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Resolution Plan under Insolvency and Bankruptcy Code
« »14-Feb-2024
Source: Supreme Court
Why in News?
Recently, a bench of CJI D Y Chandrachud, Justices J B Pardiwala and Manoj Misra held that the Appellate Authority has the power to recall the resolution plan.
- The Supreme Court gave this observation in the case of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr.
What was the Background of Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr Case?
- The appellant, a statutory authority under the U.P. Industrial Area Development Act, 1976, acquired land for an urban and industrial township, allotting a plan to M/s. JNC Construction (P) Ltd for a residential project.
- Despite a 90-year lease, the Corporate Debtor (CD) defaulted on premium payments, leading to a Corporate Insolvency Resolution Process (CIRP) initiated in 2019.
- The appellant claimed Rs. 43,40,31,951 as unpaid premiums but was erroneously treated as an operational creditor by the Resolution Professional (RP).
- The CD's resolution plan was approved without considering the appellant's claims as a financial creditor and owner of the land.
- The National Company Law Tribunal (NCLT) rejected the appellant's plea, citing delay and completion of the CIRP.
- Challenging the NCLT's decision, the appellant appealed to the NCLAT, highlighting its rightful status as a financial creditor, secured creditor under relevant laws, and discrepancies in the resolution process, seeking proper acknowledgment and redressal of its claims.
- A recall application was filed before NCLAT to recall the resolution plan mentioning material irregularities.
What were the Court’s Observations?
- The SC held that, a Court or a Tribunal, in absence of any provision to the contrary, has inherent power to recall an order to secure the ends of justice and/or to prevent abuse of the process of the Court.
- The Court added that neither the IBC nor the Regulations framed thereunder, in any way, prohibit, exercise of such inherent power.
- The SC also observed that, such power is to be exercised sparingly, and not as a tool to re-hear the matter.
- Ordinarily, an application for recall of an order is maintainable on limited grounds, inter alia, where
- the order is without jurisdiction;
- the party aggrieved with the order is not served with notice of the proceedings in which the order under recall has been passed; and
- the order has been obtained by misrepresentation of facts or by playing fraud upon the Court /Tribunal resulting in gross failure of justice.
What is Resolution Plan under Insolvency and Bankruptcy, 2016 (IBC)?
- Definition:
- Section 5(26) of the IBC, 2016 defines "Resolution plan" as a plan provided by the resolution applicant for the corporate debtor's bankruptcy resolution as a going concern in line with Chapter II of Part II of the IBC.
- Submission:
- Under Section 30 of IBC, 2016 a resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under section 29A to the resolution professional prepared on the basis of the information memorandum.
- Regulation 37:
- A resolution plan shall provide for the measures, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:-
- transfer of all or part of the assets of the corporate debtor to one or more persons;
- sale of all or part of the assets whether subject to any security interest or not;
- the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;
- cancellation or delisting of any shares of the corporate debtor, if applicable
- satisfaction or modification of any security interest;
- curing or waiving of any breach of the terms of any debt due from the corporate debtor;
- reduction in the amount payable to the creditors;
- extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
- amendment of the constitutional documents of the corporate debtor;
- issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;
- change in portfolio of goods or services produced or rendered by the corporate debtor;
- change in technology used by the corporate debtor; and
- obtaining necessary approvals from the Central and State Governments and other authorities
- A resolution plan shall provide for the measures, for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:-
- Mandatory Contents under Regulation 38:
- A resolution plan shall provide:
- the term of the plan and its implementation schedule;
- the management and control of the business of the corporate debtor during its term; and
- adequate means for supervising its implementation.
- A resolution plan shall demonstrate that –
- it addresses the cause of default;
- it is feasible and viable;
- it has provisions for its effective implementation;
- it has provisions for approvals required and the timeline for the same; and
- the resolution applicant has the capability to implement the resolution plan.
- A resolution plan shall provide: