Updated: September 15, 2021 7:33:41 am
The Supreme Court’s ruling Monday that an insolvency resolution plan, once approved by the Committee of Creditors (CoC), cannot be allowed to be withdrawn or modified comes in the wake of separate appeals filed by three different companies. They had all sought to either withdraw their plans after approval, or sought to modify the same.
Why did the companies want to withdraw their resolution plan after CoC approval?
Of the three, the first appeal was moved by Ebix Singapore, which had filed a resolution plan for Educomp. The said resolution plan was approved by the CoC in February 2018, but failed to pass the muster of 75 per cent creditors approving the plan.
However, the plan was later approved and passed after a creditor, who had initially abstained from voting, wrote to the Resolution Professional (RP) that they could not participate in the voting due to a technical error, and that their vote should be considered in affirmative for the plan.
Before the plan could be approved by the NCLT, some creditors of Educomp moved the NCLT seeking an investigation into the affairs of the company since there were reports of mismanagement and money laundering against the company. Based on these reports and other concerns, Ebix too filed a withdrawal application, stating that the approval application had been pending before the NCLT for far too long.
Similarly, Kundan Care, a resolution applicant for Astonfield had sought to withdraw its plan after reports of Gujarat Urja Vikas Nigam Limited terminating a power purchase agreement (PPA) signed with Astonfield surfaced. Though the termination on the PPA was turned down even by the Supreme Court, Kundan Care cited it as a reason for withdrawal.
What does NCLT and NCLAT say on withdrawal on CoC approved resolution plans?
Though the NCLT had twice rejected the withdrawal application filed by Ebix, it had approved the same the third time, which was subsequently overturned by the National Company Law Appellate Tribunal (NCLAT).
In its third order, allowing the withdrawal, the NCLT had held that though a resolution plan becomes binding after it is approved, since Ebix was a “ unwilling successful resolution applicant”, it would be unable to effectively implement the said resolution plan.
The NCLAT, however, overturned this order and said that NCLT did not have the jurisdiction to permit withdrawal after the plan had been approved by the CoC. Further, it also said that the financial wisdom of the CoC was final, and that NCLT should not have entered into that area.
The NCLAT further held that since Section 32A of Insolvency and Bankruptcy Code (IBC) grants full immunity to the resolution applicant from any offences of the corporate debtor, Ebix had no grounds to withdraw.
What did the Supreme Court say on the various withdrawal appeals filed by companies?
In its judgment, the SC has categorically said that the only process of withdrawal from IBC is by following the procedure detailed in Section 12A, which says that the corporate debtor must get approval of more than 90 per cent of creditors to take the company out of the resolution plan.
“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,” the SC said in the judgment.
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