A three-member NCLAT bench said the sanctity of resolution process has to be maintained and such withdrawal by a successful bidder "frustrate" the entire exercise of Corporate Insolvency Resolution Process (CIRP).
The NCLAT has said once a resolution plan for a debt-ridden company is approved by the lenders, then the successful bidder cannot be permitted to withdraw its offer.
A three-member NCLAT bench said the sanctity of resolution process has to be maintained and such withdrawal by a successful bidder “frustrate” the entire exercise of Corporate Insolvency Resolution Process (CIRP).
Moreover, there is also no express provision in the Insolvency & Bankruptcy Code to allow any successful resolution applicant to “stage a U-turn”, it added.
“We are of the considered opinion that the sanctity of resolution process has to be maintained and the resolution applicant whose resolution plan has been approved by Committee of Creditors cannot be permitted to withdraw its Resolution Plan,” said the bench headed by Acting Chairman Justice B L Bhat.
The appellate tribunal further said even under the Insolvency & Bankruptcy Code, there is no express provision for allowing any successful resolution applicant to “stage a U-turn” and withdraw its bids, after being selected by the CoC.
“Provision for submission of a Performance Bank Guarantee by a resolution applicant while submitting its resolution plan, as required under the amended provisions of IBBI (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 is a step in this direction but may not be deterrent enough to prevent a Successful Resolution Applicant from taking a U-turn,” the National Company Law Appellate Tribunal (NCLAT) said.
The NCLAT’s observation came in the judgement, in which it dismissed a plea filed by a Delhi-based firm Kundan Care Products that has emerged as a successful bidder for Astonfield Solar (Gujarat) Pvt Ltd.
Kundan Care Products contended that on account of delay in conclusion of CIRP, its offer has been rendered commercially unviable and the appellant could not be prevented from withdrawing the same.
It had approached the Delhi bench of the National Company Law Tribunal (NCLT), which had on July 3, 2020, declined to pass any order on the ground that it would not be appropriate for it to deal with an issue which is already sub-judice before the Supreme Court.
After this, the firm moved the NCLAT.
It argued that IBC does not contain any provisions to compel specific performance of a Resolution Plan by an unwilling Resolution Applicant and a plea for withdrawal of a plan will have to be accepted if the plan is found to be unviable, unfit for implementation or is either lacking provisions for its successful implementation or is based on incorrect assumptions.
The Committee of Creditors (CoC) had submitted that IBC does not prescribe any provision for withdrawal of a resolution plan and the NCLT is not bestowed with any power to allow withdrawal of the resolution plan.
It further submitted that once a resolution plan has been approved, it becomes a binding contract between the parties and the successful resolution applicant, and cannot be permitted to withdraw the same that will have the effect of sending the Corporate Debtor into liquidation.
Consenting to it, the NCLAT said earlier in a similar matter of Educomp Solutions, it has already held that once a resolution applicant has accepted the conditions of resolution plan, it was not open to it to make a U-turn and wriggle out of the liabilities imposed upon it under the Resolution Plan approved by the Committee of Creditors.
“We find no merit in this Appeal. The Appellant has failed to demonstrate that the impugned order suffers from any legal infirmity. The Appeal being devoid of merit is dismissed,” the NCLAT ruled.