SRA fails to obtain regulatory approvals within Section 31(4) timeline, liquidation proceedings ordered despite approved resolution plan

The NCLAT dismissed an appeal where the successful resolution applicant (SRA) failed to obtain necessary regulatory approvals within the statutory one-year timeline under Section 31(4) of the IBC. Despite the resolution plan being approved by the adjudicating authority on 03.02.2022, the SRA could not secure required approvals even after an extended deadline of 08.02.2023. The NCLAT held that the SRA's inability to obtain approvals, regardless of reasons cited, constituted non-implementation of the resolution plan, making liquidation proceedings the appropriate remedy.

---

---

1. ISSUES PRESENTED and CONSIDERED

- Whether the adjudicating authority (NCLT) erred in directing the Successful Resolution Applicant (SRA) to implement the revised resolution plan within two months, effectively modifying the resolution plan beyond its jurisdiction.

- Whether the SRA was justified in delaying implementation of the resolution plan due to pending regulatory approvals, specifically from the Reserve Bank of India (RBI), which were a condition precedent under the resolution plan.

- Whether the statutory timeline of one year under Section 31(4) of the Insolvency and Bankruptcy Code (IBC) for obtaining necessary approvals had been complied with by the SRA.

- Whether the invocation of the Performance Bank Guarantee (PBG) and initiation of liquidation proceedings against the corporate debtor were justified due to the SRA's failure to implement the resolution plan.

- Whether the appellant's contention that the resolution plan's closing date only commences after all regulatory approvals are obtained is consistent with the legal framework and the terms of the resolution plan.

- The scope and effect of the relevant provisions of the IBC and the Request for Resolution Plan (RFRP) regarding regulatory approvals and timelines.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the Adjudicating Authority to Direct Implementation Timeline

Relevant Legal Framework and Precedents:

The IBC empowers the adjudicating authority to approve resolution plans and supervise their implementation. Section 31(4) of the IBC mandates that the resolution applicant obtain necessary statutory and regulatory approvals within one year from the date of approval of the resolution plan by the adjudicating authority. Clause 3.1 of the RFRP similarly requires the SRA to obtain all requisite approvals within one year, clarifying that the Resolution Professional and Committee of Creditors (CoC) bear no responsibility for this.

Court's Interpretation and Reasoning:

The Court held that the direction to implement the resolution plan within two months was not a modification of the resolution plan but rather an extension of time granted by the adjudicating authority beyond the statutory one-year period. The adjudicating authority's order was a legitimate exercise of its supervisory jurisdiction to ensure timely implementation and not an impermissible alteration of the plan's terms.

Application of Law to Facts:

The resolution plan was approved on 03.02.2022. The application by SBI seeking directions to implement the plan was filed on 28.04.2023, well after the expiry of the one-year statutory period. The adjudicating authority's order dated 08.12.2023 directing implementation within two months was thus an extension, not a modification.

Treatment of Competing Arguments:

The appellant argued that the direction altered the resolution plan and was beyond the tribunal's jurisdiction. The Court rejected this, emphasizing the statutory timeline and supervisory role of the adjudicating authority.

Conclusion:

The adjudicating authority acted within its jurisdiction in directing the SRA to implement the resolution plan within two months.

Issue 2: Delay Due to Pending Regulatory Approvals from RBI

Relevant Legal Framework and Precedents:

Section 31(4) of the IBC requires the SRA to obtain necessary approvals within one year. Clause 3.1 of the RFRP places the onus on the SRA to obtain all statutory and regulatory approvals post-approval of the resolution plan. The Supreme Court's decision in Independent Sugar Corporation Ltd. clarified that mandatory statutory approvals must be obtained within prescribed timelines, and failure to do so can invalidate the plan.

Court's Interpretation and Reasoning:

The Court noted that the delay in obtaining RBI approvals was due to alleged contraventions of FEMA regulations by the corporate debtor, as pointed out by RBI in its communication dated 10.08.2023. The authorised dealer bank (PNB) had taken all necessary steps, including filing applications and responding to RBI queries. However, the approvals remained pending beyond the statutory period.

Key Evidence and Findings:

The affidavit filed by PNB detailed the transactions requiring RBI approval, including assignment of debt involving foreign financial creditors and conversion of debt into preference shares issued to foreign creditors. RBI's email indicated contraventions requiring compounding applications before approval could be granted.

Application of Law to Facts:

Despite regulatory hurdles, the Court emphasized that the obligation to secure approvals lay solely with the SRA, and the statutory timeline of one year had expired without approvals being obtained. The appellant's inability to secure RBI approval within the statutory period meant the resolution plan was not implemented as required.

Treatment of Competing Arguments:

The appellant contended that the closing date under the resolution plan only commenced after all approvals were obtained, thus excusing delay. The Court rejected this, holding that the statutory timeline under Section 31(4) is mandatory and cannot be circumvented by such conditions.

