Author DefaultSubmission of resolution plan to Committee of Creditors(CoC) after the cut off date fixed by Resolution Professional(RP): Whether Permissible Under IBC?
– By Priyam Agarwal,
Final year student at Campus Law Centre, Faculty of Law, University of Delhi
Insolvency and Bankruptcy Code (IBC), 2016 was introduced to resolve claims involving insolvent companies along with delay in debt resolution process and also for resolving huge piling-up of non-performing loans of banks. This code is a comprehensive solution targeted at insolvency resolution, aimed at protecting the interests of the debtor as well as creditor. Resolving insolvencies hitherto was a long process that did not offer an economically viable arrangement. Under IBC, creditor and debtor both can start ‘recovery’ proceedings against each other. The Code has 255 sections and 11 Schedules. It provides for a time-bound process to resolve insolvency.
Corporate insolvency is a situation which arises when a company is unable to pay its debts to its creditors. To prevent the company from getting liquidated, the CIRP(Corporate Insolvency Resolution Process) is followed as enumerated in Chapter II of the code. Corporate Insolvency Resolution Process (CIRP) refers to insolvency proceedings of corporates whereby any corporate debtor who is not able to pay its debt would thereby allow a financial creditor, operational creditor, or the corporate debtor to initiate corporate insolvency resolution process of the debtor itself.
Corporate Insolvency Resolution Process:
Admission for application for initiation of CIRP made under Section 7, 9 and 10 made by Financial Creditor, Operational Creditor and Corporate Debtor respectively.
- Appointment of IRP(Interim Resolution Professional)
- Constitution of CoC(Committee of Creditors)
- Appointment of RP(Resolution Professional)
- Resolution plans invited from Resolution applicants.
- Examination of every submitted resolution plan by the Resolution professional (RP).
- Resolution plans passed by RP, then laid before the Committee of Creditors(CoC) for approval.
- Submission of the Resolution Plan to the Adjudication Authority by RP.
In case a resolution plan is approved and by the Adjudicating authority, the respective approved plan becomes binding on the members, employees, guarantors, creditors of the debtor along with other stakeholders associated with the approved plan. On the other hand, If no resolution plan is given approval within the defined period, then the Adjudicating Authority will start the liquidation process of the corporate debtor.
Section 12 of the code deals with the Time-limit for completion of insolvency resolution process. This section encompasses the completion of insolvency resolution process within a period of one hundred and eighty (180) days from the date of admission of the application to initiate the resolution process which can be extended for ninety (90) days, only if approved by Adjudicating Authority.
NCLT, Mumbai bench held that every possible effort is ought be made by the RP and members of CoC to accelerate the matter and they should try to finalise the resolution plan on the fast track mode, not preferably wait for the completion of the statutory period of 180/270 days timeline granted under the code[1].
Section 4 of the Insolvency and Bankruptcy (Amendment) Act, 2019 amended the section 12 of the code and added a proviso stating that a CIRP must mandatorily be completed within 330 days from the date of commencement of insolvency, which in itself included any extension granted and also the time taken in legal proceedings relating to the resolution process. Thus, the maximum permitted time now stands at 330 days for completion of an insolvency resolution process.
This was challenged in the landmark case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors.[2] before the Hon’ble Apex Court, wherein SC observed that where the litigant was not responsible for the delay, the time taken in legal proceedings should not harm a litigant,. Accordingly, the SC struck down the word ‘mandatorily’ while otherwise keeping the provision intact and clarified that ordinarily the CIRP must be completed within the overall limit of 330 days from the insolvency commencement date. However, based on the facts of a given case (which demonstrate that the time taken in legal proceedings may largely be due to factors which cannot be ascribed to a litigant), it is open for the adjudicating authority to extend the time beyond 330 days. The Apex Court has categorically stated that the overall limit of 330 days within which the CIRP is to be completed is the general rule, and only in exceptional cases can the 330-day limit be extended.
It was held by Principal Bench of NCLT that amended provisions would not apply to cases where the public advertisement inviting expression of interest was made much prior to the amendments[3].
The law relating to the submission of resolution plan before the Committee of Creditor after the passing away of the deadline as fixed by the Resolution Professional under Regulations 36A and 36B of CIRP Regulations have been considered by the tribunals and the courts in various judgments Some important judgments are:
In another case of Sharda Energy and Minerals Ltd. V/s. Impex Metal and Ferro Alloys Ltd.[4], the NCLT Kolkata bench observed that “The broad object of the Code is that for insolvency process of Corporate Persons in time-bound manner for maximization of value of assets of such person”. The bench said that in order to have maximization of the value of assets of the Corporate Debtor on competitive basis, RP should be directed to consider the applicant’s plan also because CIRP period of 180 days is yet to be completed and more particularly, even further period of 90 days is still at the hands of the CoC.
In another landmark case of ICICI Bank Limited V. Unimark Remedies Ltd.[5], where CoC even did not open the envelope of resolution plan since submitted after deadline, the NCLT Mumbai bench observed that :
“ When there is a clash/ conflict between the Regulations and the Code, the object of the Code is paramount and not the Regulations which are formed only for the just implementation of the Code. The spirit of the Code is first and then comes the other things.”
