In the case of Kundan Care Products Ltd. v. Amit Gupta and Ors.[1], the National Company Law Appellate Tribunal (NCLAT) on September 30, 2020 held that once a Resolution Plan has been approved by the Committee of Creditors, the Successful Resolution Applicant cannot be permitted to withdraw it.
Background
Kundan Care Products Ltd, the Appellant was the Successful Resolution Applicant in insolvency resolution process of M/s Astonfield Solar (Gujarat) Pvt. Ltd, who is the corporate debtor. The Appellant moved to the Adjudicating Authority with an application for withdrawal of its Successful Resolution Plan and cancellation/revocation/return/refund of the Performance Bank Guarantee. But the same was rejected citing no legal basis for an application for withdrawal of a Resolution Plan after the same has been approved by the Committee of Creditors (hereinafter, ‘CoC’).
After the rejection, the Appellant appealed to the NCLAT to strike down the reasoning and order of the Adjudicating Authority which also cited that the matter was pending before the Supreme Court and hence was not maintainable. However, the Appellant stated that the said pending matter was unrelated to the one being brought before the Adjudicating Authority.
Moreover, the Appellant argued that there is no basis in the argument that the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 (hereinafter, ‘IBC’) has no power or jurisdiction to allow withdrawal of a Resolution Plan post approval from the CoC.
Further, the Appellant argued that the IBC does not contain any provision compelling specific performance of a Resolution Plan by an unwilling Applicant and a plea for withdrawal of a plan will have to be accepted, if the plan is found to be unviable, unfit for implementation or lacks the provisions for a successful implementation or is based on incorrect assumptions.
Finally, it was submitted that in the instant case, the approved Resolution Plan has been rendered commercially unviable on account of delay in conclusion of Corporate Insolvency Resolution Process (hereinafter, ‘CIRP’) and the Appellant could not be prevented from withdrawing the same.
On the contrary, the Respondents argued that the appeal is not maintainable as according to a previous judgement in a similar matter[2], the Tribunal held that after the approval of the Resolution Plan by the Committee of Creditors, the Adjudicating Authority has no jurisdiction to entertain or permit the withdrawal application filed by the Resolution Applicant and that Adjudicating Authority cannot enter into the arena of the majority decision of the CoC.
Committee of Creditors
The Committee of Creditors, Respondent no. 2, stated that firstly, the IBC does not prescribe any provisions for withdrawal of Resolution Plan by the Resolution Applicant. Secondly, the Adjudicating Authority has no jurisdiction to allow withdrawal of the Resolution Plan, which means that allowing this would be without jurisdiction. And lastly and most importantly, once the Resolution Plan is approved, it becomes a binding contract between the parties and the Successful Resolution Applicant cannot be permitted to withdraw the same which will have the effect of sending the Corporate Debtor into liquidation.
Final Order
The Tribunal held that the sanctity of resolution process has to be maintained and the Successful Resolution Applicant cannot be permitted to withdraw its Resolution Plan. It further stated that the CIRP process involved the filing of Expression of Interest and the subsequent filing of Resolution Plans, out of which one is approved by the Committee of Creditors. Keeping in view the scheme and the object of IBC, it held that although a Resolution Plan becomes binding on stakeholders only after an order is passed by the Adjudicating Authority under Section 31 IBC, a Resolution Applicant cannot be permitted to withdraw its Resolution Plan after it is approved by the Committee of Creditors.
Furthermore, it added that a Resolution Applicant whose Resolution Plan stands approved by Committee of Creditors cannot be permitted to alter his position to the detriment of various stake holders after pushing out all potential rivals during the bidding process. This is riddled with disastrous consequences for the Corporate Debtor who may be pushed into liquidation as the CIRP period may by then be over thereby setting at naught all possibilities of insolvency resolution and protection of a Corporate Debtor, more so when it is a going concern.
It added that the provision for submission of a Performance Bank Guarantee by a Resolution Applicant while submitting its Resolution Plan, as required under the amended provisions of IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 maybe a step in this direction but may not be deterrent enough to prevent a Successful Resolution Applicant from taking a U-turn. Thus, on these bases, the Appeal was dismissed by the Tribunal.
Conclusion
Through this order, the Tribunal once again upheld the basic tenet of the IBC which is organized resolution of matters while catering to each stakeholder involved. It underlined the importance of the Committee of Creditors by stating that they are to be given primacy when it comes to taking a view with regards the feasibility and viability of a Resolution Plan.
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