Resolution Plan

Chapter-3 : CIRP
Topic-8 : CIRP and Resolution Plan

Submission and approval of the Resolution Plan

“The process of resolution plan is necessitated in respect of corporate debtors in whom their financial creditors have lost hope of recovery and who have turned into non-performer or a chronic defaulter.”¹

I. Submission of Resolution Plan[Sec. 30]

A prospective resolution applicant in the final list may submit resolution plan or plans prepared in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with:

an affidavit stating that he is eligible under section 29A and
an undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the CIRP, forfeit any refundable deposit, and attract penal action under the Code.
A resolution plan which does not comply with the above provisions shall be rejected.[Sec. 30(1) & CIRP Reg.-39(1) & (1A)].

NCLAT in the matter Armada Singapore Pte. Ltd. Vs.Ashapura Minechem Ltd held that resolution plan submitted by a Resolution Applicant without EoI is against the provision of Sec. 65 of the Code.

As per sub-section 2 of the section 30, the resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than-

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.

Explanation 1. — For removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2. — For the purpose of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the CIRP of a corporate debtor-

(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan.

Giving NIL to Operational Creditors would certainly not balance the interest of all stakeholders or maximise the value of assets of the Corporate Debtor if it becomes impossible to continue running its business as a going concern– NCLAT in the matter Hammond Power Solutions Private Limited Vs. Mr. Sanjit Kumar Nayak RP 118(IBC)84/2020 after referring the decisions of Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Limited Vs. Satish Kumar Gupta & Ors.and Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India Ors. and minutes of the CoC held that if the minutes are perused, it can be hardly said that there are any reasons given by the Committee to demonstrate that it has taken care of interest of all stakeholders. Para – 46 of the Judgement in the matter of “Essar Steel” requires to see “the reasons given by the Committee of Creditors while approving a resolution plan” from point of view stated in the paragraph. The reasons for giving NIL to Operational Creditors is not reflected from record. We have already reproduced portion from Part B – Financial Proposal with regard to what the approved Resolution Plan states regarding dues to the Operational Creditors. The proposal is based on the assessment that there is no liquidation value due to Operational Creditors. Although it is not stated but there is reason to doubt that the Resolution Applicants were aware of the liquidation value. There is no dispute that so many of the Operational Creditors have been left high and dry giving them nil amount which Hon’ble Supreme Court has observed that giving NIL to Operational Creditors “would certainly not balance the interest of all stakeholders or maximise the value of assets of the Corporate Debtor if it becomes impossible to continue running its business as a going concern.”

(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force;

Explanation-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.

(f) conforms to such other requirements as may be specified by the Board.

1. Maximization of value of Corporate Debtor’s assets [Reg.-37]

A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:-

(a) transfer of all or part of the assets of the corporate debtor to one or more persons;

(b) sale of all or part of the assets whether subject to any security interest or not;

(ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger;

(c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;

(ca) cancellation or delisting of any shares of the corporate debtor, if applicable;

(d) satisfaction or modification of any security interest;

(e) curing or waiving of any breach of the terms of any debt due from the corporate debtor;

(f) reduction in the amount payable to the creditors;

(g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;

(h) amendment of the constitutional documents of the corporate debtor;

(i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;

(j) change in portfolio of goods or services produced or rendered by the corporate debtor;

(k) change in technology used by the corporate debtor; and

(l) obtaining necessary approvals from the Central and State Governments and other authorities.

2. Mandatory contents of the resolution plan [Reg.-38]

(1) The amount payable under a resolution plan–

(a) to the operational creditors shall be paid in priority over financial creditors; and

(b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan.

(1A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.

(1B) A resolution plan shall include a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past.

(2) A resolution plan shall provide:

(a) the term of the plan and its implementation schedule;

(b) the management and control of the business of the corporate debtor during its term; and

(3) A resolution plan shall demonstrate that –

(a) it addresses the cause of default;

(b) it is feasible and viable;

(d) it has provisions for approvals required and the timeline for the same; and

(e) the resolution applicant has the capability to implement the resolution plan.

