EBIX SINGAPORE PRIVATE LIMITED versus COMMITTEE OF CREDITORS OF EDUCOMP SOLUTIONS LIMITED & ANR.
[2021] 14 S.C.R. 321, Supreme Court of India, 2021
Outcome: Disposed off
Segment: Ratio
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[2021] 14 S.C.R.
original Resolution Plan, as submitted before the NCLT on
15 November 2019, shall prevail; and
(iii)
The NCLT shall dispose of the application with the revised
Resolution Plan expeditiously, and preferably within a period
of two weeks from the date of receipt of an application
from the A-RP for the approval of the revised Resolution
Plan.
197. We clarify that the above directions have been issued in
view of the submission which has been urged as noted, and shall not
amount to any finding by this Court on the issues raised with regard to
modification or withdrawal of Resolution Plans at the behest of the
Resolution Applicant.
K.3 The Seroco Appeal
198. The CIRP of Arya Filaments, an MSME, was instituted on
17 August 2018. Seroco submitted a draft Resolution Plan on 13 March
2019 for an amount of Rs 6.79 crores (approx.). Subsequent to meetings
with the Arya-CoC and revisions to the Resolution Plan, Seroco’s plan
was approved by the Arya-CoC on 10 May 2019. On 15 May 2019, the
Arya-RP filed the Resolution Plan for approval before the NCLT. Form
H was filed by Arya-RP on 5 June 2020.
199. Seroco addressed a letter to Arya-RP and Arya-CoC on
9 June 2020 seeking a modification of the Resolution Plan and the
resolution amount to Rs 5.29 crores (approx.) on account of the economic
slowdown caused by the COVID-19 pandemic, and subsequently filed
applications before the NCLT and an appeal before the NCLAT seeking
a
modification of the Resolution Plan on account of the original being
filed over eighteen months ago.
200. Seroco has relied on the terms of its Resolution Plan which
envisage payment to the Arya-CoC by sale of land and building, and old/
unusable/spare plant and machineries to urge that there has been a
frustration of the contract because of the economic slowdown which
must have impacted the value of these assets. The proposed revised
solution envisages a further haircut to the Arya-CoC where Rs 1.5 crores
less would be paid, over an extended timeline. There are no terms in the
Resolution Plan or the Form H submitted by Arya-RP that could provide
such a benefit to Seroco. To the contrary, Clause 19(vii) of the Resolution
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EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
Plan provides that the preliminary approval of the Resolution Plan by the
Arya-CoC is binding on Seroco:
“19. Others:
[…]
(vii) We understand that the preliminary approval of the resolution
pian is the prerogative of the Committee of Creditors and the final
approval of the same lies with the Hon’ble Adjudicating authority
i.e. NCLT and we undertake that the decision of the Committee
of Creditors and NCLT will be final and binding on us.”
Therefore, there is no scope to grant reliefs even on the terms of
the Resolution Plan. As held in Section H of this judgement, common
law remedies available under the Contract Act are not available to the
parties since a submitted Resolution Plan is not a contract which can be
otherwise voidable on account of frustration, force majeure or other
such instances. Hence, parties can only seek reliefs that are specifically
envisaged in the IBC.
L Conclusion
201. 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.
202. 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
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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.
203.  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.
204. n 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
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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:
15. The age-wise pending cases in NCLT under IBC as on
31 May, 2021 are as under:
127 Standing Committee on Finance, Seventeenth Lok Sabha, Ministry of Corporate
Affairs, ‘Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions:
Thirty-second Report’ (August 2021) <available at https://www.ibbi.gov.in/uploads/
whatsnew/fc8fd95f0816acc5b6ab9e64c0a892ac.pdf> accessed on 20 August 2021
128 Ibid., page 6
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EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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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.
206. 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.
207. Pending application(s), if any, shall stand disposed of.
Ankit Gyan
Appeals disposed of.
129 Ibid., Page 20-21
130 Ibid., Page 23-25