Conclusion:

The delay due to pending RBI approvals did not justify non-implementation beyond the statutory timeline, and the SRA failed to comply with the mandatory requirements.

Issue 3: Invocation of Performance Bank Guarantee and Initiation of Liquidation Proceedings

Relevant Legal Framework and Precedents:

Under the IBC, failure to implement a resolution plan within prescribed timelines and conditions can lead to invocation of guarantees and initiation of liquidation proceedings. The RFRP and resolution plan terms provide for invocation of bid bonds and performance guarantees in case of default.

Court's Interpretation and Reasoning:

The Court observed that the Joint Lenders Meeting (JLM) unanimously decided to invoke the PBG and file an application for liquidation due to the SRA's failure to implement the plan despite extensions and opportunities. The corporate debtor had been in CIRP since 2018, and only one resolution plan had been received but remained unimplemented for over three years.

Application of Law to Facts:

The PBG was invoked on 09.02.2024, and liquidation proceedings were initiated. The Court noted that the SRA's repeated requests for extensions and failure to deposit the resolution amount, despite offers to do so, indicated inability or unwillingness to implement the plan.

Treatment of Competing Arguments:

The appellant argued it was ready to deposit funds and implement the plan but was hindered by SBI's requirements and procedural delays. The Court found that these reasons were insufficient to justify prolonged non-implementation, especially given the limited amount subject to RBI approval relative to the total payout.

Conclusion:

Invocation of the PBG and initiation of liquidation proceedings were justified due to the SRA's breach of the resolution plan and failure to implement it within statutory and extended timelines.

Issue 4: Interpretation of the Resolution Plan's Closing Date and Conditions Precedent

Relevant Legal Framework and Precedents:

The resolution plan's Schedule I Clause 14 and Clause 3.1 of the RFRP set conditions precedent, including obtaining regulatory approvals. Section 31(4) of the IBC provides a one-year timeframe for obtaining necessary approvals.

Court's Interpretation and Reasoning:

The Court held that while the resolution plan contemplates conditions precedent, these cannot override the statutory timeline under the IBC. The closing date does not indefinitely await regulatory approvals, especially when the SRA is responsible for securing such approvals within one year.

Application of Law to Facts:

The appellant's contention that the closing date only starts after all approvals were obtained was rejected as inconsistent with the statutory mandate and the terms of the RFRP and resolution plan.

Treatment of Competing Arguments:

The appellant's reliance on regulatory delays as excusing non-implementation was not accepted.

Conclusion:

The closing date and timelines under the resolution plan must be read in conjunction with the mandatory statutory timelines under the IBC, precluding indefinite delays.

Issue 5: Applicability of Supreme Court Precedent on Withdrawal and Contractual Nature of Resolution Plan

Relevant Legal Framework and Precedents:

The appellant relied on the Supreme Court's judgment in Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Ltd., which held that the resolution plan embodies a commercial bargain with binding legal effect and that withdrawal of a resolution plan after approval is subject to judicial scrutiny.

Court's Interpretation and Reasoning:

The Court distinguished the present case, noting that the issue here was not withdrawal of the plan but failure to implement it within statutory timelines. The Ebix judgment did not support the appellant's contention that delay due to regulatory approvals justified non-implementation beyond the prescribed period.

Conclusion:

The precedent did not alter the obligation of the SRA to implement the plan within the statutory timeframe.

3. SIGNIFICANT HOLDINGS

"The resolution plan was approved by the adjudicating authority on 03.02.2022. The period of one year prescribed under Section 31(4) of the IBC for obtaining necessary approvals has long elapsed. The appellant having failed to obtain the necessary regulatory approvals within the statutory timeline, the resolution plan has not been implemented."

"The direction of the adjudicating authority to implement the resolution plan within two months from the date of the order dated 08.12.2023 is not a modification of the resolution plan but a supervisory direction to ensure timely implementation."

"The obligation to obtain all requisite statutory and regulatory approvals rests solely with the resolution applicant and cannot be delegated or excused on the ground of regulatory delays."

"Invocation of the Performance Bank Guarantee and initiation of liquidation proceedings are justified where the resolution applicant fails to implement the resolution plan within the prescribed timelines despite opportunities and extensions."

"The closing date and timelines under the resolution plan must be read in conjunction with the mandatory statutory timelines under the IBC, and conditions precedent cannot be used to indefinitely delay implementation."

"The appellant's contention that the resolution plan's implementation is pending solely due to regulatory approvals is not tenable in view of the statutory mandate and the facts on record."

"The appeal is dismissed, and the adjudicating authority is directed to decide the pending liquidation application preferably within three months from the date of production of this order."

---