RESOLUTION PLAN UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

Resolution Plan is a plan proposed by Resolution Applicant for resolution of Corporate Debtor. Resolution Plan is a blueprint for revival and resolution of Corporate Debtor. Resolution Plan provides measures for resolution of the Corporate Debtor and strategies for implementation.  The NCLAT has observed regarding Resolution Plan in Binani Industries Ltd¹   as under:

The ‘I&B Code’ defines ‘Resolution Plan’ as a plan for insolvency resolution of the ‘Corporate Debtor’ as a going concern. It does not spell out the shape, colour and texture of ‘Resolution Plan’, which is left to imagination of stakeholders. Read with long title of the ‘I&B Code’, functionally, the ‘Resolution Plan’ must resolve insolvency (rescue a failing, but viable business); should maximise the value of assets of the ‘Corporate Debtor’, and should promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders.

CIRP Regulation 37 provides some of the measures which can be pursued for revival of the Corporate Debtor. Section 37 is reproduced as under.

A Resolution Plan shall provide for the measures, as may be necessary, for insolvency resolution of the Corporate Debtor for maximisation of value of its assets including but not limited to the following:

(a)Sale of all or part of assets whether subject to security interest or not

(b)Restructuring of the Corporate Debtor, by way of merger, amalgamation and demerger

(ba)The substantial acquisition of shares of the Corporate Debtor or the merger or consolidation of the Corporate Debtor with one or more persons

(c)Cancellation or delisting of any shares of the Corporate Debtor if applicable

(d)Satisfaction or modification of any security interest

(e)Curing or waiving of any breach of terms of any debt due from the Corporate Debtor

(f)Reduction in the amount payable to the creditors

(g)Extension of a maturity date or a change in interest rate or other terms of a debt due from the Corporate Debtor

(h)Amendment of the constitutional documents of the Corporate Debtor

(i)Issuance of securities of the Corporate Debtor, for cash, property, securities or in exchange for claims or interests, or other applicable purpose

(j)Change in portfolio of goods or services produced or rendered by the Corporate Debtor

(k)Change in technology used by the Corporate Debtor

(l)Obtaining necessary approvals from the Central and State Governments and other authorities

(m) sale of one or more assets of corporate debtor to one or more successful resolution applicants submitting resolution plans for such assets; and manner of dealing with remaining assets

Aforesaid measures clearly show that Resolution Applicant has at its disposal various options for resolution of a Corporate Debtor, which are otherwise not available to a Corporate Debtor in ordinary course of business. Resolution Plan can have provisions for sale of assets, whether subject to security interest or not. In ordinary course of business sale of assets subject to security interest is not permissible without consent of the Secured Creditor. The Resolution Plan can have provisions for substantial acquisition of shares of the Corporate Debtor, cancellation or delisting of any shares of Corporate Debtor, which could otherwise be done after extensive compliance of SEBI regulations.  The Resolution Plan can have provision for satisfaction or modification of security interest, which otherwise cannot be done without consent of the Secured Creditor. Resolution Plan can have provisions of extension of maturity date or change in the interest rate of a debt, without consent of such creditor. Resolution Plan can have provisions for reduction in the amount payable to the creditors, which otherwise is not permissible without consent of such creditor. The Resolution Professional can have provisions for issuance of securities of Corporate Debtor for cash, property, security, claims or interests.

SUBMISSION OF THE RESOLUTION PLAN AND ITS CONSIDERATION BY COC

After Request for Resolution Plan along with Information Memorandum and Evaluation Matrix is issued by the Resolution Professional to eligible prospective Resolution Applicant, the next step is submission of Resolution Plans by eligible prospective Resolution Applicants.

Section 30 of the Code provides details of procedure of submission of the Resolution Plan by Resolution Applicant and its consideration by Committee of Creditors. Section 30 reads as under:

(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under section 29A 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

 (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 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 purpose 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 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 (Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A 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 29A, 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 29A:

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 subsection:

Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement 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.

Section 30 of the Code has to be read with CIRP Regulation 38 and 39 which supplements Section 30.

