Summary: A look into the recent judgment of the NCLAT wherein it holds that a successful resolution applicant cannot withdraw from his resolution plan once the same has been accepted.
Recently the NCLAT ruled over a judgment after due observation of the same, wherein it rejected the plea filed by a firm based out of Delhi, Kundan Care Products which has ultimately secured and emerged as a successful bidder for Astonfield Solar (Gujarat) Pvt Ltd.
The main contention brought to the notice by the NCLAT within its ruling was that, after a resolution plan had been duly formulated for a company absolved with debt and which had also been duly approved by the lenders, then the successful bidder in the instance shall not be permitted to withdraw his offer post this occurrence.
The Ruling and Its Effect
- The NCLAT bench comprising of three members reiterated further that it was to protect and uphold the sanctity of the resolution process under the Insolvency and Bankruptcy Code, 2016, that such a request for a withdrawal by any successful bidder shall not be permitted since it would frustrate the very guidelines and the entire premise over which the Corporate Insolvency Resolution Process (CIRP) had been incorporated.
- Furthermore, it was also pointed out while upholding this ruling that there did not exist any proper provision within the Insolvency & Bankruptcy Code, 2016 to permit any such successful resolution applicant to suddenly withdraw and stage a complete violation of the entire process.
- The bench comprising of the distinguished members further maintained that they were of the strict and direct opinion that the sanctity and seriousness of the resolution process had to be of utmost importance under any proceeding and any act which violated this, had to necessarily be rejected at once. Any resolution applicant, whose resolution plan had been duly accepted by the Committee of Creditors must not and shall not be allowed to withdraw such a resolution plan. This view was cited by none other than the Acting Chairman of the bench, Justice B L Bhat.
- Moreover, the appellate tribunal further added that even under the Insolvency & Bankruptcy Code, 2016, existed no such express provision which permitted any successful resolution applicant to step back and stage a violation of the entire procedure by withdrawing his or her bids after the same had been duly approved by the Committee of Creditors.
- While the provision for a submission of a Performance Bank Guarantee through a resolution applicant during the submission of its resolution plan, as required under the amended provisions of IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 can be perceived as a steps towards this direction, but this cannot be deterrent enough to prevent a Successful Resolution Applicant from taking a U-turn.
Facts of the Case
- The decision of the NCLAT and its observation were produced in the judgement, wherein the bench had dismissed the plea filed by a Delhi-based firm, Kundan Care Products which had emerged as a successful bidder for Astonfield Solar (Gujarat) Pvt Ltd.
- This firm, that is, Kundan Care Products contended that due to the delay in the arrival of the conclusion of the CIRP, their offer had thus been rendered as commercially not viable thereby not creating any impediment for the resolution to be withdrawn by the applicant.
- Holding this same view point, the firm approached the Delhi bench of the National Company Law Tribunal (NCLT), which had on July 3, 2020, decided to decline on passing any order on the grounds that it would not be appropriate for this bench to rule over an issue which was already sub-judice before the Supreme Court itself. This ultimately resulted in the firm moving the NCLAT.
- The firm duly argued, holding its contention that the IBC did not comprise of any provisions which compelled or forced upon, any specific performance of any such resolution plan by an unwilling resolution applicant and thus a rightful plea for the withdrawal of the same should be accepted in the event that such a plan is deemed as unviable, unfit for usage or lacking in some fundamental provisions for the successful implementation of the same or even if this plan is based on any incorrect assumptions made by the CoC.
- In response to this, the Committee of Creditors (CoC) duly submitted that the IBC did not prescribe any such provision which mandated for the withdrawal of a resolution plan once accepted and the NCLT is therefore not bestowed with any power to allow withdrawal of the resolution plan, whatsoever.
- They further reiterated the point and submitted further that once a resolution plan had been approved and accepted by the Committee of Creditors, the same was to become binding under the law and the process under which it had been instituted thereby binding both the parties in the contract as well as the successful resolution applicant. It is due to this that the same cannot be permitted to be withdrawn at the whim of the resolution applicant when he or she deems it as suddenly unviable.
- Therefore, upholding the above view point, the NCLAT said earlier in a similar matter of Educomp Solutions, that it had already once upheld the view that once a resolution applicant had accepted the conditions of resolution plan, it was not open to it to make any divurgence or U-turn from the same and wriggle out of the liabilities imposed upon it under the Resolution Plan approved by the Committee of Creditors, no matter the reasoning provided by them.
- Thus there was no merit to be found in the above appeal and the appellant was deemed a failure in trying to demonstrate the fact that this impugned order suffered from any legal consequences. Finding the appeal as lacking in law and completely void, the NCLAT dismissed the same on being devoid of any merit.
#tags: NCLAT, NCLT, IBC, impugned order, three member bench, resolution plan, withdrawal, committee of Creditors