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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probably be payable from the pending insurance claim. A
table detailing the financial health of Astonfield for the last
three years was also annexed, to bolster the claim that
financial health has improved and profits can still be
generated; and
(viii) The delay in approval of the Resolution Plan by the
Adjudicating Authority is an imponderable which cannot be
used to resile from a binding contract. The delay is also not
attributable to the A-RP or the A-CoC.
E.3 Submissions for the second respondent
89. Mr V Giri, learned Senior Counsel appearing for EXIM Bank
on behalf of the A-CoC, has made the following submissions:
(i)
A Resolution Plan approved by the CoC is submitted by the
RP to the NCLT under Section 30(6) of the IBC. Once the
NCLT is satisfied that the Resolution Plan complies with
the requirements of Section 30(2), it grants its approval to
the Plan, which becomes binding on all the stakeholders
involved in the Resolution Plan. Thus, in the above scheme
of things, IBC does not contemplate withdrawal of
Resolution Plan once it has been approved by the CoC;
(ii)
The penal provision under Section 74(3) is applicable to a
successful Resolution Applicant as it is a stakeholder in the
CIRP. The existence of a penal provision indicates that the
legislature intended to deter and discourage withdrawals of
Resolution Plans;
(iii)
CIRP is a time bound process of 180 days, which can be
further extended up to 330 days.
If a successful Resolution
Applicant is allowed to withdraw its Resolution Plan, it will
set the clock back on the time spent on receiving the
Resolution Plan, evaluating it under Section 30(2) of the
IBC, putting it to vote before the CoC and finally obtaining
its approval from the Adjudicating Authority;
(iv)
Withdrawal of the Resolution Plan at this stage would result
in the failure of the CIRP and Astonfield will go into
liquidation. IBC envisages liquidation as the last resort;
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(v)
The process of issuing the RFRP and proposal of a
Resolution Plan, and its subsequent approval by the CoC is
statutorily mandated. The formats of the documents
underlying the CIRP process are also provided by the statute
and the Regulations made thereunder. There is some room
for maneuverability provided to the parties to negotiate the
terms of the documents, however, that does not make any
difference to the statutorily prescribed nature of the
documents; and
(vi)
The approval of the Resolution Plan under Section 30(3) of
the IBC by the CoC creates a binding contract between
the CoC and the successful Resolution Applicant because:
(a) The proposed Resolution Plan has been approved by
the CoC and has been further submitted before the
NCLT by the RP;
(b) A Resolution Applicant is aware of the conditions
stipulated under the IM and conducts its own due
diligence. It is given an opportunity to raise queries on
the information that is provided in the IM. Thus, once
the Resolution Applicant decides to submit a Resolution
Plan and a substantial time and effort is spent by the
RP and the CoC in the process of finalizing and
approving a Resolution Plan, it cannot simply withdraw
the Resolution Plan without being subjected to
necessary consequences;
(c) The approval of the plan by the CoC indicates the ad
idem between the parties to enter into a contract. The
resulting contract is conditional only upon the approval
by the NCLT;
(d) Pursuant to the approval of
the Resolution Plan by the
CoC, the CoC issues an unconditional LOI to the
successful Resolution Applicant stating that it has been
selected as the successful Resolution Applicant subject
to the approval of the NCLT. The successful Resolution
Applicant accepts the LOI and submits a PBG. The
successful Resolution Applicant is required to state that
the LOI is “accepted unconditionally”. It is only after
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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the LOI is unconditionally accepted by the successful
Resolution Applicant and the PBG is furnished, that
the RP makes an application to the NCLT for approval
of the Resolution Plan; and
(e) Contracting parties cannot renege on their promise to
perform the contract without facing any consequences.
F Submissions of counsel in the Seroco Appeal
F.1 Submissions for the appellant
90. Mr Tirth Nayak has made the following submissions on behalf
of Seroco:
(i)
The Resolution Plan was submitted on the basis of
information that was provided under the IM issued by the
Arya-RP in August 2018. Over 18 months have passed since
the Resolution Plan was submitted. The inordinate delay in
the approval of the Resolution Plan by the NCLT, along
with the outbreak of COVID-19 pandemic, has substantially
affected the valuation of Arya Filaments, apart from
impacting its business operations and financial position.
Thus, Seroco is entitled to re-evaluate and modify the
Resolution Plan based on such considerations;
(ii)
The delay cannot be attributed to Seroco;
(iii)
The value of assets and the working capital funds of Arya
Filaments have plummeted due to the losses that have
occurred in the past eighteen months rendering the
implementation of the current Resolution Plan impossible,
thereby making it necessary to modify the Plan to suit the
current circumstances;
(iv)
Seroco was not made aware of the updated financial status
of Arya
Filaments. It will be unjust if it is made to abide by
a Resolution Plan that was submitted eighteen months ago
based on the IM that was issued over twenty-four months
ago;
(v)
Clause 5.3.2. of the BLRC Report provides that the “RP
must provide the most updated information about the entity
as accurate as is reasonably possible to this range of solution
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providers. In order to do this, the RP has to be able to verify
claims to liabilities as well as the assets disclosed by the
entity. The RP has the power to appoint whatever outside
resources that she may require in order to carry out this
task including accounting and consulting services…”.
Seroco cannot be expected to make a huge investment in
Arya Filaments without being given information on its current
financial status;
(vi)
Seroco is genuinely interested in investing in Arya Filaments,
however, due to the change in circumstances, it is incapable
of paying the entire consideration as was stipulated under
the current Resolution Plan; and
(vii)
A Resolution Plan is an offer under Section 2(a) of the
Contract Act. The Resolution Applicant becomes bound by
the offer only if the Resolution Plan is approved by the
NCLT. At present, the Plan is still under the consideration
of the NCLT. Thus, Seroco can withdraw or seek
modification of the Plan.
F.2 Submissions for the second and third respondents
91. Mr Jayant Mehta appearing on behalf of the Arya-CoC,
consisting of Kotak and UBIL, has supported the arguments of the E-
CoC and A-CoC. He has urged the following additional submissions:
(i)
There is no scope for modification of a Resolution Plan,
once it has been submitted by the RP to the Adjudicating
Authority, after voting by the CoC. The only ground sought
by Seroco for modification of the submitted Resolution Plan
here is the exigency that has arisen due
to the pandemic.
This is evinced from the fact that the application for
modification was made within 2 months of the outbreak of
the pandemic;
(ii)
The Resolution Plan of Seroco was approved by the Arya-
CoC on 10 May 2019 and submitted to the Adjudicating
Authority for approval on 14 May 2019. When Seroco filed
their application before the NCLT for modification of the
Resolution Plan, Kotak and UBIL, by their emails dated 13
July 2020 and 17 July 2020 respectively, had informed the
Arya-RP that they record their disapproval for any such
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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attempts at modification of the Resolution Plan which sought
to reduce the resolution amount payable to secured creditors
by Rs 1.5 crore;
(iii)
There has been no material change in the assets or valuation
of Arya Filaments. Seventy-five per cent of the funds were
to be generated by Seroco by the sale of the Arya Filament’s
assets; and
(iv)
The following authorities were cited to elucidate on the
power of the Adjudicating Authority, which is tightly
circumscribed by the IBC, and designed to uphold the
commercial wisdom of the CoC: K Sashidhar48 (supra),
Essar Steel49 (supra), Committee of Creditors AMTEK
Auto Limited Through Corporation Bank v. Dinkar
T Venkatasubramanian & Ors.50, Kalparaj Dharamshi
v. Kotak Investment Advisors Ltd.51, Jaypee
Kensington Boulevard Apartments Welfare
Association & Ors. v. NBCC (India) Ltd. & Ors.52
and Ghanashyam Mishra and Sons Private Limited
through the Authorized Signatory v. Edelweiss Asset
Reconstruction Company Limited through the
Director & Ors.53 An appeal under Section 61(3) of IBC,
is therefore not maintainable for a Resolution Applicant
seeking modification of its approved Resolution Plan.
The Adjudicating Authority in allowing any such modification,
cannot do indirectly, what the statute does not permit it to do directly.
92. The rival submissions in the three appeals shall now be
considered.
G Purpose of a law on insolvency
93. An examination of the raison d’etre of the
IBC must
necessarily precede its analytical interpretation. A purposive interpretation
of the statute, as is argued by the contesting parties, cannot be evinced
48 Paras 52-58, 62, 68, 65
49 Paras 65, 67, 69 and 88
50 (2021) 4 SCC 457
51 2021 SCC OnLine SC 204, para 143
52 2020 SCC OnLine SC 1192, para 170
53 2021 SCC OnLine SC 313, paras 55-57, 67, 77
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without examining the aims and objectives of the legislation. The IBC
was introduced as a water-shed moment for insolvency law in India that
consolidated processes under several disparate statutes such as the 2013
Act, SICA, SARFAESI, Recovery of Debts Act, Presidency Towns
Insolvency Act 1909 and the Provincial Insolvency Act 1920, into a single
code. A comprehensive and time-bound framework was introduced with
smooth transitions between reorganization and liquidation, with an aim
to inter alia maximize the value of assets of all persons and balance the
interest of all stakeholders54.
94. Before we analyse the framework of the statute, the
UNCITRAL Guide, which was instructive for the Indian experience on
drafting the IBC55, provides some critical guidance on what an insolvency
law represents. Notably, the UNCITRAL Guide explicitly refrains from
prescribing mandates for the specific choices (procedural or substantive)
that an insolvency law should provide. Instead, it clarifies that each
jurisdiction evolves its own insolvency regime based on its social, political
and economic goals. It notes56:
“15. Since an insolvency regime cannot fully protect the interests
of all parties, some of the key policy choices to be made when
designing an insolvency law relate to defining the broad goals of
the law (rescuing businesses in financial difficulty, protecting
employment, protecting the interests of creditors, encouraging the
development of an entrepreneurial
class) and achieving the desired
balance between the specific objectives identified above.
Insolvency laws achieve that balance by reapportioning the
risks of insolvency in a way that suits a State’s economic,
social and political goals. As such, an insolvency law can
have widespread effects in the broader economy…..
[…]
17. There is no universal solution to the design of an
insolvency law because States vary significantly in their
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
54 Statement of Objects and Reasons, IBC, 2016
55 3.3.1, The report of the Bankruptcy Law Reforms Committee Volume I: Rationale
and Design (November 2015), available at < https://ibbi.gov.in/BLRCReport Vol1_
04112015.pdf > accessed on 20 August 2021
56  Pgs 14-16 of the UNCITRAL Legislative Guide to an Insolvency Law, available at <
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-
80722_ebook.pdf > accessed on 20 August 2021
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needs, as do their laws on other issues of key importance
to insolvency, such as security interests, property and
contract rights, remedies and enforcement procedures.
Although there may be no universal solution, most insolvency laws
address the range of issues raised by the key objectives discussed
above, albeit with different emphasis and focus. Some laws favour
stronger recognition and enforcement of creditor rights and
commercial bargains in insolvency and give creditors more control
over the conduct of insolvency proceedings than the debtor
(sometimes referred to as “creditor-friendly” regimes). Other laws
lean towards giving the debtor more control over the proceedings
(referred to as “debtor-friendly” regimes), while yet others seek
to strike a balance in the middle…..”  (emphasis supplied)
95. With this legislative guidance from international law, the BLRC
was commissioned by the Government of India for submitting a report
with recommendations of reforms for the existing regime and a draft of
the proposed Insolvency and Bankruptcy Code. In November 2015, the
BLRC Report published its report in two volumes, with the first volume57
delineating the rationale and the second volume providing the design of
the proposed legislation.
96. The BLRC report noted that the insolvency regime was due
for a major overhaul as the recovery rates in India were among the
lowest in the world58 and a revamped, coherent code was
envisaged
with speed and predictability woven into its underlying design to ensure
higher recovery rates and immediate liquidation, in the event of a failed
resolution. As noted by this Court in Essar Steel (supra), the insolvency
regime in India was overhauled after the provisions of SICA, SARFAESI
and Recovery of Debts Act, in spite of providing for expeditious
determination, were used by defaulting companies to enjoy extended
moratorium periods and failure to enforce timelines meant legal
proceedings would drag on for years and not result in recovery of stressed
assets59. Similarly, in its observation on “Speed is of Essence”, the BLRC
report elaborated the commercial purpose of a revamped insolvency
regime in the following terms60:
57 supra note 55
58 Executive Summary, BLRC Report, supra note 55
59 Para 118, Essar Steel (supra)
60 Executive Summary, BLRC Report, supra note 55
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“Speed is of essence for the working of the bankruptcy code, for
two reasons. First, while the “calm period” can help keep an
organisation afloat, without the full clarity of ownership and control,
significant decisions cannot be made. Without effective leadership,
the firm will tend to atrophy and fail. The longer the delay, the
more likely it is that liquidation will be the only answer. Second,
the liquidation value tends to go down with time as many assets
suffer from a high economic rate of depreciation.
From the viewpoint of creditors, a good realisation can generally
be obtained if the firm is sold as a going concern. Hence, when
delays induce liquidation, there is value destruction. Further, even
in liquidation, the realisation is lower when there are delays. Hence,
delays cause value destruction. Thus, achieving a high recovery
rate is primarily about identifying and combating the sources of
delay.”
In identifying the sources of delay, adjudicating mechanisms were
identified as one of the two important sources of delay which need to be
equipped with the right resources. In order to respond to the rapid changes
in the economy, the BLRC report recommended the formation of an
IBBI which would function as a regulator and formulate regulations that
dynamically detail the procedural norms of the working of the IBC with
the necessary immediacy. It is also important for this Court, as a
constitutional authority which determines questions of law concerning
the IBC framework, to note that a rapid liquidation may sometimes be
preferable to a protracted CIRP. This sentiment was stressed in the
BLRC Report, in its concluding statement in the Executive Summary,
which noted:
“Conclusion
The failure of some business plans is integral to the process of the
market economy. When business failure takes place, the best
outcome for society is to have a rapid re-negotiation between the
financiers, to finance the going concern using a new arrangement
of liabilities and with a new management team. If this cannot be
done, the best outcome for society is a rapid liquidation. When
such arrangements can be put into place, the market process of
creative destruction will work smoothly, with greater competitive
vigor and greater competition.
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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India is in the process of laying the foundations of a mature market
economy. This involves well drafted modern laws, that replace
the laws of the preceding 100 years, and high performance
organisations which enforce these new laws. The Committee has
endeavored to provide one critical building block of this process,
with a modern insolvency and bankruptcy code, and the design of
associated institutional infrastructure which reduces delays and
transaction costs.
We hope that the implementation of this report will increase GDP
growth in India by fostering the emergence of a modern credit
market, and particularly the corporate bond market. GDP growth
will accelerate when more credit is available to new firms including
firms which lack tangible capital. While many other things need
to be done in achieving a sound system of finance and firms, this
is one critical building block of that edifice.”
97. A reading together of the UNCITRAL Guide and the BLRC
Report clarifies, in no uncertain terms, that the procedure designed for
the insolvency process is critical for allocating economic coordination
between the parties who partake in, or are bound by the process. This
procedure produces substantive rights and obligations. For instance, the
composition of the CoC, the method and percentage of its voting, the
timelines for CIRP, the obligation on the RP to file specific forms after
every stage of the process and the obligation
to explain to the Adjudicating
Authority reasons for any deviations from the timeline while submitting
a Resolution Plan, and other such procedural requirements create a
mechanism which tightly structures the conduct of all participants in the
insolvency process. This process invariably has an impact on the conduct
of the Resolution Applicant who participates in the process and consents
to be bound by the RFRP and the broader insolvency framework. An
analysis of the framework of the statute and regulations provides an
insight into the dynamic and comprehensive nature of the statute.
Upholding the procedural design and sanctity of the process is critical to
its functioning. The interpretative task of the Adjudicating Authority,
Appellate Authority, and even this Court, must be cognizant of, and allied
with that objective. The UNCITRAL Guide has echoed this position by
noting the interplay between the procedural design of the insolvency law
and the corresponding institutional infrastructure by observing61:
61 page 20, UNCITRAL Guide, supra note 56
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“27. While the institutional framework is not discussed in any detail
in the Legislative Guide, some of the issues are touched upon
below. Notwithstanding the variety of substantive issues that must
be resolved, insolvency laws are highly procedural in nature. The
design of the procedural rules plays a critical role in determining
how roles are to be allocated between the various participants, in
particular in terms of decision-making. To the extent that the
insolvency law places considerable responsibility upon the
institutional infrastructure to make key decisions, it is essential
that that infrastructure be sufficiently developed to enable the
required decisions to be made.”
98. Any claim seeking an exercise of the Adjudicating Authority’s
residuary powers under Section 60(5)(c) of the IBC, the NCLT’s inherent
powers under Rule 11 of the NCLT Rules 2016 or even the powers of
this Court under Article 142 of the Constitution must be closely scrutinized
for broader compliance with the insolvency framework and its underlying
objective. The adjudicating mechanisms which have been specifically
created by the statute, have a narrowly defined role in the process and
must be circumspect in granting reliefs that may run counter to the
timeliness and predictability that is central to the IBC. Any judicial creation
of a procedural or substantive remedy that is not envisaged by the statute
would not only violate the principle of separation of powers, but also run
the risk of altering the delicate coordination that is designed by the IBC
framework and have grave implications on the outcome of the CIRP,
the economy of the country and the lives of the workers and other allied
parties who are statutorily bound by the impact of a resolution or
liquidation of a Corporate Debtor.
H Nature of a Resolution Plan
99. Before we advert to whether withdrawals or modifications by
successful Resolution Applicants are permissible under the IBC, we must
begin by understanding the nature of a Resolution Plan. “Resolution Plan”
has been defined in Section 5(26) of the IBC in the following terms:
“(26) “resolution plan” means a plan proposed by resolution
applicant for insolvency resolution of the corporate debtor as a
going concern in accordance with Part II;
Explanation.—For the removal of doubts, it is hereby clarified
that a resolution plan may include provisions for the restructuring
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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of the corporate debtor, including by way of merger, amalgamation
and demerger;”
The Explanation to the provision was added by the Insolvency
and Bankruptcy Code (Amendment) Act 2019. Further, the term
“Resolution Applicant” was substituted for “any person” by the
Insolvency and Bankruptcy Code (Amendment) Act 2018.
100. The term “Resolution Applicant” has been defined in Section
5(25) of the IBC as follows:
“(25) “resolution applicant” means a person, who individually or
jointly with any other person, submits a resolution plan to the
resolution professional pursuant to the invitation made under clause
(h) of sub-section (2) of Section 25 or pursuant to Section 54-K,
as the case may be”
101. The IBC provides a roadmap for the entire CIRP in Chapter
II of Part II. This process is tightly regulated to include, inter alia,
timelines of the CIRP specified by Section 12, duties of the RP to provide
adequate information to propose a Resolution Plan in Section 29 and
restrictions on who can be a Resolution Applicant in Section 29A.
