EBIX SINGAPORE PRIVATE LIMITED v. COMMITTEE OF CREDITORS OF EDUCOMP SOLUTIONS LIMITED & ANR.

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

of the Insolvency and Bankruptcy Code (Amendment) Ordinance, A 2018. (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote B at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.” C

Once a Resolution Applicant submits a Resolution Plan under sub- Section (1) of Section 30, the RP must assess whether it conforms with all the requirements of sub-Section (2). Having satisfied itself, the RP under sub-Section (3) must then present those Resolution Plans to the CoC which fulfill the criteria under sub-Section (2). The CoC will then D proceed to decide on the approval of the Resolution Plan, with a majority vote of sixty-six percent, after satisfying itself that the requirements under sub-Section (4) have been met, including testing the Resolution Plan for its feasibility and viability. A Resolution Applicant may attend this meeting of the CoC under sub-Section (5), but it does not have a E right to vote unless it is also a financial creditor. The Resolution Plan approved by the CoC under sub-Section (4) is then placed by the RP before the Adjudicating Authority for its approval under sub-Section (6).

102Copy pinpoint102. Other than the IBC, the process is also regulated by the CIRP Regulations created under the IBC. Regulation 37 provides an illustration of the solutions which can be proposed in a Resolution Plan. Regulation 38 provides for the mandatory contents of a Resolution Plan, which are similar to the pre-conditions mentioned in Section 30(2) of the IBC. Regulation 39 provides for the process of approval of a Resolution Plan by the CoC, and under sub-Regulation (3), the CoC has to evaluate every Resolution Plan based on an “evaluation matrix” it has come up with under Regulation 5(ha).

103Copy pinpoint103. Having briefly taken an overview of the process, we now understand that there are broadly three stages: (i) the first stage is prior to and ends with the approval of the Resolution Plan by the CoC; (ii) the H

p. 428 Copy page pinpoint

A second stage is the interim period between the Resolution Plan’s approval by the CoC and before its confirmation by the Adjudicating Authority; and (iii) the third stage is after the approval of the Resolution Plan by the Adjudicating Authority. In the first stage, the relationship between the parties is explicitly governed by the provisions of the IBC – such as the right of a prospective Resolution Applicant to seek the IM and RFRP B upon submission of its EOI, which may have been rejected by the RP (as it happened in the Kundan Care Appeal). In the third stage, the same holds true since Section 31(1) makes the Resolution Plan binding upon all the stakeholders and its violation will attract a penalty under Section 74 of the IBC. However, what we are assessing right now is the interim second stage between both of those. To understand the relationship of the parties therein, it becomes important to understand the exact “nature” of the Resolution Plan after it has been submitted to the Adjudicating Authority and before it has been approved under Section 31(1).

104Copy pinpoint104. To summarize the arguments of the parties, the appellants have argued that Resolution Plans are in the nature of an offer, which becomes binding as a concluded contract only once the Adjudicating Authority has approved the Resolution Plan. Section 7 of the Contract Act requires the acceptance of offer to be absolute, unconditional and unqualified. Since the approval by the CoC is effectively conditional upon the confirmation of the Plan by the Adjudicating Authority, it cannot be said that there is absolute acceptance of the Resolution Plan. Alternatively, it has been argued that Resolution Plans approved by the CoC are contingent contracts, whose enforceability is conditional upon the approval of the Adjudicating Authority in accordance with Section 32 of the Contract Act. The Respondents (RPs and the CoCs) have argued that a concluded contract comes into being when the Resolution Plan is approved by the CoC and a successful Resolution Applicant cannot renege from their contractual obligation to implement the Resolution Plan. In furtherance of this argument, Mr Shyam Divan appearing for the E-CoC made a reference to the Specific Relief (Amendment) Act 2018, which has brought a change to the regime on contract enforcement in India by making specific performance the norm rather than the exception.

