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2021 (9) TMI 672 - SC - Insolvency and BankruptcyWithdrawal of Resolution Plan - resolution plan was approved by Committee of Creditors - principles of res-judicata - seeking refund of Earnest Money Deposit - whether the Third Withdrawal Application by Ebix was barred by res judicata? - HELD THAT - While res judicata may have been codified in Section 11, that does not bar its application to other judicial proceedings, such as the one in the present case. In Daryao v. State of U.P., 1961 (3) TMI 91 - SUPREME COURT , a Constitution Bench of this Court held that orders dismissing writ petitions in limine will not constitute res judicata. It was noted that while a summary dismissal may be considered as a dismissal on merits, it would be difficult to determine what weighed with the Court without a speaking order - Another two judge Bench of this Court, in its judgment in ERACH BOMAN KHAVAR VERSUS TUKARAM SHRIDHAR BHAT AND ANOTHER 2013 (12) TMI 1673 - SUPREME COURT , has held that the doctrine of res judicata can only apply when there has been a conscious adjudication of the issue on merits. Res judicata cannot apply solely because the issue has previously come up before the court. The doctrine will apply where the issue has been heard and finally decided on merits through a conscious adjudication by the court. In the present case, the NLCT s order dismissing the First Withdrawal Application makes it clear that it had only considered only that part of prayer (iv) which related to re-evaluation of the Resolution Plan, possibly because Ebix had hoped to re-evaluate the Resolution Plan on the basis of the information received as a consequence of prayers (i) and (ii) and those prayers were rejected since such information was not available. Res judicata cannot apply solely because the issue has previously come up before the court. The doctrine will apply where the issue has been heard and finally decided on merits through a conscious adjudication by the court. In the present case, the NLCT s order dismissing the First Withdrawal Application makes it clear that it had only considered only that part of prayer (iv) which related to re-evaluation of the Resolution Plan, possibly because Ebix had hoped to re-evaluate the Resolution Plan on the basis of the information received as a consequence of prayers (i) and (ii) and those prayers were rejected since such information was not available. Ebix was responsible for conducting their own due diligence of Educomp and could not use that as a reason to revise/modify their approved Resolution Plan. In any event, Section 32A of the IBC grants immunity to the Corporate Debtor for offences committed prior to the commencement of CRIP and it cannot be prosecuted for such offences from the date the Resolution Plan has been approved by the Adjudicating Authority under Section 31, if the Resolution Plan results in a change of management or control of the Corporate Debtor subject to certain conditions - in any case even if it is found that there was any misconduct in the affairs of Educomp prior the commencement of the CIRP, Ebix will be immune from any prosecution or punishment in relation to the same. The submission that Ebix has been placed in a prejudicial position due to the initiation of investigation into the affairs of Educomp by the CBI and SFIO is nothing but a red herring since such investigations have no bearing on Ebix. Ebix cannot dispute that E-RP had provided it the relevant information required under Section 29 to formulate its Resolution Plan. The issues in relation to financial investigations into the conduct of Educomp arose when the two articles were published by The Wire, both of which were after the Approval Application had been filed by the E-RP. Further, Ebix was aware of all the proceedings before the NCLT since the various applications were often listed along with the Approval Application, in which it continued to appear. Finally, Ebix has brought nothing on record to prove that E-RP knew of the SFIO and CBI investigations before a regulatory disclosure was made by Educomp. Hence, it cannot be stated that the E-RP had faltered in its duty to provide relevant information to Ebix. Ruling - 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. Impact of Delay in approving the Plan - I t 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 NCLT and NCLAT are urged 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. Appeal dismissed.