Thereafter, Section 30 provides for the submission of a Resolution Plan,
and it reads as follows:
“30. Submission of resolution plan.—(1) A resolution applicant
may submit a resolution plan along with an affidavit stating that
he is eligible under Section 29-A to the resolution professional
prepared on the basis of the information memorandum.
(2) The resolution professional shall examine each
resolution plan
received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process costs
in a manner specified by the Board in priority to the payment of
other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in
such manner as may be specified by the Board which shall not be
less than—
(i) the amount to be paid to such creditors in the event of a liquidation
of the corporate debtor under Section 53; or
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(ii) the amount that would have been paid to such creditors, if the
amount to be distributed under the resolution plan had been
distributed in accordance with the order of priority in sub-section
(1) of Section 53,
whichever is higher, and provides for the payment of debts of
financial creditors, who do not vote in favour of the resolution
plan, in such manner as may be specified by the Board, which
shall not be less than the amount to be paid to such creditors in
accordance with sub-section (1) of Section 53 in the event of a
liquidation of the corporate debtor.
Explanation 1.—For the removal of doubts, it is hereby clarified
that a distribution in accordance with the provisions of this clause
shall be fair and equitable to such creditors.
Explanation 2.—For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
provisions of this clause shall also apply to the corporate insolvency
resolution process of a corporate debtor—
(i) where a resolution plan has not been approved or rejected by
the Adjudicating Authority;
(ii) where an appeal has been preferred under Section 61 or Section
62 or such an appeal is not time barred under any provision of law
for the time being in force; or
(iii) where a legal proceeding has been initiated in any court against
the decision of the Adjudicating Authority in respect of a resolution
plan;
(c) provides for the management
of the affairs of the corporate
debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the
time being in force;
(f) conforms to such other requirements as may be specified by
the Board.
Explanation.—For the purposes of clause (e), if any approval of
shareholders is required under the Companies Act, 2013 (18 of
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2013) or any other law for the time being in force for the
implementation of actions under the resolution plan, such approval
shall be deemed to have been given and it shall not be a
contravention of that Act or law.
(3) The resolution professional shall present to the committee of
creditors for its approval such resolution plans which confirm the
conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan by
a vote of not less than sixty-six per cent of voting share of the
financial creditors, after considering its feasibility and viability the
manner of distribution proposed, which may take into account the
order of priority amongst creditors as laid down in sub-section (1)
of Section 53, including the priority and value of the security interest
of a secured creditor, and such other requirements as may be
specified by the Board:
Provided that the committee of creditors shall not approve a
resolution plan, submitted before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017,
where the resolution applicant is ineligible under Section 29-A
and may require the resolution professional to invite a fresh
resolution plan where no other resolution plan is available with it:
Provided further that where the resolution applicant referred to in
the first proviso is ineligible under clause (c) of Section 29-A, the
resolution applicant shall be allowed by
the committee of creditors
such period, not exceeding thirty days, to make payment of overdue
amounts in accordance with the proviso to clause (c) of Section
29-A:
Provided also that nothing in the second proviso shall be construed
as extension of period for the purposes of the proviso to sub-
section (3) of Section 12, and the corporate insolvency resolution
process shall be completed within the period specified in that sub-
section.
Provided also that the eligibility criteria in Section 29-A as amended
by the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018 (Ord. 6 of 2018) shall apply to the resolution applicant who
has not submitted resolution plan as on the date of commencement
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of the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the applicant
is considered:
Provided that the resolution applicant shall not have a right to vote
at the meeting of the committee of creditors unless such resolution
applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan as
approved by the committee of creditors to the Adjudicating
Authority.”
Once a Resolution Applicant submits a Resolution Plan under sub-
Section (1) of Section 30, the RP must assess whether it conforms with
all the requirements of sub-Section (2). Having satisfied itself, the RP
under sub-Section (3) must then present those Resolution Plans to the
CoC which fulfill the criteria under sub-Section (2). The CoC will then
proceed to decide on the approval of the Resolution Plan, with a majority
vote of sixty-six percent, after satisfying itself that the requirements
under sub-Section (4) have been met, including testing the Resolution
Plan for its feasibility and viability. A Resolution Applicant may attend
this meeting of the CoC under sub-Section (5), but it does not have a
right to vote unless it is also a financial creditor. The Resolution Plan
approved by the CoC under sub-Section (4) is then placed by the RP
before the Adjudicating Authority for its approval under sub-Section (6).
102. Other than the IBC,
the process is also regulated by the
CIRP Regulations created under the IBC. Regulation 37 provides an
illustration of the solutions which can be proposed in a Resolution Plan.
Regulation 38 provides for the mandatory contents of a Resolution Plan,
which are similar to the pre-conditions mentioned in Section 30(2) of the
IBC. Regulation 39 provides for the process of approval of a Resolution
Plan by the CoC, and under sub-Regulation (3), the CoC has to evaluate
every Resolution Plan based on an “evaluation matrix” it has come up
with under Regulation 5(ha).
103. Having briefly taken an overview of the process, we now
understand that there are broadly three stages: (i) the first stage is prior
to and ends with the approval of the Resolution Plan by the CoC; (ii) the
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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second stage is the interim period between the Resolution Plan’s approval
by the CoC and before its confirmation by the Adjudicating Authority;
and (iii) the third stage is after the approval of the Resolution Plan by the
Adjudicating Authority. In the first stage, the relationship between the
parties is explicitly governed by the provisions of the IBC – such as the
right of a prospective Resolution Applicant to seek the IM and RFRP
upon submission of its EOI, which may have been rejected by the RP
(as it happened in the Kundan Care Appeal). In the third stage, the same
holds true since Section 31(1) makes the Resolution Plan binding upon
all the stakeholders and its violation will attract a penalty under Section
74 of the IBC. However, what we are assessing right now is the interim
second stage between both of those. To understand the relationship of
the parties therein, it becomes important to understand the exact “nature”
of the Resolution Plan after it has been submitted to the Adjudicating
Authority and before it has been approved under Section 31(1).
104. To summarize the arguments of the parties, the appellants
have argued that Resolution Plans are in the nature of an offer, which
becomes binding as a concluded contract only once the Adjudicating
Authority has approved the Resolution Plan. Section 7 of the Contract
Act requires the acceptance of offer to be absolute, unconditional and
unqualified. Since the
approval by the CoC is effectively conditional
upon the confirmation of the Plan by the Adjudicating Authority, it cannot
be said that there is absolute acceptance of the Resolution Plan.
Alternatively, it has been argued that Resolution Plans approved by the
CoC are contingent contracts, whose enforceability is conditional upon
the approval of the Adjudicating Authority in accordance with Section
32 of the Contract Act. The Respondents (RPs and the CoCs) have
argued that a concluded contract comes into being when the Resolution
Plan is approved by the CoC and a successful Resolution Applicant
cannot renege from their contractual obligation to implement the
Resolution Plan. In furtherance of this argument, Mr Shyam Divan
appearing for the E-CoC made a reference to the Specific Relief
(Amendment) Act 2018, which has brought a change to the regime on
contract enforcement in India by making specific performance the norm
rather than the exception.
105. The determination of the nature of the Resolution Plan would
help us establish the source of the legal force of the Resolution Plan –
whether it is the statute, i.e., the IBC or the law of contract. The
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insolvency process, as governed by the IBC, does not merely structure
the conduct of all the participants in the process after finalization and
approval of a Resolution Plan by a CoC, but also the conduct stemming
from the very first steps of inviting prospective Resolution Applicants.
The RP, with the approval of the CoC62, invites prospective Resolution
Applicants through an RFRP. Once an unconditional EOI has been
received from prospective Resolution Applicants who are otherwise
eligible under Section 29A, the RP prepares an IM as per the provisions
of Section 29 which furnishes all relevant information of the Corporate
Debtor to enable prospective Resolution Applicants to make an informed
decision, before proposing a Resolution Plan. As a consequence of the
IBC and its regulations, prospective Resolution Applicants, who are not
disqualified under Section 29A, propose drafts of their Resolution Plans.
The RP examines the Resolution Plan against the contours of Section
30(2) and submits only the eligible plans to the CoC63. Prior to the IBBI
(CIRP) (Fourth Amendment) Regulations 2020, which now requires the
CoC to vote on all Plans simultaneously after recording its deliberations
on the feasibility and viability of each Plan, Regulation 39(3) earlier
enabled the CoC to approve a Resolution Plan with “such modifications
as it deems fit”. This meant that the prospective Resolution Applicants
and the CoC would indulge in several rounds of negotiations,
within a
strict time-frame, to arrive at a mutually agreeable Resolution Plan which
was then subject to voting by the CoC. Subsequent to the voting, the RP
would submit the plan to the Adjudicating Authority along with receipt of
the PBG and a compliance certificate in the form of Form H. Each of
the stages detailed above correspond to several rights and obligations on
all parties that are specifically created by the statute.
106. Since the interpretation of the IBBI (CIRP)(Fourth
Amendment) Regulations 2020 and the impact on the Resolution
Applicants and the CoC to negotiate the terms of the Resolution Plan is
not before this Court and the present appeal essentially seeks to determine
the nature of the Resolution Plan after its approval by the CoC and prior
to its approval by the Adjudicating Authority, this Court will proceed to
determine of the nature of such a Plan, on the assumption of the law as
it stood then, i.e., Regulation 39(3) which directed that “[t]he committee
shall evaluate the resolution plans received under sub-regulation (1) strictly
as per the evaluation matrix to identify the best resolution plan and may
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
62 Section 25(2)(h), IBC
63 Regulation 39(2), CIRP Regulations
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approve it with such modifications as it deems fit”64. This power of the
CoC to suggest modifications invariably entailed an element of negotiation
with the Resolution Applicants, who would make suitable revisions and
re-submit their Resolution Plans. The scope of a commercial bargain
with the Resolution Applicants evinces a sense of a negotiated agreement
that is arrived between the parties, which resembles an exercise of
contractual freedom by the CoC and the Resolution Applicant.
107. If this court were to hold that CoC-approved Resolution Plans
are indeed contracts, their provisions would still have to conform to the
statutory provisions of the IBC. However, such an interpretation would
entail that CoC-approved Resolution Plans are at the intersection of the
IBC and the Contract Act. This would mean that certain principles of
contract law, for example those relating to discharge, penalties, remedies
and damages would become applicable to CoC-approved Resolution
Plans. For instance, in the United States, plans confirmed by courts have
been characterized as contracts, whose breach can even give rise to
contractual remedies. In In re Hoffinger Indus, Inc65, a bankruptcy
court in Arkansas has held that “a confirmed plan should be enforceable
and amenable to damages between contractually bound parties.” Indeed,
it has been argued before us that Resolution Plans should be enforced
through the contractual remedy of
specific performance. Further, a
determination that Resolution Plans are contracts in the period between
approval by the CoC and the approval of the Adjudicating Authority
would require us to analyse whether all elements of contract formation
have been satisfied, including the question of whether the acceptance of
the Resolution Plan by the CoC fulfils the criteria laid down under Section
7 of the Contract Act or whether the conditionality of seeking approval
from the Adjudicating Authority makes the Resolution Plan a contingent
contract. Our intent of laying down the consequences of our determination
of Resolution Plans as contracts is to highlight the importance of
ascertaining the nature of a CoC-approved Resolution Plan, prior to its
approval by the Adjudicating Authority.
108. The text of the IBC does not specify whether Resolution
Plans at the second stage of the process, i.e., in the intervening period of
64 As substituted by the Notification No. IBBI/2018-19/GN/REG031, dated 3rd July,
2018 (w.e.f. 04-07-2018). Prior to this substitution, Regulation 39(3) stated “the
committee may approve any resolution plan with such modifications as it deems fit.”
65 327 B.R. 389 (Bankr. E.D. Ark. 2005), United States Bankruptcy Court, E.D. Arkansas
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submission to and approval by the Adjudicating Authority, are pure
contracts. As noted previously, by specifications such as eligibility for
resolution applicants, the contents of the IM and duties of the RP to
prospective Resolution Applicants and statutory procedures on timelines
and voting, strictly govern the insolvency process even prior to the
submission of the Plan to the Adjudicating Authority. The CoC, who the
appellants allege is in the nature of a free contracting party, is governed
by the binding principles of the statute with regard to the contents and
nature of the statutory plan that it approves under Section 30(4) and
even its own composition.
109. Section 30(4) provides that the consent of all the members
of the CoC, though a unanimous vote is not required and a sixty-six per
cent vote is sufficient for approval of a resolution plan. The constitution
of the CoC is based on specific scenarios envisaged in the statute and
accounts for varying compositions, based on factors such as the nature
and quantum of debt owed. For example, if it comprises of operational
creditors alone, the percentage of debt owed between the operational
and financial creditors and other such variables impact voting thresholds
inter se members of the CoC. A sixty-six per cent vote of the CoC is
required to approve a Resolution Plan. The dissenting creditors are
deemed to have given their approval and are bound by the decision of
the majority of the CoC. The
dissenting creditors are bound as a result
of the statutory provision and not because they have actually consented
to be parties to such an arrangement. Other elements governing the
Resolution Plan indicate that the entire process from initiation and leading
up to its acceptance by the CoC takes place within the framework of
the IBC. In addition, the IBC provides penalties for non-compliance
with the Resolution Plan after its approval under Section 31 and forfeiture
of the PBG for failing to implement the Resolution Plan or contributing
to the failure of its implementation. The violation of the terms of the
Resolution Plan does not give rise to a claim of damages, rather it leads
to prosecution and imposition of punishment under Section 74 of the
IBC. On the contrary, a CoC’s withdrawal of the CIRP under Section
12A is coupled with a requirement of payment of CIRP costs, but no
damages are statutorily payable to the Resolution Applicant, irrespective
of the stage of the withdrawal.
110. The CoC even with the requisite majority, while approving
the Resolution Plan must consider the feasibility and viability of the Plan
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
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and the manner of distribution proposed, which may take into account
the order of priority amongst creditors as laid down in sub-section (1) of
section 53 of the IBC. The CoC cannot approve a Resolution Plan
proposed by an applicant barred under Section 29A of the IBC. Regulation
37 and 38 of the CIRP Regulations govern the contents of a Resolution
Plan. Furthermore, a Resolution Plan, if in compliance with the mandate
of the IBC, cannot be rejected by the Adjudicating Authority and becomes
binding on its approval upon all stakeholders – including the Central and
State Government, local authorities to whom statutory dues are owed,
operational creditors who were not a part of the CoC and the workforce
of the Corporate Debtor who would now be governed by a new
management. Such features of a Resolution Plan, where a statute
extensively governs the form, mode, manner and effect of approval
distinguishes it from a traditional contract, specifically in its ability to
bind those who have not consented to it. In the pure contractual realm,
an agreement binds parties who are privy to the contract. In the context
of a resolution Plan governed by the IBC, the element of privity becomes
inapplicable once the Adjudicating Authority confirms the Resolution Plan
under Section 31(1) and declares it to be binding on all stakeholders,
who are not a part of the negotiation stage or parties to the Resolution
Plan. In fact, a commentator
has noted that the purpose of bankruptcy
law is to actually solve a specific ‘contracting failure’ that accompanies
financial distress. Such a contracting failure arises because “financial
distress involves too many parties with strategic bargaining incentives
and too many contingencies for the firm and its creditors to define a set
of rules of every scenario.” Thus, insolvency law recognizes that parties
can take benefit of such ‘incomplete contract’ to hold each other up for
their individual gain. In an attempt to solve the issue of incompleteness
and the hold-up threat, the insolvency law provides procedural protections
i.e., “the law puts in place guardrails that give the parties room to bargain
while keeping them from taking position that veer toward extreme hold
up”66.
111. It may be useful to refer to how this Court has analyzed
instruments that are analogous to a Resolution Plan. In SK Gupta v. KP
Jain67, this Court while discussing the nature of compromise or
66 Anthony J. Casey, ‘Chapter 11’s Renegotiation Framework and the Purpose of
Corporate Bankruptcy’, Columbia Law Review Vol 120 No 7, available at <https://
columbialawreview.org/content/chapter-11s-renegotiation-framework-and-the-purpose-
of-corporate-bankruptcy/> accessed on 5 September 2021
67 (1979) 3 SCC 54
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arrangements entered between a company and its creditors or members
observed that such a compromise or arrangement once sanctioned by
the court is not merely an agreement between parties because it binds
even dissenting creditors or members through statutory force. This Court
made the following observations:
“12…The scheme when sanctioned does not merely operate
as an agreement between the parties but has statutory force
and is binding not only on the company but even dissenting creditors
or members, as the case may be. The effect of the sanctioned
scheme is “to supply by recourse to the procedure thereby
prescribed the absence of that individual agreement by every
member of the class to be bound by the scheme which would
otherwise be necessary to give it validity” [see J.K. (Bombay)
Pvt. Ltd. v. New Kaiser-i-Hind Spg. & Wvg. Co. Ltd. [AIR 1970
SC 1041 : (1969) 2 SCR 866, 891 : (1970) 40 Com Cas 689] ]..”
(emphasis supplied)
112. While the above observations were made in the context of a
scheme that has been sanctioned by the Court, the Resolution Plan even
prior to the approval of the Adjudicating Authority is binding inter se the
CoC and the successful Resolution Applicant. The Resolution Plan cannot
be construed purely as a ‘contract’ governed by the Contract Act, in the
period intervening its acceptance by the CoC and the approval of the
Adjudicating Authority. Even at that stage, its binding effects are produced
by the IBC framework. The BLRC Report
mentions that “[w]hen 75%
of the creditors agree on a revival plan, this plan would be binding on all
the remaining creditors”68. The BLRC Report also mentions that, “the
RP submits a binding agreement to the Adjudicator before the default
maximum date”69. We have further discussed the statutory scheme of
the IBC in Sections I and J of this judgement to establish that a Resolution
Plan is binding inter se the CoC and the successful Resolution Applicant.
Thus, the ability of the Resolution Plan to bind those who have not
consented to it, by way a statutory procedure, indicates that it is not a
typical contract.
113. The BLRC Report, which furnished the first draft of the
IBC and elaborated on the aims behind the overhaul of the insolvency
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
68 Page 13, BLRC Report, supra note 55
69 Page 92, BLRC Report, supra note 55
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regime, refers to a CoC-approved Resolution Plan as a ‘binding contract’
in one instance and refers to it as a ‘binding agreement’ in other instances.
