Whether Committee of Creditors consider a new Resolution Plan of a party, who was not a part of the CIRP, after approval of Resolution Plan by Adjudicating Authority

Facts of the case: –

Kalinga Allied Industries India Private Limited (Hereinafter referred to as “Appellant” or Successful Resolution Applicant(SRA)  have preferred appeal against the order of Hon’ble National Company Law Tribunal (NCLT), New Delhi, Principal Bench in IA No.999(PB)/2021 in IB-60(PB)/2018 allowing application by Committee of Creditors(CoC) to call a meeting of CoC and consider Resolution Plan proposed by Party who was not part of CIRP Proceedings and seeking additional time to consider and approve a more suitable plan after already approved plan of SRA by CoC. SRA earlier has placed resolution plan at lower amount on 25^th June 2019, later on SRA submitted revised offer with increased amount as per order dated 22^nd October 2019 and the same was approved by CoC at their meeting on 11^th November 2019 and said plan was submitted to the Adjudicating authority which was approved as well.

Observation of Hon’ble NCLT while allowing application of CoC

“CoC is well within its powers to reject a plan, improve a plan and also withdraw a plan in their commercial wisdom and hence the decision on the part of the financial creditors to reconstitute the CoC and to construe better plans, is well within their powers and the same cannot be denied.”

Grounds of Appeal to Hon’ble NCLAT: –

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Submissions of Respondents

CoC and RP (Respondent in this appeal) referred to catena of judgement in support of their pleadings as follows: –

1. CoC can withdraw and recall its consent given to a ‘Resolution Plan’ prior to the approval by the Adjudicating Authority and placed reliance on the Judgements in ‘Siva Rama Krishna Prasad’ Vs. ‘S. Rajendran, Official Liquidator of M/s. Krishna Industrial Corporation Ltd. -5- Comp. App. (AT) (Ins.) No. 689 of 2021 & Ors.’ , and in ‘Gulabchand Jain’ Vs. ‘Ramchandra D. Choudhary, Resolution Professional of Vijay Timber Industries Pvt. Ltd.’ in support of their submissions.
2. Commercial Wisdom of the CoC is non-justiciable and hence it is in the domain of the CoC to decide even if at a later stage, which Resolution Plan is more suitable. (Ref: – Order of Hon’ble Supreme Court in the matter of K. Sashidhar Vs. ‘Indian Overseas Bank & Ors.’, ‘Committee of Creditors of Essar Steel India Ltd.’ Vs. ‘Satish Kumar Gupta & Ors.’ and in ‘Kalpraj Dharmashi & Anr.’ Vs. ‘Kotak Investment Advisors Ltd. & Anr.)

Hon’ble NCLAT Allowed appeal and set aside order of Hon’ble NCLT on following grounds: –

Hon’ble NCLAT has placed reliance on ratio laid down by the Hon’ble Supreme Court in the case of Ebix Singapore Pvt. Ltd.’ Vs. ‘Committee of Creditors of Educomp Solutions Ltd. & Anr.’7, in which the Hon’ble Apex Court discussing modification and withdrawals by SRA has observed as follows: –

1. Existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the successful Resolution Applicant, once the plan has been submitted to the Adjudicating Authority.
2. A submitted Resolution Plan is binding and irrevocable as between the CoC and the successful Resolution Applicant in terms of the provisions of the IBC and the CIRP Regulations.
3. If the legislature in its wisdom, were to recognize the concept of withdrawals or modifications to a Resolution Plan after it has been submitted to the Adjudicating Authority, it must specifically provide for a tether under the IBC and/or the Regulations. This tether must be coupled with directions on narrowly defined grounds on which such actions are permissible and procedural directions, which may include the timelines in which they can be proposed, voting requirements and threshold for approval by the CoC (as the case may be).
4. Strict timelines have to be adhered to and that the Adjudicating Authority lacks the authority to allow the withdrawal/modification of the Resolution Plan by an SRA, as this would defeat the very objective of the statute.

‘Maximisation of Value of Assets’ ought to be ‘within the specified timelines’ and if it is not a ‘timebound process’, the entire scope and objective of the Code would fail merely because there is another higher offer made by a third party, the CoC cannot consider another Plan of a third party who did not participate in the CIRP Proceedings.

Once Plan is submitted for approval, it is binding between the CoC and the SRA, unless there is any material irregularity or is against the provisions of Section 30(2) of the Code the Adjudicating Authority cannot, in its limited jurisdiction, interfere.

Conclusion: –

Currently, there are no provisions in CIRP Regulations with respect to Modification or withdrawal of Approved Plan by CoC. As per section 30(1) of IBC once resolution plan is approved it is binding on all stakeholders.

In the present case Third Party was bidding who was never been part of CIRP Process, If the same was part of CIRP and then it tries to modify their plan then, in future if such a scenario occurs, decision of Hon’ble NCLAT would be throwing light on it. It can be concluded that, objective of code is to maximize the value, however the same should be in time bound manner. Otherwise, purpose of code would be defeated. Once the plan is approved and submitted with authority it is binding and Adjudicating authority can only intervene if there is material irregularity.