Submission of Resolution Plan

According to Section 30 (1) Resolution Applicant has to submit a Resolution Plan prepared on the basis of Information Memorandum with time given in the Request for Resolution Plan. Such Resolution Plan has to be submitted along with an affidavit stating that the Resolution Applicant is eligible to submit Resolution Plan under Section 29A.

According to CIRP Regulation 39(1) (c) prospective Resolution Applicant has to provide undertaking that every information and records provided in connection with or in the Resolution Plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the Corporate Insolvency Resolution Process, forfeit refundable deposit and attract penal action under the Code.

The Resolution Professional, if envisaged under the Request for Resolution Plan, can allow modification of the Resolution Plan received but not more than once or use a challenge mechanism to enable Resolution Applicants to improve their plans.

The Committee of Creditors cannot consider any Resolution Plan received after time as specified in Request for Resolution Plan or received from a person who does not appear in the final list of prospective Resolution Applicant or does not comply with the provisions of Section 30 (2) of the Code.

The Insolvency Law Committee in its 5^th Report has recommended that the Resolution Plan received after time as specified in Request for Resolution Plan should not be considered.

Mandatory Elements of Resolution Plan

Section 30 (2) provides for mandatory elements of a Resolution Plan. CIRP Regulation 38 provides for additional mandatory contents of Resolution Plan.  

Section 30(2)(a) provides that payment of Insolvency Resolution Process Cost has to be paid in priority to payment of other debts of the Corporate Debtor.

Section 30(2)(b) was inserted vide Insolvency and Bankruptcy Code (Amendment) Act, 2019 to provide protection to Operational Creditor and dissenting Financial Creditors. It provides that payment of debt of Operational Creditor will not be less than the amount to be paid to such creditors in the event of a liquidation of the Corporate Debtor under Section 53 or 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 Section 53 (1), whichever is higher. Further Resolution Plan must provide for payment of debts of such Financial Creditor, who vote against the Resolution Plan, which will not be less than the amount to be paid to such creditors in accordance with Section 53 (1) of the in event of liquidation of the Corporate Debtor.

This amendment has been brought into force for protection of interest of Operational Creditors but it hardly secures interest of the Operational Creditors. In most of the cases, Operational Creditors (except workmen or employees of the Corporate Debtor) get negligible or NIL amount in case of liquidation under Section 53(1) as such even if Operational Creditors are given negligible or NIL amount in Resolution Plan, the same remains valid under Section 30(2)(b).

As per Explanation I distribution made to the Operational Creditor and the dissenting Financial Creditor has to be fair and equitable to such creditors.

Under Explanation II, Section 30 (2) (b) has been made applicable since commencement of Insolvency and Bankruptcy code (Amendment) Act, 2019 i.e., 16^th August, 2019 to all such cases where Resolution Plan is pending before the Adjudicating Authority or where appeal within limitation has been filed under Section 61 or 62 or any legal proceeding has been initiated in any court against decision of Adjudicating Authority in respect of Resolution Plan.

Section 30 2 (c) provides that Resolution Plan has to provide for management of affairs of the Corporate Debtor after approval of the Resolution Plan.

Section 30 (2) (d) provides that Resolution Plan must provide for implementation and supervision of the Resolution Plan.

Section 30 (2) (e) provides that the Resolution Plan must not contravene any of the provisions of the law for time being in force.  For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the Resolution Plan, such approval is deemed to have been given and it will not be considered a contravention of that act or law.

Section 30 (2) (f) provides that the Resolution Plan must confirm to such other requirements as may be specified by IBBI.

CIRP Regulation 38 provides additional mandatory contents of Resolution Plan.

According to CIRP Regulation 38 (1) (a) the amount payable under a Resolution Plan to the Operational Creditors shall be paid in priority over Financial Creditors.

According to CIRP Regulation 38 (1) (b) the amount payable to the Financial Creditors, who have right to vote in Committee of Creditors and who have not voted in favour of the Resolution Plan has to be paid in priority to Financial Creditors who have voted for the Resolution Plan.

