A Study On Modifications Or Withdrawals Of COC Approved Resolution Plan Under IBC, 2016

KEY TAKEAWAYS

• The Insolvency and Bankruptcy Code, 2016 (IBC) is a mechanism for resolving or liquidating a Corporate Debtor whereby the future of the company is decided by the Committee of Creditors once the Adjudicating Authority approves an application under Section 7, 9, or 10 of the code.
• In a recent case, the NCLAT decided that after the CoC has accepted the Resolution Plan, there is no scope for any kind of negotiation to take place between the parties.
• Besides, during the period of acceptance of the CoC and the approval by the IBC, any contractual principles and common law remedies which do not have their presence under IBC cannot be applied to a case.

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced with the main purpose to consolidate the existing framework of laws by creating a single law for insolvency and bankruptcy. It was enacted primarily for reorganization and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner to obtain maximization of the value of assets of such persons. It is imperative to note that the time before the Insolvency and Bankruptcy Codehad come into existence, various scattered laws relating to insolvency and bankruptcy were present which had caused inadequate and ineffective results and moreover even a lot of delay in the resolutions took place, but with the implementation of the code the overlapping provisions under acts have been repealed and the laws were brought under one legal framework which is considered to be a sustainable solution for both the debtors and creditors.

Referring to the Bankruptcy Law Reform Committee one of the main objectives of the Insolvency and Bankruptcy Code is to “ensure that time value of money is preserved and the delaying tactics in negotiation between creditors and debtors should not extend the time set for negotiations at the start.”Thus, under the IBC,the Committee of Creditors (CoC) is established as one of the steering bodies guiding the insolvency process which is also reflected in multiple provisions. The importance of the CoC at various stages of the Corporate Insolvency Resolution Process (CIRP) has been mentioned under Part II of the code for the corporate person and Part III of the code for the individuals and partnership firms.Therefore, the purpose of this article is to examine the role CoC in a detailed manner during the Insolvency resolution process referring to landmark judgments.

COMMITTEE OF CREDITORS VIS A VIS RESOLUTION PLAN

Before we comprehend the role of the CoC, we must first understand the process of CIRP. As we all know, the aim of the IBC is to address corporate insolvency in a timely manner, so if a corporate debtor defaults, a financial creditor, an operational creditor, or the corporate debtor itself can commence the corporate insolvency resolution procedure under section 7, 9, or 10. The CIRP's purpose is to give the corporate debtor a chance of recovering from insolvency. With this objective, the Resolution Professional (RP) invites prospective resolution applicants to submit resolution plans to help revive the corporate debtor. Theresolution plan is submitted to the ResolutionProfessional (RP), who, after checking that the resolution plan complies with the Code's requirements, submits all such plans to the CoC for approval.

Moreover, one of the most striking features of the Code is that from the beginning to the end of the CIRP, the CoC makes all major decisions. The reason for this will be discussed subsequently, but for now, it is important to understand that the CoC is made up of financial creditors of a Corporate Debtor, and operational creditors being present in certain cases. The role of RP is to serve as an intermediary between the CoC and the Adjudicating Authority (AA) which is the National Company Law Tribunal who verifies verify that decisions made by the CoC are in compliance with the Code's requirements.

Further, according to Section 30(4) of the code, the CoC must accept the proposed resolution plan by a 66 percent majority after analyzing its practicality and viability. And once the CoC has approved the resolution plan, the RP must submit it for approval to the AA under Section 31, which like said has an extremely limited power. Thereafter, on approval of the AA the resolution plan, becomes legally binding on all parties involved. Although the code's provisions are clear in theory, there is still some ambiguity throughout the implementation process. To put it simply, it is a source of concern whether the parties could modify the resolution plan that has been placed before the AA for their approval after it has been accepted by the CoC, has been addressed in detail below.

CAN A RESOLUTION PLAN BE NEGOTIATED/ WITHDRAWN/MODIFIED

Before citing a few landmark cases under this context, to reiterate, the most crucial function performed by the CoC is perhaps the approval or the rejection or modification of a resolution plan as per Section 30(4) of the Code. Hence, in view of the aforementioned provisions, concerns have been expressed about the CoC's autonomy in approving or rejecting a settlement plan in relation to the Adjudicatory Authority's jurisdiction.

In the case of Vivek Vijay Gupta v. Steel Konnect (India) Private Limited & Others (2017), the NLCT stated that, The Code, through Section 31 gives the authority to the Adjudicating Authority to approve the plan when approved by CoC and can reject if it does not conform to the requirements referred under Section 30 (2) but not to sit over Judgment on the Resolution Plan approved by the CoC in rejecting the Resolution Plan.Similarly, in the case of M/s Bhaskara Agro Agencies v. M/s. Super Agri Seeds Private Limited (2018), the NCLAT held that; So far as the viability or feasibility of Resolution Plan is concerned, the Adjudicating Authority or the Appellate Tribunal cannot sit in appeal over the decision of the CoC.