The Hon’ble bench of NCLT Mumbai further remarked that: The rejection of the Resolution Plan purely on the basis of technicalities, even without looking into its merits, is certainly an act which go against the very spirit of the Code and may even cause a huge loss to a Company. The rejection of the Resolution Plan by the CoC even without opening the envelope containing the Resolution Plan on the ground of its submission after the expiry of the prescribed time fixed by the CoC, is certainly against the Code.
In the case of Andhra Bank. V/s Oracle Home Textile Limited[6] (NCLT, Mumbai), the Applicant seeked a Condonation Order for submission of Resolution Plan under section 30 of I&B Code because of the reason that the cut off date has already expired. The bench in this case relied on the case of Punjab National Bank V/s Bhushan Power & Steel Limited[7] the Hon’ble Principal Bench, NCLT, New Delhi in which it was opined that a Resolution Plan be not rejected on the ground of delay and keeping the larger interest in mind that the stakeholders should be benefited by comparing 3 Resolution Plans instead of one, approved the two Resolution Applicants to submit their plans.
In the case of Oriental Bank of Commerce Vs. Bindals Sponnge Industries Ltd.[8], the resolution plan has not attained finality and in the meantime, there has been substantial enhancement of offer with more than 10% of the amount offered by the successful resolution applicant. It was held by the NCLT, New Delhi bench that “The object of the Code encourages maximisation of the value of assets of the Corporate Debtor, which is also advantageous to all the stakeholders”. It is the duty of the Court to satisfy itself that the price offered is reasonable and best as per the records submitted. Substantial enhancement of more than 10% offer made before court before finality of the matter, cannot be totally overlooked and thus the bench allowed the plan to be placed before CoC.
In the case of Kotak Investment Advisors Limited Vs Krishna Chamadia[9], the issue raised before NCLAT Delhi was: Whether the Resolution Professional(RP) was authorised to accept the Resolution Plans submitted after the expiry of the deadline if approval is given by CoC even without extending the timeline for submission of EOI(Expression of Interest)?
The Hon’ble NCLAT held that as per the code, the CoC is competent to extend the timeline for submission of EOI by following the Rules and Regulations as per due process even after expiry of the deadline for submission of EOI. It was held that illegal exercise of power by the RP in conducting CIRP cannot be treated as an exercise of power for maximization of value under commercial wisdom of CoC. The RP and the CoC have sheered from the norms prescribed under the Code by adopting a special procedure for accepting the successful plan under the semblance of maximization of value and have thus vitiated the Corporate Insolvency Resolution Process. The acceptance of EOI and Resolution Plan after the expiry of timeline for submission of EoI and Resolution Plan was held to be illegal.
In the matter of Girija Sugars and Agro Private Limited v. Pankaj Sham Joshi[10], the bench observed that “The principle underlying the Code for Corporate Resolution of a Company i.e resolving a debt- ridden Corporate Debtor is required to be kept in mind while going about the Resolution of the Corporate Debtor and is in the interest of all the stakeholders”. The purpose of Resolution is to see that the Company and its assets are not wasted under inefficient management. The adherence to specific timeline for resolution is the essence, which in effect would bring about successful resolution of a beleaguered Company, and thus rejected the application of the appellant to place the plan before CoC.
In a recent landmark case of Kalpraj Dharamshi and Ors. Vs. Kotak Investment Advisors Ltd. and Ors.[11], the Hon’ble Apex Court observed that the Court rather than assessing the resolution plan on the basis of quantitative analysis, ought to cede ground to the commercial wisdom of the committee of creditors. The commercial wisdom of CoC should not be interfered with, excepting the limited scope as provided under Sections 30 and 31 of the Code. SC allowed the application of placing the plan before CoC as all actions of RP including acceptance of resolution plans of Kalpraj after the due date, although before the expiry of timeline specified by the Code for completion of the process have the seal of approval of CoC.
Conclusion:
So, the law on the point that whether the resolution plan of applicants should be allowed to be placed before the Committee of Creditors(CoC) is not yet settled and by analysing the judgements aforesaid, it can be stated that the decision varies according to the facts and circumstances of each case. The major factors that the court and the tribunals have taken into consideration while allowing or rejecting the plan to be submitted before the CoC are:
- Reason for delay
- Time left in completion of CIRP Process
- Plan presented by the Resolution Applicant that could lead to maximisation of value of assets of Corporate Debtor.
- Commercial wisdom of CoC
- Principle underlying the Code for Corporate Resolution of a Company i.e resolving a debt- ridden Corporate Debtor.
Reference
[1] SBI Vs. Jet Airways (India) Limited (2019) ibclaw.in 20 NCLT
[3] PNB v. Bhushan Power And Steel Limited (Sep, 2019)
[4] CA (IB) No. 641/KBH/2018 in CP No. 176/KB/2018
[5] (MA No. 1529 of 2018)
[6] MA-524/2019 & MA-1255/2019 In C.P.(IB)1842(MB)/2018
[7] C.A. No. 152(PB)/2018 in C.P.(IB)-202(PB)2017
[8] (IB)-60(PB)/2018
[9] Company Appeal (Insolvency) No. 344-345 of 2020 (05/08/2020) [2020] ibclaw.in 33 NCLAT
[10] NCLT Mumbai, Court – IA No. 1211/MB/2020 in CP (IB) No.2156 of 2019
Manik Tanwar