The report also refers to a CoC-approved Resolution Plan as a ‘financial
arrangement’70, ‘revival plan’71 or a ‘solution’72. The interchangeability
of the terms – ‘agreement’, ‘contract’, ‘financial arrangement’, ‘revival
plan’ and ‘solution’ indicates that there is no clear intention of the BLRC
in characterizing the nature of the Resolution Plan as a contract. The
binding effect of the Resolution Plan has the consequence of preventing
the CoC or the Resolution Applicant to renege from its terms after the
plan has been approved by the CoC through a voting mechanism. The
fleeting mention of a ‘binding contract’ on one occasion in the BLRC
Report (which was a pre-legislative text that underwent subsequent
modifications by the Legislature) to indicate the binding nature of the
Resolution Plan and the finality of negotiations once it is approved by the
CoC, does not establish the legal nature of the document, especially
when it is not complemented by the text and design of the IBC.
114. Certain stages of the CIRP resemble the stages involved in
the formation of a contract. Echoes of the process involved in the
formation of a contract resonate in the steps antecedent to the approval
of a Resolution Plan such as: (i) the issuance of an RFRP may be equated
to an invitation
to offer; (ii) a Resolution Plan can be considered as a
proposal or offer; and (iii) the approval by the CoC may be similar to an
acceptance of offer. The terms of the Resolution Plan contain a
commercial bargain between the CoC and Resolution Applicant. There
is also an intention to create legal relations with binding effect. However,
it is the structure of the IBC which confers legal force on the CoC-
approved Resolution Plan. The validity of the Resolution Plan is not
premised upon the agreement or consent of those bound (although as a
procedural step the IBC requires sixty-six percent votes of creditors),
but upon its compliance with the procedure stipulated under the IBC.
115. It was argued for the E-RP that a Resolution Plan is a contract
executed in furtherance of a statutory regime under the IBC. A question
arises whether a Resolution Plan can be classified as a ‘statutory
contract’. This Court has defined a statutory contract in India Thermal
Power Ltd. v. State of MP73 in the following terms:
70 Page 21, BLRC Report, supra note 55
71 Page 13, BLRC Report, supra note 55
72 Pages 21, 75 and 126, BLRC Report, supra note 55
73 (2000) 3 SCC 379
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“11. Section 43 empowers the Electricity Board to enter into an
arrangement for purchase of electricity on such terms as may be
agreed. Section 43-A(1) provides that a generating company
may enter into a contract for the sale of electricity generated
by it with the Electricity Board. As regards the determination
of tariff for the sale of electricity by a generating company to the
Board, Section 43(1)(2) provides that the tariff shall be determined
in accordance with the norms regarding operation and plant-load
factor as may be laid down by the authority and in accordance
with the rates of depreciation and reasonable return and such
other factors as may be determined from time to time by the
Central Government by a notification in the Official Gazette. These
provisions clearly indicate that the agreement can be on such terms
as may be agreed by the parties except that the tariff is to be
determined in accordance with the provision contained in Section
43-A(2) and notifications issued thereunder. Merely because a
contract is entered into in exercise of an enabling power
conferred by a statute that by itself cannot render the
contract a statutory contract. If entering into a contract
containing the prescribed terms and conditions is a must
under the statute then that contract becomes a statutory
contract. If a contract incorporates certain terms and
conditions in it which are statutory then the said contract
to that extent is statutory. A contract may
contain certain
other terms and conditions which may not be of a statutory
character and which have been incorporated therein as a
result of mutual agreement between the parties. Therefore,
the PPAs can be regarded as statutory only to the extent that
they contain provisions regarding determination of tariff and other
statutory requirements of Section 43-A(2)…”
(emphasis supplied)
116. The above observations were in the context of a PPA entered
into under the provisions of Electricity Supply Act 1948. Section 43-
A(1) of the Act  stipulated that the generating company may enter into a
contract with the Electricity Board. Thus, the judgement pre-supposes
the existence of a subsisting contract. The controversy in the case was
whether the PPA could be characterized as a statutory contract. To say
that a Resolution Plan is a statutory contract, we must first consider
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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whether the IBC envisages the CoC-approved Resolution Plan as a
contract. There is no provision under the IBC referring to a Resolution
Plan as a contract, unlike Section 43-A(1) of the Electricity Supply Act
1948 which mentions that a contract may be entered into between the
concerned parties. The legal force of a Resolution Plan arises due to the
framework provided under the IBC. The mechanisms of the IBC provide
sufficient guidance on the conduct of all participants in the process and
the binding effect of the CoC-approved Resolution Plan is evidenced by
the execution of a PBG furnished by the successful Resolution Applicant,
in compliance with the CIRP Regulations. This PBG is returnable once
the Adjudicating Authority approves the Resolution Plan under Section
31 and makes it binding on all stakeholders. Therefore, the IBC and its
regulations institute sufficient safeguards to ensure the binding effect of
a CoC-approved Resolution Plan. In our discussion in Sections I and J
below, we further elaborate on the nature of a CoC-approved Resolution
Plan and the code of conduct that is permissible by the statutory
framework.
117. While insolvency regimes are specific to each jurisdiction, it
may be useful to analyze how Resolution Plans or similar instruments
are characterized in foreign jurisdictions.
118. Certain precedents from other jurisdictions have been cited
by Mr Nakul Devan for the E-RP, to argue that
contracts entered into, in
furtherance of a statutory regime have to be interpreted in accordance
with the objective and intent of the concerned statute. It has been
submitted that the Resolution Plan is one variety of such a statutory
contract. However, since we have arrived at the decision that Resolution
Plans are not statutory contracts, it is not required for us to analyze
whether terms of the Resolution Plan can be given effect to, as terms of
a contract, as long as they further the statutory objective. It is also
important to note that India adopts a unique insolvency framework where
third-parties have the right to participate in an insolvency regime and
acquire the Corporate Debtor as a going concern. In several jurisdictions,
the insolvency arrangements are between the debtor and the creditors,
which has a closer resemblance to ‘repayment plans’ by corporate debtors,
as envisaged by the IBC under Section 105 and broadly prescribed under
Chapter III as opposed to ‘resolution plans’ that are not proposed by
debtors. In any event, an analysis of such arrangements is detailed below.
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119. In the United Kingdom, the UK Act allows the directors,
administrator or liquidator of a company to propose a company voluntary
arrangement or a ‘CVA’ (similar to Section 10 of the IBC), which has to
be approved by creditors having seventy-five per cent of the vote share.
Section 5(2)(b)74 of the UK Act provides that once the CVA is approved,
the company and the creditors are bound by it. Professor Roy Goode in
his authoritative treatise Principles of Corporate Insolvency Law75
observes that, “[t]he wording of s.5(2)(b), discussed below, has led the
courts to characterise the relationship between the parties to a CVA as
essentially contractual in nature and its scope and effect are determined
by its terms, which fall to be interpreted by application of the ordinary
principles of contractual interpretation.” In some judgements of the Court
of Appeal, English Courts have held that a CVA creates a contractual
obligation76, is a statutory contract77, or has a contractual effect and is
subject to ordinary principles of interpretation applying to contracts78.
However, the position on this issue is not completely settled. In a recent
decision of the High Court of Justice79, it was held that the CVA is not a
contract. Crucially the court made the following observations:
“83. Further, and as noted by Mr Pymont QC in SHB Realisations
Ltd, a voluntary arrangement is not formed or analysed as a
contract. Certain legal principles applicable to contracts, for
example their interpretation, are applied to voluntary
arrangements; that is no less true of other instruments
which are not contracts. Other principles of contract law,
for example those relating to penalties, are not applicable
to voluntary arrangements. Mr Pymont QC concluded that a
voluntary arrangement is not a contract. Characterising a CVA
as a hypothetical agreement or by reference to a statutory
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
74 5 …(2) The voluntary arrangement— (b) binds every person who in accordance with
the rules — (i) was entitled to vote in the qualifying decision procedure by which the
creditors’ decision to approve the voluntary arrangement was made, or (ii) would have
been so entitled if he had had notice of it — as if he were a party to the voluntary
arrangement.”
75  Roy Goode, Principles of Corporate Insolvency Law (5th edn., Sweet and Maxwell,
2018)
76 Re TBL Realisations Plc, Oakley-Smith v Greenberg, [2004] B.C.C. 81 (Court of
Appeal)
77 Tucker v Gold Fields Mining LCC, [2010] B.C.C. 544 (Court of Appeal)
78 Heis v Financial Services Compensation Scheme Ltd, [2018] EWCA Civ 1327 (Court
of Appeal)
79 Re Rhino Enterprises Properties Ltd. Schofield v Smith [2020] EWHC 2370 (Ch).
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hypothesis neatly and accurately makes clear that a CVA is
different from, and is not in fact, a contract.”
(emphasis supplied)
 120. In Singapore, under Section 210 (3AA and 3AB) of the
Singapore Act, a compromise or arrangement between the company
and its creditors becomes binding when the requisite majority of creditors
agree to it and it is approved by the court. The Singapore Court of Appeal
has referred to such a scheme of arrangement as a ‘contractual
scheme’80. Subsequently, a controversy arose before the Singapore Court
of Appeal on whether a scheme can be substantially amended after it
has been approved by the court. The court observed that the answer to
this question depends upon the nature of schemes of arrangement;
whether the schemes derived their efficacy from the order of the court
or the statute. The court observed that under the English approach81, a
scheme approved by the majority of the creditors derives its efficacy
from the statute and is a statutory contract. Thus, the court has a limited
jurisdiction and cannot make substantial alterations to such a scheme.
However, the court noted that in Australia, the scheme operates as an
order of the court. The court held that its previous decision which referred
to a scheme of arrangement as a ‘contractual scheme’ does not mean
that in Singapore such schemes are considered as statutory contracts.
The court chose to follow the Australian approach holding
that a scheme
takes effect as an order of the court and like any other court order, it can
be altered, in certain circumstances. The court observed:
“66. ….We would also add, in respect of the latter concern, that a
court order is in no way less binding than a statutory contract on
the parties to a scheme of arrangement, and it is trite law as well
as common sense that a court order cannot be altered at will by
the parties who are subject to the order….”
121. In Australia, as noted above, the scheme of arrangement
operates as a court order82. The Supreme Court of New South Wales,
rejecting the English approach of characterizing schemes (different from
CVAs) as statutory contracts, observed:
80 Daewoo Singapore Pte Ltd v CEL Tractors Private Limited, [2001] 4 SLR 35 (Court
of Appeal)
81 Kempe and Another v. Ambassador Insurance Co., [1998] 1 W.L.R. 271
82 Caratti v Hillman [1974] WAR 92 (Supreme Court of Wester Australia)
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“46..
[….]
(b) In Australia, [the] authorities [namely, Hill v Anderson Meat
Industries Ltd [1971] 1 NSWLR 868, Caratti and Bond Corp
Holdings Ltd v Western Australia (1992) 7 ACSR 472] establish
that an approved scheme does indeed derive its force from the
court order, [and] not from the antecedent resolutions of members
and creditors.”
122. Under the United States Bankruptcy Code, a restructuring
plan becomes binding once it is confirmed by the court in terms of Section
1141. There are decisions of the bankruptcy courts in the United States
which indicate that such restructuring plans are characterized as
contracts83.It has been held that a confirmed plan is binding on the debtor
and the plan proponent and has the same effect as contract84. However,
commentators have noted that the United States Bankruptcy Code’s,
“embrace of a contractual paradigm is somewhat inconsistent…Both
bankruptcy courts and the Code itself are far more sympathetic to ex
post than to ex ante contracting”85. It has been further observed that,
“there are a few provisions in the Bankruptcy Code inviting parties to
“otherwise agree” by contract and in some contexts the Code explicitly
overrides ex ante contracts”, these include provisions of the Code
overriding ipso facto clauses in pre-bankruptcy contracts which stipulate
that a necessary condition of default is filing of an insolvency or
bankruptcy petition86.
123. The above discussion indicates the law in other jurisdictions,
irrespective of differing frameworks, is not completely settled on whether
instruments akin to Resolution Plans are pure contracts. To recapitulate,
in the United Kingdom, while schemes of arrangement are characterized
as statutory contracts, the law on CVAs, which are similar to the
insolvency process initiated under Section 10 of the IBC, is not clear
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
83 In re Hoffinger Indus, Inc, 327 B.R. 389 (Bankr. E.D. Ark. 2005), United States
Bankruptcy Court, E.D. Arkansas
84 In Re Shenandoah Realty Partners, L.P. v. Ascend Health Care, Inc, 287 BR 867 (US
Bankruptcy Court, WD)
85 David Skeel and George Triantis, ‘Bankruptcy’s Uneasy Shift to a Contractual
Paradigm’, Faculty Scholarship at Penn Law, (2018), available at <https://
scholarship.law.upenn.edu/cgi/viewcontent.cgi? article = 2993 & context = faculty _
scholarship > accessed on 5 September 2021
86 Ibid.
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with the High Court of Justice noting that it is not a contract87, even
though principles of interpretation applicable to contracts may be used
for constructing the language of such CVAs. In Singapore, the English
approach of denoting schemes as statutory contracts was rejected and
it was held that the schemes operate as orders of court. A similar position
was taken under the Australian law. The Singapore and Australian courts
specifically indicate that schemes are more than mere contracts with a
“super-added imprimatur” by a court, rather they envisage an active
role to be played by court in supervising the schemes to the extent of
making substantial alterations to it, if required. In the United States,
restructuring plans have been equated to contracts, but as noted above
there has been some inconsistency in relation to upholding the contractual
bargain.
124. The lack of an apparent international consensus on the issue
of whether instruments like CoC-approved Resolution Plans are
contracts, prior to the Court’s sanction, is also attributable to the peculiarity
of the insolvency regime in each jurisdiction. This Court will have to be
wary of transplanting international doctrines that are evolved as responses
to the specific features of a jurisdiction’s insolvency regime, without
identifying an analogous framework in our insolvency regime.
125. The absence of any specific provision in the IBC or the
regulations
referring to a CoC-approved Resolution Plan as a contract
and the lack of clarity in the BLRC report regarding the nature of such
a Resolution Plan, constrains us from arriving at the conclusion that
CoC-approved Resolution Plans will be governed by the Contract Act
and common law principles governing contracts, save and except for
the specific prohibitions and deeming fictions under the IBC. Regulation
39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth
Amendment) Regulations 2020 and applicable to the three appellants
before us, enabled a framework where a draft Resolution Plan would
involve several rounds of negotiations and revisions between the
Resolution Applicant and the CoC, before it is approved by the latter and
submitted to the Adjudicating Authority88. However, this statutorily-
87 Rhino supra note 78
88 “(3) The committee shall evaluate the resolution plans received under sub-regulation
(1) strictly as per the evaluation matrix to identify the best resolution plan and may
approve it with such modifications as it deems fit:
Provided that the committee shall record its deliberations on the feasibility and viability
of the resolution plans’’
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enabled room for commercial negotiation is not enough to over-power
the other elements of regulation that detract from the view that CoC-
approved Resolution Plans are contracts. CoC-approved Resolution Plans,
before the approval of the Adjudicating Authority under Section 31, are
a function and product of the IBC’s mechanisms. Their validity, nature,
legal force and content is regulated by the procedure laid down under
the IBC, and not the Contract Act. The voting by the CoC also occurs
only after the RP has verified the contents of the Resolution Plan and
confirmed that it meets the conditions of the IBC and the regulations
therein. The amended Regulation 39(3)89 further regulates the conduct
of the CoC on voting on Resolution Plans and has introduced the
requirement of simultaneous voting. The IBBI’s Discussion Paper issued
on 27 August 2021 has invited comments on regulating the process on
revisions that can be made to resolution plans submitted to the CoC90.
These developments bolster the conclusion that the mechanism prior to
submission of a CoC-approved resolution plan is subject to continuous
procedural scrutiny by the IBC and cannot be considered as a simple
contractual negotiation between two parties. Section J below details how
a common law remedies of withdrawal or modification on account of
frustration or force majeure are not applicable to CoC-approved
Resolution Plans owing to the nature of the IBC. Similarly, the whole
host of remedies
such as liquidated and unliquidated damages, restitution,
novation and frustration, unless specifically provided by the IBC, are not
available to a successful Resolution Applicant whose Plan has been
approved by the CoC and is awaiting the approval of the Adjudicating
Authority. The Insolvency Law Committee Report of February 2020
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89 “39….(3)The committee shall-(a) evaluate the resolution plans received under sub-
regulation (2) as per evaluation matrix; (b) record its deliberations on the feasibility and
viability of each resolution plan; and (c) vote on all such resolution plans simultaneously.
(3A) Where only one resolution plan is put to vote, it shall be considered approved if
it receives requisite votes.
(3B) Where two or more resolution plans are put to vote simultaneously, the resolution
plan, which receives the highest votes, but not less than requisite votes, shall be
considered as approved:
Provided that where two or more resolution plans receive equal votes, but not less than
requisite votes, the committee shall approve any one of them, as per the tie-breaker
formula announced before voting:
Provided further that where none of the resolution plans receives requisite votes, the
committee shall again vote on the resolution plan that received the highest votes,
subject to the timelines under the Code……….”
90
available 
at 
< 
https://www.ibbi.gov.in/uploads/whatsnew/
fbe59358a8c440d001f3b950be4a1c67.pdf > accessed on 5 September 2021
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has recommended the CIRP process to mandate Resolution Plans to
provide for the apportionment of the profit or loss accrued by the
Corporate Debtor during the CIRP91. These reports are periodically
commissioned by the parliament to review the functioning of the Code
and suggest amendments. However, if the intention was to view a CoC-
approved Resolution Plan as a contract, the principles of unjust enrichment
would have been sufficient to address the issue and an amendment may
not be considered necessary. A Resolution Applicant, as a third party
partaking in the insolvency regime, seeks to acquire the business of the
Corporate Debtor without the entirety of its debts, statutory liabilities
and avoiding certain transactions with third parties. These benefits are a
function of the coercive mechanisms of the IBC which enable a third
party to acquire the assets of a Corporate Debtor without its liabilities,
for a negotiated amount of the debt that is owed by the Corporate Debtor.
Typically, resolution amounts envisage payment of a fraction of debt
that is owed to the creditors and the business is acquired as a going
concern with its employees. The Resolution Plan is drafted in a way that
it is implementable in the future and brings about a quietus to the CIRP.
Enabling Resolution Applicants to seek remedies that are not specified
by the IBC, by seeking recourse to the Contract Act would be antithetical
to the IBC’s
insolvency regime. The elements of contractual interpretation
can be relied upon to construe the language of the terms of the Resolution
Plan, in the event of a dispute, but not to re-fashion and distort the
mechanism of the IBC altogether. This Court in Laxmi Pat Surana v.
Union Bank of India92 has held that the IBC is a self-contained Code.
Thus, importing principles of any other law or a statute like the Contract
Act into the IBC regime would introduce unnecessary complexity into
the working of the IBC and may lead to protracted litigation on
considerations that are alien to the IBC. To give an example, the CoC
can forfeit the PBG furnished by the successful Resolution Applicant
under certain circumstances in terms of the RFRP and Resolution Plan
including, inter alia, on the ground that the Resolution Applicant has
failed to implement the resolution or has contributed to its failure.