3. Fair value and liquidation value [CIRP Reg.-35]

Fair value means the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.[CIRP Reg.-2(1)(hb)]

Liquidation value means the estimated realizable value of the assets of the corporate debtor, if the corporate debtor were to be liquidated on the insolvency commencement date.[CIRP Reg.-2(1)(k)].

Fair value and liquidation value shall be determined in the following manner:-

(a) the two registered valuers appointed under regulation 27 shall submit to the resolution professional an estimate of the fair value and of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor;

(b) if in the opinion of the resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate of the value computed in the same manner; and

(c) the average of the two closest estimates of a value shall be considered the fair value or the liquidation value, as the case may be.

After the receipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section 29:

The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value.

Whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not– Hon’ble Supreme Court in the matter of Maharasthra Seamless Limited Vs. Padmanabhan Venkatesh & Ors. 27(IBC)27/2020 held that no provision in the Code or Regulations has been brought to notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the IBBI(Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in the case of Essar Steel. It appears to us that the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. The Appellate Authority has proceeded on equitable perception rather than commercial wisdom. On the face of it, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. Here, we feel the Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. Such is the scheme of the Code. Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) of Section 30 of the Code has been complied with. The proviso to Section 31(1) of the Code stipulates the other point on which an Adjudicating Authority has to be satisfied. That factor is that the resolution plan has provisions for its implementation. The scope of interference by the Adjudicating Authority in limited judicial review has been laid down in the case of Essar Steel, the relevant passage (para 54). The case of MSL in their appeal is that they want to run the company and infuse more funds. In such circumstances, we do not think the Appellate Authority ought to have interfered with the order of the Adjudicating Authority in directing the successful Resolution Applicant to enhance their fund inflow upfront.

4. Present the Resolution plan to the CoC [Sec. 30(3) & CIRP Reg.-39(2) & (3)]

The resolution professional shall submit to the committee all resolution plans which comply with the requirements of the Code and regulations made thereunder along with the details of following transactions, if any, observed, found or determined by him:-

(a) preferential transactions under section 43;

(b) undervalued transactions under section 45;

(d) fraudulent transactions under section 66,

and the orders, if any, of the adjudicating authority in respect of such transactions.

5. Approval of the Resolution Plan by CoC [Sec. 30(4) & CIRP Reg.-39(3)

The committee shall evaluate the resolution plans strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit.
The committee of creditors may approve a resolution plan by a vote of not less than 66% of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor and such other requirements as may be specified by the Board.
the committee shall record its deliberations on the feasibility and viability of the resolution plans.

The words “after considering its feasibility and viability” amended Sec. 30(4) by Insolvency and Bankruptcy Code (Amendment) Act, 2017 w.e.f. 23.11.2017 and effect:

“30. (4) The committee of creditors may approve a resolution plan by a vote of not less than seventy five per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to subsection (3) of section 12, and the corporate insolvency resolution process shall be completed within the
period specified in that subsection.”.

Hon’ble Supreme Court in K. Sashidhar Vs. Indian Overseas Bank & Ors. held that the amendment is only to declare that the financial creditors ought to consider the feasibility and viability and such other requirements as may be specified by the Board, while exercising their option on the resolution plan to approve or not to approve the same. It is rudimentary that the financial creditors (in most cases are national Bankers), who are called upon to consider the proposed resolution plan would take into account all the relevant materials, including the feasibility and viability and such other requirements as may be specified by the Board. Additionally, the financial creditors are also required to bear in mind that the legislative intent is to bring about resolution and revival of the corporate debtors so as to benefit not only the corporate debtor but also other stakeholders in equal measure. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a resolution plan. No more and no less. Indubitably, the legislature has consciously not provided for a ground to challenge the justness of the “commercial decision” expressed by the financial creditors – be it to approve or reject the resolution plan.