105Copy pinpoint105. The determination of the nature of the Resolution Plan would help us establish the source of the legal force of the Resolution Plan – whether it is the statute, i.e., the IBC or the law of contract. The H

p. 429 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

insolvency process, as governed by the IBC, does not merely structure the conduct of all the participants in the process after finalization and approval of a Resolution Plan by a CoC, but also the conduct stemming from the very first steps of inviting prospective Resolution Applicants. The RP, with the approval of the CoC62, invites prospective Resolution Applicants through an RFRP. Once an unconditional EOI has been received from prospective Resolution Applicants who are otherwise eligible under Section 29A, the RP prepares an IM as per the provisions of Section 29 which furnishes all relevant information of the Corporate Debtor to enable prospective Resolution Applicants to make an informed decision, before proposing a Resolution Plan. As a consequence of the IBC and its regulations, prospective Resolution Applicants, who are not disqualified under Section 29A, propose drafts of their Resolution Plans. The RP examines the Resolution Plan against the contours of Section 30(2) and submits only the eligible plans to the CoC63. Prior to the IBBI (CIRP) (Fourth Amendment) Regulations 2020, which now requires the CoC to vote on all Plans simultaneously after recording its deliberations on the feasibility and viability of each Plan, Regulation 39(3) earlier enabled the CoC to approve a Resolution Plan with “such modifications as it deems fit”. This meant that the prospective Resolution Applicants and the CoC would indulge in several rounds of negotiations, within a strict time-frame, to arrive at a mutually agreeable Resolution Plan which was then subject to voting by the CoC. Subsequent to the voting, the RP E would submit the plan to the Adjudicating Authority along with receipt of the PBG and a compliance certificate in the form of Form H. Each of the stages detailed above correspond to several rights and obligations on all parties that are specifically created by the statute.

106Copy pinpoint106. Since the interpretation of the IBBI (CIRP)(Fourth F Amendment) Regulations 2020 and the impact on the Resolution Applicants and the CoC to negotiate the terms of the Resolution Plan is not before this Court and the present appeal essentially seeks to determine the nature of the Resolution Plan after its approval by the CoC and prior to its approval by the Adjudicating Authority, this Court will proceed to determine of the nature of such a Plan, on the assumption of the law as G it stood then, i.e., Regulation 39(3) which directed that “[t]he committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may 62 Section 25(2)(h), IBC 63 Regulation 39(2), CIRP Regulations H

p. 430 Copy page pinpoint

A approve it with such modifications as it deems fit”64. This power of the CoC to suggest modifications invariably entailed an element of negotiation with the Resolution Applicants, who would make suitable revisions and re-submit their Resolution Plans. The scope of a commercial bargain with the Resolution Applicants evinces a sense of a negotiated agreement that is arrived between the parties, which resembles an exercise of B contractual freedom by the CoC and the Resolution Applicant.

107Copy pinpoint107. If this court were to hold that CoC-approved Resolution Plans are indeed contracts, their provisions would still have to conform to the statutory provisions of the IBC. However, such an interpretation would entail that CoC-approved Resolution Plans are at the intersection of the C IBC and the Contract Act. This would mean that certain principles of contract law, for example those relating to discharge, penalties, remedies and damages would become applicable to CoC-approved Resolution Plans. For instance, in the United States, plans confirmed by courts have been characterized as contracts, whose breach can even give rise to contractual remedies. In In re Hoffinger Indus, Inc65, a bankruptcy court in Arkansas has held that “a confirmed plan should be enforceable and amenable to damages between contractually bound parties.” Indeed, it has been argued before us that Resolution Plans should be enforced through the contractual remedy of specific performance. Further, a determination that Resolution Plans are contracts in the period between approval by the CoC and the approval of the Adjudicating Authority would require us to analyse whether all elements of contract formation have been satisfied, including the question of whether the acceptance of the Resolution Plan by the CoC fulfils the criteria laid down under Section 7 of the Contract Act or whether the conditionality of seeking approval from the Adjudicating Authority makes the Resolution Plan a contingent contract. Our intent of laying down the consequences of our determination of Resolution Plans as contracts is to highlight the importance of ascertaining the nature of a CoC-approved Resolution Plan, prior to its approval by the Adjudicating Authority.

108Copy pinpoint108. The text of the IBC does not specify whether Resolution Plans at the second stage of the process, i.e., in the intervening period of

p. 431 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

submission to and approval by the Adjudicating Authority, are pure contracts. As noted previously, by specifications such as eligibility for resolution applicants, the contents of the IM and duties of the RP to prospective Resolution Applicants and statutory procedures on timelines and voting, strictly govern the insolvency process even prior to the submission of the Plan to the Adjudicating Authority. The CoC, who the appellants allege is in the nature of a free contracting party, is governed by the binding principles of the statute with regard to the contents and nature of the statutory plan that it approves under Section 30(4) and even its own composition.

