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Resolution Plan under Insolvency and Bankruptcy Code

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 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
  • 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.