NCLAT: CoC-Approved Resolution Plans Cannot Be Changed After Submission

Introduction

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT) has clarified that once a resolution plan is approved by the Committee of Creditors (CoC) and submitted to the Adjudicating Authority, it cannot be remitted back for reconsideration. This decision reinforces the sanctity of the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC), 2016, emphasizing adherence to prescribed timelines and procedures.

Background of the Case

The case revolves around Eon Electric Limited, a corporate debtor admitted into insolvency proceedings on October 13, 2020, by the National Company Law Tribunal (NCLT), Chandigarh Bench. On August 11, 2022, the CoC approved a resolution plan submitted by Santoshi Hyvolt Electricals Pvt. Ltd. with an overwhelming 99.26% majority. Subsequently, the Resolution Professional filed an application for the plan's approval before the Adjudicating Authority.

However, complications arose when Energy Efficiency Services Limited (EESL) invoked bank guarantees worth ₹15.84 crores provided by the corporate debtor. This action led to an increase in the Corporate Insolvency Resolution Process (CIRP) costs, prompting the State Bank of India (SBI), a financial creditor, to express concerns about the plan's feasibility. SBI filed an application seeking to remit the resolution plan back to the CoC for reconsideration, citing the increased costs and potential unviability of the plan.

NCLAT's Observations and Ruling

The NCLAT, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra, and Arun Baroka (Technical Members), upheld the NCLT's decision to reject SBI's application. The tribunal emphasized that the existing insolvency framework does not permit modifications or withdrawals of a resolution plan approved by the CoC once it has been submitted to the Adjudicating Authority.

The tribunal noted that allowing such alterations would undermine the time-bound nature of the CIRP and could lead to indefinite delays, defeating the objectives of the IBC. It further stated that the CoC's approval of the resolution plan, with full knowledge of the corporate debtor's liabilities, including the bank guarantees, binds all parties involved.

The NCLAT also referenced the Supreme Court's decision in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd., where it was held that the Adjudicating Authority has limited jurisdiction and cannot interfere with the CoC's commercial decisions unless the resolution plan violates Section 30(2) of the IBC.

Implications of the Ruling

This ruling has significant implications for stakeholders in the insolvency resolution process:

1. Finality of CoC Decisions: Once the CoC approves a resolution plan and submits it to the Adjudicating Authority, the decision is final and binding, barring any violations of the IBC provisions.

2. Limited Jurisdiction of Adjudicating Authority: The Adjudicating Authority cannot direct the CoC to reconsider an approved plan unless it contravenes Section 30(2) of the IBC.

3. Emphasis on Timelines: The IBC's objective of a time-bound resolution process is reinforced, discouraging any actions that could lead to delays.

4. Due Diligence by CoC: The CoC must exercise thorough due diligence before approving a resolution plan, considering all known liabilities and potential risks.

   
   

Conclusion

The NCLAT's decision underscores the importance of adhering to the structured procedures and timelines outlined in the IBC. By affirming the finality of CoC-approved resolution plans post-submission to the Adjudicating Authority, the tribunal aims to ensure the efficiency and integrity of the insolvency resolution process.

This ruling serves as a reminder to all stakeholders to exercise diligence and foresight during the resolution process, as opportunities for reconsideration are limited once a plan advances to the adjudicatory stage.