Regulation 36B (4A) of CIRP regulations provides for the furnishing of
such performance security once the plan is approved by creditors. The
91  Pages 55-56, Report of the Insolvency Law Committee (February 2020), Ministry
of Corporate Affairs, available at <https://www.mca.gov.in/Ministry/pdf/
ICLReport_05032020.pdf> accessed on 20 August 2021
92 (2020) SCC OnLine SC 1187
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Regulations do not provide that the performance security has to be a
reasonable estimate of loss as is expected of penalty clauses under
contract law, rather the explanation provides that the performance security
should be of “such nature, value, duration and source, as may be specified
in the request for resolution plans with the approval of the committee,
having regard to the nature of resolution plan and business of the corporate
debtor”. Further, in the event that the CoC enters into a settlement with
the Corporate Debtor and withdraws from the CIRP under Section 12A,
Regulation 30A provides for only payment of insolvency costs and not
compensation or damages to Resolution Applicant for investing time and
money in the process. The parties may resort to invoking principles of
frustration or force majeure to evade implementation of the Resolution
Plan leading to unnecessary litigation. This Court in Amtek Auto (supra),
had curbed a similar attempt by a successful Resolution Applicant who
had relied on a force majeure clause in its Resolution Plan to seek a
direction compelling the CoC to negotiate a modification to its Resolution
Plan. The Court held that there was no scope for negotiations between
the parties once the Resolution Plan has been approved by the CoC.
Thus, contractual principles and common law remedies, which do not
find a tether in the wording or the intent of the IBC, cannot be imported
in the intervening period between the acceptance of
the CoC and the
approval by the Adjudicating Authority. Principles of contractual
construction and interpretation may serve as interpretive aids, in the
event of ambiguity over the terms of a Resolution Plan. However, remedies
that are specific to the Contract Act cannot be applied, de hors the
over-riding principles of the IBC.
I Statutory framework governing the CIRP
126. The CIRP is a time bound process with a specific aim of
maximizing the value of assets. IBC and the regulations made under it
lay down strict timelines which need to be adhered to by all the parties,
at all stages of the CIRP. The CIRP is expected to be completed within
180 days under Section 12(1) of the IBC. In terms of sub-Section (2)
and (3) of Section 12, an extension can be sought from the Adjudicating
Authority for extending this period up to 90 days. The first proviso to
Section 12(3) clarifies that such an extension can only be granted once.
In Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta93, this
Court had held that the time taken in legal proceedings in relation to the
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CIRP must be excluded from the timeline mentioned in Section 12. Since
this could extend the CIRP indefinitely, the Insolvency and Bankruptcy
Code (Amendment) Act 2019, inserted a second proviso to Section 12(3)
with effect from 16 August 2019 to state that the CIRP in its entirety
must be mandatorily completed within 330 days from the insolvency
commencement date, including the time taken in legal proceedings. A
legislative amendment that takes away the basis of a judicial finding is
indicative of the strong emphasis of the IBC on its timelines and its
attempt to thwart the prospect of stakeholders engaging in multiple
litigations, solely with the intent of causing undue delay. Delays are also
a cause of concern because the liquidation value depletes rapidly,
irrespective of the imposition of a moratorium, and a delayed liquidation
is harmful to the value of the Corporate Debtor, the recovery rate of the
CoC and consequentially, the economy at large. In Essar Steel (supra)
a three judge Bench of this Court, emphasized the rationale of the
Insolvency and Bankruptcy Code (Amendment) Act 2019, which
introduced the second proviso to Section 12(3). The court adverted to
the BLRC report which underscored delays in legal proceedings as the
cause of the failure of the previous insolvency regime under the SICA
and the recovery mechanism in SARFAESI. It also extracted a Speech
of the Union Minister in the Rajya Sabha to
explain the proposal for the
amendment in 2019, which was to avoid the same pitfalls in the IBC.
The Court, speaking through Justice R F Nariman, noted:
“119. The speech of the Hon’ble Minister on the floor of the House
of the Rajya Sabha also reflected the fact that with the passage
of time the original intent of quick resolution of stressed assets is
getting diluted. It is therefore essential to have time-bound
decisions to reinstate this legislative intent. It was also pointed out
on the floor of the House that the experience in the working of
the Code has not been encouraging. The Minister in her speech
to the Rajya Sabha gives the following facts and figures:
“Now, regarding the Corporate Insolvency Resolution Process
(CIRP), under the Code, I want to give you data again as of
30-6-2019. First, I will talk about the status of CIRPs. Number of
admitted cases is 2162; number of cases closed on appeal, which
I read out about, is 174; number of cases closed by withdrawal
under Section 12-A, is 101, I have given you a slightly later data;
number of cases closed by resolution is 120; closed by liquidation,
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475; and ongoing CIRPs are 1292. So, now, I would like to mention
the number of days of waiting. I would like to mention here the
details of the ongoing CIRPs, along with the timelines. Ongoing
CIRPs are 1292, the figure just now I gave you. Over 330 days,
335 cases; over 270 days, 445 cases; over 180 days and less than
270 days, 221 cases; over 90 days but less than 180 days, 349
cases; less than 90 days, 277 cases. The number of days pending
includes time, if any, excluded by the tribunals. So, that gives you
a picture on what is the kind of wait and, therefore, why we want
to bring the amendments for this speeding up.”
[…]
123. As the speech of the Hon’ble Minister on the floor of the
House only indicates the object for which the amendment was
made and as it contains certain data which it is useful to advert to,
we take aid from the speech not in order to construe the amended
Section 12, but only in order to explain why the Amending Act of
2019 was brought about.”
127. The decision in Essar Steel (supra) while reiterating the
rationale of the IBC for ensuring timely resolution of stressed assets as
a key factor, had to defer to the principles of actus curiae neminem
gravabit, i.e., no person should suffer because of the fault of the court
or the delay in the procedure. In spite of this Court’s precedents which
otherwise strike down provisions which interfere with a litigant’s
fundamental right to non-arbitrary treatment under Article 14 by
mandatory
conclusion of proceedings without providing for any exceptions,
this Court refused to strike down the second proviso to Section 12(3) in
its entirety. It noted that the previous statutory experiments for insolvency
had failed because of delay as a result of extended legal proceedings
and chose to only strike down the word ‘mandatorily’, keeping the rest
of the provision intact. Therefore, the law as it stands, mandates the
conclusion of the CIRP – including time taken in legal proceedings, within
330 days with a short extension to be granted only in exceptional cases.
However, the Court has warned that this discretion must be exercised
sparingly and only in the following situations:
“127…Thus, while leaving the provision otherwise intact, we strike
down the word “mandatorily” as being manifestly arbitrary under
Article 14 of the Constitution of India and as being an excessive
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
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and unreasonable restriction on the litigant’s right to carry on
business under Article 19(1)(g) of the Constitution. The effect of
this declaration is that ordinarily the time taken in relation to the
corporate resolution process of the corporate debtor must be
completed within the outer limit of 330 days from the insolvency
commencement date, including extensions and the time taken in
legal proceedings. However, on the facts of a given case, if it can
be shown to the Adjudicating Authority and/or Appellate Tribunal
under the Code that only a short period is left for completion of
the insolvency resolution process beyond 330 days, and that it
would be in the interest of all stakeholders that the corporate debtor
be put back on its feet instead of being sent into liquidation and
that the time taken in legal proceedings is largely due to factors
owing to which the fault cannot be ascribed to the litigants before
the Adjudicating Authority and/or Appellate Tribunal, the delay or
a large part thereof being attributable to the tardy process of the
Adjudicating Authority and/or the Appellate Tribunal itself, it may
be open in such cases for the Adjudicating Authority and/or
Appellate Tribunal to extend time beyond 330 days. Likewise,
even under the newly added proviso to Section 12, if by reason of
all the aforesaid factors the grace period of 90 days from the date
of commencement of the Amending Act of 2019 is exceeded,
there again a discretion can be exercised by the Adjudicating
Authority and/or Appellate Tribunal to further extend time keeping
the aforesaid parameters in mind. It is only in such exceptional
cases that time can be extended, the general rule being that 330
days is the outer limit within which resolution of the stressed assets
of the corporate debtor must take place beyond which the corporate
debtor is to be driven into liquidation.”
128. The evolution of the IBC framework, through an interplay of
legislative amendments, regulations and judicial interpretation, consistently
emphasizes the predictability and timeliness of the IBC. The legislature
and the IBBI have been proactive to introduce amendments to the
procedural framework, that respond to changes in the economy. For
instance, Regulation 40(c), which came into effect on 20 April 2020,
was inserted in the CIRP Regulations to take into account the delay that
may be caused to the CIRP on account of the lockdown being imposed
by the Central Government due to the COVID-19 pandemic. Regulation
40(c) provides that the delay in completing any activity related to the
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CIRP because of imposition of lockdown will not be counted for the
purposes of the timeline that has been stipulated under the statutory
framework. If the CIRP is not completed within the prescribed timeline,
the Corporator Debtor is sent into liquidation. This understanding of the
evolution of the law is critical to our task of judicial interpretation. We
cannot afford to be swayed by abstract conceptions of equity and
‘contractual freedom’ of the parties to freely negotiate terms of the
Resolution Plan with unfettered discretion, that are not grounded in the
intent of the IBC.
129. The IBC and the regulations provide a detailed procedure
for the completion of CIRP. An application for initiation of CIRP is filed
either by the financial creditor, operational creditor or the Corporate
Debtor itself under Sections 7, 9 and 10 of the IBC, respectively. Once
the application is admitted by the Adjudicating Authority, it passes the
following orders under Section 13(1) of the IBC: (i) declaration of a
moratorium for the purposes referred to in Section 14 of the IBC; (ii)
causing a public announcement to be made for the initiation of CIRP and
issuing a call for submissions of claims as may be specified under Section
15 of the IBC; and (iii) appointing an IRP in accordance with Section 16
of the IBC.
130. Section 13(2) provides that the public announcement is to be
made immediately after the appointment of an IRP. The word
‘immediately’ here means not later than
three days from the date of
appointment as provided in the explanation to Regulation 6(1) of the
CIRP Regulations. Section 15 of the IBC lists down the information that
should be included in the public announcement of CIRP. It should specify
the last date up to which the claims, i.e., a right of payment or right to
remedy as defined under Section 3(6) of the IBC, can be made by
creditors, workmen and employees. Regulation 6(2)(c) provides that the
last date of submission of claims shall be fourteen days from the date of
appointment of the IRP. The public announcement also specifies the
date on which the CIRP shall close, which is the one hundred and eightieth
day from the date of the admission of the application under Sections 7, 9
or 10, as may be applicable. Regulation 6 of the CIRP Regulations
stipulates additional requirements relating to how the public announcement
is to made.
131. On receipt of claims from the operational creditors, financial
creditors, workmen and employees, the IRP prepares a list of creditors
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after verifying the claims. Regulation 13(1) provides that the verification
of all the claims is to be done within seven days from the last date of
receipt of the claims. Thereafter, the IRP constitutes a CoC in accordance
with Section 21(1) of the IBC. Regulation 17 of the CIRP Regulations
stipulates that the IRP must submit a report certifying the constitution of
the CoC within two days of the claims being verified. The IRP is required
to hold the first meeting of the CoC within seven days of filing of the
report under the said regulation. If the appointment of the RP by the
CoC is delayed, the IRP is to perform the functions of the RP from the
fortieth day of the insolvency commencement date till the RP is appointed
under Section 22 of the IBC.
132. The CoC, in its first meeting, appoints the RP in terms of
Section 22(2) of the IBC. Section 23(1) provides that the RP is responsible
for conducting the entire CIRP and managing the operations of the
Corporate Debtor during the CIRP period. The RP continues to manage
the operations of the Corporate Debtor after the expiry of CIRP period
until an order approving the resolution is passed by the Adjudicating
Authority under Section 31(1) of the IBC or a liquidator is appointed
under Section 34 of the IBC. The intent of this Section is to ensure that
the Corporate Debtor remains a going concern until the Resolution Plan
is approved by the Adjudicating Authority. The
powers and duties of the
RP are listed under Section 23(2) of the IBC.
133. The significant, if not the most important, duty of the RP is to
solicit Resolution Plans. The RP is empowered to invite prospective
Resolution Applicants who fulfil the criteria as laid down by the RP and
approved by the CoC, considering the complexity and the scale of the
business operations of the Corporate Debtor and other such conditions
specified by the IBBI, to submit a Resolution Plan or Plans under Section
25(2)(h) of the IBC. Further, a person should not be ineligible to be a
Resolution Applicant under Section 29A of the IBC. Section 5(25) defines
a Resolution Applicant in the following terms:
“resolution applicant” means a person, who individually or jointly
with any other person, submits a resolution plan to the resolution
professional pursuant to the invitation made under clause (h) of
sub-section (2) of section 25; or pursuant to section 54K, as the
case may be.”
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134. The first step in the process of soliciting a Resolution Plan is
the preparation of an IM containing relevant information as specified by
the IBBI for formulating a Resolution Plan in accordance with Section
29(1) of the IBC. The contents of the IM are specified under Regulation
36(2) of the CIRP Regulations. Regulation 36(1) of the CIRP Regulations
specifies the timelines within which the RP must submit the IM to members
of the CoC, which is within two weeks of his appointment but not later
than the fifty-fourth day from the insolvency commencement date,
whichever is earlier. Thereafter, the RP issues an invitation of EOI not
later than the seventy-fifth day from the insolvency commencement date
to seek expressions of interest from eligible prospective Resolution
Applicants in terms of Regulation 36A of the CIRP Regulations. A
prospective Resolution Applicant is required to submit an unconditional
EOI within the time stipulated under the invitation, which shall not be
less than fifteen days from the date of the issue of invitation. The RP
conducts a due diligence of the Resolution Applicant based on material
available on record in terms of Regulation 36A(8) of the CIRP
Regulations. Thereafter, the RP issues a provisional list of eligible
prospective Resolution Applicants within ten days of the last date for
submission of EOIs to the CoC and to all the prospective Resolution
Applicants who had submitted the EOI. Regulation 36A also specifies
the
timeline within which any objection can be made against the inclusion
or exclusion of a prospective Resolution Applicant on the list, which is
five days from the issue of the list. The RP is required to publish a final
list of prospective Resolution Applicants within ten days of the last date
for the receipt of objections by the CoC.
135. Under Regulation 36B of the CIRP Regulations, the RP has
to issue the IM, evaluation matrix for consideration of the Resolution
Plan and an RFRP within five days of the date of issue of the provisional
list of Resolution Applicants to every prospective Resolution Applicant
on the list and any other prospective Resolution Applicants who have
contested their non-inclusion in the list. Regulation 36B stipulates that
the RFRP shall contain detailed steps of each process and the manner
and purposes of interaction between the RP and the prospective resolution
applicant along with the corresponding timelines. A minimum of thirty
days is given to the prospective Resolution Applicant to submit a Resolution
Plan. A Resolution Plan is defined under Section 5(26) of the IBC:
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“resolution plan” means a plan proposed by resolution applicant
for insolvency resolution of the corporate debtor as a going concern
in accordance with Part II;
Explanation.—For the removal of doubts, it is hereby clarified
that a resolution plan may include provisions for the restructuring
of the corporate debtor, including by way of merger, amalgamation
and demerger;”
136. The timeline for the submission of Resolution Plans can be
extended by an RP with the approval of the CoC. The RFRP must require
the resolution applicant to furnish a performance security in case their
Resolution Plan is approved by the CoC under Regulation 36B(4A).
The performance security shall stand forfeited if, after the approval of
the Resolution Plan by the Adjudicating Authority, the Resolution Applicant
fails to implement or contributes to the failure of implementation of the
plan. Under the regulation, a performance security is defined as “security
of such nature, value, duration and source, as may be specified in the
request for resolution plans with the approval of the committee, having
regard to the nature of resolution plan and business of the corporate
debtor”. Regulations 37 and 38 list down the mandatory contents of the
Resolution Plan.
137. The RP is required to review the Resolution Plan submitted
in terms of Section 30(2) of the IBC, which provides that:
“Section  30 - Submission of resolution plan
[…]
(2) The resolution
professional shall examine each resolution plan
received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process costs
in a manner specified by the Board in priority to the payment of
other debts of the corporate debtor;
(b) provides for the payment of debts of operational creditors in
such manner as may be specified by the Board which shall not be
less than—
(i) the amount to be paid to such creditors in the event of a liquidation
of the corporate debtor under section 53; or
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(ii) the amount that would have been paid to such creditors, if the
amount to be distributed under the resolution plan had been
distributed in accordance with the order of priority in sub-section
(1) of section 53, whichever is higher and provides for the payment
of debts of financial creditors, who do not vote in favour of the
resolution plan, in such manner as may be specified by the Board,
which shall not be less than the amount to be paid to such creditors
in accordance with sub-section (1) of section 53 in the event of a
liquidation of the corporate debtor.
Explanation 1.—For the removal of doubts, it is hereby clarified
that a distribution in accordance with the provisions of this clause
shall be fair and equitable to such creditors.
Explanation 2.—For the purposes of this clause, it is hereby
declared that on and from the date of commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2019, the
provisions of this clause shall also apply to the corporate insolvency
resolution process of a corporate debtor—
(i) where a resolution plan has not been approved or rejected by
the Adjudicating Authority;
(ii) where an appeal has been preferred under section 61 or section
62 or such an appeal is not time barred under any provision of law
for the time being in force; or
(iii) where a legal proceeding has been initiated in any court against
the decision of the Adjudicating Authority in respect of a resolution
plan;
(c) provides for the management
of the affairs of the
Corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution
plan;
(e) does not contravene any of the provisions of the law for
the time being in force;
(f) conforms to such other requirements as may be specified
by the Board.
Explanation.— For the purposes of clause (e), if any approval of
shareholders is required under the Companies Act, 2013 (18 of
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2013) or any other law for the time being in force for the
implementation of actions under the resolution plan, such approval
shall be deemed to have been given and it shall not be a
contravention of that Act or law.”
(emphasis supplied)
Sub-Section (3) of Section 30 of the IBC provides that the RP
shall present Resolution Plans which conform to the above requirements
before the CoC for approval. Sub-Section (4) of Section 30 stipulates
that the CoC may approve a Resolution Plan by a vote of not less than
sixty-six per cent after considering the feasibility and viability of the plan
and any such requirements specified by the IBBI.
