TaxTMI 
TaxTMI 
2024 (11) TMI 727
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts giving rise to this Appeal, which are: (i) The Corporate Debtor - Educomp Solutions Limited filed an Application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC"), to initiate Corporate Insolvency Resolution Process ("CIRP"), on which an order was passed by the Adjudicating Authority on 30.05.2017, initiating the CIRP. (ii) The Committee of Creditors ("CoC") was constituted. The Respondent - Mahendra Singh Khandelwal was approved as Resolution Professional ("RP"). The Information Memorandum was issued by the RP. The Appellant has submitted its Resolution Plan dated 27.01.2018. The CoC approved the Resolution Plan of the Appellant and declared the Appellant as SRA. An Application for approval of Resolution Plan was filed. (iii) During the pendency of approval of the Resolution Plan, the Appellant filed an Application for seeking withdrawal of the Resolution Plan. The Adjudicating Authority, rejected the Application. Application filed by the Appellant in CA No.1816(PB)/2019 for withdrawal of the Resolution Plan was allowed by the Adjudicating Authority vide order dated 02.01.2019. (iv) The Compan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion Plan is capable of being implemented or not. The aspect of implementation of the Plan has not been looked into by the Adjudicating Authority, which is a clear breach of statutory obligation imposed on the Adjudicating Authority. It is further submitted that failure to keep Corporate Debtor as a going concern is another reason due to which Resolution Plan has become unimplementable. The RP has grossly failed to manage the Corporate Debtor as a going concern, so much so, that the revenues of Rs. 1774.77 million being generated by the Corporate Debtor in the Financial year 2016- 17 were left to trivial amount of Rs. 9.66 million in Financial Year 2020-21. The Resolution Plan, which was submitted by the Resolution Applicant on account of financials of the Corporate Debtor at the time of submission of the Resolution Plan, have been drastically diminished in last five years. The Plan has become unimplementable and ought not to have been approved by the Adjudicating Authority. It is submitted that objections raised by the Appellant to the unimplementability of the Plan, were brushed aside by the Adjudicating Authority. The Hon'ble Supreme Court in its Ebix Singapore judgment has also....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so filed in this Tribunal by the SRA and due to the aforesaid proceedings, the Plan approval was delayed. The Appellant cannot take advantage of its own wrong and put it on Adjudicating Authority, when it is the SRA who has caused the delay. Several attempts have been made by the SRA to withdraw from the Plan, which were disapproved. The objections to the approval of Resolution Plan, before the Adjudicating Authority is another attempt by the Appellant to delay the approval of the Resolution Plan. 6. We have considered the submissions of learned Counsel for the parties and have perused the record. 7. Before we proceed to enter into respective submissions of learned Counsel for the parties, it is relevant to notice the judgment of the Hon'ble Supreme Court in Ebix Singapore Pvt. Ltd. vs. Committee of Creditors of Educomp Solutions Ltd. & Anr. - (2022) 2 SCC 401 decided on 13.09.2021. An Appeal before the Hon'ble Supreme Court was filed by the Appellant - SRA, challenging the order of this Appellate Tribunal, by which, order passed by the Adjudicating Authority allowing the third Withdrawal Application filed by the Appellant was set aside. Elaborate submissions were made by the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... CBI, which provides further evidence that the affairs of Educomp were severally mismanaged and are susceptible to criminal investigations; (d) There has been a lapse of over three years resulting in an erosion of vital business prospects of Educomp; and (e) The implementation and viability of a Resolution Plan is to be assessed at the time of consideration of such plan by the competent Court/Tribunal, and not at the time of submission of the Plan. The subsequent events that have transpired after the submission of the Resolution Plan are relevant for evaluating the commercial viability and the capability to implement the plan. In the present case, the substratum forming the basis of the resolution plan has been eroded by the occurrence of the abovementioned events. Thus, the successful Resolution Applicant has the right to withdraw the Resolution Plan in such circumstances;" 9. The Hon'ble Supreme Court after considering all statutory provisions of the IBC, considered the issue under heading (J), "Withdrawal of the Resolution Plan by a Successful Resolution Applicant" and held as follows: "144 The analysis of the statutory framework governing the CIRP ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....effect on 6 June 2018. Significantly, no such exit routes have been contemplated for the Resolution Applicant. It is relevant to note that the newly inserted and then unamended Regulation 30A (w.e.f. 4 July 2018) of the CIRP Regulations stipulated that withdrawal under Section 12A can be allowed through submitting an application to the IRP or RP (as the case maybe) before the invitation for EOI is issued to the public. The CoC was to consider the application within seven days of its constitution and an approval for such application required approval of the ninety per cent of the voting share of the CoC. However, on 14 December 2018, a two judge Bench of this Court, held in Brilliant Alloys (P) Ltd v. S Rajagopal that Regulation 30A is directory, and not mandatory in nature since Section 12A of the IBC does not stipulate a deadline by which a withdrawal from the CIRP can be made. Thus, in exceptional cases withdrawals from the CIRP under Section 12A of IBC could be permitted even after the invitation of EOI has been issued. Regulation 30A of the CIRP Regulations was then amended by the IBBI (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations 2019, w.