Issues Involved:
1. Whether a successful Resolution Applicant can withdraw or modify its Resolution Plan after it has been submitted to the Adjudicating Authority but before its approval under Section 31 of the IBC. 2. Whether the doctrine of res judicata applies to the Third Withdrawal Application filed by Ebix. 3. Whether the terms of the Resolution Plan allow Ebix to withdraw or modify its Resolution Plan. 4. Whether the E-RP failed in its duty to provide information under Section 29 of the IBC. 5. Whether Kundan Care can withdraw its Resolution Plan due to material adverse changes and conditions precedent. 6. Whether Seroco can modify its Resolution Plan due to the COVID-19 pandemic. Analysis: 1. Withdrawal or Modification of Resolution Plan under IBC: The Supreme Court held that the IBC framework does not permit a successful Resolution Applicant to withdraw or modify its Resolution Plan once it has been submitted to the Adjudicating Authority after approval by the CoC. The Court emphasized that the statutory framework aims for a time-bound and predictable insolvency resolution process. Allowing withdrawals or modifications would introduce unpredictability and delay, contrary to the objectives of the IBC. The Court noted that the IBC and CIRP Regulations provide no scope for such actions and that any changes to allow withdrawals or modifications should be made by the legislature, not through judicial interpretation. 2. Res Judicata on Ebix's Third Withdrawal Application: The Court reversed the NCLAT's finding that Ebix's Third Withdrawal Application was barred by res judicata. The Court held that the NCLT's order dismissing the First Withdrawal Application did not adjudicate the prayer for withdrawal on its merits. The NCLT had only considered the prayer for re-evaluation of the Resolution Plan, and since the information sought was not available, the prayer for withdrawal was not addressed. Therefore, the Third Withdrawal Application was not barred by res judicata. 3. Terms of Ebix's Resolution Plan: The Court rejected Ebix's argument that it could withdraw its Resolution Plan based on the terms of the RFRP and the Resolution Plan, which indicated a validity period of six months. The Court held that the six-month validity period related to the negotiation period with the CoC and not to the period after submission to the Adjudicating Authority. The Court also noted that Clause 1.10(l) of the RFRP stated that the Resolution Applicant would not be permitted to withdraw the Resolution Plan once declared successful by the CoC. Therefore, Ebix could not withdraw its Resolution Plan based on the terms of the RFRP or the Resolution Plan. 4. E-RP's Duty to Provide Information: The Court held that the E-RP did not fail in its duty to provide information under Section 29 of the IBC. The issues related to financial investigations into Educomp arose after the Approval Application was filed. Ebix was aware of the proceedings before the NCLT, and there was no evidence that the E-RP knew of the SFIO and CBI investigations before the regulatory disclosure. Therefore, the E-RP fulfilled its duty to provide relevant information to Ebix. 5. Kundan Care's Withdrawal of Resolution Plan: The Court noted that Kundan Care's Resolution Plan did not contain any conditions precedent for approval. The LOI awarded to Kundan Care stipulated that the submitted Resolution Plan was irrevocable. Clause 1.6.2 of the RFRP indicated that the A-CoC could reject a Resolution Plan if it did not agree with any conditions precedent. Therefore, Kundan Care could not withdraw its Resolution Plan based on the terms of the Resolution Plan or the RFRP. 6. Seroco's Modification of Resolution Plan: The Court held that Seroco could not modify its Resolution Plan based on the economic slowdown caused by the COVID-19 pandemic. The Resolution Plan did not provide for any conditions that would allow for such a modification. The Court emphasized that common law remedies available under the Contract Act are not applicable to Resolution Plans under the IBC. Therefore, Seroco could not modify its Resolution Plan based on the terms of the Resolution Plan or the economic impact of the pandemic. Conclusion: The appeals by Ebix and Seroco were dismissed, and the directions issued in the Kundan Care appeal were a one-time relief under Article 142 of the Constitution. The Court emphasized the importance of adhering to the statutory framework of the IBC and the need for legislative changes to address any gaps in the process. The Court also urged the NCLT and NCLAT to adhere to the timelines stipulated under the IBC to ensure the efficacy of the insolvency resolution process.
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