Following several civil appeals, the Supreme Court has decided in its final order and judgment dated 13 September 2021 (the judgment) whether a resolution plan that has already been approved by the requisite majority of the committee of creditors (CoC) and that is pending the approval of the adjudicating authority can be modified or withdrawn by a resolution applicant under the Insolvency and Bankruptcy Code 2016 (the Code).
The Supreme Court held that, under the existing framework of the Code, there is no provision that allows for the modification or withdrawal of a resolution plan upon the request of a successful resolution applicant once it has been approved by the majority of the CoC. Further, the Supreme Court, comprising justices Dhananjaya Yeshwant Chandrachud and Mukeshkumar Rasikbhai Shah, held that a resolution plan that has been approved by the CoC becomes irrevocable and binding between the successful resolution applicant and the CoC, irrespective of the terms contained within the resolution plan.
In its judgment, the Supreme Court set out the following principles:
- When granting reliefs that may be incompatible with the principles of timeliness and predictability that are set out in the Code, the adjudicatory mechanism of the National Company Law Tribunal's (NCLT's) residuary powers under section 60(5)(c) of the Code, the NCLT's inherent powers under rule 11 of the NCLT Rules 2016 or even the powers of the Supreme Court under article 142 of the Constitution must be evoked with caution.
- Resolution plans that have been approved by the CoC are not considered pure contracts under the Contract Act as there is no provision for such plans under the Code and its regulations. A resolution plan is different from a traditional contract as the Code extensively governs the form, mode, manner and effect of approval and specificity of the latter, which can bind parties without their consent.
- Contractual principles and common law remedies that are not mentioned under the Code cannot be resorted to if the CoC-approved plan is pending the NCLT's approval. Instead, only elements of contract interpretation can be relied on to construe the language of the resolution plan's terms as being consistent with the Code (in case of a dispute). Once the required majority of the CoC has approved the resolution plan, it is binding on the resolution applicant and the CoC and cannot remain indeterminate at the discretion of the resolution applicant.
- Given the absence of a clear legislative provision, the Supreme Court will neither, by process of interpretation, confer on the NCLT the power to direct an unwilling CoC to renegotiate a submitted resolution plan, nor will it agree to the plan's withdrawal upon the resolution applicant's request.
- While the Code and its regulations provide a step-by-step guide for the corporate insolvency resolution process, they do not provide an exit route for a CoC-approved resolution plan. This suggests that the Code never intended to allow withdrawals or renegotiations. Therefore, such a provision of relief, which is not vested with the resolution applicant under the Code, cannot be granted through judicial interpretation.
- A resolution plan providing for withdrawal or renegotiation cannot be deemed viable or possible to implement, as it would make the resolution process indeterminate and unpredictable.
- It is the legislature's prerogative to allow for withdrawal or modification of a resolution plan by a successful resolution applicant or to give effect to any such clauses in a resolution plan that are lacking in the existing framework. Therefore, it is best left to the wisdom of the legislature to decide whether to permit withdrawals and the conditions, safeguards and statutory procedure to be adopted in relevant cases.
In view of the above principles, the Supreme Court held that the existing insolvency framework in India provides no scope for further modifications or withdrawals of CoC-approved resolution plans upon the successful resolution applicant's request, once the plan has been submitted for the NCLT's approval. The Supreme Court is aware of the long judicial delays that hinder the insolvency processes and, therefore, urged the NCLT and the National Company Law Appellate Tribunal (NCLAT) to be sensitive to the effect of such delays and to remember that adjournments hamper the efficacy of the judicial process.
The Supreme Court's judgment is a welcome decision that finally gives certainty to the issue that CoC-approved resolution plans cannot be withdrawn upon the request of successful resolution applicants. Further, it helps to define the limited scope of available judicial review, which includes the residuary powers of the NCLT and the NCLAT. This decision is in line with the judicial approach of prioritising predictability and timeliness, which are touchstones of the current insolvency regime in India.
For further information on this topic please contact Misha, Anurag Dwivedi, Siddhant Kant or Moulshree Shukla at Shardul Amarchand Mangaldas & Co by telephone (+91 11 4159 0700) or email ([email protected], [email protected], [email protected] or [email protected]). The Shardul Amarchand Mangaldas & Co website can be accessed at www.amsshardul.com.