Further, the court held on the Amendment Act of 2018 having come into force w.e.f. 6th day of June, 2018, that it, will have prospective application and apply only to the decisions of CoC taken on or after that date concerning the approval of resolution plan. The Court has restated the position that there can be no hard and fast rule merely because of the usage of expression “substituted” in the amendment Act. For, in certain situations like the case on hand, the amendment will have prospective effect as it is not intended to reverse or nullify the decisions already taken by the CoC of the concerned corporate debtors before coming into force of the amended provision.

6. Commercial Decision of CoC

Read here.

7. Meeting Liquidation Cost [Reg.-39B]

While approving a resolution plan under sub-section (4) of section 30 or deciding to liquidate the corporate debtor under sub-section (2) of section 33, the committee may make a best estimate of the amount required to meet liquidation costs, in consultation with the resolution professional, in the event an order for liquidation is passed under section 33. The committee shall make a best estimate of the value of the liquid assets available to meet the liquidation costs.
Where the estimated value of the liquid assets is less than the estimated liquidation costs, the committee shall approve a plan providing for contribution for meeting the difference between the two.
The resolution professional shall submit the plan approved by the Committee to the Adjudicating Authority while filing the approval or decision of the committee under section 30 or 33, as the case may be.

8. Assessment of sale as a going concern[Reg.-39C]

While approving a resolution plan under section 30 or deciding to liquidate the corporate debtor under section 33, the committee may recommend that the liquidator may first explore sale of the corporate debtor as a going concern under clause (e) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 or sale of the business of the corporate debtor as a going concern under clause (f) thereof, if an order for liquidation is passed under section 33.
Where the committee recommends sale as a going concern, it shall identify and group the assets and liabilities, which according to its commercial considerations, ought to be sold as a going concern under clause (e) or clause (f) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The resolution professional shall submit these recommendations of the committee to the Adjudicating Authority while filing the approval or decision of the committee under section 30 or 33, as the case may be.

9. Fee of the liquidator[Reg.-39D]

While approving a resolution plan under section 30 or deciding to liquidate the corporate debtor under section 33, the committee may, in consultation with the resolution professional, fix the fee payable to the liquidator, if an order for liquidation is passed under section 33, for :

(a) the period, if any, used for compromise or arrangement under section 230 of the Companies Act, 2013;

(b) the period, if any, used for sale under clauses (e) and (f) of regulation 32 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016; and

10. Resolution Applicant in CoC meeting [Sec. 30(5)]

The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered. However, the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.

10A. Revision in Resolution Plan

In K. Sashidhar Vs. Indian Overseas Bank & Ors., the Supreme Court held that As regards the application by the resolution applicant for taking his revised resolution plan on record, the same is also devoid of merits inasmuch as it is not open to the Adjudicating Authority to entertain a revised resolution plan after the expiry of the statutory period of 270 days.

11. Submission to AA for approval [Sec. 30(6) & CIRP Reg.-39(4) & (5)]

The resolution professional shall endeavour to submit the resolution plan approved by the committee to the Adjudicating Authority at least 15 days before the maximum period for completion of CIRP under section 12, along with a compliance certificate in Form H of the Schedule and the evidence of receipt of performance security required under sub-regulation (4A) of regulation 36B.
The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant.

If the resolution plan was expressly rejected by not less than 34% of voting share of the financial creditors. In such a case, the resolution professional was under no obligation to submit the resolution plan under Section 30(6) of the I&B Code to the adjudicating authority. Instead, it was a case to be proceeded by the adjudicating authority under Section 33(1) of the Code.

12. Other points [CIRP Reg.-39(6)-(9)]

A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained.[CIRP Reg.-39(6)].
No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the case may be, for any actions of the corporate debtor, prior to the insolvency commencement date.[CIRP Reg.-39(7)].
A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan.[CIRP Reg.-39(8)].
A creditor, who is aggrieved by non-implementation of a resolution plan approved under sub-section (1) of section 31, may apply to the Adjudicating Authority for directions.[CIRP Reg.-39(9)].