138. The CoC has been given wide powers under the IBC. It can
direct the Corporate Debtor into liquidation any time before the approval
by the Adjudicating Authority, under Section 33(2) of the IBC. Further,
under Section 12A of the IBC the Adjudicating Authority may allow
withdrawal of the application submitted under Sections 7, 9 or 10 of the
IBC for initiation of the CIRP (i.e., initiation of the CIRP by the financial
creditor, operational creditor and the corporate applicant, respectively)
if the withdrawal is approved by ninety per cent of the voting share of
the CoC. Dealing with the question whether a successful Resolution
Applicant can retreat through the route provided under Section 12A of
the IBC, a three-judge Bench of this Court in Maharashtra Seamless
v. Padmanabhan Venkatesh94
observed that, “[t]he exit route
prescribed in Section 12A is not applicable to a Resolution Applicant.
The procedure envisaged in the said provision only applies to applicants
invoking Sections 7, 9 and 10 of the code”. However, this Court left the
question whether a successful Resolution Applicant “altogether forfeits
their right to withdraw from such process [CIRP] or not”, open for
subsequent judicial determination95.
139. In terms of Regulation 39(4), the RP shall endeavour to submit
the Resolution Plan approved by the CoC before the Adjudicating Authority
for its approval under Section 31 of the IBC, at least fifteen days before
the maximum period for completion of CIRP. Section 31(1) provides
that the Adjudicating Authority shall approve the Resolution Plan if it is
satisfied that it complies with the requirements set out under Section
30(2) of the IBC. Essentially, the Adjudicating Authority functions as a
94 (2020) 11 SCC 467
95 Para 29, Ibid.
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check on the role of the RP to ensure compliance with Section 30(2) of
the IBC and satisfies itself that the plan approved by the CoC can be
effectively implemented as provided under the proviso to Section 31(1)
of the IBC. Once the Resolution Plan is approved by the Adjudicating
Authority, it becomes binding on the Corporate Debtor and its employees,
members, creditors, guarantors and other stakeholders involved in the
Resolution Plan. Section 31(1) of the IBC is extracted below:
“Section 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, 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 authorities to whom statutory dues are
owed, guarantors and other stakeholders involved in the resolution
plan.
Provided that the Adjudicating Authority shall, before passing an
order for approval of resolution plan under this sub-section, satisfy
that the resolution plan has provisions for its effective
implementation.”
(emphasis supplied)
A contravention of a Resolution Plan binding under Section 31 is
punishable under Section 74 (3) of the IBC. Section 74 (3) of the IBC
provides thus:
“Section 74 - Punishment for contravention of moratorium or the
resolution plan
[….]
(3) Where the corporate debtor, any of its officers or creditors or
any person on whom the approved resolution plan is binding under
section 31, knowingly and wilfully contravenes any of the terms
of such resolution plan or abets such contravention, such corporate
debtor, officer, creditor or person shall be punishable with
imprisonment of not less than one year, but may extend to five
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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years, or with fine which shall not be less than one lakh rupees,
but may extend to one crore rupees, or with both.”
140. If the Resolution Plan is rejected by the Adjudicating
Authority, the Corporate Debtor goes into liquidation in accordance with
Section 33(1) of the IBC. The order of the Adjudicating Authority rejecting
a Resolution Plan and directing liquidation under Section 33 of the IBC
can be appealed only on the grounds of material irregularity or fraud, as
stipulated under Section 61(4) of the IBC. The order of the Adjudicating
Authority approving a Resolution Plan can be appealed before the NCLAT
under Section 61(3) of the IBC only on the grounds specified in that
section. The grounds of appeal are as follows:
“Section  61 - Appeals and Appellate Authority
[….]
(3) An appeal against an order approving a resolution plan under
section 31 may be filed on the following grounds, namely:—
(i) the approved resolution plan is in contravention of the provisions
of any law for the time being in force;
(ii) there has been material irregularity in exercise of the powers
by the resolution professional during the corporate insolvency
resolution period;
(iii) the debts owed to operational creditors of the corporate debtor
have not been provided for in the resolution plan in the manner
specified by the Board;
(iv) the insolvency resolution process costs have not been provided
for repayment in priority to all other debts;
or
(v) the resolution plan does not comply with any other criteria
specified by the Board.
(4) An appeal against a liquidation order passed under section 33,
or sub-section (4) of section 54L, or sub-section (4) of section
54N, may be filed on grounds of material irregularity or fraud
committed in relation to such a liquidation order.”
141. Under Regulation 39(5) of the CIRP Regulations, the RP is
required to send a copy of the order of the Adjudicating Authority accepting
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or rejecting the Resolution Plan on a ‘forthwith basis’. Regulation 39(5A)
specifies that within fifteen days of the date of the order of Adjudicating
Authority approving the Resolution Plan, the RP must inform each
claimant about the principle or formulae for the payment of debts under
the Resolution Plan.
142. As noted above, Section 12 of the IBC stipulates the timeline
within which the CIRP is to be completed. The RP on the instructions of
the CoC may make an application for extension of the CIRP. Regulation
40A of the CIRP Regulations provides a detailed model timeline for
CIRP which accounts for all the procedural eventualities that are
permitted by the statute and the regulations. Regulation 40A is extracted
below:
“40-A. Model time-line for corporate insolvency resolution
process.—The following Table presents a model timeline of
corporate insolvency resolution process on the assumption that
the interim resolution professional is appointed on the date of
commencement of the process and the time available is hundred
and eighty days:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

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EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
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Provisional List 
of RAs by RP 
Within 10 days 
from the last 
day of receipt 
of EoI 
T+100 
Submission of 
objections 
to 
provisional list 
For 
5 
days 
from the date 
of provisional 
list
T+105 
Final 
List of 
RAs by RP 
Within 10 days 
of the receipt 
of objections
T+115 
Regulation 36-B 
Issue of RFRP, 
including 
Evaluation 
Matrix and IM
Within 5 days 
of the issue of 
the provisional 
list
T+105

Receipt 
of 
Resolution 
Plans 
At 
least 
30 
days from issue 
of 
RFRP 
(Assume 
30 
days)
T+135 
Regulation 39(4) 
Submission of 
CoC approved 
Resolution Plan 
to AA
As 
soon 
as 
approved 
by 
the CoC 
T+165 
Section 31(1) 
Approval 
of 
resolution plan 
by AA
T=180 
AA: Adjudicating Authority; AR: Authorised Representative;
CIRP: Corporate Insolvency Resolution Process; CoC: Committee
of Creditors; EoI: Expression of Interest; IM: Information
Memorandum; IRP: Interim Resolution Professional; RA:
Resolution Applicant; RP: Resolution Professional; RFRP: Request
for Resolution Plan.”
143. The statutory framework governing the CIRP seeks to create
a mechanism for resolving insolvency in an efficient, comprehensive
and timely manner. The IBC provides a detailed linear process for
undertaking CIRP of the Corporate Debtor to minimize any delays,
uncertainty in procedure and disputes. The roles and responsibilities of
the important actors in the CIRP are clearly defined under the IBC and
its regulations. In Innoventive Industries Ltd v. ICICI Bank96 a
three judge Bench of this Court observed that “one of the important
objectives of the Code is to bring the insolvency law in India under a
96 (2018) 1 SCC 407, para 13.
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single unified umbrella with the object of speeding up of the insolvency
process”. Recently, in Gujarat Urja97 (supra) a three judge Bench of
this Court observed that a “delay in completion of the insolvency
proceedings would diminish the value of the debtor’s assets and hamper
the prospects of a successful reorganization or liquidation. For the success
of an insolvency regime, it is necessary that insolvency proceedings are
dealt with in a timely, effective and efficient manner”. The stipulation
of timelines and a detailed procedure under the IBC ensures a timely
completion of CIRP and introduces transparency, certainty and
predictability in the insolvency resolution process. The UNCITRAL Guide
also states that the insolvency law of a jurisdiction should be transparent
and predictable. It notes the value of such predictability in the following
terms98:
“11. An insolvency law should be transparent and predictable.
This will enable potential lenders and creditors to understand how
insolvency proceedings operate and to assess the risk associated
with their position as a creditor in the event of insolvency. This
will promote stability in commercial relations and foster lending
and investment at lower risk premiums. Transparency and
predictability will also enable creditors to clarify priorities, prevent
disputes by providing a backdrop against which relative rights and
risks can be assessed and help define the limits of any discretion.
Unpredictable
application of the insolvency law has the potential
to undermine not only the confidence of all participants in
insolvency proceedings, but also their willingness to make credit
and other investment decisions prior to insolvency. As far as
possible, an insolvency law should clearly indicate all provisions
of other laws that may affect the conduct of the insolvency
proceedings (e.g. labour law; commercial and contract law; tax
law; laws affecting foreign exchange, netting and set-off and debt
for equity swaps; and even family and matrimonial law).”
This Court should proceed with caution in introducing any element
in the insolvency process that may lead to unpredictability, delay and
complexity not contemplated by the legislature. With this birds’-eye view
of the framework of insolvency through the CIRP, we proceed to answer
the question of law raised in this judgement - whether a Resolution
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
97 (2021) SCC OnLine 194, para 71.
98 Page 13, UNCITRAL Guide, supra 56
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Applicant is entitled to withdraw or modify its Resolution Plan, once it
has been submitted by the Resolution Professional to the Adjudicating
Authority and before it is approved by the latter under Section 31(1) of
the IBC.
J
Withdrawal of the Resolution Plan by a successful
Resolution Applicant under the IBC
J.1 The absence of a legislative hook or a regulatory tether
to enable a withdrawal
144. The analysis of the statutory framework governing the CIRP
and periodic reports of the Insolvency Law Committee indicates that it
is a creditor-driven process. The aim of the process, in preferential order,
is to: first, enable resolution of the debt by 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 LLP99 and
Uttara Foods and Feeds (P) Ltd v. Mona Pharmachem100, (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 under Rule 8 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules 2016. In
Uttara Foods (supra) this Court had granted a one-time relief under
Article 142 of the Constitution since all the parties were present before
it and had presented it with signed consent terms. This course of action,
in refraining from the exercise of inherent powers to effect procedures
99 (2018) 15 SCC 589
100 (2018) 15 SCC 587
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and remedies that were not specifically envisaged by the statute, was
explicitly affirmed by the Insolvency Law Committee Report dated March
2018101 which proceeded to suggest amendments to the IBC and
recommended a ninety per cent voting threshold by the CoC for
withdrawals of a CIRP and a specific amendment to Rule 8 of the then
existing CIRP Rules to enable parties to file such applications. This report
led to the insertion of Section 12A which vested the CoC with the power
to withdraw the CIRP or vote on such withdrawal, if sought by the
Corporate Debtor. This provision was introduced with retrospective
effect on 6 June 2018. Significantly, no such exit routes have been
contemplated for the Resolution Applicant. It is relevant to note that the
newly inserted and then unamended Regulation 30A (w.e.f. 4 July 2018)
of the CIRP Regulations stipulated that withdrawal under Section 12A
can be allowed through submitting an application to the IRP or RP (as
the case maybe) before the invitation for EOI is issued to the public.
The CoC was to consider the application within seven days of its
constitution and an approval for such application required approval of
the ninety per cent of the voting share of the CoC. However, on 14
December 2018, a two judge Bench of this Court, held in Brilliant Alloys
(P) Ltd v. S Rajagopal102 that Regulation 30A is directory, and not
mandatory in nature since Section 12A of the IBC does not stipulate a
deadline by which a
withdrawal from the CIRP can be made. Thus, in
exceptional cases withdrawals from the CIRP under Section 12A of
IBC could be permitted even after the invitation of EOI has been issued.
Regulation 30A of the CIRP Regulations was then amended by the IBBI
(Insolvency Resolution Process for Corporate Persons) (Second
Amendment) Regulations 2019, w.e.f. 25 July 2019 to reiterate the decision
of this Court. The newly amended provision allows for withdrawals even
after the invitation for expression of interest has been issued, provided
that the applicant 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
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
101 Pages 5 and 101, Report of the Insolvency Law Committee, Ministry of Corporate
Affairs (March 2018) available at < https://ibbi.gov.in/uploads/resources/
ILRReport2603_03042018.pdf > accessed on 20 August 2021
102 (2018) SCC OnLine SC 3154
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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 behalf of
the applicant within three days of the receipt. Alternatively, if the
application for withdrawal is made after the constitution of the CoC,
such application will be considered by the CoC within seven days of its
receipt. If the CoC approves such an application with ninety per cent
voting share, it is to be submitted to the Adjudicating Authority within
three days of approval. Further, the application for withdrawal has to be
accompanied by a bank guarantee towards estimated expenses relating
to costs of the IRP (in case of a withdrawal prior to constitution of the
CoC) or insolvency resolution process costs (where withdrawal is after
constitution of the CoC). It is clear that withdrawal of the CIRP is allowed
only if it upholds the interests of the CoC, is time-bound, and takes into
consideration how the expenses relating to the insolvency process up to
withdrawal shall be borne. Thus, even the exit under Section 12A of the
CoC, which is not available to the Resolution Applicant, is regulated by
procedural provisions indicating that the legislature has applied its mind
to the timelines and costs involved in the CIRP. Pertinently, the regulations
do not provide for any costs that are payable to the prospective Resolution
Applicants or a successful Resolution Applicant, who must have incurred
a significant expense in participating in the process. This Court, in
Maharashtra Seamless (supra) had denied relief to a Resolution
Applicant who had sought to invoke Section 12A to resile from its
Resolution Plan. The nature of the statute indicates the clarity of its
purpose – primacy of the interests of the creditors who are seeking to
cut their losses through a CIRP. Traditional models and understandings
of equity or fairness that seek reliefs which are misaligned with the
goals of the statute and upset the economic coordination envisaged
between the parties, cannot be read into the statute through judicial
interpretation. While parties have the freedom to negotiate certain
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commercial terms of the Resolution Plan to gain wide support, their
ability to negotiate is circumscribed by the governing statute. A court
cannot interpret the negotiated arrangements that are represented in the
Resolution Plan in a manner that hampers the objectives of the IBC
which is a speedy, predictable and timely resolution. The Resolution
Applicant is deemed to be aware of the IBC and 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 Sashidhar103 (supra), prohibiting the Adjudicating
Authority from second-guessing the commercial wisdom of the
parties
or directing unilateral modification to the Resolution Plans104. These are
binding precedents. Absent a clear legislative provision, this court will
not, by a process of interpretation, confer on the Adjudicating Authority
a power to direct an unwilling CoC to re-negotiate a submitted Resolution
Plan or agree to its withdrawal, at the behest of the Resolution Applicant.
The Adjudicating Authority can only direct the CoC to re-consider certain
elements of the Resolution Plan to ensure compliance under Section
30(2) of the IBC, before exercising its powers of approval or rejection,
as the case may be, under Section 31105. In Government of Andhra
Pradesh v. P Laxmi Devi106, while determining the constitutionality of
a statute, this Court observed that it should be wary of transgressing into
the domain of the legislature, especially in matters relating to economic
and regulatory legislation. This Court observed:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
103 Para 62, supra note 35
104 Paras 64-73, supra note 35
105 Para 73, Essar Steel supra note 34
106 (2008) 4 SCC 720
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“80. As regards economic and other regulatory legislation judicial
restraint must be observed by the court and greater latitude must
be given to the legislature while adjudging the constitutionality of
the statute because the court does not consist of economic or
administrative experts. It has no expertise in these matters,
and in this age of specialisation when policies have to be
laid down with great care after consulting the specialists in
the field, it will be wholly unwise for the court to encroach
into the domain of the executive or legislative (sic
legislature) and try to enforce its own views and
perceptions.”
(emphasis supplied)
146. Judicial restraint must not only be exercised while adjudicating
upon the constitutionality of the statute relating to economic policy but
also in matters of interpretation of economic statutes, where the
interpretative maneuvers of the Court have an effect of transgressing
into the law-making power of the legislature and disturbing the delicate
balance of separation of powers between the legislature and the judiciary.
Judicial restraint must be exercised in such cases as a matter of prudence,
since the court neither 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
which would cause the delay that the IBC seeks to disavow.
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147. The IBC is silent on whether a successful Resolution
Applicant can withdraw its Resolution Plan. However, the statutory
framework laid down under the IBC and the CIRP Regulations provide
a step-by-step procedure which is to be followed from the initiation of
CIRP to the approval by the Adjudicating Authority. Regulation 40A
describes a model-timeline for the CIRP that accounts for every
eventuality that may arise between the commencement of the CIRP
and approval of the Resolution Plan by the Adjudicating Authority,
including the different stages for pressing a withdrawal of the CIRP
under Section 12A. Even a modification to the RFRP is envisaged by
the CIRP Rules and is subject to a timeline. The absence of any exit
routes being stipulated under the statute for a successful Resolution
Applicant is indicative of the IBC’s proscription of any attempts at
withdrawal at its behest. The rule of casus omissus is an established
rule of interpretation, which provides that an omission in a statute cannot
be supplied by judicial construction. Justice GP Singh in his authoritative
treatise, Principles of Statutory Interpretation107, defines the rule of
casus omissus as:
“It is an application of the same principle that a matter which
should have been, but has not been provided for in a statute
cannot be supplied by courts, as to do so will be legislation
and not construction. But there is no presumption that a casus
omissus exists and language permitting the
court should avoid
creating a casus omissus where there is none.”
(emphasis supplied)
The treatise further discusses that a departure from this rule is
only allowed in cases where words have been accidently omitted or the
omission has an effect of making any part of the statute meaningless.
Further, only such words can be supplied to the statute which would
have certainly been inserted by the Parliament, had the omission come
to its notice. The relevant paragraph is extracted below:
“As already noticed it is not allowable to read words in a statute
which are not there, but “where the alternative lies between either
supplying by implication words which appear to have been
accidentally omitted, or adopting a construction which deprives
certain existing words of all meaning, it is permissible to supply
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
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the words”. A departure from the rule of literal construction may
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 for a
carve-out for the purpose of defaults arising during the suspended period.
The delays on account of the lockdown were also mitigated by the IBBI
(Insolvency Resolution
Process for Corporate Persons) (Third
Amendment) Regulations 2020, which inserted Regulation 40C on 20
April 2020, with effect from 29 March 2020, and excluded such delays
for the purposes of adherence to the otherwise strict timeline. Recently,
the IBC (Amendment) Ordinance 2021 was promulgated with effect
from 04 April 2021 providing certain directions to preserve businesses
of MSMEs and a fast-track insolvency process. There has been a clamor
on behalf of successful Resolution Applicants who no longer wish to
abide by the terms of their submitted Resolution Plans that are pending
approval under Section 31, on account of the economic slowdown that
impacted every business in the country. However, no legislative relief
for enabling withdrawals or re-negotiations has been provided, in the
last eighteen months. In the absence of any provision under the IBC
allowing for withdrawal of the Resolution Plan by a successful Resolution
Applicant, vesting the Resolution Applicant with such a relief through a
process of judicial interpretation would be impermissible. Such a judicial
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exercise would bring in the evils which the IBC sought to obviate through
the back-door.