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icant, is regulated by procedural provisions indicating that the legislature has applied its mind to the timelines and costs involved in the CIRP. Pertinently, the regulations do not provide for any costs that are payable to the prospective Resolution Applicants or a successful Resolution Applicant, who must have incurred a significant expense in participating in the process. This Court, in Maharashtra Seamless (supra) had denied relief to a Resolution Applicant who had sought to invoke Section 12A to resile from its Resolution Plan. The nature of the statute indicates the clarity of its purpose - primacy of the interests of the creditors who are seeking to cut their losses through a CIRP. Traditional models and understandings of equity or fairness that seek reliefs which are misaligned with the goals of the statute and upset the economic coordination envisaged between the parties, cannot be read into the statute through judicial interpretation. While parties have the freedom to negotiate certain commercial terms of the Resolution Plan to gain wide support, their ability to negotiate is circumscribed by the governing statute. A court cannot interpret the negotiated arrangements tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nstitutionality of the statute because the court does not consist of economic or administrative experts. It has no expertise in these matters, and in this age of specialisation when policies have to be laid down with great care after consulting the specialists in the field, it will be wholly unwise for the court to encroach into the domain of the executive or legislative (sic legislature) and try to enforce its own views and perceptions." (emphasis supplied)" 10. In paragraph 146, 147 and 148, the Hon'ble Supreme Court categorically held that withdrawal of Resolution Plan by Successful Resolution Applicant under IBC is not permissible. It was observed that the absence of any exit routes being stipulated under the statute for a successful Resolution Applicant is indicative of the IBC's proscriptioin of any attempts at withdrawal at its behest. Paragraph 146 and 147 are as follows: "146 Judicial restraint must not only be exercised while adjudicating upon the constitutionality of the statute relating to economic policy but also in matters of interpretation of economic statutes, where the interpretative maneuvers of the Court have an effect of transgressing into the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of casus omissus is an established rule of interpretation, which provides that an omission in a statute cannot be supplied by judicial construction. Justice GP Singh in his authoritative treatise, Principles of Statutory Interpretation, defines the rule of casus omissus as: "It is an application of the same principle that a matter which should have been, but has not been provided for in a statute cannot be supplied by courts, as to do so will be legislation and not construction. But there is no presumption that a casus omissus exists and language permitting the court should avoid creating a casus omissus where there is none." (emphasis supplied) The treatise further discusses that a departure from this rule is only allowed in cases where words have been accidently omitted or the omission has an effect of making any part of the statute meaningless. Further, only such words can be supplied to the statute which would have certainly been inserted by the Parliament, had the omission come to its notice. The relevant paragraph is extracted below: "As already noticed it is not allowable to read words in a statute which are not there, but "where the alternati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... withdrawals or renegotiations has been provided, in the last eighteen months. In the absence of any provision under the IBC allowing for withdrawal of the Resolution Plan by a successful Resolution Applicant, vesting the Resolution Applicant with such a relief through a process of judicial interpretation would be impermissible. Such a judicial exercise would bring in the evils which the IBC sought to obviate through the back-door." 11. In paragraph 153, the Hon'ble Supreme Court held that the binding nature of a Resolution Plan on a Resolution Applicant, who is a proponent of the Plan, which has been accepted by the CoC cannot remain indeterminate at the discretion of the Resolution Applicant. In paragraph 153, following was laid down: "153 Regulation 38(3) mandates that a Resolution Plan be feasible, viable and implementable with specific timelines. A Resolution Plan whose implementation can be withdrawn at the behest of the successful Resolution Applicant, is inherently unviable, since open- ended clauses on modifications/ withdrawal would mean that the Plan could fail at an undefined stage, be uncertain, including after approval by the Adjudicating Authority. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n. The Adjudicating Authority cannot compel a CoC to negotiate further with a successful Resolution Applicant. A rejection by the Adjudicating Authority is followed by a direction of mandatory liquidation under Section 33. Section 30(2) does not envisage setting aside of the Resolution Plan because the Resolution Applicant is unwilling to execute it, based on terms of its own Resolution Plan. 158 Further, no such power can be vested with the Adjudicating Authority under its residuary jurisdiction in terms of Section 60 (5)(c). In a decision of a three judge Bench of this Court in Gujarat Urja (supra), it was held that, "the NCLT's residuary jurisdiction [under Section 60(5)(c)] though wide, is nonetheless defined by the text of the IBC. Specifically, the NCLT cannot do what the IBC consciously did not provide it the power to do". Further, the court observed that "this Court must adopt an interpretation of the NCLT's residuary jurisdiction which comports with the broader goals of the IBC". The effect of allowing the Adjudicating Authority to permit withdrawals of resolution plans that are submitted