Behind the Headlines: Understanding Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd. Case
5th-year student pursuing BBA.LL.B (Hons.) from NMIMS School of Law Bengaluru
Educomp submitted a request to Initiate the Corporate Insolvency Resolution Procedure in accordance with Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) on May 05th of 2017. This request was admitted by the NCLT on May 30th of 2017. Subsequently, the Committee of Creditors (CoC) gave their approval to the resolution plan put forth by Ebix Singapore Pvt Ltd. A request for NCLT approval of the Resolution Plan was also made by the resolution professional.
Later on, Ebix initiated several application before the NCLT, seeking the termination of the CIRP proceeding, This decision was driven by two main factors: first, the resolution application had been pending for 17 months, and second, the CIRP had been ongoing for 26 months, surpassing the statutory timeframe.
Decision of NCLT & NCLAT
The NCLT initially declined the withdrawal application twice but eventually granted approval on the third attempt by Ebix. The NCLT emphasised that the resolution applicant’s unwillingness to carry out the plan might block the proper execution of the CIRP while asserting its jurisdiction to judge the viability and enforceability of resolution plans.
Following this NCLT decision, Educom submitted a withdrawal application to the NCLAT, taking the NCLT order into account. The NCLAT overturned the NCLT’s ruling, noting that after the NCLT’s committee of creditors accepted the resolution plan, the NCLT no longer had authority to allow its withdrawal.
In response to this, Ebix challenged the NCLAT’s order before the Supreme Court through an appeal under S. 62 of the IB Code.
Question before the Court
In the lack of any explicit provisions under the code, is the withdrawal or modification of the resolution plan permissible after it has been authorised by the committee of creditors?
Contention of the parties
Mr. K V Vishwanathan, the learned Senior Counsel representing Ebix, argued that a Resolution Applicant should be allowed to withdraw their resolution plan. He further contended that the NCLAT did not apply the doctrine of Res Judicata in this case. Additionally, he asserted that the Adjudicating Authority possesses the authority to permit the withdrawal of the Resolution Plan. According to S. 31 of the IB Code, this authority has the autonomy to ensure independently that the Resolution Plan, approved by the COC, complies with the requirements specified in S. 30(2).
According to IBC Section 30(2)(d), the Adjudicating Authority may assess whether adequate preparations have been established for the “implementation and supervision of the Resolution Plan.” Additionally, he cited the decision in K Sashidhar v. IOC, which established that the Adjudicating Authority has the authority to reject a settlement plan if it doesn’t adhere to the conditions outlined in Section 30(2)(d).
Mr. Shyam Divan, the learned Senior Counsel representing the COC, has referred to two cases, namely M/s Embassy Property Development Pvt. Ltd v. State of Karnataka & Ors. and M/s Innovative Industries Ltd v. ICICI Bank & Anr. These cases outline the possibility of withdrawing Resolution Plans through mutual negotiations between the Resolution Applicant and the COC, resulting in a legally binding agreement. The third request for withdrawal is subject to the doctrine of Res judicata because the issues raised by Ebix had been previously dismissed by the NCLT in their initial withdrawal application. The permission granted by the NCLT to submit a new application pertained to rectifying procedural deficiencies in the filing, rather than addressing the substantive merit of the case.
He also argued that the Court could invoke its authority under Article 142 of the Constitution of India, allowing for an extension of the time limit for conducting the insolvency process by a period of three to four months. This extension would enable the initiation of a fresh process, contingent upon the consent of the E-CoC.
Decision by the Supreme Court
While examining the various provisions and structure of the code, the Hon’ble Apex Court concluded that the Insolvency and Bankruptcy Code (2016) did not include any provision or legal framework allowing for the withdrawal of a resolution plan, except for the specific procedure outlined in Section 12A of the Code. Consequently, any withdrawal request falling outside the scope of Section 12A could not be permitted through judicial interpretation.
The Court also emphasized that the Committee of Creditors (CoC) had previously declined the withdrawal of the plan, and this decision had been made based on their commercial judgment, which is not subject to legal review. Allowing the NCLT to interfere with this decision by authorizing an action that was not legally permissible would be seen as encroaching into the legislative domain.
Furthermore, the Hon’ble Supreme Court noted that introducing conditions for the approval of the resolution plan from NCLT would create an additional layer of negotiations, which is not in line with the scheme of the Code.
The Supreme Court pointed out that permitting the withdrawal of a filed resolution plan would have adverse consequences, including a reduction in both the amounts offered in subsequent resolution plans and the liquidation value.
The IBC, 2016 was drafted as a comprehensive and time-sensitive framework. Its procedure was carefully crafted to recognise the crucial nature of Insolvency proceedings, ensuring the timely allocation of economic responsibilities among the parties whose rights and obligations are defined by these procedures. Consequently, it is essential for the adjudication authority, appellate body, and even the Supreme Court to internet the law in a manner that aligns with this objective.
In this context, the Hon’ble Apex Court’s decision to disallow the withdrawal of an approved plan upholds the IBC’s fundamental goal of achieving prompt resolution in insolvency cases.
The Court has provided a clear and definitive ruling that no withdrawals or alterations will be allowed once a resolution plan has received approval from the Committee of Creditors. While this decision is a positive step in resolving the ambiguity surrounding this issue, it has raised concerns among many parties. Resolution Applicants (RAs) will need to exercise caution during negotiations with the CoC because they no longer have the option to back out once the plan is approved.
It’s essential to understand that the primary objective of the plan approval is to save the corporate debtor and maximize value addition, which may not be achievable if an unwilling RA is forced to proceed with an unviable plan without the option to withdraw. This situation could potentially discourage prospective applicants from presenting their plans. However, allowing withdrawals after approval could have a domino effect on the ongoing CIRP, devaluing the assets of the Corporate Debtor and disrupting the RA’s projections due to prolonged delays. Such withdrawals would render the entire resolution process ineffective, and many have attempted to exploit it in the past.
Ebix Singapore case has emphasized the need for Resolution Applicants (RAs) to meticulously research and evaluate their resolution plans before submission. This judgment underscores the importance of exercising thorough due diligence, ensuring that RAs thoroughly understand and validate their proposals. It places a responsibility on RAs to conduct comprehensive assessments, promoting higher standards of scrutiny and diligence before filing the resolution plan.
Case Reference: Ebix Singapore Pvt. Ltd. Vs. CoC of Educomp Solutions Ltd. & Anr. (2021) ibclaw.in 153 SC
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