148. It is pertinent to note that even the UNCITRAL Guide does
not contain any provisions for withdrawal of a submitted Plan. It only
discusses the possibilities of amending a Resolution Plan. The
UNCITRAL Guide indicates that it contemplates that the Legislature
should choose if it wants to allow any amendments to a submitted
Resolution Plan. In the event, it does, it should lay down the detailed
steps of proposing amendments to a submitted resolution plan108. In fact,
even the scope of negotiations between the Resolution Applicant and
the CoC has to be specifically envisaged by the statute109. Further, the
UNCITRAL Guide envisages that amendments can be made to the
Resolution Plan after it is approved by the creditors only in limited
circumstances. It mentions that, “[a]n insolvency law may include limited
provision for a plan to be modified after it has been approved by creditors
(and both before and after confirmation) if its implementation breaks
down or it is found to be incapable of performance, whether in whole or
in part, and the specific problem can be remedied”110. If permitted by
the statute, the recommendations strongly urge the establishment of a
mechanism for amendment after approval by creditors which details
requirements of, inter alia, approval by creditors of the modification
and consequences of failure to secure approval to the amendments111.
The
BLRC Report has relied on the UNCITRAL Guide while designing
the IBC112 and it is a critical tool for ascertaining legislative choice and
intent. Parliament has not introduced an explicit provision under the IBC
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
108 IV.A.52., page 225, and Recommendation 155: “155. The insolvency law should
permit amendment of a plan and specify the parties that may propose amendments and
the time at which the plan may be amended, including between submission and approval,
approval and confirmation, after confirmation and during implementation, where the
proceedings remain open.” of the UNCITRAL Guide, supra note 56
109 Ibid.
110  IV. A. 66, page 230 of the UNCITRAL Guide, supra note 56
111 Recommendation 156: “The insolvency law should establish the mechanism for
approval of amendments to a plan that has been approved by creditors. That mechanism
should require notice to be given to the creditors and other parties affected by the
proposed modification; specify the party required to give notice; require the approval
of creditors and other parties affected by the modification; and require the rules for
confirmation (where confirmation is required) to be satisfied. The insolvency law
should also specify the consequences of failure to secure approval of proposed
amendments.”, UNCITRAL Guide, supra note 56
112 3.3.1, supra note 55
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for allowing any amendment of the Resolution Plan after approval of
creditors, let alone a power to withdraw the Resolution Plan at that
stage. At the same time, the Corporate Debtor and the CoC have been
empowered to withdraw from the CIRP. If it intended to permit parties
to amend the Resolution Plan after submission to the Adjudicating
Authority, based on its specific terms of the Resolution Plan, it would
have adopted the critical safeguards highlighted by the UNCITRAL.
J.2
Terms of the Resolution Plan are not sufficient to
effect withdrawals or modifications after its submission
to the Adjudicating Authority
149. It has been contended by the three appellants that a Resolution
Plan only becomes binding when it is approved by the Adjudicating
Authority under Section 31(1) of the IBC. Further, since Section 74(3)
of the IBC, provides that a person can be prosecuted or punished for
contravening the Resolution Plan only after its approval by the
Adjudicating Authority, the successful Resolution Applicant is entitled to
withdraw the Plan, on the terms of its contractual provisions, as long as
it is not made binding under Section 31(1) of the IBC. We have held in
Section H that a CoC-approved Resolution Plan is a creature of the IBC
and cannot be construed as a pure contract between two consenting
parties, prior to its approval under Section 31 of the IBC. In this section,
independent of the above finding, we proceed
to examine the contention
that the terms of a Resolution Plan can reserve the right to modify or
withdraw its contents after submission to the Adjudicating Authority.
150. The approval of the Adjudicating Authority under Section
31(1) of the IBC has the effect of making the Resolution Plan binding on
all stakeholders. These stakeholders include the employees of the
corporate debtor whose terms of employment would be governed by the
Resolution Plan, the Central and State Governments who would receive
their tax dues on the basis of the terms of the Resolution Plan and local
authorities to whom dues are owed. These stakeholders are not direct
participants in the CIRP but are bound by its consequence by virtue of
the approval of the Resolution Plan, under Section 31(1) of the IBC.
Section 31(1) ensures that the Resolution Plan becomes binding on all
stakeholders after it is approved by the Adjudicating Authority. The
language of Section 31(1) cannot be construed to mean that a Resolution
Plan is indeterminate or open to withdrawal or modification until it is
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approved by the Adjudicating Authority or that it is not binding between
the CoC and the successful Resolution Applicant. Regulation 39(4) of
CIRP Regulations mandates that the RP should endeavour to submit the
Plan at least fifteen days before the statutory period of the CIRP under
Section 12 is due to expire along with a receipt of a PBG and a compliance
certificate as Form H. It is pertinent to note that sub-Section (3) to
Section 12 mandates that the CIRP process, including legal proceedings,
must be concluded within 330 days. This three-hundred-and-thirty-day
period can be extended only in exceptional circumstances, if the process
is at near conclusion and serves the object of the IBC, as held by a three
judge Bench of this Court in Essar Steel (supra). Therefore, after
accounting for all statutorily envisaged delays which the RP has to explain
in its Form H and otherwise through Regulation 40B, the procedure
envisages a fifteen-day window between submission of Resolution Plan
and its approval or rejection by the Adjudicating Authority. This clearly
indicates that the statute envisages a certain level of finality before the
Resolution Plan is submitted for approval to the Adjudicating Authority.
Even the CoC is not permitted to approve multiple Resolution Plans or
solicit EOIs after submission of a Resolution Plan to the Adjudicating
Authority, which would possibly be in contemplation if the Resolution
Applicant was permitted to withdraw from, or
modify, the Plan after
acceptance by the CoC. Regulation 36B(4A) requires the furnishing of
a performance security which will be forfeited if a Resolution Applicant
fails to implement the Plan. This is collected before the Adjudicating
Authority approves the Plan. Notably, the regulations also direct forfeiture
of the performance security in case the Resolution Applicant “contributes
to the failure of implementation”, which could potentially include any
attempts at withdrawal of the Plan.
151. The report of the BLRC also notes that the negotiations in
the CIRP must be time bound and it envisages that one of the ways in
which the CIRP comes to a close is that the RP is able to obtain a
binding agreement from the CoC113. Such a binding agreement is placed
before the Adjudicating Authority, which orders the closure of the CIRP.
If the Adjudicating Authority does not receive a binding agreement, it
can send the Corporate Debtor into liquidation. The relevant paragraphs
are extracted below:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
113 5.3.4, BLRC Report, supra note 55
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“5.3.4 Rules to close the IRP
The Committee agrees that it is critical for the Code to preserve
the time value of the entity by ensuring that negotiations in the
IRP are time bound. The Code states that the IRP has a default
maximum time limit that is strictly adhered to, regardless of whether
the creditors committee has identified a solution. On the other
side, the Committee is also of the view that, if a solution can be
identified within a shorter time frame, the process must
accommodate closing the IRP in a shorter time period also. The
Committee proposes that the IRP can come to a close in
either of two ways. Either the RP is able to get a binding
agreement from the majority of the creditors committee or
the calm period reaches the default maximum date set by the
Adjudicator at the start of the IRP. If either condition is met, the
Adjudicator will issue an order to close the IRP. However, the
orders will vary depending upon the condition. If the RP submits
a binding agreement to the Adjudicator before the default
maximum date, then the Adjudicator orders the IRP case
to be closed. If the Adjudicator does not receive a binding
agreement by this date, the Adjudicator issues an order to
close the IRP case along with an order to liquidate the
entity.”
(emphasis supplied)
152. The binding nature, as between the CoC and the successful
Resolution Applicant, of the Resolution Plan submitted for approval by
the
Adjudicating Authority is further evidenced from the fact that the
CoC issues a LOI to a successful Resolution Applicant stating that it has
been selected as the successful Resolution Applicant and its Plan would
be submitted to the Adjudicating Authority for its approval. The successful
Resolution Applicant is typically required to accept the LOI unconditionally
and submit a PBG. Sequentially, the issuance of an LOI is followed by
its unconditional acceptance by the successful Resolution Applicant. In
Amtek Auto (supra), this court thwarted a similar attempt by a successful
Resolution Applicant who had relied on certain open-ended clauses in its
Resolution Plan to seek a direction compelling the CoC to negotiate a
modification to its Resolution Plan. The Resolution Plan had been
approved by the Adjudicating Authority and the Resolution Applicant’s
IA was not entertained. The Resolution Applicant had then sought to
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challenge the approval of the Resolution Plan under Section 61(3) of the
IBC by seeking the same relief. This Court rejected the claim and
observed that, “[t]o assert that there was any scope for negotiations
and discussions after the approval of the resolution plan by the CoC
would be plainly contrary to the terms of the IBC”.
153. Regulation 38(3) mandates that a Resolution Plan be feasible,
viable and implementable with specific timelines. A Resolution Plan whose
implementation can be withdrawn at the behest of the successful
Resolution Applicant, is inherently unviable, since open-ended clauses
on modifications/withdrawal would mean that the Plan could fail at an
undefined stage, be uncertain, including after approval by the Adjudicating
Authority. It is inconsistent to postulate, on the one hand, that no
withdrawal or modification is permitted after the approval by the
Adjudicating Authority under Section 31, irrespective of the terms of the
Resolution Plan; and on the other hand, to argue that the terms of the
Resolution Plan relating to withdrawal 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.
154. If the appellants’ claim were to succeed, a clause enabling a
Resolution Applicant to withdraw/seek modification for reasons such as
a ‘Material Adverse Event’ could also be set up by a Resolution Applicant
when it is being prosecuted under Section 74 (3). It was contended
before us that Form H, which is a compliance certificate that is to be
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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submitted by the RP to the Adjudicating Authority along with the
Resolution Plan, mentions that the RP can enter details as to whether
the Resolution Plan is subject to any conditionalities under Clause 12.
Thus, the argument goes that this permits the Resolution Applicant to
stipulate in the Resolution Plan certain contingencies under which it can
withdraw the Plan, for instance if there is an occurrence of an ‘Material
Adverse Event’. A form is subservient to the statute. The conditionalities
contemplated in Form H could be those which do not strike at the root of
the IBC. They can include commercial conditions and business
arrangements with the CoC. However, conditions for withdrawal or re-
negotiation of the Resolution Plan cannot pass the test of ‘viability’ and
‘implementability’ as they would make the resolution process
indeterminate and unpredictable. A two judge Bench of this Court in
K Sashidhar (supra), while discussing the jurisdiction of the Adjudicating
Authority under Section 31 to evaluate a Resolution Plan, has observed
that the Resolution Plan should “be an overall credible plan, capable of
achieving timelines specified in the Code generally, assuring successful
revival of the corporate debtor and disavowing endless speculation”114.
Section 30(2)(d) of the IBC and Regulation 38 of the CIRP Regulations
also provide that the Resolution Plan should be implementable. In the
absence of specific statutory
language allowing for withdrawals or even
modifications by the successful Resolution Applicant, it would be difficult
to imply the existence of such an option based on the terms of the
Resolution Plan, irrespective of, and especially when they do not form a
part of Clause 12 in Form H, as is the case in all the three Resolution
Plans that are in dispute in this present appeal.
155. The Insolvency and Bankruptcy Law Committee in its report
released in March 2018115 noted that many conditional Resolution Plans
were being approved by the Adjudicating Authority on account of the
uncertainty on statutory clearances, such as by the Competition
Commission of India, and the approval by the Adjudicating Authority
was being regarded as a “single window approval”. This was in
contravention of the intent of the IBC. The relevant extracts of the
report are reproduced below:
“16.1 Regulation 37(l) of the CIRP Regulations states that a
resolution plan shall provide for obtaining necessary approvals
114 Para 60 supra note 35
115 supra note 100
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from the Central and State Governments and other authorities.
However, the timeline within which such approvals are required
to be obtained, once a resolution plan has been approved by the
NCLT, has not been provided in the Code or the CIRP Regulations.
The Committee deliberated that as the onus to obtain the final
approval would be on the successful resolution applicant as per
the resolution plan itself, the Code should specify that the timeline
will be as specified in the relevant law, and if the timeline for
approval under the relevant law is less than one year from the
approval of the resolution plan, then a maximum of one year will
be provided for obtaining the relevant approvals, and section 31
shall be amended to reflect this.
16.2 Further, the Committee noted that there is no provision
in the Code on the requirement to obtain an indication on
the stance of the concerned regulators or authorities, if
required, on the resolution plan prior to the resolution plan
being approved by the NCLT. It was brought to the
attention of the Committee that this was resulting in several
conditional resolution plans being approved by the NCLT,
and that the approval by the NCLT was being regarded as
a ‘single window approval.’ This not being the intent of the
Code, the Committee deliberated on introduction of a
mechanism for obtaining preliminary observations from the
concerned regulators and authorities in relation to a
resolution plan approved by the CoC and
submitted to the
NCLT for its approval, but prior to the NCLT’s approval.”
(emphasis supplied)
The Insolvency and Bankruptcy Law Committee in its report dated
February 2020116 stated that the current practice of obtaining
governmental approvals after the approval of the Resolution Plan has
created an uncertainty about the implementation of the Resolution Plan.
The committee suggested that this uncertainty can be mitigated if
amendments are made to the IBC to provide that once the Resolution
Plan is approved by the CoC, it will be shared with the governmental
and regulatory authorities, for approvals that are necessary for running
the business of the Corporate Debtor. If no objections are raised within
forty-five days, it would be deemed that they have granted an approval.
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
116 supra note 90
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If objections are raised or conditional approvals are granted, the
Resolution Applicant should attempt to clear the objections or meet the
conditions before placing the Resolution Plan before the Adjudicating
Authority. This Plan would thereafter be placed before the Adjudicating
Authority for its approval. The committee further suggested that this
timeline of forty-five days should be excluded from calculating the
timelines under Section 12 of the IBC. The relevant extract is reproduced
below:
“14.8. To enable approvals or no-objections to be taken within the
scheme of the Code, the Committee decided that amendments
should be made to the Code such that once a resolution plan is
approved by the CoC, it should be sent to all concerned
government and regulatory authorities whose approvals are
core to the continued running of the business of the
corporate debtor, for their approvals or objections. If they
do not raise their objections within forty-five days, they will
be deemed to have no objections. This plan would then be
placed before the Adjudicating Authority for its approval.
If the government and regulatory agencies raise any
objections or grant conditional approvals, the resolution
applicant can attempt to clear the objections or meet the
conditions for approval before placing the plan for the
approval of the Adjudicating Authority, where this can be
done within the time limit provided under Section 12.
However,
where this is not possible, the plan may still be placed
before the Adjudicating Authority for its approval, and the
successful resolution applicant should clear the objections or comply
with the conditions for approval within a period of one year from
the approval of the resolution plan.
14.9. To ensure that this aligns with the time-line for
resolution provided in the Code, the Committee
recommended that the window of forty-five days given to
government and regulatory agencies should be excluded
from the computation of the time limit under Section 12 of
the Code. Although some members of the Committee were of
the view that this time-line should ideally run concurrently with
the CIRP period, the Committee felt that this exclusion would be
justified since it would streamline the process of gaining government
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approvals considerably, which would lead to more value maximising
resolutions, offsetting value lost, if any, in this forty-five day period
in which the corporate debtor will be run as a going concern.”
(emphasis supplied)
The aim to tighten timelines for receiving regulatory approvals
through the provision of in-principal approvals, prior to the approval of
the Adjudicating Authority, indicates that the statutory framework under
the IBC has consistently attempted to avoid situations which may
introduce unpredictability in the insolvency resolution process and has
sought to make the process as linear as it can be. Further, the
recommendations made in the Insolvency Law Committee Report of
February 2020117 discussed above indicate that the aim is to ensure that
the Resolution Plan placed before the Adjudicating Authority should reach
a certain finality, even in the context of governmental approvals. A
conditionality which allows for further negotiations, modification or
withdrawal, once the Resolution Plan is approved by the CoC would
only derail the time-bound process envisaged under the IBC.
156. Regulation 40A envisages a model-time line for the CIRP.
Any deviation from this timeline needs to be specifically explained by
the RP in Clause 10 of Form H. Regulation 40B imposes a time-limit on
the RP for filing the requisite forms at different stages of the CIRP,
including forms seeking extensions on account of delays at any stage.
The failure to fill these
forms within the stipulated deadline results in
disciplinary action against the RP by the IBBI. Further, as discussed in
Section I of the judgement, various mandatory timelines have been
imposed for undertaking specific actions under the CIRP. If the legislature
intended to allow withdrawals or subsequent negotiations by successful
Resolution Applicants, it would have prescribed specific timelines for
the exercise of such an option. The recognition of a power of withdrawal
or modification after submission of a CoC-approved Resolution Plan, by
judicial interpretation, will have the effect of disturbing the statutory
timelines and delaying the CIRP, leading to a depletion in the value of the
assets of a Corporate Debtor in the event of a potential liquidation. Hence,
it is best left to the wisdom of the legislature, based on the experiences
gained from the working of the enactment, to decide whether the option
of modification or withdrawal at the behest of the Resolution Applicant
should be permitted after submission to the Adjudicating Authority; if so,
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
117 supra note 90
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the conditions and the safeguards subject in which it can be allowed and
the statutory procedure to be adopted for its exercise.
157. Based on the plain terms of the statute, the Adjudicating
Authority lacks the authority to allow the withdrawal or modification of
the Resolution Plan by a successful Resolution Applicant or to give effect
to any such clauses in the Resolution Plan. Unlike Section 18(3)(b) of
the erstwhile SICA which vested the Board for Industrial and Financial
Reconstruction with the power to make modifications to a draft scheme
for sick industrial companies, the Adjudicating Authority under Section
31(2) of the IBC can only examine the validity of the plan on the anvil of
the grounds stipulated in Section 30(2) and either approve or reject the
plan. The Adjudicating Authority cannot compel a CoC to negotiate
further with a successful Resolution Applicant. A rejection by the
Adjudicating Authority is followed by a direction of mandatory liquidation
under Section 33. Section 30(2) does not envisage setting aside of the
Resolution Plan because the Resolution Applicant is unwilling to execute
it, based on terms of its own Resolution Plan.
158. Further, no such power can be vested with the Adjudicating
Authority under its residuary jurisdiction in terms of Section 60 (5)(c). In
a decision of a three judge Bench of this Court in Gujarat Urja (supra),
it was held that, “the NCLT’s residuary jurisdiction
[under Section
60(5)(c)] though wide, is nonetheless defined by the text of the IBC.
Specifically, the NCLT cannot do what the IBC consciously did not
provide it the power to do”. Further, the court observed that “this Court
must adopt an interpretation of the NCLT’s residuary jurisdiction which
comports with the broader goals of the IBC”118. The effect of allowing
the Adjudicating Authority to permit withdrawals of resolution plans that
are submitted to it, would be to confer it with a power that is not envisaged
by the IBC and defeat the objectives of the statute, which seeks a timely
and predictable insolvency resolution of Corporate Debtors.