According to CIRP Regulation 1A, a Resolution Plan has to include a statement as to how it has dealt with the interests of all the stakeholders including Financial Creditors and Operational Creditors of the Corporate Debtor.

According to CIRP Regulation 1B, a Resolution Plan has to include a statement giving details if the Resolution Applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other Resolution Plan approved by the Adjudicating Authority at any time in the past.

According to CIRP Regulation 38 (2), a Resolution Plan has to provide the term of the plan and its implementation schedule and management and control of the business of the Corporate Debtor during its term and adequate means for supervising its implementation.

According to CIRP Regulation 38 (3), a Resolution Plan has to demonstrate that it addresses the cause of default; it is feasible and viable; it has provision for its effective implementation; it has provisions for approval required and the timelines of the same; and the Resolution Applicant has capacity to implement the Resolution Plan.

Presentation of  Resolution Plan to CoC

Section 30 (3) provides that the Resolution Professional has to present to the Committee of Creditors for its approval such Resolution Plans which confirm to the conditions given under clause (2).

According to  CIRP Regulation 39 (2) the Resolution Professional has to submit to the Committee of Creditors all Resolution Plans which comply with the requirements of the Code and regulations made thereunder along with details of Preferential Transactions under Section 43, Undervalued Transaction under Section 45, Extortionate Credit Transactions under Section 50 and Fraudulent Transactions under Section 66 along with orders of the Adjudicating Authority, if any, in respect of aforesaid transactions.

Approval of Resolution Plan by CoC

Section 30 (4) provides that the Committee of Creditors may approve a Resolution Plan by a vote of not less than sixty six percent of voting share of the Financial Creditors. While approving the Resolution Plan the Committee of Creditors has to consider feasibility and viability of the plan, the manner of distribution proposed which may take into account the order of priority amongst creditor under Section 53 (1), including the priority and value of security interest of a Secured Creditor and such other requirements as may be specified by IBBI.

If a Resolution Applicant is ineligible under Section 29A (c), the Resolution Applicant will be allowed period not exceeding thirty days by the Committee of Creditors to make payment of overdue amount. Such period will not be construed as extension of corporate insolvency resolution period.

Detailed procedure of approval of Resolution Plan has been provided under CIRP Regulations 39 (3), (3A) and (3B).

The Committee of Creditors has to evaluate Resolution Plans as per Evaluation Matrix, record its deliberations on the feasibility and viability of each Resolution Plan and vote on all such Resolution Plans simultaneously.

If only one Resolution Plan is put to vote, it will be considered approved if it received requisite votes.

In cases 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, will be considered as approved.

If two or more Resolution Plans receive equal votes, but not less than requisite votes, the committee has to approve any one of them, as per the tie breaker formula announced before such voting.

In cases, where none of the Resolution Plan receives requisite votes, the committee has to vote again on the Resolution Plan that received highest votes subject to the timelines under the Code.

One can get clarity from the following example. Suppose that the Committee of Creditors is voting on two Resolution Plans, namely A and B.  The voting outcome is as under:

Voting Outcome	Plan A Voting %	Plan B Voting %	Status of Approval
1.	55%	60%	No plan is approved, as neither of the Plans received requisite votes. The committee shall vote again on Plan B, which received highest votes, subject to timelines under the Code
2.	70%	75%	Plan B is approved, as it received higher votes which is not less than requisite votes
3.	75%	75%	The Committee shall approve either plan A or Plan B as per the tie breaker formula announced before voting

Participation of Resolution Applicant in CoC

Section 30 (5) provides that the Resolution Applicant may attend the meeting of Committee of Creditors in which the Resolution Plan is being considered. Such Resolution Applicant cannot vote in the Committee of Creditors unless he is also a Financial Creditor.

Submission of Resolution Plan before Adjudicating Authority

Section 30 (6) provides that the Resolution Professional has to submit the Resolution Plan as approved by the Committee of Creditors to Adjudicating Authority.

According to CIRP Regulation 39 (4), the Resolution Professional has to make endeavour to submit the Resolution Plan approved by the Committee of Creditors to the Adjudicating Authority at least fifteen days before the maximum period for completion of Corporate Insolvency Resolution Process under Section 12. Such Resolution Plan has to be submitted along with compliance certificate in Form H of CIRP Regulations and the evidence of receipt of performance security required under sub-regulation (4A) of CIRP Regulation 36B.