to it, would be to confer it with a power that is not envisaged by the IBC a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deleterious impact on the Corporate Debtor, its creditors, and the economy at large as the liquidation value depletes with the passage of time. A failed negotiation for modification after submission, or a withdrawal after approval by the CoC and submission to the Adjudicating Authority, irrespective of the content of the terms envisaged by the Resolution Plan, when unregulated by statutory timelines could occur after a lapse of time, as is the case in the present three appeals before us. Permitting such a course of action would either result in a down-graded resolution amount of the Corporate Debtor and/or a delayed liquidation with depreciated assets which frustrates the core aim of the IBC. 203 If the legislature in its wisdom, were to recognize the concept of withdrawals or modifications to a Resolution Plan after it has been submitted to the Adjudicating Authority, it must specifically provide for a tether under the IBC and/or the Regulations. This tether must be coupled with directions on narrowly defined grounds on which such actions are permissible and procedural directions, which may include the timelines in which they can be proposed, voting requirements and thre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, if systemic and frequent, will have an undeniable impact on the commercial assessment that the parties undertake during the course of the negotiation. The thirty-second report of the Ministry of Corporate Affairs' Standing Committee on Finance (2020-2021) on the 'Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions' 127 represented a despondent state of affairs with regard to pendency of applications before the Adjudicating Authority. It noted 15. The age-wise pending cases in NCLT under IBC as on 31 May, 2021 are as under: IBC Sec 0-90 days 91-120 days 121-180 days 180+ days Total Sec 7 155 147 306 2,177 2,785 Sec 9 279 401 1091 4,202 5,973 Sec 10 85 17 51 455 608 Others 11 60 121 193 485 Total 630 625 1,569 7,027 9,851 percentage 6.39% 6.34% 15.92% 71.33% In its observations, the Report noted that a delay in the resolution process with more than seventy-one per cent cases pending for more than 180 days is in deviation of the original objective and timeline for CIRP that was envisaged by the IBC. The delays we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1(1) proviso, what is significant is that Resolution Professional has to look into and examine that Resolution Plan provides for implementation and supervision of the Plan. The requirement of the law is that the Plan contains provision for effective implementation. It is not the case before us that Plan does not contain effective provision for implementation. The Adjudicating Authority in the impugned order specifically noticed the provisions of the Resolution Plan, which provides for implementation. It is not the case before us that there are no provisions in Resolution Plan for effective implementation. The submission of the Appellant that in view of lapse of more than five years and the deterioration of the financial status of the Corporate Debtor, the Plan is no more implementable, cannot be accepted as a ground to withdraw from the Resolution Plan. It is further relevant to notice that before the Hon'ble Supreme Court in Ebix Singapore, the SRA has raised similar contentions, including that position has changed manifestly in relation to the financial conduct of Educomp. The said argument was noted and was rejected in paragraph 181 of the judgment, which is as follows: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....had published unaudited financial statements of the Corporate Debtor for the financial year 2020-21 in newspaper. As per the stand taken by the SRA/Applicant itself, in para 15 of the application that on search qua the portal of Ministry of Corporate Affairs and the Stock Exchanges the SRA could see that the Financial Statement of F.Y. 2020-21, approved at the AGM of the CD on 25.08.2023. The SRA has enclosed a copy of the audited financial statement qua the financial debtor for F.Y. 2020-21 as Annexure A-6 to IA4845/2023 (ibid). As can be seen from the financial statement, the CD had total income of INR 14.73 million as on 31.03.2021. Besides, Mr. Neeraj Malhotra, Ld. Sr. Counsel for the RP submitted that for the Assessment Year 2021-22 the revenue of the CD could rise to 40 million and the revenue for the year 2021-22 in fact reflects the impact of the pandemic Covid-19. The Clause 3 of the Financial Performance canvassed in the audited financial statement for the "3. OPERATING RESULTS AND BUSINESS: On Standalone basis Company's total income stands at Rs. 14.73 million as on March 31, 2021 as compared to Rs. 106.58 million as on March 31, 2020, a decline of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the observation in judgment of the Hon'ble Supreme Court in Ebix Singapore in paragraph 205 that delays in approving the Resolution Plan by the Adjudicating Authority affect the subsequent implementation of the Plan. Suffice it to say that the most part of the delay in the approval of the Plan lies in the hands of the Appellant. The learned Counsel for the Respondents pointed out that three Applications have been filed by the Appellant, after the order of the Hon'ble Supreme Court, i.e., IA No.397 of 2022 seeking financial information regarding the Corporate Debtor, which was dismissed on 08.03.2022. IA No. 1611 of 2022 filed by the Appellant seeking direction to be issued to the RP for protection of the assets of the Corporate Debtor's wholly owned subsidiary, which was dismissed by the Adjudicating Authority on 11.04.2022. Then the Appellant filed Company Appeal (AT) (Insolvency) No.507 of 2022, which was dismissed on 06.05.2022. Another Appeal being Company Appeal (AT) (Insolvency) No.550 of 2022 filed by the Appellant, dismissed on 19.05.2022. Again an IA No.4845 of 2023 was filed by the Appellant on 13.09.2023, objecting to its own approved Resolution Plan on grounds of fina....