159. After the amendment to Section 12 in 2019 which mandate a
330 days outer-limit for conclusion of the CIRP (which can be breached
only under exceptional circumstances as held in Essar Steel (supra)), it
would be antithetical to the purpose of the IBC to allow the Adjudicating
Authority to use its plenary powers under Section 60(5)(c) to potentially
extend these timelines to enable the CoC to either issue a fresh RFRP if
118 Para 163-164, supra note 38
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the Resolution Plan is withdrawn by a successful Resolution Applicant
or direct further negotiations with the Resolution Applicant who is seeking
a modification of the plan, whose failure could result in withdrawal as
well. The likely consequence of a withdrawal by a successful Resolution
Applicant after going through the stages of the CIRP for nearly 180
days (provided all statutory timelines have been strictly followed) would
inevitably be a delayed liquidation after the value of the assets has further
depreciated. In the event of intervening delays on account of litigation or
otherwise, the delay would be even more severe. If a CoC, could be
compelled by the Adjudicating Authority to negotiate with the successful
Resolution Applicant, it would have to resign itself to a commercial bargain
at a much lower value. If Parliament intended to permit such withdrawals/
modifications sought by successful Resolution Applicants as being
beneficial to the economic policy, which it has sought to pursue while
enacting the IBC, it would have prescribed timelines for setting the clock-
back or directing immediate liquidation if the withdrawals occur after a
certain period. For instance, under Regulation 36B (5) any modification
to the RFRP or the evaluation matrix is deemed as a fresh issue of the
RFRP and the timeline for submission of Resolution Plan starts afresh.
Parliament has not legislated to provide for the eventuality argued by the
appellants.
160. Permitting
the Adjudicating Authority to exercise its residuary
powers under Section 60(5) to allow for further modifications or
withdrawals at the behest of the successful Resolution Applicant, would
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”119.
K Factual Analysis
161. We have held in Section H of this judgement that Resolution
Plans are not in a nature of a traditional contract per se, and the process
leading up to their formulation and acceptance by the CoC is
comprehensively regulated by the insolvency framework. In Section J,
we have further held that the IBC framework, does not enable
withdrawals or modifications of Resolution Plans, once they have been
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
119 Para 68-69, supra note 34
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submitted by the RP to the Adjudicating Authority after their approval by
the CoC. In any event, and without affecting the legal position formulated
above, we will also deal with the submissions of the parties that the
contractual terms of their respective Resolution Plans enabled withdrawal
or re-negotiation of terms. We will be undertaking an analysis on whether
the individual Resolution Applicants before us had specifically negotiated
with the respective CoCs for a right of modification or withdrawal and
are contractually entitled to the same in the present case.
K.1 The Ebix Appeal
162. Before we begin our analysis on the factual matrix pertaining
to Ebix’s Appeal, we must deal with the preliminary issue alleged by the
respondents during the course of the Ebix Appeal- whether the Third
Withdrawal Application by Ebix was barred by res judicata; while this
will not have a bearing on the final outcome of the appeal, we shall
analyze it briefly.
K.1.1 Res Judicata
163. To begin our inquiry, it is important to first consider the
contours of the principle of res judicata. In Indian law, the principle has
been recognized in Section 11 of the Code of Civil Procedure 1908.
Section 11, in so far as is relevant, reads as follows:
“11. Res judicata.—No Court shall try any suit or issue in which
the matter directly and substantially in issue has been directly and
substantially in issue in a former suit between the same
parties, or
between parties under whom they or any of them claim, litigating
under the same title, in a Court competent to try such subsequent
suit or the suit in which such issue has been subsequently raised,
and has been heard and finally decided by such Court.
[…]
Explanation IV.—Any matter which might and ought to have been
made ground of defence or attack in such former suit shall be
deemed to have been a matter directly and substantially in issue
in such suit.
Explanation V.—Any relief claimed in the plaint, which is not
expressly granted by the decree, shall, for the purposes of this
section, be deemed to have been refused.
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[…]”
164. In Satyadhyan Ghosal v. Deorajin Debi120, a three judge
Bench of this Court, speaking through Justice KC Das Gupta, explained
the doctrine of res judicata in the following terms:
“7. The principle of res judicata is based on the need of giving a
finality to judicial decisions. What it says is that once a res is
judicata, it shall not be adjudged again. Primarily it applies as
between past litigation and future litigation. When a matter —
whether on a question of fact or a question of law — has been
decided between two parties in one suit or proceeding and the
decision is final, either because no appeal was taken to a higher
court or because the appeal was dismissed, or no appeal lies,
neither party will be allowed in a future suit or proceeding between
the same parties to canvass the matter again. This principle of res
judicata is embodied in relation to suits in Section 11 of the Code
of Civil Procedure; but even where Section 11 does not apply, the
principle of res judicata has been applied by courts for the purpose
of achieving finality in litigation. The result of this is that the original
court as well as any higher court must in any future litigation
proceed on the basis that the previous decision was correct.”
From the above extract, it is clear 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.
165. Before proceeding further,
it is important to compare the
reliefs sought by Ebix in the First, Second and Third Withdrawal
Applications. They have been tabulated below, for an easy comparison:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
120 (1960) 3 SCR 590
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iii. Withhold approval of the 
Resolution Plan sanctioned by 
the Committee of Creditors of 
the Corporate Debtor, as filed 
before this Hon'ble Tribunal on 
11.04.2018, pending detailed 
consideration of the same by 
the Resolution Applicant; 
iv. 
Grant 
the 
Resolution 
Applicant sufficient time to re-
evaluate 
its 
proposals 
contained in the Resolution 
Plan, and also to suitably 
revise/modify and/or withdraw 
its Resolution Plan; 
of Creditors to refund the 
Earnest Money Deposit of Rs. 
2,00,00,000/- furnished by the 
Resolution Applicant in respect 
of the Resolution Plan; 
iii. Withhold approval of the 
Resolution Plan sanctioned by 
the Committee of Creditors of 
the Corporate Debtor, as filed 
before this Hon'ble Tribunal on 
07.03.2018 and recorded vide 
order 
dated 
1.1.04.2018, 
pending detailed consideration 
of the same by the Resolution 
Applicant; 
of Creditors to refund the 
Earnest Money Deposit of Rs. 
2,00,00,000/- furnished by the 
Resolution Applicant in respect 
of the Resolution Plan; 
iii. Withhold approval of the 
Resolution Plan sanctioned by 
the Committee of Creditors of 
the Corporate Debtor, as filed 
before this Hon'ble Tribunal on 
07.03.2018 and recorded vid 
order 
dated 
11.04.2018, 
pending detailed consideration 
of the same by the Resolution 
Applicant; 
From the above table, it is clear that the prayers in the Second
and Third Withdrawal Applications were identical.
Further, prayer (iii)
of both corresponds to prayer (iii) of the First Withdrawal Application, in
almost identical terms, while prayer (ii) was not present in the First
Withdrawal Application at all. At the same time, prayers (i) and (ii) in the
First Withdrawal Application have not been repeated in the Second and
Third Withdrawal Applications. However, what is at issue is prayer (iv)
of the First Withdrawal Application and prayer (i) of the Second and
Third Withdrawal Applications. Through the former, Ebix sought
permission to re-evaluate its Resolution Plan and to suitably “revise/
modify and/or withdraw” it, while through the latter, Ebix sought permission
to withdraw its Resolution Plan. Now we must analyse whether this
would attract the principle of res judicata.
166. In a judgment of this Court in Sheodan Singh v. Daryao
Kunwar121, a four judge Bench of this Court elaborated on the various
conditions which must be satisfied before the doctrine of res judicata
can apply in a given case. Justice KN Wanchoo, speaking for the Court,
held:
“9. A plain reading of Section 11 shows that to constitute a matter
res judicata, the following conditions must be satisfied, namely—
(i) The matter directly and substantially in issue in the
subsequent suit or issue must be the same matter which
was directly and substantially in issue in the former suit;
(ii) The former suit must have been a suit between the same
parties or between parties under whom they or any of them
claim;
121 (1966)
3 SCR 300
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(iii) The parties must have litigated under the same title in the
former suit;
(iv) The court which decided the former suit must be a court
competent to try the subsequent suit or the suit in which such
issue is subsequently raised; and
(v) The matter directly and substantially in issue in the
subsequent suit must have been heard and finally decided
by the court in the first suit…”
(emphasis supplied)
167. In the present case, conditions (i) is not in dispute since the
parties were the same. As regards (ii), in the First Withdrawal Application,
the prayer was to enable Ebix to re-evaluate its proposals and to revise/
modify and also withdraw its Resolution Plan. A prayer for withdrawal
of the Resolution Plan was raised in the Second and Third Withdrawal
Applications. Conditions (iii) and (iv) are also not in issue. What remains
to be assessed is compliance with condition (v), i.e., whether Ebix’s
prayer in the First Withdrawal was in fact “heard and decided finally”.
While dismissing the First Withdrawal Application, the NCLT had held:
“This is an application filed by one Ebix Singapore Ptd. Limited
seeking re-valuation of the Resolution Plan submitted by it before
the Resolution Professional.
No ground for considering the prayer sought in the application is
made out.
The application is dismissed as such.”
NCLT dismissed the First Withdrawal Application in a summary
manner. Further, the order does not make mention of the prayer to “revise/
modify and/or
withdraw” of the Resolution Plan, but only refers to its
re-evaluation.
168. The meaning of the phrase “heard and finally decided” was
considered by a judgment of a two judge Bench of this Court in Krishan
Lal v. State of J&K122, where it was held that the matter must have
been heard on merits to have been “heard and finally decided”. Justice
BL Hansaria, speaking for the Court, held:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
122 (1994) 4 SCC 422
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“12. Insofar as the second ground given by the High Court
— the same being bar of res judicata — it is clear from
what has been noted above, that there was no decision on
merits as regards the grievance of the appellant; and so,
the principle of res judicata had no application. The mere
fact that the learned Single Judge while disposing of the Writ
Petition No. 23 of 78 had observed that:
“This syndrome of errors, omissions and oddities, cannot be
explained on any hypothesis other than the one that there is
something fishy in the petitioner’s version….”
which observations have been relied upon by the High Court in
holding that the suit was barred by res judicata do not at all make
out a case of applicability of the principle of res judicata. The
conclusion of the High Court on this score is indeed baffling
to us, because, for res judicata to operate the involved issue
must have been “heard and finally decided”. There was no
decision at all on the merit of the grievance of the petitioner
in the aforesaid writ petition and, therefore, to take a view
that the decision in earlier proceeding operated as res
judicata was absolutely erroneous, not to speak of its being
uncharitable.”
(emphasis supplied)
169. In Daryao v. State of U.P.123, 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. Justice PB
Gajendragadkar, speaking for the Court, held:
“26...If the petition is dismissed in limine without passing a speaking
order then such dismissal cannot be treated as creating a bar of
res judicata. It is true that, prima facie, dismissal in limine even
without passing a speaking order in that behalf may strongly
suggest that the Court took the view that there was no substance
in the petition at all; but in the absence of a speaking order it
would not be easy to decide what factors weighed in the mind of
the Court and that makes it difficult and unsafe to hold that such
123 (1962) 1 SCR 574
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a summary dismissal is a dismissal on merits and as such constitutes
a bar of res judicata against a similar petition filed under Article
32…”
170. Another two judge Bench of this Court, in its judgment in
Erach Boman Khavar v. Tukaram Shridhar Bhat124, has held that
the doctrine of res judicata can only apply when there has been a
conscious adjudication of the issue on merits. Justice Dipak Misra,
speaking for the Court, held:
“39. From the aforesaid authorities it is clear as crystal that to
attract the doctrine of res judicata it must be manifest that
there has been a conscious adjudication of an issue. A plea
of res judicata cannot be taken aid of unless there is an
expression of an opinion on the merits. It is well settled in
law that principle of res judicata is applicable between the two
stages of the same litigation but the question or issue involved
must have been decided at earlier stage of the same litigation.”
(emphasis supplied)
171. 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.
172. In the impugned judgment, the NCLAT has relied upon
Explanation (V) to Section 11 to state that since withdrawal was also
prayed for as a relief in prayer (iv) of the First Withdrawal Application,
it would have also been assumed to have been rejected. Mulla’s The
Code of Civil Procedure states that Explanation V can only apply upon
the fulfilment of two conditions: (i) the relief claimed must have been
substantial, and not merely auxiliary; and (ii) the relief claimed must
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
124 (2013) 15 SCC 655
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have been one which the Court is bound to grant, and not one which it is
discretionary for the Court to grant125.
173. In Jaswant Singh v. Custodian of Evacuee Property126,
a two judge Bench of this Court held that res judicata will only apply if
the cause of action the same and that the party also had an earlier
opportunity to apply for the relief it is now seeking. Justice ES
Venkataramiah held:
“14…It is well-settled that in order to decide the question whether
a subsequent proceeding is barred by res judicata it is necessary
to examine the question with reference to the (i) forum or the
competence of the Court, (ii) parties and their representatives,
(iii) matters in issue, (iv) matters which ought to have been made
ground for defence or attack in the former suit, and (v) the final
decision…A cause of action for a proceeding has no relation
whatever to the defence which may be set up, nor does it depend
upon the character of the relief prayed for by the plaintiff or the
applicant. It refers entirely to the grounds set forth in the plaint or
the application as the case may be as the cause of action or in
other words to the media upon which the plaintiff or the applicant
asks the court to arrive at a conclusion in his favour. In order
that a defence of res judicata may succeed it is necessary
to show that not only the cause of action was the same but
also that the plaintiff had an opportunity of getting the relief
which he is now seeking in the former proceedings. The
test is whether the claim in the subsequent suit or proceedings is
in fact founded upon the same cause of action which was the
foundation of the former suit or proceedings…”
(emphasis supplied)
174. The prayer for withdrawal of the Resolution Plan in the First
Withdrawal Application was not substantial and one that the Court was
bound to grant, since it was contingent upon a re-evaluation, which in
itself was contingent upon receiving the information sought in prayers (i)
and (ii). Since the latter two contingencies never arose, the NCLT did
not apply its mind to the prayer for withdrawal independently. When it
filed the Second Withdrawal Application, it was dismissed on a technical
125 Sir Dinshaw Fardunji Mulla, The Code of Civil Procedure (18th edn, LexisNexis)
126 (1985) 3 SCC 648
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ground and not on its merits. When a revised Third Withdrawal Application
was filed, the NCLT then adjudicated it on its merits and allowed it.
Hence, since the NCLT did not adjudicate Ebix’s prayer for withdrawal
of their Resolution Plan on its merits while dismissing the First Withdrawal
Application, the opportunity to seek the relief was not available to Ebix
in a real sense. Therefore, we reverse the finding of the NCLAT on this
issue and hold that Ebix’s Third Withdrawal Application was not barred
by res judicata.
K.1.2 Analysis of the Resolution Plan of Ebix
175. To briefly recount the relevant facts for determination of the
dispute over the terms of the resolution plan – the CIRP of Educomp
commenced on 30 May 2017. After consultation with the E-CoC, the
E-RP invited EOIs on 18 October 2017. The RFRP was issued on 5
December 2017, and was revised on 17 January 2018 and 20 January
2018. Ebix submitted its draft Resolution Plan after the last date of
27 January 2018, and after securing an extension from the Adjudicating
Authority, on 29 January 2018. Ebix took the benefit of an extension of
time which was granted to it to submit its Resolution Plan. In the absence
of an extension of time, it would not have been permitted to enter the
fray. After multiple rounds of negotiations, on 9 February 2018, Ebix
was declared the successful Resolution Applicant and a LOI was issued
by the E-CoC. On 17 February 2018, Ebix’s Resolution Plan was
approved by a
74.16 per cent voting share of the E-CoC, which was
subsequently upgraded to 75.35 per cent by CSEB’s vote being added
belatedly on 23 February 2018. While it is true that the votes of CSEB
were received in favour of the Resolution Plan on a later date, all the
parties including Ebix proceeded on the notion that the Resolution Plan
has been approved by the requisite majority of seventy-five per cent of
the voting share of the E-CoC as was required then (now the requisite
percentage has been reduced to sixty-six per cent pursuant to an
amendment). Thus, the CSEB Application filed before the NCLT seeking
a clearance of its delayed vote was a mere formality and there was no
controversy raised in relation to that application at that stage. In fact, the
Approval Application for the approval of the Resolution Plan was filed
before the NCLT on the basis that the Plan has been duly approved by
the requisite majority of the CoC. No objections were raised against the
Approval Application on the ground that the threshold of seventy-five
per cent of votes was not met. The Resolution Plan dated 19 February
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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2018 and the addendum dated 21 February 2018 for a total bid amount
of Rs 400 crores were then submitted by the E-RP to the Adjudicating
Authority for approval on 7 March 2018.
176. Owing to the intervening applications for investigation into
the accounts of Educomp (pertinently, no internal special audit has been
conducted till date), Ebix filed the First Withdrawal Application on 5 July
2019, on account of a delay in approval of seventeen months. Thereafter,
it filed the Second and Third Withdrawal Applications.
177. Ebix has alleged before this Court that it is entitled to withdraw
its Resolution Plan by relying on: (i) the terms of the RFRP, which indicates
that the Resolution Plan is binding on the Resolution Applicant only after
approval by the Adjudicating Authority under Section 31; (ii) the terms
of the Resolution Plan which indicate that the Plan was valid for six
months; and (iii) the principles of contract law to urge frustration on
account of fraud and an erosion of the commercial substratum.
178. Clause 1.8.3 of the RFRP, produced below, invited Resolution
Plans with a validity of not less than six months:
“1.8.3 A Resolution Plan once made/submitted must be valid for a
period not less than 6 (six) months from the Resolution Plan
Submission Date including any revisions to such Resolution plan
Submission Date (“Resolution Plan Validity Period”). In case of
extension of the Resolution Plan Submission Date
by the Resolution
Professional, the validity period of the Resolution Plan shall also
be deemed to be valid for a period of 6 (six) months from such
revised Resolution Plan Submission date.
If any Resolution Plan as approved by the CoC and submitted to
the Adjudicating Authority is rejected by the Adjudicating Authority,
then the Resolution Professional and the CoC shall act in
accordance with the instructions/directions issued by the
Adjudicating Authority.”
Ebix urges that in compliance with the above clause of the RFRP,
Clause 7 of its Resolution Plan specified that it shall be valid for a term
of six months from the date of submission:
“7. Term of the Resolution Plan
This Resolution Plan proposed by the Resolution Applicant is valid
for a term of six months from the date of submission of this plan”
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Ebix urges that these matching terms of the offer (the RFRP)
and the acceptance (the Resolution Plan) are binding on the E-CoC and
the Resolution Plan is voidable and revocable at the instance of Ebix,
upon the failure to seek timely approval under Section 31.
