There is no express provision in the IBC allowing a Successful Resolution Applicant to frustrate the entire exercise of CIRP: NCLAT
The National Company Law Appellate Tribunal (NCLAT) has held that there is no express provision in the Insolvency and Bankruptcy Code (IBC) allowing a successful Resolution Applicant to take a U-turn and frustrate the entire exercise of Corporate Insolvency Resolution Process (CIRP).The NCLAT reiterated that primacy is given to the Committee of Creditors, who are empowered to take a...
The National Company Law Appellate Tribunal (NCLAT) has held that there is no express provision in the Insolvency and Bankruptcy Code (IBC) allowing a successful Resolution Applicant to take a U-turn and frustrate the entire exercise of Corporate Insolvency Resolution Process (CIRP).
The NCLAT reiterated that primacy is given to the Committee of Creditors, who are empowered to take a business decision in regard to feasibility and viability of a Resolution Plan based on their commercial wisdom, as settled by a catena of rulings by the Supreme Court.
It further held that intervention by the Adjudicating Authority is limited to compliance of the Resolution Plan approved by the Committee of Creditors to requirements of Section 30(2) and by the NCLAT in appeal to grounds embodied in Section 61(3) of the IBC.
The NCLAT bench headed by Acting Chairperson Justice Bansi Lal Bhat held that a Resolution Applicant whose Resolution Plan stands approved by Committee of Creditors (CoC) cannot be permitted to alter his position to the detriment of various stakeholders after pushing out all potential rivals during the bidding process. This is fraught with disastrous consequences for the Corporate Debtor which 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.
According to the NCLAT, it repelled the arguments of the Appellant who stated that there is no provision in the IBC compelling specific performance of Resolution Plan by the Successful Resolution Applicant on four major grounds:
1. There is no provision in the I&B Code entitling the Successful Resolution Applicant to seek withdrawal after its Resolution Plan stands approved by the Committee of Creditors with requisite majority;
2. The successful Resolution Plan incorporates contractual terms binding the Resolution Applicant but it is not a contract of personal service which may be legally unenforceable;
3. The Resolution Applicant in such case is estopped from wriggling out of the liabilities incurred under the approved Resolution Plan and the principle of estoppel by conduct would apply to it;
4. The value of the assets of the Corporate Debtor is bound to have depleted because of passage of time consumed in Corporate Insolvency Resolution Process and in the event of Successful Resolution Applicant being permitted to walk out with impunity, the Corporate Debtor's depleting value would leave all stakeholders in a state of devastation.
The appellate authority finally ruled that, "The sanctity of resolution process has to be maintained and the Resolution Applicant whose Resolution Plan has been approved by the CoC cannot be permitted to withdraw its Resolution Plan. 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 is a step in this direction but may not be deterrent enough to prevent a Successful Resolution Applicant from taking a U-turn."