II. Approval of Resolution Plan[Sec. 31]

In terms of Section 31 of the Code, the adjudicating authority (NCLT) is expected to deal with two situations:

The first is when it does not receive a resolution plan under subsection (6) of Section 30 or when the resolution plan has been rejected by the resolution professional for noncompliance of Section 30(2) of the Code or also when the resolution plan fails to garner approval of not less than 66% of voting share of the financial creditors, as the case may be; and there is no alternate plan mooted before the expiry of the statutory period.
The second is when a resolution plan duly approved by the CoC by not less than 66% of voting share of the financial creditors is submitted before it by the resolution professional under Section 30(6) of the Code, for its approval.

In case of first category referred to above, In such a situation, the adjudicating authority can have no other option but to initiate liquidation process in terms of Section 33 (1) of the Code or say upon receipt of a “rejected” resolution plan the adjudicating authority (NCLT) is not expected to do anything more; but is obligated to initiate liquidation process under Section 33(1) of the Code.

In K. Sashidhar Vs. Indian Overseas Bank & Ors. the Hon’ble Supreme Court held that the legislature has not endowed the adjudicating authority (NCLT) with the jurisdiction or authority to analyse or evaluate the commercial decision of the CoC much less to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the “commercial wisdom” of the individual financial creditors or their collective decision before the adjudicating authority. That is made nonjusticiable.

1. Approve the Resolution Plan

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, creditors, guarantors and other stakeholders involved in the resolution plan.

GST Department had no jurisdiction to raise demands from the petitioner for the period prior to the date on which, the petitioner company took over the company under liquidation after the resolution plan was finalized & approved:

Hon’ble Rajasthan High Court in Ultra Tech Nathdwara Cement Ltd. Vs. Union of India 194(IBC)158/2020 held that it cannot be gainsaid that the controversy at hand hours around the simple issue as to whether the resolution plan approved by the COC is binding on the department or not. In this regard, it is trite to note that as per the amended Section 31 of the IBC, the Central Govt., State Govt. or any other local authority to whom, a debt in respect of payment of dues arising under any law for the time being in force are owed, have been brought under the umbrella of the resolution plan approved by the adjudicating officer which has been made binding on such governments and local authorities. The purpose of the IBC is salutary as it has been enacted to ensure that an industry under distress does not fade into oblivion and can be revived by virtue of the resolution plan. Once the offer of the resolution applicant is accepted and the resolution plan is approved by the appropriate authority, the same is binding on all concerned to whom the industry concern may be having statutory dues. No right of audience is given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case may be.

However, the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.[Sec. 31(1)]
After the order of approval:

(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the CIRP and the resolution plan to the Board to be recorded on its database.[Sec. 31(3)]

The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later. However, where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.[Sec. 31(4)]

Whether the resolution plan can be changed after approval by adjudicating Authority: NCLAT in the matter of QVC Exports Pvt. Ltd. Vs. United Tradeco FZC 40(IBC)40/2020 held that the Adjudicating Authority had no jurisdiction to entertain an application for rectification of Resolution Plan and making substantial changes in the Plan, after a lapse of 13 months of the completion of CIRP, even after the approval and implementation of the Resolution Plan on the pretext of rectification of clerical or typographical error in the order.

Adjudicating Authority suo moto cannot direct the CoC to consider the new resolution plan & re-consider the already approved resolution plan

NCLAT in Chhatisgarh Distilleries Ltd. Vs. Dushyant Dave [2020] ibclaw.in 119 NCLAT upheld decision of NCLT and held that when the Resolution Plan is filed before the Adjudicating Authority then the Authority has to satisfy that the Resolution Plan approved by the Committee of Creditor fulfills the requirements as specified in Sub-Section 2 of Section 30. However the Adjudicating Authority cannot direct the CoC to consider the second Resolution plan submitted before the Authority although the second Resolution Applicant is ready to invest more amount in comparison to first Resolution Applicant. Learned Adjudicating Authority has rightly held that Adjudicating Authority cannot suomotu direct the CoC to consider new resolution plan and reconsider already approved Resolution plan.

