Submitted Resolution Plan cannot be modified by Resolution Applicant: SC

By TG Team Corporate Law Judiciary September 13, 2021

TaxGuru Citation: 2021 taxguru.in 2210
Case Name: Ebix Singapore Private Limited Vs Committee of Creditors of Educomp Solutions Limited & Anr. (Supreme Court of India)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: Supreme Court of India

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Ebix Singapore Private Limited Vs Committee of Creditors of Educomp Solutions Limited & Anr. (Supreme Court of India)

This Court is cognizant that the extraordinary circumstance of the COVID-19 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.

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 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.

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.

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 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:

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.

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.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

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.

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 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 E-RP 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 e-voting, 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 percent 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.

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”⁸. 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 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 13^th 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 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.

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 E-RP 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 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 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)

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;

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.”

30 Thereafter, Ebix filed the Third Withdrawal Application, seeking the following reliefs:

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;”

31. 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 the application before the E-CoC at the 14^th 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 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 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 infructuo us.

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.

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.

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 16^th 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 E-RP 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.

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 17^th 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 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.

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.

50 A-RP then conducted the 17^th 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, 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.”

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 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;”

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 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”.

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.”

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;

(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 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.”

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 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 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”.

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.

76 At its 4^th 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.

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 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 Arya-CoC. 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 and-Ors (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:

“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.

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;

(c) The documents underlying the CIRP, e., invitation of EOI, the RFRP, 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;

(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;

(c) In accordance with the RFRP, Clause 7 of the Resolution Plan provides 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. 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 (e., 19 February 2018) and twenty-seven months from the CIRP 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;

(g0 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 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;

(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;

(c) The affairs of Educomp are also being investigated by the SFIO and 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:

(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;

(c) The Resolution Applicant’s right to complete and accurate information 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 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

(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 negotiated plan was put to vote, and approved by 75.36 per cent of the E-CoC. 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. 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 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;

(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;

(v) 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;

(vi) 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;

(vii) 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;

(viii) 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

(ix) 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

(c) Clause 1.10(l), which stipulated that the Resolution Applicant will not be 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:

(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;

(c) Clause 1.9.3, read with Clause 1.9.5, ensures that a CoC approved 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;

(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, 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 E-CoC’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

(c) A conjoint reading of Clause 1.1.6, along with Clause 1.8.4, which declares a submitted Resolution Plan to be irrevocable, and Clause 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, 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 education, issued by Educomp, have become even more relevant in the circumstances of the pandemic;

(c) The Investigation Audit Application for investigations into the affairs of 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 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;

(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;

(c) The UK Act does not allow for the withdrawal of a Resolution Plan and limits the grounds of challenge. In Singapore, the Singapore Act allows challenges to the Resolution Plan, without envisaging withdrawal;

(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 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 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 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.

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. 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;

(c) The NCLAT incorrectly proceeded on the assumption that its powers in disposing off Kundan Care’s application seeking withdrawal were circumscribed by Section 61(3) of the IBC, which concerns appeals against 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;

(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 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 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;

(c) Since there is no concluded contract, withdrawal of an offer prior to 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 A-RP’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;

(e) SI. 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:

(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;

(c) The A-CoC’s approval through voting constitutes ‘provisional acceptance of offer’, as was held analogously by this Court in Haridwar Singh 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 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.

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 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) SI. 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 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 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 withdraw the Resolution Plan without being subjected to necessary consequences;

(c) The approval of the plan by the CoC indicates the ad idem between the 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

(f) 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 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 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 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 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. 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.

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 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 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.

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 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 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”

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

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 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;

(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:

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 sub-Section (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 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 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 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 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 would mean that certain principles of contract law, for example those relating to discharge, penalties, remedies and damages would become applicable to CoC-approved 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 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 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 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 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-i-Hind 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 CoC-approved 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-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 pre-legislative 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 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 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 CoC-approved 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, 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’ (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.

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:

“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 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 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 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 CoC-approved 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 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 CoC-approved 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 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 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 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 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 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.”

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 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 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 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 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 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 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;

(c) provides for the management of the affairs of the 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 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 three-judge 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 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 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.”

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: