Weekly IBC Diary #4: Resolution Plan cannot be withdrawn after approval, period of limitation and more
The Bar & Bench Weekly IBC Diary aims to report crucial rulings of various courts and tribunals and important updates concerning the Insolvency & Bankruptcy Code (IBC), 2016
Whether NCLAT has the power to condone delay in filing appeal beyond the period of limitation mentioned in the IBC & can the Supreme Court extend the period by exercising its powers under Article 142 ?
Provisions: Section 61, IBC
NCLAT has no jurisdiction at all to condone the delay exceeding 15 days from the period of 30 days, as contemplated under Section 61(2) of the IB Code. Parliament has not carved out any exception of any genuine situation which causes hardship. Under the IBC, has no power to extend the period of limitation on equitable grounds. Further, what cannot be done directly considering the statutory provisions cannot be permitted to be done indirectly, while exercising the powers under Article 142 of the Constitution of India.
It may also be noted that IBC is a special law which prescribes time limits for each and every procedure mentioned under it. Time bound process is one of the strengths of the IBC. In view of this, Section 5 of the Limitation Act shall also not be applicable as the legislature has prescribed a special limitation for the purpose of the appeal as provided under Section 61 of the IBC. This decision can be used as a precedent where the parties try to invoke the jurisdiction of the SC under Article 142 to wriggle out of the delayed filing of appeal before the NCLAT.
Whether a resolution applicant can withdraw a resolution plan after the CoC approves the plan?
Key observations in the decision:
Features of a Resolution Plan, where a statute extensively governs the form, mode, manner and effect of approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented to it.
The Resolution Plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the Adjudicating Authority. Even at that stage, its binding effects are produced by the IBC framework.
The binding effect of the Resolution Plan has the consequence of preventing the CoC or the Resolution Applicant to renege from its terms after the plan has been approved by the CoC through a voting mechanism.
A Resolution Applicant, after obtaining the financial information of the Corporate Debtor through the informational utilities and perusing the IM, is assumed to have analyzed the risks in the business of the Corporate Debtor and submitted a considered proposal.
Absent a clear legislative provision, courts will not, by a process of interpretation, confer on the Adjudicating Authority a power to direct an unwilling CoC to re-negotiate a submitted Resolution Plan or agree to its withdrawal, at the behest of the Resolution Applicant.
The absence of any exit routes being stipulated under the statute for a successful Resolution Applicant is indicative of the IBC’s proscription of any attempts at withdrawal at its behest.
Conditions for withdrawal or re-negotiation of the Resolution Plan cannot pass the test of ‘viability’ and ‘implementability’ as they would make the resolution process indeterminate and unpredictable.
Whether non-consideration of statutory authority’s belated claim amount to material irregularity on part of the Resolution Professional?
Provisions: Section 18, 21, IBC
Section 21(1) envisages the collation of claims. It cannot be interpreted that the IRP/RP should collate the claims even if they are received outside the prescribed time limit. Material irregularity will arise only when the claim had been submitted within time and the IRP had chosen not to collate this claim. Resolution Professional was not duty bound to collate claims which are belatedly received after the last date thereby delaying the entire CIRP which is a time bound process.
This decision upholds one of the main pillars of the IBC i.e. strict adherence to the timelines. The Hon’ble Supreme Court in the case of Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta has held that the model timelines provided in Regulation 40A of the CIRP Regulations should be followed as closely as possible. There are many genuine cases where the claims are filed belatedly because the creditor did not have any knowledge about the initiation of the CIRP. The author suggests an amendment in the IBC or in the regulations which make it mandatory for the IRP to intimate the creditors appearing in the financial statement of the corporate debtor. Further, the IRP could itself prepare a list of claims on the basis of ledgers of the corporate debtor which can then be confirmed or denied by the creditors.
Provisions: Chapter III-A, Sections 54A-54P, IBC
This is possibly the first case to be admitted into insolvency under the Pre-Packaged Insolvency Resolution Process (“PPIRP). This process has been recently notified vide insertion of a new chapter in the IBC, namely Chapter III-A. It is meant for MSMEs for the time being. While the order of the NCLT doesn’t lay down any principles of law, the order is important as it lists down the essential things which are ascertained by the Adjudicating Authority before admitting a MSME corporate debtor into PPIRP. This decision can serve as a checklist for practitioners of insolvency law.
The author is a dually qualified professional. He is a Fellow Chartered Accountant and practices law in the courts of Delhi. He can be reached at firstname.lastname@example.org