Following that, in the case of K. Shashidhar v. Indian Overseas Bank and Others (2019), the Apex court discussed the issue of CoC approval or rejection of resolution plans in great detail and stated unequivocally that if the Adjudicating Authority receives a rejected Resolution Plan, it has no choice but to order liquidation. It was also noted that the statute gives no authority to the AA to investigate or evaluate the fairness of the CoC's decision.

Yet there has been difference of opinion on the withdrawal of the resolution after the approval of CoC. In the case of Panama Petrochem Ltd. v. Aryavart Chemicals Private Ltd. (2019),the NCLT stated that, while the process of withdrawal should be avoided, it can be allowed under certain conditions, like when certain alternatives, namely when the option to examine another resolution plan, are available, and when the resolution applicant's financial capabilities changes. Likewise in the case of Suraksha Asset Reconstruction Ltd. & Ors v. Shailen Shah RP For Wind World (India) Ltd & Anr. (2020), while granting the withdrawal application, the NCLT noted that time is of the essence in the IBC, and since the Resolution Plan is a bilateral contract between the Corporate Debtor and the Resolution Applicant, the Resolution Applicant has the right to rescind the agreement if the Corporate Debtor fails to keep to the agreement. It went on to say that when a contract does not specify particular reasons for contract frustration, Section 56 of the Indian Contract Act applies, and that the term "impossible" in the provision includes not just physical impossibility but also impracticality.

However, in Kundan Care Products Ltd. v. Amit Gupta and Ors. (2020),the NCLAT ruled that once the Resolution Plan has been authorised by the CoC of the Company undertaking CIRP, the Resolution Applicant cannot withdraw it. While upholding the opinion of the CoC, the Appellate Tribunal pointed out that there is no provision in the IBC, 2016 that allows the Resolution Applicant to withdraw a Resolution Plan that has been accepted by the CoC. Thus, the observation of the court in this case is consistent with the earlier mentioned decisions holding that the CoC is supreme in the Insolvency and Bankruptcy Code and that its decision is final. Therefore, from this case it may be ascertained that a Resolution Applicant can withdraw a Resolution Plan while it is waiting for confirmation from the CoC.

In the case of Seroco Lighting Industries Private Limited vs. Ravi Kapoor, RP for Arya Filaments Pvt. Ltd. & Ors (2020), the Resolution Plan was accepted by the NCLT. Later, the Resolution Applicant approached the NCLT to seek permission to alter the Resolution Plan due to major changes in the Corporate Debtor's economic status which was dismissed. On being aggrieved, Seroco filed an appeal with the NCLAT where it was held that, Seroco being a firm founded by its former workers would have been aware of its financial state and also being the sole Resolution Applicant, the modification / withdrawal shall not be permitted.

Further, in the case of Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd. (2020), the Hon’ble Supreme Court had finally put to rest the differing viewpoints on the withdrawal of a resolution plan under the Insolvency and Bankruptcy Code, 2016, and had categorically stated that attempting to withdraw a resolution plan after it has been accepted by the committee of creditors (CoC) is contrary to the Code's framework.

Similarly in a recent case of Union Bank of India on behalf of the Committee of Creditors of Dewan Housing Finance Corporation Limited. VS Mr. Kapil Wadhawan & Ors. (2021),referringto decision of the Hon'ble Supreme Court's in the case of Ebix Singapore, the NCLAT overturned the Adjudicating Authority's decision, stating that once the CoC has approved the Resolution Plan, there is no opportunity to negotiate on the resolution plan by the parties. Further it reiterated the decision in the case of Ebix Singapore where it was held that, during the period of acceptance of the CoC and the approval by the IBC, any contractual principles and common law remedies which do not have their presence under IBC cannot be applied to a case.

CONCLUSION

To conclude, there is no doubt that the Insolvency and Bankruptcy Code, 2016, has proven to be a viable solution for both debtors and creditors in such a short period of time. Furthermore, the purpose of enacting the Insolvency and Bankruptcy Code was to help distressed corporate debtors by establishing a time-bound insolvency resolution process. In fact, after the implementation of the Code, there has been an increase in the speed of the resolution process as well as the success rate, and the achievement of the code's objectives are quite clear. However, as seen, the Code is silent on the withdrawal of the resolution plan after CoC approval, and it is only through the various decisions that it has been made clear that once the CoC has approved the resolution plan, no kind of modification, negotiation, or withdrawal of the plan is permitted.