The Supreme Court of India, on 13.09.2021, delivered a landmark judgment which has settled the issue of whether withdrawal or modification of the Resolution Plan by the Resolution Applicant, after acceptance by the Committee of Creditors (“CoC”) but before approval of the Adjudicating Authority/NCLT, is permissible or not.

The bench  of Justices D.Y. Chandrachud and M.R. Shah while deciding three Appeals filed by Ebix Singapore PTE Limited, Kundan Care Products Limited and Seroco Lighting Industries Private Limited, in which the common issue regarding withdrawal or modification of an approved Resolution Plan was involved, has held that enabling withdrawal or modification of the Resolution Plan would lead to another round of negotiations completely unregulated by Insolvency and Bankruptcy Code, 2016 (“IBC”) and therefore would be detrimental to the Corporate Debtor, its creditors and the economy at large. The Court has further held that the existing insolvency framework provides no scope or provision for withdrawal or modification of the Resolution Plan which has been approved by the CoC, and hence the Court cannot permit the same through the backdoor by a judicial fiat. The Court has left it to the Legislature to incorporate appropriate provisions for withdrawal or modifications of Plans in its legislative wisdom.

The Appeals filed by Ebix Singapore PTE Limited (CA No. 3224/2020) and Seroco Lighting Industries Private Limited (CA No. 295/2021) have been dismissed by the Court. However, in the Appeal filed by Kundan Care Products Limited (CA No. 3560/2020), the Court after considering the peculiar facts and circumstances, exercised its powers under Article 142 of the Constitution of India and granted one-time relief to the Appellant/Resolution Applicant permitting it to modify the Resolution Plan, as in this case both the CoC and the Resolution Applicant had requested for modification of the Resolution Plan in view of the inordinate delay in conclusion of the CIRP and pendency of the Plan for approval before the NCLT.

The Court also took cognizance of the long delays in approving the Resolution Plans by the Adjudicating Authority by relying on the 32^nd Report of the Ministry of Corporate Affairs’ Standing Committee on Finance (2020-2021) on ‘Implementation of Insolvency and Bankruptcy Code – Pitfalls and Solutions’ which has highlighted huge pendency of applications before the Adjudicatory Authority. The Court urged the NCLT and the NCLAT to strictly adhere to the timelines stipulated under the IBC on best effort basis, as inordinate delays cause commercial uncertainty, degradation in the value of the Corporate Debtor and makes the insolvency process inefficient and expensive.

This judgment provides much needed clarity to all prospective resolution applicants who intend to revive the companies which are under Insolvency which is the essence of the IBC.    

Kundan Care Products Limited was represented by GnS Legal LLP through Mr. Prithu Garg and Mr. Shailendera Singh, Partners and Ms. Harimohana Narayanan and Mr. Ankush Bhardwaj, Associates and the arguments were led by Mr. Ramji Srinivasan, Senior Advocate.

Click to read the Order and Judgment.