutory omission cannot be imposed via judicial interpretation and since the Code doesn’t talk about mid-way exit, the judiciary cannot bestow this privilege to the RA in this case. The Court further held that allowing mid-way exit to the successful RA would make the process unviable and completely distort the stipulated timelines. The Court noted that giving a nod to such irregularities is sharply conflicting with what has been mandated under Rule 38(3) of the CIRP Regulations.

• Negating the COVID-19 Impact

Countering the argument of unreasonable delay due to COVID-19 and suspension of statutory timelines, the Court held that though there have been certain amendments (2nd and 3rd amendment) and flexibility has been granted in certain cases, nothing in the COVID-19 period even remotely indicates that withdrawals of plans post CoC approval have been legislatively provided. Hence, in the absence of any clear legislative backing on withdrawals, the Court was right in declining the request of the appellants.

Furthermore, the Court outrightly rejected the contention of the appellants regarding the inordinate delay on the part of the adjudicating authority to grant their approval, ruling that the parties can’t obligate the latter, who is a judicial authority, to decide over their Plan within a fixed time period and arguing that they will back out if their timeline fails.

ADDITIONAL COMMENTS & THE WAY FORWARD

The above discussion on the multiple aspects dealt in by the Apex Court in the case has far-reaching consequences and most importantly, it clarifies one of the most debated issues of the Code. The author is of the opinion that the verdict of the Court is quite welcoming and flexible as it has left the option open for the executive to permit withdrawal mechanism for legitimate concerns. The Apex Court has also suggested creating a window of 45 days to invite proposals from regulatory authorities prior to the approval of RP, in cases where such approval rests on the validity granted by regulators. It is pertinent to note that such an amendment can be fruitful for the successful RA as the ambiguities and uncertainties regarding the approval of RP would be alleviated to a large extent, something that was lacking in the Ebix CIRP. Additionally, delays beyond the control of the parties also cannot be an admissible reason to permit a back door exit. It is appreciable that the Court has upheld the provisions and defended the intent of the Code but the author also suggests that the law should not heavily incline itself towards the betterment of the CD but it should also bother about the interests of the RA especially in the cases where there have been some prominent concealment of facts. Hence, the author suggests the incorporation of some stringent provisions to prohibit the concealment of material facts that can prove prejudicial to the interests of the successful RAs. The entire crux leads of this litigation invite our attention towards the pendency in the approval of RPs at NCLT that hinders the successful resolution of CDs and restricts the blooming of an investor-friendly corporate environment.

*The author is a second-year student at National Law University, Nagpur.