APPROVAL OF THE RESOLUTION PLAN BY ADJUDICATING AUTHORITY

Resolution Plan has to be submitted to the Adjudicating Authority for approval. Section 3 provides details of procedure of approval of Resolution Plan. Section 31 is reproduced as under:

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.

 (2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

 (3) After the order of approval under sub-section (1), –

 (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.

 (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.

Once the Resolution Plan is submitted before the Adjudicating Authority, it has to be approved or rejected by the Adjudicating Authority.

The Adjudicating Authority has to satisfy itself that the Resolution Plans meet the requirement of the mandatory contents of Resolution Plan mentioned in Section 30 (2).   The Adjudicating Authority has also to confirm that the Resolution Plan has provisions for effective implementation of the Resolution Plan.  If the Resolution Plan confirms with requirements in Section 30 (2) of the Code and has provisions for effective implementation, the Adjudicating Authority has to approve the Resolution Plan.

The Insolvency Law Committee in its 5^th Report  has noted that delay in disposal of the Resolution Plans by the Adjudicating Authorities is value destructive and discourages the prospective Resolution Applicant from submitting Resolution Plan. It has recommended that the Adjudicating Authority should dispose Resolution Plan within 30 days of receiving it.

If the Resolution Plan does not meet the requirement under Section 30 (2) or the Resolution Plan does not have provisions for effective implementation of the Resolution Plan, such Resolution Plan may be rejected by the Adjudicating Authority.

The Moratorium Order passed by the Adjudicating Authority under Section 14 ceases to have effect after approval of the Resolution Plan.  The Resolution Professional has to forward all records relating to conduct of Corporate Insolvency Resolution Process and the Resolution Plan to IBBI to be recorded in its database.

The Resolution Applicant has to obtain necessary approval required under any law for the time being in force within a period of one year from date of approval of the Resolution Plan or within such period as provided for in such law, whichever is later.  In cases where the Resolution Plan contains provisions for combination under Section 5 of the Competition Act, 2002, the Resolution Applicant has to obtain the approval of Competition Commission of India under the Act prior to approval of such Resolution Plan by Committee of Creditors.

CIRP regulations 39 (5) & (5A) provide details about further steps taken after approval or rejection of Resolution Plan. The Resolution Professional has to send a copy of the order of the Adjudicating Authority approving or rejecting a Resolution Plan to the participants and the Resolution Applicant. The Resolution Professional has to intimate each claimant within fifteen days of the order of the Adjudicating Authority approving a Resolution Plan, the principle or formulae, on the basis of which payment is to be done to the claimants.

According to CIRP Regulation 39 (6) a provision in a Resolution Plan which would otherwise require the consent of the members or partners of the Corporate Debtor, as the case may be, under the terms of the constitutional documents of the Corporate Debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature, will take effect notwithstanding that such consent has not been obtained.

According to CIRP Regulation 39 (8) a person in charge of the management or control of the business and operations of the Corporate Debtor, after a Resolution Plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a Resolution Plan.

According to CIRP Regulation 39 (9), a creditor, who is aggrieved by non-implementation of a Resolution Plan approved under Section 31 (1), may apply to the Adjudicating Authority for directions.

RESOLUTION PLAN AND JUDICIAL REVIEW

It has been consistently held by the Supreme Court that at the time of approval of Resolution Plan, the Adjudicating Authority has only to see whether Resolution Plan is in compliance with the provisions of 30 (2) (b) of the Code. Decision to approve or not to approve a Resolution Plan is taken by the Committee of Creditors in its commercial wisdom.  NCLT or NCLAT cannot sit in review of the same.  

In   K. Shashidhar², the issue before the Hon’ble Supreme Court was if the Committee of Creditors has not approved a Resolution Plan with sufficient majority, whether NCLT can approve such Resolution Plan. The Supreme Court held that the Committee of Creditors has taken decision in its commercial wisdom and the same cannot be reviewed by the NCLT.