179. This submission of Ebix cannot be accepted since the terms
of the RFRP or the Resolution Plan relate to the validity of the Resolution
Plan for the period of negotiation with the E-CoC and not for a period
after the Resolution Plan is submitted for the approval of the Adjudicating
Authority. The time which may be taken before the Adjudicating Authority
is an imponderable which none of the parties can predict. In fact, this is
emphasized by Clause 1.3.7 of the RFPF which contains a schedule of
the Resolution Plan submission process. As regards the approval of the
Adjudicating Authority, it provides clearly that there is no time-line:
“1.3.7 Schedule of Resolution Plan Submission Process
[…]
11. Approval of NCLT regarding the Resolution Plan of Successful
Resolution Applicant – As per NCLT.”
Parties cannot indirectly impose a condition on a judicial authority
to accept or reject its Plan within a specified time period, failing which
the CIRP process will inevitably come to an end. In this case, the draft
Resolution Plan of Ebix was submitted on 29 January 2018 and remained
valid for the term of the multiple rounds of negotiations with the E-CoC,
until its submission to the Adjudicating Authority
on 7 March 2018, which
was within the six-month period envisaged in the Plan.
180. Even if it were to be assumed, for the sake of argument, that
the term in the submitted Resolution Plan was in the nature of a qualified
offer which would expire after six months of its submission, failing the
imprimatur of the Adjudicating Authority under Section 31 which would
make it binding on all parties, the surrounding terms of the RFRP and the
subsequent legal materials including the LOI and the Compliance
Certificate (Form H) under CIRP Regulations make it clear that there
was no scope to resile from the implementation of the Resolution Plan,
once it had been submitted to the Adjudicating Authority, except in the
event of a rejection. Clause 1.9.3 of the RFRP required Ebix to replace
its EMD with a PBG equivalent to ten per cent of the Resolution Plan
value, if it were to be declared as the ‘successful Resolution Applicant’.
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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This PBG can be invoked under Clause 1.9.5 of the RFRP if the
Resolution Applicant fails to implement the Resolution Plan. Further,
Clause 1.8.4 of the RFRP states that “[a] Resolution Plan submitted by
a Resolution Respondent shall be irrevocable”. Clause 1.10(l) of the
RFRP also provides that a successful Resolution Applicant is not permitted
to withdraw an approved Resolution Plan:
“Clause 1.10 of the RFRP
“By procuring this RFRP and obtaining access to the Data room
and Information Memorandum, in accordance with the terms of
this RFRP, the Resolution Respondent is deemed to have made
the following acknowledgements and representations:
[...]
(l) The Resolution Respondent upon declaration as
Successful Resolution Respondent shall remain responsible
for the implementation and supervision of the Resolution
Plan from the date of approval by the Adjudicating Authority,
and will not be permitted to withdraw the Resolution Plan
and the Resolution Professional, PwC or the CoC assume no
responsibility or liability in this respect.”
(emphasis supplied)
Ebix’s submission that Clause 1.10(l) is applicable only upon
approval of the Adjudicating Authority is not plausible since the Resolution
Plan becomes binding on all stakeholders as a consequence of the
approval under Section 31. The E-RP’s argument holds much weight
when it is argued that Clause 1.10(l) cannot be construed to infer that
the Adjudicating Authority would
declare Ebix as the ‘Successful
Resolution Applicant’ once again, which would then impose the obligation
of barring withdrawals for the first time. Mr Nakul Dewan, learned
Senior Counsel for the E-RP, has also submitted before us that the validity
of the Resolution Plan being six months was not mentioned as a specific
conditionality in Form H that was submitted by the E-RP along with the
Resolution Plan to the Adjudicating Authority, which evinces that the
six-month validity was only vis-à-vis the acceptance by the E-CoC.
181. Ebix has also tried to argue that its position has changed
manifestly because of new allegations which have come up in relation to
the financial conduct of Educomp. However, in this regard, it is pertinent
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to note Clause 1.3.2 of the RFRP which directs prospective Resolution
Applicants to conduct their own due diligence. In so far as is relevant, it
reads:
“1.3.2 The Resolution Applicant(s) shall be provided access to
the electronic as well as physical data room (“Data Room”)
established and maintained by the Company acting through the
Resolution Professional and coordinated 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. Section 32A reads as follows:
“32A. (1) Notwithstanding anything to the contrary contained in
this Code or any other law for the time being in force, the liability
of a corporate debtor for an offence committed prior to the
commencement of the corporate insolvency resolution process
shall cease, and the corporate debtor shall not be prosecuted for
such an offence from the date the resolution plan has been
approved by the Adjudicating Authority under section 31, if the
resolution plan results in the change in the management or control
of the corporate debtor to a person who was not-
(a) a promoter or in the management or control of the corporate
debtor or a related party of such a person; or
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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(b) a person with regard to whom the relevant investigating
authority has, on the basis of material in its possession, reason to
believe that he had abetted or conspired for the commission of
the offence, and has submitted or filed a report or a complaint to
the relevant statutory authority or Court:
[…]
(2) No action shall be taken against the property of the corporate
debtor in relation to an offence committed prior to the
commencement of the corporate insolvency resolution process of
the corporate debtor, where such property is covered under a
resolution plan approved by the Adjudicating Authority under
section 31, which results in the change in control of the corporate
debtor to a person, or sale of liquidation assets under the provisions
of Chapter III of Part II of this Code to a person, who was not –
(i) a promoter or in the management or control of the corporate
debtor or a related party of such a person; or
(ii) a person with regard to whom the relevant investigating authority
has, on the basis of material in its possession, reason to believe
that he had abetted or conspired for the commission of the offence,
and has submitted or filed a report or a complaint to the relevant
statutory authority or Court.
[…]
(3) Subject to the provisions contained in sub-sections (1) and (2),
and notwithstanding the immunity given in this section, the corporate
debtor and any person, who may be required to provide assistance
under such law as may be applicable to such corporate debtor or
person, shall extend all assistance and co-operation to any authority
investigating an offence committed prior to the commencement
of the corporate insolvency resolution process.”
Thus, 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.
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182. Finally, it is also important to note that no clause of Ebix’s
own Resolution Plans provides them with a right to revise/withdraw
their Resolution Plan after its approval by the E-CoC, but before its
confirmation by the Adjudication Authority. Clause 9.1 permits withdrawal
in the event the Resolution Plan is not approved in its entirety by the
NCLT, while Clause 9.7 allows for an amendment for the purposes of
implementation of the Resolution Plan but only when the E-CoC approves
it with a seventy-five per cent vote. Hence, Ebix did not have any right
under their own Resolution Plan to revise/withdraw it.
183. It is also pertinent to note that Ebix did not stop pursuing their
Resolution Plan after the expiry of six months, if the true import of the
commercial bargain was a withdrawal of the Resolution Plan after six
months of its submission. The First Withdrawal Application was filed on
10 September 2019, which was after one year of the alleged expiry of
the six-month period. Therefore, even if the submitted Resolution Plan
was considered as a conditional offer the terms did not enable a
withdrawal of the Resolution Plan in the event that the Adjudicating
Authority does not approve it under Section 31 within six months of its
submission.
184. Before we conclude our analysis on the substantive arguments
raised by Ebix, we will be briefly dealing with its arguments that the RP
had failed in its obligation to provide information under Section 29 of the
IBC.
K.1.3 Duties of the RP
185. Appearing on behalf of Ebix, Mr KV Vishwanathan has
argued before this Court that the E-RP failed in its duties under Section
29 of the IBC when it failed to inform Ebix about the ongoing investigations
against Educomp. While this argument was made in order to justify Ebix’s
withdrawal of its Resolution Plan, which we have already rejected, we
shall assess it nonetheless. On behalf of the E-RP, Mr Nakul Dewan
has appeared and argued that the obligation on an RP to provide
information under Section 29 has to be understood on a “best effort
basis”.
186. Section 29 of the IBC places a duty upon the RP to provide
an IM to the Resolution Applicant, containing such information which
may be relevant to the Resolution Applicant to draft its Resolution Plan.
It states:
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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“29. Preparation of information memorandum.—(1) The resolution
professional shall prepare an information memorandum in such
form and manner containing such relevant information as may be
specified by the Board for formulating a resolution plan.
(2) The resolution professional shall provide to the resolution
applicant access to all relevant information in physical and
electronic form, provided such resolution applicant undertakes—
(a) to comply with provisions of law for the time being in force
relating to confidentiality and insider trading;
(b) to protect any intellectual property of the corporate debtor it
may have access to; and
(c) not to share relevant information with third parties unless
clauses (a) and (b) of this sub-section are complied with.
Explanation.—For the purposes of this section, “relevant
information” means the information required by the resolution
applicant to make the resolution plan for the corporate debtor,
which shall include the financial position of the corporate debtor,
all information related to disputes by or against the corporate debtor
and any other matter pertaining to the corporate debtor as may be
specified.”
187. The BLRC Report elucidates the duties of the RP:
“1. The RP must provide the most updated information about
the entity as accurately as is reasonably possible to this
range of solution providers. In order to do this, the RP has to
be able to verify claims to liabilities
as well as the assets disclosed
by the entity. The RP has the power to appoint whatever outside
resources that she may require in order to carry out this task,
including accounting and consulting services.
2. The information collected on the entity is used to compile
an information memorandum, which is signed off by the
debtor and the creditors committee, based on which
solutions can be offered to resolve the insolvency. In order
for the market to provide solutions to keep the entity as a going
concern, the information memorandum must be made available to
potential financiers within a reasonable period of time from her
appointment to the IRP. If the information is not
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comprehensive, the RP must put out the information
memorandum with a degree of completeness of the
information that she is willing to certify.
For example, as part of the information memorandum, the RP
must clearly state the expected shortfall in the coverage of the
liabilities and assets of the entity presented in the information
memorandum. Here, the asset and liabilities include those that the
RP can ascertain and verify from the accounts of the entity, the
records in the information system, the liabilities submitted at the
start of the IRP, or any other source as may be specified by the
Regulator.
3. Once the information memorandum is created, the RP must
make sure that it is readily available to whoever is interested to
bid a solution for the IRP. She has to inform the market (a) that
she is the RP in charge of this case, (b) about a transparent
mechanism through which interested third parties can access the
information memorandum, (c) about the time frame within which
possible solutions must be presented and (d) with a channel through
which solutions can be submitted for evaluation. The Code does
not specify details of the manner or the mechanism in which this
should be done, but rather emphasises that it must be done in a
time-bound manner and that it is accessible to all possible interested
parties.”
(emphasis supplied)
188. Similarly, the UNCITRAL Guide notes:
“5. Duties and functions of the insolvency representative
[…]
(e) Obtaining information
concerning the debtor, its assets, liabilities
and past transactions (especially those taking place during the
suspect period), including examining the debtor and any third
person having had dealings with the debtor…”
189. Under the IBC, there is a duty upon the RP to collect as
much information about the Corporate Debtor as is accurately possible
to do. When such information is communicated through an IM to the
Resolution Applicant, the RP must be careful to clarify when its
information is not comprehensive and what factors may cause a change.
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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190. In the present case, Ebix has alleged that the E-RP did not
inform it of the financial investigations into the conduct of Educomp in a
timely fashion. To assess this claim, it is important to underline a few
dates:
(i) 5 December 2017 – E-RP provided Virtual Data Room access
to Ebix and other prospective Resolution Applicants in relation to
Educomp, and the final RFRP was issued;
(ii) 7 March 2018 – E-RP filed the Approval Application before
NCLT in relation to Ebix’s Resolution Plan, after its approval by
the E-CoC;
(iii) 3 April 2018 and 26 April 2018 – two articles are published in
The Wire in relation to financial mismanagement of Educomp;
(iv) 4 May 2018 – the IFC Application came up before NCLT,
having been filed by a financial creditor of Educomp seeking
investigation of the affairs/transactions, in which the E-RP was
directed file its reply and IFC was directed to serve a notice on
Ebix;
(v) 12 June 2019 – Educomp made regulatory disclosures to the
BSE and NSE in relation to the ongoing investigations by SFIO
and CBI; and
(vi) 5 July 2019 – Ebix filed the First Withdrawal Application.
191.  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.
K.2 The Kundan Care Appeal
192. The CIRP of Astonfield commenced on 27 November 2018.
On 1 May 2019, GUVNL issued a default notice under Article 9.3.1(e)
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of the PPA, taking the initiation of the CIRP as an event of default for
the termination of the PPA. The validity of the default notice was
adjudicated upon by the NCLT in a judgment dated 29 August 2019. The
NCLT set aside the default notice on the ground that the termination of
the PPA would adversely affect the “going concern” status of Astonfield.
On 15 October 2019, the NCLAT dismissed an appeal filed by GUVNL.
On 29 October 2019, Kundan Care submitted a Resolution Plan for
being considered by the A-CoC, which was followed by a final version
on 12 November 2019. On 14 November 2019, the Resolution Plan
submitted by Kundan Care was approved by the A-CoC with a vote of
99.28 per cent. On 15 November 2019, a Letter of Award was issued by
the A-RP to Kundan Care, and the Resolution Plan was submitted to the
NCLT for approval to under Section 31 of the IBC.
193. On 27 November 2019, GUVNL moved this Court in appeal
against the order of the NCLAT dated 15 October 2019 (this Court
eventually dismissed the appeal). During the pendency of the appeal,
the appellant moved an application before the NCLT for withdrawal of
its Resolution Plan and for return of its PBG. In view of the pendency of
the appeal before this Court, NCLT deferred consideration of the
Resolution Plan till the disposal of the appeal. On the request of Kundan
Care, their application was listed for hearing and dismissed on 3 July
2020 for want of jurisdiction to enable withdrawals. This
decision of the
NCLT was confirmed by the NCLAT on 30 September 2020. While
Kundan Care’s appeal against this decision of the NCLAT was pending
before this Court, Gujarat Urja (supra) was decided by this Court on 8
March 2021.
194. Kundan Care had initially sought to rely on Clause 5.1 of
their Resolution Plan to argue that it had reserved the right to modify or
withdraw its submitted Resolution Plan in the event of a ‘material adverse
change’ which affects Astonfield. Clause 5.1 reads as follows:
“5.1 Basis of Preparation
The preparation of the Resolution Plan is based on the Information
Memorandum provided to the Resolution Applicant by the
Resolution Professional. If at any time before or after submission
of this Resolution Plan, should the information on the basis of
which this Resolution Plan has been prepared, change, or new
information becomes available, or if there is a material adverse
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]
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change i.e. shall there have occurred any fact, matter, event,
circumstance, condition or change which materially and adversely
affects, or could reasonably be expected to materially and adversely
affect: individually or in aggregate, the business, operations, assets,
liabilities, conditions (whether financial, trading or otherwise),
prospects or operating results of the Corporate Debtor, the
Resolution Applicant shall have the right to reconsider, revise and/
or withdraw the Resolution Plan on assessment of such additional
information and/or make a fresh submission of resolution plan at
its sole discretion”
However, the A-RP has pointed out to the court that the LOI
awarded to Kundan Care clearly stipulated that the submitted Resolution
Plan is irrevocable and there were no conditionalities mentioned in the
Form H that was submitted to the Adjudicating Authority. Clause 9 of
Kundan Care’s Resolution Plan confirms this position, since it states:
“9 Condition Precedent
THERE ARE NO CONDITION PRECEDENT FOR
APPROVAL OF THIS RESOLUTION PLAN”
This is also reaffirmed by the fact that Clause 1.6.2 of the RFRP
issued by the A-RP, specifically indicated that the A-CoC may reject a
Resolution Plan if it did not agree with any of the conditions precedent in
the nature of “walk away conditions”. Clause 1.6.2 states:
“1.61 The CoC reserves the right to reject the Resolution Plan, if
any of the Conditions Precedent (as defined in
Format VA -
Resolution Plan), are not acceptable to the CoC. The Conditions
Precedent, if any, in a Resolution Plan would mean the ‘walk-
away conditions’ and shall be required to be specifically mentioned
as such in the said Plan, with a conspicuous heading and placement
of a paragraph in the Plan, and all such conditions shall be placed
in a consolidated manner in the said paragraph.”
This indicates that the condition of a material adverse event could
be exercised only until the A-CoC was considering the Resolution Plan,
and not after it had been submitted to the Adjudicating Authority.
195. During the course of the hearing of the present appeal, the
compilation of additional documents has been filed by Kundan Care. On
5 July 2021, Kundan Care had addressed a communication to EXIM
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Bank and PFCL “seeking a revision/renegotiation of the resolution
amount/financial proposal” of Kundan Care for the resolution of
Astonfield. Responding to the above communication, EXIM Bank has
addressed a letter dated 12 July 2021 stating that a meeting was held by
“the lenders” (EXIM Bank and PFCL) on 9 July 2021, on a without
prejudice basis to deal with the issues raised by Kundan Care in their
letter dated 5 July 2021. Responding to the request of Kundan Care, it
has been stated that:
“4… lenders were prima facie agreeable to deliberate the financial
proposal seeking revision in resolution plan amount in the COC
convened by the RP post the directions of the Hon’ble Supreme
Court in accordance with the processes laid down by the IBC”.
Pursuant to the above exchange of communications, a joint request
has been made by Mr Ramji Srinivasan, learned Senior Counsel appearing
on behalf of Kundan Care and Mr V Giri, learned Senior Counsel
appearing on behalf of the A-CoC in the following terms:
“In view of the letter dated 12 July 2021 issued by the lenders
who are members of the CoC, the appellant may be permitted to
withdraw Civil Appeal 3560/2020 with liberty to the RA and the
CoC to file the revised plan (in terms of the letter dated 12 July
2021) before the NCLT (through the RP) for approval. The CoC
shall convene and take a call on the revised plan within one week
and the NCLT shall dispose of the matter within two weeks upon
receiving IA from RP for
approval of revised plan.”
196. This Court had been informed that EXIM Bank and PFCL
represent 98 per cent of the financial creditors of Astonfeld. In view of
the above agreement which has been arrived at, we deem it appropriate
to exercise our jurisdiction under Article 142 of the Constitution of India
for a one-time relief and direct that:
(i)
The A-CoC shall convene and take a decision on the
proposal submitted by Kundan Care on 5 July 2021, and
the response by EXIM Bank and PFCL dated 12 July 2021;
(ii)
In the event, that a revised Resolution Plan is agreed upon
by the A-CoC, it shall be submitted through the A-RP for
the approval of the NCLT within a week thereafter. In the
event that a revised Resolution Plan is not agreed upon, the
EBIX SINGAPORE PVT. LTD. v. COMMITTEE OF CREDITORS OF
EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]