NCLAT dismisses plea to withdraw resolution plan for Astonfield Solar (Gujarat)
The big point of law that is being put to test under the Insolvency and Bankruptcy Code (IBC) is whether a resolution applicant whose resolution plan has been approved by the Committee of Creditors (CoC) can withdraw resolution plan.
While recently the Ahmadabad bench of the National Company Law Tribunal (NCLT) allowed Suraksha ARC to walk out from the resolution process of Wind World India Pvt Ltd despite its resolution plan being approved by the CoC, the National Company Law Appellate Tribunal (NCLAT) in an its ordered passed on 30 September 2020 denied a similar petition of withdrawal by a successful resolution applicant.
Passing the order, the three-member NCLAT chaired by Justice Bansi Lal Bhat said 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.”
The NCLAT further said that a resolution applicant, whose resolution plan stands approved by CoC cannot be permitted to alter its 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,” said the appellate tribunal in its order.
The tribunal also reiterated that there is no express provision in the IBC allowing a successful resolution applicant to stage a U-turn and frustrate the entire exercise of Corporate Insolvency Resolution Process.
Kundan Care Products’ argument
The appeal in the NCLAT was filed by Kundan Care Products Ltd, which has emerged as the successful resolution applicant in Insolvency Resolution Process of Astonfield Solar (Gujarat) Pvt Ltd, against the rejection of its petition to withdraw its resolution plan by the Special bench of NCLT, New Delhi.
The appellant had submitted that there is no basis or justification for the finding that the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016 has no power or jurisdiction to allow withdrawal of a Resolution Plan after the approval from CoC.
It also argued that IBC does not contain any provisions to compel specific performance of a resolution plan by an unwilling resolution applicant and a plea for withdrawal of a plan will have to be accepted, if the plan is found to be unviable, unfit for implementation or is either lacking provisions for its successful implementation or is based on incorrect assumptions.
It also said that resolution plan submitted by has become unviable due to delays in concluding the CIRP process, and hence it cannot be stopped from withdrawing the plan.
Kundan Care Products, thus, pleaded that it be allowed to withdraw the resolution plan and cancel the Performance Bank Guarantee.
Resolution professional’s argument
On its part, the resolution professional, Amit Gupta, cited the NCLAT judgment in the Committee of Creditors of Educomp Solutions Ltd. vs. Ebix Singapore Pte Ltd. & Anr case wherein it was held that after approval of the resolution plan by the Committee of Creditors the adjudicating authority has no jurisdiction to entertain or permit the withdrawal application filed by the Resolution Applicant and that Adjudicating Authority cannot enter into the arena of the majority decision of the Committee of Creditors.
He also submitted that there is no provision in the IBC, which allows withdrawal of an approved resolution plan and provisions in the Regulations for submission of Performance Bank Guarantee by a Resolution Applicant while submitting its Resolution Plan is a provision to discourage the Resolution Applicant from withdrawing its Resolution Plan.
He further argued that the business decision of the CoC, based on their commercial wisdom is not open to judicial review before the Adjudicating Authority or even before this Appellate Tribunal. He lastly submitted that the Resolution Plan of Appellant was approved in preference to two other Resolution Applicants for maximizing the value of Corporate Debtor and the Appellant cannot be permitted now to scuttle the Corporate Insolvency Resolution Process of the Corporate Debtor by walking away from its Resolution Plan which will have the effect of pushing the Corporate Debtor into liquidation.
The counsel of the CoC also reasoned against the withdrawal by saying that such withdrawal is allowed not under the provisions of IBC.
The appellant tribunal dismissed the petition filed by successful resolution applicant Kundan Care Product by saying that the appellant failed to demonstrate that the impugned order suffers from any legal infirmity, and that the Appeal was devoid of merit.
It must be mentioned here that in the case of Suraksha ARC’s plea to withdraw its approved resolution plan for Wind World (India) Pvt Ltd, the Ahmadabad bench of the NCLT allowed the former’s petition by saying that though the IBC law in stacked in favour of the CoC, it cannot be said that by submitting a resolution plan the resolution applicant has committed any crime. It also rejected the CoC/resolution professional’s contention that withdrawal of the resolution plan would cause loss to financial creditors and other stakeholders.
