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TMI Blog2024 (11) TMI 727X X X X Extracts X X X X X X X X Extracts X X X X ..... is no more implementable, cannot be accepted as a ground to withdraw from the Resolution Plan. It is further relevant to notice that before the Hon ble Supreme Court in Ebix Singapore, the SRA has raised similar contentions, including that position has changed manifestly in relation to the financial conduct of Educomp. It is reflected from the record that an affidavit was filed on 22.09.2023 before the Adjudicating Authority by RP stating that CD is a going concern. The RP, who has been running the Corporate Debtor after initiation of CIRP, has stated in the affidavit that the CD is a going concern - The Adjudicating Authority in paragraph 35, as extracted above has noticed that revenue for the year 2021-22 reflects the impact of the pandemic Covid-19 and it was further noticed that revenue of the CD could rise to Rs.40 million in the year 2021-22. There are no substance in the submission of the Appellant that Corporate Debtor was not a going concern. Insofar as, feasibility and viability of the Resolution Plan is concerned, the feasibility and viability of a Resolution Plan is in the domain of commercial wisdom of CoC. The Plan having been found feasible and viable and approved by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Adjudicating Authority dated 02.01.2019, which Appeal was ultimately allowed by this Appellate Tribunal by its order dated 29.07.2020. A Civil Appeal No. 3224 of 2020 was filed by the Appellant before the Hon ble Supreme Court challenging the order dated 29.07.2020 passed by this Appellate Tribunal, by which order, the order passed by the Adjudicating Authority, was set aside. The Civil Appeal No.3224 of 2020 filed by the Appellant was heard and decided and the Hon ble Supreme Court by judgment dated 13.09.2021 dismissed the Appeal. The Hon ble Supreme Court while dismissing the Appeal filed by the Appellant noted and considered all the pleas raised by the Appellant, as to why the Resolution Plan be allowed to be withdrawn. (v) After the order of the Hon ble Supreme Court dated 13.09.2021, the Adjudicating Authority proceeded to consider the Application filed by the RP for approval of Resolution Plan being IA No.195/ND/2018 and Application filed by the Appellant being IA no.4845 of 2023. The orders were reserved on 29.08.2023 in IA no.195 of 2018. The arguments in IA no.4845 of 2023 were also concluded on 19.09.2023. In the IA, which was filed by the Appellant, the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present case, the judgment by the Hon ble Supreme Court was delivered on 30.09.2021 and Plan could be approved by the Adjudicating Authority on 09.10.2023, causing further delay of more than two years, which itself was sufficient ground to refuse the approval of the Plan. 5. Learned Counsel appearing for the RP as well as CoC have refuted the submissions of learned Senior Counsel for the Appellant. It is submitted that all submissions, which are now sought to be advanced by the Appellant in support of the Appeal, were also raised before the Hon ble Supreme Court in earlier round of litigation and in the Ebix Singapore judgment, the Hon ble Supreme Court has considered all submissions and rejected the submissions advanced on behalf of the Appellant. The Hon ble Supreme Court in Ebix Singapore judgment has categorically held that SRA has no right to withdraw from the Resolution Plan, nor the Adjudicating Authority has any jurisdiction to allow such Application. It is submitted that the issue of financial status of the Corporate Debtor was advanced before the Hon ble Supreme Court, which was rejected. The Hon ble Supreme Court in its judgment held that it was the Resolution Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Submissions of Counsel in the Ebix Appeal . It is useful to notice only few of the submissions, which were advanced by the Appellant and noticed by the Hon ble Supreme Court in its Ebix Singapore judgment. The submission that delay in CIRP has prejudiced the commercial considerations underlying the Resolution Plan was advanced, which was noted in paragraph 82 (ii) (g), which is as follows: 82(ii)(g). Ebix had sent a notice dated 2-7-2018 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. 8. The submission that it was essential to the Ebix s bid for the business of Educomp was crucial for keeping the business as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintaining the corporate debtor as a going concern, in order to preserve the business and employment of the personnel; second, maximize the value of the assets of the corporate debtor and enable a higher pay- back to its creditors than under liquidation; and third, enable a smoother and faster transition to liquidation in the event that a time bound CIRP fails, in a bid to avert further deterioration of value. 145 Since the aim of the statute is to preserve the interests of the corporate debtor and the CoC, it was recognized that settlements between the corporate debtor and the CoC may be in the best interests of all stakeholders since insolvency is averted. Two decisions of two judge Benches of this Court, in Lokhandwala Kataria Construction (P) Ltd v. Nisus Finance and Investment Managers LLP and Uttara Foods and Feeds (P) Ltd v. Mona Pharmachem, (prior to the insertion of Section 12A which enabled withdrawal of the CIRP on account of settlement between the parties), had refused to effectuate this remedy by exercising inherent powers of the Adjudicating Authority under Rule 11 of the NCLT Rules 2016 or the power of parties to make applications to the Adjudicating Authority unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant states the reasons justifying such withdrawal. Similarly, on 25 January 2019, a two judge Bench of this Court in Swiss Ribbons (supra) interpreted the true import of Section 12A and clarified that if the CoC is not yet constituted, a party can approach the Adjudicating Authority, which may in exercise of its inherent powers under Rule 11 of the NCLT Rules 2016, allow or reject an application for withdrawal or settlement. On 25 July 2019, the IBBI (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2019 amended Regulation 30A in terms of this decision in interpreting Section 12A and now specifically provides the procedure under the IBC that relates to affecting a withdrawal under Section 12A before the constitution of the CoC. The applicant submits an application for withdrawal through the IRP, directly before the Adjudicating Authority, since the CoC is not yet constituted to consider such an application. To ensure that the process for withdrawal is timely and efficient, the present Regulation 30A provides that the IRP shall submit an application for withdrawal of the CIRP prior to the constitution of the CoC to the Adjudicating Authority on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd its mechanisms before it steps into the fray and consents to be bound by its underlying objectives. 