A Division bench of the Hon’ble Supreme Court of India (SC), comprising of Dr. Justice DY Chandrachud and Mr. Justice MR Shah, in their order dated 13.09.2021 in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited & Anr., held:
- NCLT (as Adjudicating Authority) cannot exercise its residual powers under Insolvency and Bankruptcy Code, 2016 (“IBC”) to create procedural remedies which have substantive outcomes on the process of insolvency. Enabling withdrawals or modifications of the resolution plan at the behest of the successful resolution applicant, once it has been submitted to the Adjudicating Authority after due compliance with the procedural requirements and timelines, would create another tier of negotiations which is wholly unregulated by the statute.
- In view of the absence of any specific provision in 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, CoC-approved resolution plans cannot be governed by the Contract Act and common law principles governing contracts.
- CoC-approved resolution plans are a function and product of IBC’s mechanisms; hence, their validity, nature and enforceability are regulated by the procedure laid down under the IBC, and not the Contract Act. A resolution plan is also different from a traditional contract because the former even binds those who have not consented to it, irrespective of whether they are privy to the contract. 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 Adjudicating Authority is not permitted to, in the absence of a clear legislative provision, direct an unwilling CoC to re-negotiate a submitted resolution plan or agree to its withdrawal, at the behest of the resolution applicant. Further, the absence of any exit routes under IBC for a successful resolution applicant is indicative of the prohibition of any attempts at withdrawal.
- The language of Section 31(1) of IBC cannot be construed to mean that a resolution plan is indeterminate or open to withdrawal/modification, until it is approved by the Adjudicating Authority.
NCLTs and the NCLAT should endeavor, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith. The 330 days outer limit for completion of corporate insolvency resolution process under Section 12(3) of the IBC, can be extended only in exceptional circumstances.