39. In our view, neither the Adjudicating Authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting Financial Creditors and that too on the specious ground that it is only an opinion of the minority Financial Creditors. The fact that substantial or majority percent of Financial Creditors have accorded approval to the Resolution Plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the Financial Creditors. To put it differently, the action of liquidation process postulated in Chapter­ III of the I&B Code, is avoidable, only if approval of the Resolution Plan is by a vote of not less than 75% (as in October, 2017) of voting share of the Financial Creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting Financial Creditors. That must prevail, if it is not less than the specified percent (25% in October, 2017; and now after the amendment w.e.f. 06.06.2018, 44%). The inevitable outcome of voting by not less than requisite percent of voting share of Financial Creditors to disapprove the proposed Resolution Plan, de jure, entails in its deemed rejection.

In Essar Steel³ one of the issues before the Supreme Court was whether NCLAT has power to issue directions to make changes to the contents of Resolution Plan, if it has been approved by the Committee of Creditors. Arcellor Mittal had submitted Resolution Plan after approval from Committee of Creditors. NCLT has approved the same, but NCLAT in appeal has directed to bring about certain changes in the Resolution Plan. The Supreme Court held that the NCLT or NCLAT has no power to modify the Resolution Plan. Further, the Supreme Court held that the NCLT or NCLAT does not have equity jurisdiction.

81. As has been held in this judgment, it is clear that Explanation 1 has only been inserted in order that the Adjudicating Authority and the Appellate Tribunal cannot enter into the merits of a business decision of the requisite majority of the Committee of Creditors. As has also been held in this judgment, there is no residual equity jurisdiction in the Adjudicating Authority or the Appellate Tribunal to interfere in the merits of a business decision taken by the requisite majority of the Committee of Creditors, provided that it is otherwise in conformity with the provisions of the Code and the Regulations, as has been laid down by this judgment.

In Maharastra Seamless⁴ the main issue before the Supreme Court was whether approval of Resolution Plan by Committee of Creditors wherein amount offered is less than liquidation value, is valid. It was held in the said judgment that there is no provision in the Code wherein it has been stated that resolution bid has to match with liquidation value determined under CIRP Regulation 35. If the Committee of Creditors has applied its commercial wisdom and approved a Resolution Plan, NCLT cannot review the same. The Supreme Court has held that the Appellate Authority has in our opinion proceeded on equitable perception rather than commercial wisdom. The relevant para is as under:

28. The Appellate Authority has, in our opinion, proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the Resolution Plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a Resolution Plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the Resolution Plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel (supra), the relevant passage (para 54) of which we have reproduced in earlier part of this judgment. The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order 35 of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront.

In Karad Urban Cooperative Ltd⁵ one of the issues before the Hon’ble Supreme Court was whether the tribunal can interfere on the ground that Resolution Plan is not viable and feasible. The Supreme Court held that a decision taken by commercial wisdom of the Committee of Creditors cannot be reviewed.

13. The principles laid down in the aforesaid decisions, make one thing very clear. If all the factors that need to be taken into account for determining whether or not the Corporate Debtor can be kept running as a going concern have been placed before the Committee of Creditors and the CoC has taken a conscious decision to approve the Resolution Plan, then the Adjudicating Authority will have to switch over to hands off mode. It is not the case of the Corporate Debtor or its Promoter/Director or anyone else that some of the factors which are crucial for taking a decision regarding the viability and feasibility is that the ownership and possession of the ethanol plant and machinery is the subject manner of another dispute and that the Resolution Plan does not take care of the contingency where the said plan does not take care of the contingency where the said plant and machinery may not eventually be available to the successful Resolution Applicant.

BINDING NATURE OF RESOLUTION PLAN

Resolution Plan once approved becomes binding on employees, members, creditors, including the Central Government and 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. The Supreme Court in Ghanshyam Mishra⁶ has held as under:

58. Bare reading of Section 31 of the I & B Code would also make it abundantly clear, that once the Resolution Plan is approved by the Adjudicating Authority, after it is satisfied, that the Resolution Plan as approved by CoC meets the requirements as referred to in subsection (2) of Section 30, it shall be binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders. Such a provision is necessited since one of the dominant purposes of the I & B Code is, revival of the Corporate Debtor and to make it a running concern.