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. It cannot demand vesting of certain powers and rights which have been conspicuously omitted by the legislature under the statute, in furtherance of the policy objectives of the IBC. A court may not be able to lay down such detailed guidance on how a mechanism for withdrawal, if any, may be provided to a successful Resolution Applicant without disturbing the statutory timelines and adequately evaluating the interests of creditors and other stakeholders, which is ultimately a matter of legislative policy. In Essar Steel (supra), a three judge Bench of this Court, affirmed a two judge Bench decision in K Sashidhar (supra), prohibiting the Adjudicating Authority from second-guessing the commercial wisdom of the parties or directing unilateral modification to the Resolution Plans. These are binding precedents. Absent a clear leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful Resolution Applicant without impacting the other procedural steps and the timelines under the IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as the IBC. In this case, if Resolution Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a Resolution Plan to the Adjudicating Authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective Resolution Applicants who are seeking to participate in the process and the successful Resolution Applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this course of action can be decided by the legislature alone, since any other course of action would result in a flurry of litigation whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be legitimate so as to avoid any part of the statute becoming meaningless. Words may also be read to give effect to the intention of the Legislature which is apparent from the Act read as a whole. Application of the mischief rule or purposive construction may also enable reading of words by implication when there is no doubt about the purpose which the Parliament intended to achieve. But before any words are read to repair an omission in the Act, it should be possible to state with certainty that these or similar words would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law. In the wake of the COVID-19 pandemic, several Resolution Plans remained pending before Adjudicating Authorities due to the lockdown and significant barriers to securing a hearing. An Ordinance was swiftly promulgated on 5 June 2020 which imposed a temporary suspension of initiation of CIRP under Sections 7, 9 and 10 of the IBC for defaults arising for six months from 25 March 2020 (extendable by one year). This was followed by an amendment through the IBC (Second Amendment) Act 2020 on 23 September 2020 which provided f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or modification must be respected, in spite of the CoC s approval, but prior to the approval by the Adjudicating Authority. The former position follows from the intent, object and purpose of the IBC and from Section 31, and the latter is disavowed by the IBC s structure and objective. The IBC does not envisage a dichotomy in the binding character of the Resolution Plan in relation to a Resolution Applicant between the stage of approval by the CoC and the approval of the Adjudicating Authority. The binding nature of a Resolution Plan on a Resolution Applicant, who is the proponent of the Plan which has been accepted by the CoC cannot remain indeterminate at the discretion of the Resolution Applicant. The negotiations between the Resolution Applicant and the CoC are brought to an end after the CoC s approval. The only conditionality that remains is the approval of the Adjudicating Authority, which has a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan in terms of Section 30 (2) of the IBC. If the requirements of Section 30(2) are satisfied, the Adjudicating Authority shall confirm the Plan approved by the CoC under Section 31(1) of the IBC. 12. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be in the teeth of the decision of this Court in Essar Steel (supra) which held that [s]ection 60(5)(c) cannot be used to whittle down Section 31(1) of the IBC, by the investment of some discretionary or equity jurisdiction in the Adjudicating Authority outside Section 30(2) of the Code, when it comes to a resolution plan being adjudicated upon by the Adjudicating Authority . 13. We may also notice the conclusions recorded by the Hon ble Supreme Court in Ebix Singapore, which is under the heading (L) Conclusion . In paragraphs 201 to 205, following have been held: 201 This Court is cognizant that the extraordinary circumstance of the COVID19 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. 202 The residual powers of the Adjudicating Authority under the IBC cannot be exercised to create procedural remedies which have substantive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 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 success ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 14. The learned Counsel for the Appellant has relied on Section 31, sub- section (1) proviso, which is as follows: 31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (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, 1 [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 authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by PwC in order to conduct a due diligence of the business and operations of the Company Similarly, Clause 1.13.6 also requires prospective Resolution Applicants to conduct independent investigations: 1.13.6 This RFRP does not purport to contain all the information required by the Resolution Applicant. The Resolution Applicant should conduct independent investigations and analysis and should check the accuracy, reliability and completeness of the information in this RFRP and obtain independent advice from appropriate sources, prior to making an assessment of the Company. 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. 16. With regard to the revenue of Corporate Debtor, the Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Schedule V of the SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 ( SEBI LODR Regulations ) is presented in a separate section and forms integral part of this Report. 17. The Hon ble Supreme Court in paragraph 181 of the judgment as noted above has also held that the Appellant was entitled to conduct its own due diligence. 18. Now, coming to the submission of the Appellant that Corporate Debtor is not a going concern, which furnishes a ground to the Appellant to oppose the approval of the Resolution Plan. It is reflected from the record that an affidavit was filed on 22.09.2023 before the Adjudicating Authority by RP stating that CD is a going concern. The RP, who has been running the Corporate Debtor after initiation of CIRP, has stated in the affidavit that the CD is a going concern. The Adjudicating Authority in paragraph 35 has noted the financials of the Corporate Debtor for the year 2020-21 and 2021-22. A bare perusal of the financials extracted in paragraph 35, indicate that the Corporate Debtor was carrying on business and according to the own case of the Appellant the finances for the year 2015-16 to 2020-21, there is revenue generation an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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