Bench of Justice Bansi Lal Bhat, Acting Chairperson; Anant B Singh, Member (Judicial) and Alok K Mishra Member (Technical) of NCLAT has held that once a Resolution Plan has been approved by Committee of Creditors, the successful Resolution Applicant cannot be permitted to withdraw it. (Kundan Care vs Amit Gupta).
The Appellant, Kundan Care Products Ltd, was the successful Resolution Applicant in insolvency resolution process of M/s Astonfield Solar (Gujarat) Pvt. Ltd, the Corporate Debtor and had moved an application before the Adjudicating Authority for withdrawal of its Resolution Plan and cancellation/ revocation/ return/ refund of the Performance Bank Guarantee.
The application was rejected by the Adjudicating Authority on the ground that there was no legal basis for an application for withdrawal of a Plan after it is approval.
The Appellant came before the NCLAT, aggrieved by the order.
Contentions Raised by the Appellant
- IBC does not contain any provisions to compel specific performance of a Resolution Plan by an unwilling Resolution Applicant.
- If a resolution plan is found to be unviable, unfit for implementation, as in the present case, or is either lacking provisions for its successful implementation or is based on incorrect assumptions, the plea for withdrawal ought to be allowed.
The Resolution Professional contended as follows:
- There is no provision in IBC which allows the withdrawal of an approved Resolution Plan
- The purpose of seeking Performance Bank Guarantee from a Resolution Applicant is to discourage them from withdrawing the Resolution Plan later.
- The business decision of the CoC is not open to judicial review before the Adjudicating Authority or the Appellate Tribunal.
- Permitting withdrawal of Plan would scuttle the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor and push it into liquidation.
Submissions by CoC
- IBC does not prescribe any provision for withdrawal of Plan by the Resolution Applicant.
- Adjudicating Authority has no power or jurisdiction to allow withdrawal of the Resolution Plan. Allowing such prayer would be without jurisdiction.
- It is further submitted that once the Resolution Plan is approved, it becomes a binding contract between the parties.
Keeping in view the scheme and the object of IBC, the NCLAT held that although a Resolution Plan becomes binding on stakeholders only after an order is passed by the Adjudicating Authority under Section 31 IBC, a Resolution Applicant cannot be permitted to withdraw its Resolution Plan after it is approved by the Committee of Creditors.
“A Resolution Applicant whose Resolution Plan stands approved by Committee of Creditors cannot be permitted to alter his position to the detriment of various stake holders 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.”
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, the NCLAT added.
NCLAT held and opined that there was no merit in the appeal and the same was dismissed.
“We are of the considered opinion that the sanctity of resolution process has to be maintained and the Resolution Applicant whose Resolution Plan has been approved by Committee of Creditors cannot be permitted to withdraw its Resolution Plan.”