Judgments

EBIX SINGAPORE PVT LTD VS COMMITTEE OF CREDITORS OF EDUCOMP SOLUTIONS LIMITED & ANR : CASE SUMMARY

The Supreme Court in Ebix Singapore Pvt. Ltd. Vs. Committee of Creditors of Educomp Solutions Limited (2021) SCC Online 707 held that  Resolution Plan cannot be modified or withdrawn after approval by Committee of Creditors.

FACTS OF THE CASE

The Supreme Court was considering three appeals wherein issue was whether successful Resolution Applicant could withdraw appeal after approval by CoC.

Appeal by Ebix

Educomp filed petition for initiation under Section 10 IBC  for CIRP which was admitted by NCLT on 30th May, 2017. During CIRP Ebix was declared successful Resolution Applicant by CoC. The RP filed Application before NCLT for approval of Resolution Plan. The wire published an article related with irregularity in Educomp  on 26th April, 2018. Some of Financial Creditors filed Applications before NCLT for investigation into affairs of the Corporate Debtor. MCA also directed investigation by SFIO. NCLT dismissed these applications and directed CoC to discuss subject matters of applications. CoC passed resolution to appoint independent agency to conduct investigation into affairs of the Educomp. An application by RP was filed before NCLT seeking special investigation audit of Educomp.  NCLT directed RP to file an affidavit in relation to transactions to be  carried out by Educomp under Section 43, 45, 50 and 66.  In its affidavit the RP stated that no such transaction has been found.

Ebix filed first withdrawal application on  5th July, 2019. On 10th July, NCLT dismissed the withdrawal application. Thereafter Ebix filed second withdrawal application under Section 60 (5). NCLT dismissed the second withdrawal application. Ebix filed the third withdrawal application which was allowed by the NCLT. NCLT also dismissed the application for approval of Resolution Plan. NCLAT set aside the order of NCLT.

The Appeal by  Kundan Care

Astonfield  filed an application for initiation of CIRP under Section 10 IBC which was admitted by the NCLT on 27th November, 2018.  Resolution Plan submitted by Kundan Care was approved with a majority of 99.28 %. RP filed an application before NCLT for approval of Resolution Plan.

Astonfield has executed PPA with GUVNL, which was valid for 25 years.  This PPA formed entirety of business of Corporate Debtor. GUVNL issued notice of default, which was challenged by RP before NCLT. NCLT held the PPA cannot be terminated during CIRP but can be terminated during Liquidation. On appeal NCLAT held the PPA cannot be terminated during CIRP or Liquidation.  The Supreme Court also held that PPA cannot be terminated during CIRP.

Kundan Care filed Application for withdrawal of Resolution Plan on 17th December, 2019. NCLT dismissed Kudnan Care Application vide order  dated 3rd July, 2020.  An appeal was filed before NCLT which was also dismissed.

The Appeal by  Seroco

Application was filed under Section 7  IBC for initiation of CIRP  by Kotak against Arya Filaments. NCLT admitted the Petition vide 17th August, 2018. During CIRP ,  Resolution Plan of the Seroco was approved by CIRP. RP filed Resolution Plan before NCLT for approval. Seroco filed application before NCLT seeking permission to revise Resolution Plan which was rejected by the NCLT. NCLT approved the Resolution Plan submitted by RP. Seroco filed an appeal before NCLAT which was dismissed.

FINDINGS OF THE SUPREME COURT

The Supreme Court after surveying several provisions of IBC  in respect of Resolution Plan observed that  there are three stages involved. The first stage ends with approval of Resolution Plan by CoC . The second stage is interim period after approval of Resolution Plan by CoC and before its confirmation by Adjudicating Authority.  The third stage is after the approval of Resolution Plan.

Whether approval of Resolution Plan by CoC is a contract ?

It was contended before the Supreme Court that Resolution Plans are in nature of offer, which becomes binding as a concluded contract only once Adjudicating Authority approves the Resolution Plan. Alternatively, it was contended that that Resolution Plans approved by CoC are contingent contract whose enforceability is dependent on conditional approval of the Adjudicating Authority in accordance with Section 32 of the Contract Act.

The Supreme Court observed that certain stages of CIRP resembles stages of contract such as issuance of request for resolution plan, consideration of resolution plan as an offer and approval of resolution plan by CoC by acceptance of offer. However,  it is the structure of IBC which confers legal force on CoC approved resolution plan.  The validity of Resolution Plan is based on its compliance with the procedures established by law.

The Supreme Court surveyed several foreign jurisdictions on the issue whether instruments like Resolution Plan are statutory contracts. The Supreme Court noted that there was lack of consensus regarding the same.

The Court observed that the absence of any provisions in  IBC or the regulations referring to CoC approved Resolution Plan as a contract and lack of clarity in BLRC report regarding the nature of Resolution Plan constrains it from arriving at the conclusion that CoC approved Resolution Plan will be governed by Contract Act. Statutory enabled room for commercial negotiation is not enough to over-power the other elements of regulation that detract from view that CoC approved Resolution Plan is contract. CoC approved Resolution Plan before approval of the Adjudicating Authority under Section 31 are a function and product of IBC mechanism. Their validity, nature, legal force, and content is regulated by procedure laid down under IBC and not Contract Act.

Whether Resolution Plan can be withdrawn or modified ?

The Supreme Court observed that 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.  If the Resolution Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after submission of 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 successful Resolution Applicants who may wish to negotiate a better deal, owing to myriad factors which are unique to their own cause.

IBC is silent whether Resolution Plan can be withdrawn or not. The absence of any exit routes being stipulated under statute for a Successful Resolution Applicant is indicative of prohibition 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 statute can not be supplied by judicial interpretation. In the absence of any provision under IBC allowing for withdrawal of the Resolution Plan by a successful Resolution Applicant with such a relief through a judicial interpretation would be impermissible.

The Supreme Court also examined the contention whether terms of a Resolution Plan can reserve a right to modify or withdraw its contents after submission to Adjudicating Authority.

The  Supreme Court observed that if Legislature intended to allow withdrawals or subsequent negotiations by successful Resolution Applicants, it would have prescribed specific timelines for exercise of such an option. The recognition of power of withdrawal or modification after submission of CoC approved Resolution Plan, by judicial interpretation, will have the effect of disturbing statutory timelines and delaying the CIRP, leading to depletion of values of the assets of a Corporate Debtor in the event of potential liquidation.

Whether Adjudicating Authority can allow modification or withdrawal of Resolution Plan ?

The Supreme Court held that the Adjudicating Authority lacks the authority to allow the withdrawal or modification of Resolution Plan by a successful Resolution Applicant or to give effect to such clauses in the Resolution Plan. Power of withdrawal of resolution plan or modification of resolution plan is also not vested in NCLT under its jurisdiction under Section 60 (5) of the Code. NCLT cannot do what the IBC has consciously not provided it with  the power to do.

The Supreme Court dismissed the appeal of Ebix and Seroco. In case of Kundan Care the Supreme Court granted one time relief  under Article  142 and directed to convene a meeting of CoC to consider proposal submitted by Kundan Care.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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