In aforesaid case, the Supreme Court has also held that the claims which are not part of Resolution Plan get extinguished.  Relevant para is as under:

130. In the foregoing paragraphs, we have held that 2019 amendment to Section 31 of I & B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the Resolution Plan is approved by NCLT, the claims, which are not part of the Resolution Plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the Resolution Plan, shall stand extinguished.  

WITHDRAWAL OF RESOLUTION PLAN

It has been held by the Supreme Court in Ebix Singapore Private Ltd.⁷ that Resolution Plan once approved by the Committee of Creditors and submitted to the Adjudicating Authority cannot be withdrawn by Resolution Applicant. The Adjudicating Authority has no such power to allow withdrawal of Resolution Plan. Relevant para is as under:

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.

RESOLUTION PLAN AND HAIRCUTS

One of the issues which have emerged under the Code is of approval of Resolution Plans with huge haircuts. Haircut in respect of CIRP is a term used for shortfall in recovery of creditors in comparison to their claims submitted to the Resolution Professional. Committee of Creditors has taken decision to approve Resolution Plan in various cases with huge haircuts of more than ninety percent to Financial Creditors. The circumstances of the Operational Creditors are more precarious. Operational Creditors in most cases are given negligible or NIL payment against their claim. Following table captures the issue of large haircuts in respect of Financial Creditors.

Corporate Debtor	Claim  (In Crore)	Realisation (In Crore)	Haircut (For FC)
Deccan Chronicle	8180	315	95%
Videocon	59132	2884	95%
Synergy Dooray	972	54	94%
Ushdev Intel	3292	197	94%
Reliance Infratel	41055	4235	89%
Alok Industries	29523	5052	83%
Amtek Auto	12641	2614	79%
Monnet Ispat	11014	2892	73%
Aircel	19832	6630	67%
Electrosteel	13175	5320	59%

The Supreme Court has been consistently upholding supremacy of Committee of Creditors in decision making and held in catena of decisions that NCLT and NCLAT have powers limited to   see whether mandatory contents of Resolution Plan under Section 30 (2) have been complied with or not.  The NCLT or NCLAT does not have any equity jurisdiction.  As such the NCLT or NCLAT hardly have any power to review large haircuts proposed under Resolution Plan.

Parliamentary Standing Committee on Finance (2020-21) in its 32^nd  Report has shown concern over large haircuts. Parliament also suggested code of conduct for Committee of Creditors in making decisions.  The relevant Para of the Report as under:

3.According to Ministry of Corporate Affairs “the commercial wisdom of CoC is supreme”. In the committee’s view keeping in mind experience gathered so far there is urgent need to have a professional code of conduct of CoC for the CoC which will define and circumscribe their decisions as these have larger implications for efficacy of the Code.

Insolvency Law Committee in its 5^th Report has also suggested that IBBI should issue guidelines that provide the standard of conduct for members of Committee of Creditors.

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1. Binani Industries Ltd. Vs. Bank of Baroda; Company Appeal (AT) (Insolvency) No. 82 of 2018
2. K. Shashidhar Vs. Indian Overseas Bank & Ors; Civil Appeal No. 10673/2018
3. Committee of Creditors of Essar Steel India Ltd. through Authorised Signatory Vs. Satish Kumar Gupta & Ors; Civil Appeal 8766-67/2019
4. Maharastra Seamless Vs. Padmanabhan Venkatesh; Civil Appeal No. 4242/2019
5. Karad Urban Cooperative Bank Vs. Swwapnil Bhingardevay & Ors; CA 2955/2020
6. Ghanshyam Mishra & Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company Ltd & Ors; Civil Appeal No. 8129/2019
7. Ebix Singapore Pvt. Ltd. Vs. Committee of Creditors of Educomp Solutions Ltd & Anr; Civil Appeal 3224/2020