The National Company Law Appellate Tribunal (NCLAT) in a recent judgment1 held that after the resolution plan has been approved by the committee of creditors (CoC), the CoC cannot substitute the successful resolution applicant with another resolution applicant who was not a part of the corporate insolvency resolution process (CIRP).
Facts
In the CIRP of the corporate debtor, the CoC had approved the resolution plan of Invent Asset Securitization & Reconstruction Limited (Invent). The resolution professional filed an application before the NCLT for approval of the resolution plan of Invent. During the pendency of the application, the Reserve Bank of India (RBI) issued a circular (RBI Circular) which provided that asset reconstruction companies are not permitted to commence or carry on any business other than that of securitization or asset reconstruction or the business referred to in Section 10(1) of the Securitisation and Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002 without the prior approval of the RBI, subject to fulfilment of certain conditions.
In light of the RBI Circular, the CoC in its meeting passed a resolution modifying the resolution plan submitted by Invent by substituting Westend Investment and Finance Consultancy Pvt. Ltd. (Westend) as the resolution applicant. This was notified to the NCLT, basis which the resolution applicant was allowed to be modified and the plan of Westend was approved by the NCLT.
Being aggrieved by the Adjudicating Authority's order a prospective resolution applicant i.e. Swan Energy Ltd. (Appellant) filed an appeal challenging the process of approval of the plan by the NCLT terming the said modification of the resolution applicant to be bad in law and impermissible under the Insolvency and Bankruptcy Code, 2016 (IBC).
Arguments advanced:
The Appellant argued that:
- Once the successful resolution applicant whose plan is pending before the adjudicating authority becomes ineligible as the resolution applicant, the process of CIRP ought to be initiated afresh by issuing Form- G inviting resolution applicants to submit plans.
- Once the plan is approved, the resolution applicant cannot be substituted even with the approval of the CoC, since the CoC has no jurisdiction to pass a resolution for modification of the approved resolution plan.
- Westend, i.e. the new resolution applicant had not even filed the expression of interest nor did it file the resolution plan during the CIRP. Thus, approval of Westend's resolution plan is in contravention to the provisions of the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).
- The request for resolution plan (RFRP) did not provide for any substitution of the resolution applicant and a subsequent resolution modifying the RFRP to allow substitution of the resolution applicant without re-running the process is bad in law.
The Respondents argued that:
- There is no modification to the resolution plan which was initially approved, except for the change of the name of the resolution applicant who is the sponsor company of Invent.
- The provisions of the resolution plan clearly permit the resolution applicant to implement the plan through its subsidiary, special purpose vehicle, limited liability partnership or nominee by infusion of equity.
- Invent, being unable to implement the resolution plan on account of the RBI Circular, the CoC has resolved to substitute Westend as the resolution applicant for the purposes of implementation of the plan which does not violate any provisions of the IBC and CIRP Regulations.
Analysis of the judgment
NCLAT held that the provision of the plan allowing a subsidiary, special purpose vehicle or nominee of the resolution applicant to infuse equity into the corporate debtor does not tantamount to a provision allowing substitution of the very resolution applicant itself.
Since Westend had never submitted a resolution plan, and was thus not included in the list of prospective resolution applicants, the CoC could not substitute Westend as the resolution applicant. This would amount to a contravention of Regulation 39 of the CIRP Regulations which provides that CoC cannot consider any resolution plans received after the time provided or from a person who does not appear in the final list of prospective resolution applicants.
The NCLAT referred to the judgments of the Supreme Court which noted that the resolution plan approved by the CoC is binding and cannot be allowed to be modified or withdrawn, except where the resolution plan violates any provision of Section 30(2) of the IBC and the COC takes a decision to delete the provision which are non-compliant to make the plan compliant2.
Though the NCLAT clarified that the RBI Circular will not affect resolution plans wherein asset reconstruction companies struck by the RBI Circular are mere co-applicants3, relying upon the decision in UV Asset Reconstruction Company Ltd. & Anr. vs. Aircel Ltd. Through its Monitoring Committee4 the NCLAT held that a new resolution applicant cannot be brought in or a resolution applicant cannot be substituted.
Conclusion
Though the plan per se was not under challenge, the action for substitution of the resolution applicant certainly deviates from the settled position that there can be no modification to the resolution plan after approval from the CoC, even if the change is sought and approved by the CoC itself.
Footnotes
1 Swan Energy Ltd. Vs. Chandan Prakash Jain, RP of E-Complex Pvt. Ltd. and Ors. - Company Appeal (AT) (Insolvency) No. 313 of 2024
2 Ebix Singapore Private Limited vs. CoC of Educomp Solutions Limited and Anr. (2022) 2 SCC 401 and SREI Multiple Asset Investment Trust Vision India Fund vs. Deccan Chronicle Marketeers and Ors.- (2023) 7 SCC 295
3 Puissant Towers India Pvt. Ltd. vs. Neueon Towers Limited- Company Appeal (AT) (CH) (Ins.) No. 181 of 2022
4 Company Appeal (AT) (Ins.) No. 333 of 2024
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