Hon’ble Supreme Court in Rahul Jain Vs. Rave Scans Pvt. Ltd. & Ors. 43(IBC)43/2020 held that once a plan has been approved, the plan attains finality.

Whether liability of the personal guarantor stand consequently reduced or extinguished on the secured financial creditor receiving the payments in terms of a Resolution Plan in respect of a company undergoing a process of CIRP under the provisions of the IBC, 2016:

Hon’ble Calcutta High Court in Gouri Shankar Jain Vs. Punjab National Bank & Anr. 195(IBC)22/2019 clarified following issues:

1. Resolution plan is neither nor a compromise or composition nor voluntary compromise with the corporate debtor:

The prerequisite to make an application under section 7 of the Code of 2016 is the existence of a default by the corporate debtor. It cannot be said that, the financial creditor when it applies under section 7 of the Code of 2016, does so with the view to enter into any compromise or composition with the corporate debtor in respect of the claim. In a given situation, the Resolution Plan submitted with the resolution professional and accepted by the committee of creditors and ultimately approved by the Adjudicating Authority, may provide for payment of the entirety of the claim of the financial creditor applying for initiation of the CIRP. In such a situation, no compromise takes place. In a given situation, the financial creditor applying for initiation of the CIRP may receive a portion of the claim as full and final settlement as against the corporate debtor, in accordance with the Resolution Plan approved under the Code of 2016. In neither of the two situations, can it be said that, the financial creditor entered into a voluntary compromise with the corporate debtor with regard to the quantum of the claim.

2. The sanctioned Resolution Plan cannot be construed to be a variation of the terms of the contract between the principal debtor and the creditor:

The sanctioned Resolution Plan cannot be construed to be a variation of the terms of the contract between the principal debtor and the creditor, without the consent of the surety, discharging the surety as to transaction subsequent to the variants or at all. Similarly, the action of a financial creditor applying under Section 7 of the Code of 2016 cannot be construed to be an action of creditor in terms of Section 134 of the Act of 1872. When, the financial creditor approaches the NCLT under Section 7 of the Code of 2016, it approaches the Tribunal for the purpose of recovering its claim. An application under Section 7 of the Code of 2016 cannot be construed to be a discharge of the surety in terms of Section 134 of the Act of 1872. On the same analogy, an application under Section 7 of the Code of 2016 cannot be construed to be a discharge of the surety under Section 135 of the Act of 1872. An application under Section 7 of the Code of 2016 and the consequential orders that may be passed under the Code of 2016 cannot also be construed to be a discharge of the surety in terms of Section 139 of the Act of 1872. The implied promise recognised under Section 145 of the Act of 1872 is not impaired by any order that may be passed under the Code of 2016. As noted above, when, a financial creditor approaches the NCLT under the provisions of the Code of 2016, it does so, in exercise of statutory rights. Contractual obligations between the financial creditor and the surety are not obliterated or modified or suspended by the eventual outcome of such proceeding.

2. Reject the Resolution Plan

Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.[Sec. 31(2)]

3. Binding of approved Resolution Plan

As per Sec. 31(1) the resolution plan shall be binding on the corporate debtor and its employees, members, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] creditors, guarantors and other stakeholders involved in the resolution plan.

