Introduction
The Hon’ble Supreme Court (‘SC’) in the case of Deccan Value Investors L.P. & Anr. v. Dinkar Venkatasubramanian & Anr.[i] has ruled that once a resolution plan (‘Plan’) submitted by a successful resolution applicant (‘SRA’) is approved by the Committee of Creditors (‘CoC’), the SRA cannot unilaterally withdraw it. The SC held that any averment by the SRA that they were prevented and handicapped because of lack of information or fraud by the resolution professional (‘RP’) would be untenable except in egregious cases where data and facts are forged or concealed.
Brief Facts
In this case, cross-appeals were filed by the SRAs, the CoC and the RP. These appeals challenged the order of the National Company Law Appellate Tribunal (‘NCLAT’) which had upheld the judgment of the National Company Law Tribunal (‘NCLT’).
The controversy originated from an NCLT, Mumbai order which determined that the Insolvency and Bankruptcy Code, 2016 (‘IBC’) does not confer the Adjudicating Authority (‘AA’) any power and jurisdiction to enforce specific performance of a Plan by an unwilling SRA.
This NCLT decision was maintained on the grounds that, while the AA followed the necessary procedural requirements, the Plan contravened s. 30(2)(e) of the IBC.
Held
The SC set aside the decision of the NCLAT and approved the Plan submitted by the SRAs, based primarily on its judgment in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another[ii]. This judgment established that an SRA cannot withdraw or modify the Plan after the CoC has approved it.
It emphasized that withdrawing a Plan after CoC approval is impermissible due to the potential for delays, the consequential issues arising from such delays, and the complexities and uncertainties introduced into the corporate insolvency resolution process (‘CIRP’), which are neither acceptable nor contemplated by law.
The SC noted that the Plan, once approved, is a creature of the IBC and not merely a contract between two consenting parties. There is no statutory provision that allows for the withdrawal or amendment of the Plan once it is approved.
In considering the argument regarding s. 31(1) of the IBC, which requires that the AA must ensure that the Plan has effective provisions for its implementation before approval, the SC observed that this argument was previously discussed and rejected in Ebix Singapore (supra) on several grounds, including the lack of a legislative mandate for the CoC to renegotiate or consent to the withdrawal of the Plan at the request of an SRA.
The SC held that contentions from the SRAs justifying withdrawal on the grounds of lack of information or alleged fraud by the RP do not constitute fraud and thus, are not grounds for altering the Plan.
Experts prepare plans; they are not the work of laypersons. They are submitted after a thorough examination of financial statements and data by domain and financial experts, who apply caution and account for data inadequacies and risks in their valuation.
It is assumed that the SRA would have submitted the Plan detailing the offered consideration and other obligations only after conducting thorough due diligence on the corporate debtor's commercial viability. Therefore, complaints regarding ambiguities or lack of information after the Plan's acceptance by the CoC are generally not acceptable, except in egregious cases where data and facts are intentionally misrepresented or concealed.
Regarding the information provided in the information memorandum by the RP, the SC ruled that the obligation to provide information must be assessed on a ‘best effort’ basis and not on the expectation of presenting the 'true picture of risk'.
Our Analysis
The SC, in this case, has reaffirmed that the Plan approved by the CoC transcends a mere contract and is a creation of statute. Consequently, it cannot be unilaterally withdrawn by the SRA. It established that once a Plan is approved by the CoC and complies with the IBC, it becomes legally binding on all relevant stakeholders.
Moreover, the SC reiterated that in the absence of a statutory provision allowing the AA to permit withdrawal of a Plan, such an action would be impermissible, except in egregious cases involving intentional falsification or concealment of data, or violations under s. 30(2)(e) of the IBC. This judgment underscores the necessity for the SRA and other stakeholders to conduct thorough due diligence before submitting or endorsing a Plan. The SC’s decision reinforces the time-sensitive resolution framework established by the IBC, emphasizing the fundamental objective of the IBC to expedite the resolution process effectively.
End Notes
[i] [2024] 161 taxmann.com 325 (SC).
[ii] [2021] 130 taxmann.com 208 (SC).
Authored by Huzaifa Salim, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.