The colored italic lines inserted by Insolvency & Bankruptcy Code(Amendment) Act, 2019 (w.e.f. 16-8-2019), is prospective in nature as held by Jharkhand High Court in Electrosteel Steels Limited Vs. The State of Jharkhand. The court also held that due to non publication of the public announcement of the CIRP in the State of Jharkhand, the authorities of the Commercial Taxes Department had no occasion to have any knowledge about the CIRP of the Company, and they were deprived of making their claim before the interim resolution professional. Since the State Government was not involved in the resolution process, the resolution plan cannot be said to be binding on the State Government under Section 31 of the Code as stated “it shall by order approve the resolution plan which shall be binding on ………..and other stakeholders involved in the resolution plan;”

III. Appeal [Sec. 32]

Any appeal from an order approving the resolution plan shall be in the manner and on the grounds laid down in sub-section (3) of section 61.

IV. Judicial Pronouncements

In ‘Tata Steel Limited vs. Liberty House Group Pte. Ltd. & Ors.’ – ‘Company Appeal (AT) (Insolvency) No. 198 of 2018’, this Appellate Tribunal held :

“30. Further, according to him, a ‘Resolution Applicant’ cannot challenge a decision of the ‘Committee of Creditors’ at any stage, till the Adjudicating Authority approves the ‘Resolution Plan’ under Section 31

……………

In this background, while we hold that this appeal preferred by ‘Tata Steel Limited’ is premature, uncalled for, in absence of any final decision taken by the Adjudicating Authority under Section 31, this appeal is not maintainable.”

In ‘Arcelor Mittal India Private Limited v. Satish Kumar Gupta & Ors. (Civil Appeal Nos. 9402 – 9405 of 2018 etc.), the Hon’ble Supreme Court has held:

“75. What has now to be determined is whether any challenge can be made at various stages of the corporate insolvency resolution process. Suppose a resolution plan is turned down at the threshold by a Resolution Professional under Section 30(2). At this stage is it open to the concerned resolution applicant to challenge the Resolution Professional’s rejection? It is settled law that a statute is designed to be workable, and the interpretation thereof should be designed to make it so workable………”

76. Given the timeline referred to above, and given the fact that a resolution applicant has no vested right that his resolution plan be considered, it is clear that no challenge can be preferred to the Adjudicating Authority at this stage. A writ petition under Article 226 filed before a High Court would also be turned down on the ground that no right, much less a fundamental right, is affected at this stage. This is also made clear by the first proviso to Section 30(4), whereby a Resolution Professional may only invite fresh resolution plans if no other resolution plan has passed muster.

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79. Take the next stage under Section 30. A Resolution Professional has presented a resolution plan to the Committee of Creditors for its approval, but the Committee of Creditors does not approve such plan after considering its feasibility and viability, as the requisite vote of not less than 66% of the voting share of the financial creditors is not obtained. As has been mentioned hereinabove, the first proviso to Section 30(4) furnishes the answer, which is that all that can happen at this stage is to require the Resolution Professional to invite a fresh resolution plan within the time limits specified where no other resolution plan is available with him. It is clear that at this stage again no application before the Adjudicating Authority could be entertained as there is no vested right or fundamental right in the resolution applicant to have its resolution plan approved, and as no adjudication has yet taken place.

81. If, on the other hand, a resolution plan has been approved by the Committee of Creditors, and has passed muster before the Adjudicating Authority, this determination can be challenged before the Appellate Authority under Section 61, and may further be challenged before the Supreme Court under Section 62, if there is a question of law arising out of such order, within the time specified in Section 62. Section 64 also makes it clear that the timelines that are to be adhered to by the NCLT and NCLAT are of great importance, and that reasons must be recorded by either the NCLT or NCLAT if the matter is not disposed of within the time limit specified. Section 60(5), when it speaks of the NCLT having jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person, does not invest the NCLT with the jurisdiction to interfere at an applicant’s behest at a stage before the quasi-judicial determination made by the Adjudicating Authority. The non-obstante clause in Section 60(5) is designed for a different purpose: to ensure that the NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings.”

Chapter-3 : CIRPTopic-8 : CIRP and Resolution Plan