109Copy pinpoint109. Section 30(4) provides that the consent of all the members of the CoC, though a unanimous vote is not required and a sixty-six per cent vote is sufficient for approval of a resolution plan. The constitution of the CoC is based on specific scenarios envisaged in the statute and accounts for varying compositions, based on factors such as the nature and quantum of debt owed. For example, if it comprises of operational creditors alone, the percentage of debt owed between the operational and financial creditors and other such variables impact voting thresholds inter se members of the CoC. A sixty-six per cent vote of the CoC is required to approve a Resolution Plan. The dissenting creditors are deemed to have given their approval and are bound by the decision of the majority of the CoC. The dissenting creditors are bound as a result of the statutory provision and not because they have actually consented to be parties to such an arrangement. Other elements governing the Resolution Plan indicate that the entire process from initiation and leading up to its acceptance by the CoC takes place within the framework of the IBC. In addition, the IBC provides penalties for non-compliance with the Resolution Plan after its approval under Section 31 and forfeiture of the PBG for failing to implement the Resolution Plan or contributing to the failure of its implementation. The violation of the terms of the Resolution Plan does not give rise to a claim of damages, rather it leads to prosecution and imposition of punishment under Section 74 of the IBC. On the contrary, a CoC’s withdrawal of the CIRP under Section 12A is coupled with a requirement of payment of CIRP costs, but no damages are statutorily payable to the Resolution Applicant, irrespective of the stage of the withdrawal.

110Copy pinpoint110. The CoC even with the requisite majority, while approving the Resolution Plan must consider the feasibility and viability of the Plan H

p. 432 Copy page pinpoint

A and the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53 of the IBC. The CoC cannot approve a Resolution Plan proposed by an applicant barred under Section 29A of the IBC. Regulation 37 and 38 of the CIRP Regulations govern the contents of a Resolution Plan. Furthermore, a Resolution Plan, if in compliance with the mandate of the IBC, cannot be rejected by the Adjudicating Authority and becomes binding on its approval upon all stakeholders – including the Central and State Government, local authorities to whom statutory dues are owed, operational creditors who were not a part of the CoC and the workforce of the Corporate Debtor who would now be governed by a new management. Such features of a Resolution Plan, where a statute extensively governs the form, mode, manner and effect of approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented to it. In the pure contractual realm, an agreement binds parties who are privy to the contract. In the context of a resolution Plan governed by the IBC, the element of privity becomes inapplicable once the Adjudicating Authority confirms the Resolution Plan under Section 31(1) and declares it to be binding on all stakeholders, who are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a commentator has noted that the purpose of bankruptcy law is to actually solve a specific ‘contracting failure’ that accompanies financial distress. Such a contracting failure arises because “financial distress involves too many parties with strategic bargaining incentives and too many contingencies for the firm and its creditors to define a set of rules of every scenario.” Thus, insolvency law recognizes that parties can take benefit of such ‘incomplete contract’ to hold each other up for their individual gain. In an attempt to solve the issue of incompleteness and the hold-up threat, the insolvency law provides procedural protections i.e., “the law puts in place guardrails that give the parties room to bargain while keeping them from taking position that veer toward extreme hold up”66.

111Copy pinpoint111. It may be useful to refer to how this Court has analyzed instruments that are analogous to a Resolution Plan. In SK Gupta v. KP Jain 67, this Court while discussing the nature of compromise or 66 Anthony J. Casey, ‘Chapter 11’s Renegotiation Framework and the Purpose of Corporate Bankruptcy’, Columbia Law Review Vol 120 No 7, available at <https:// columbialawreview.org/content/chapter-11s-renegotiation-framework-and-the-purpose- of-corporate-bankruptcy/> accessed on 5 September 2021 H 67 (1979) 3 SCC 54

p. 433 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

112Copy pinpoint112. While the above observations were made in the context of a scheme that has been sanctioned by the Court, the Resolution Plan even prior to the approval of the Adjudicating Authority is binding inter se the CoC and the successful Resolution Applicant. The Resolution Plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the E Adjudicating Authority. Even at that stage, its binding effects are produced by the IBC framework. The BLRC Report mentions that “[w]hen 75% of the creditors agree on a revival plan, this plan would be binding on all the remaining creditors”68. The BLRC Report also mentions that, “the RP submits a binding agreement to the Adjudicator before the default F maximum date”69. We have further discussed the statutory scheme of the IBC in Sections I and J of this judgement to establish that a Resolution Plan is binding inter se the CoC and the successful Resolution Applicant. Thus, the ability of the Resolution Plan to bind those who have not consented to it, by way a statutory procedure, indicates that it is not a typical contract. G

113Copy pinpoint113. The BLRC Report, which furnished the first draft of the IBC and elaborated on the aims behind the overhaul of the insolvency

68 Page 13, BLRC Report, supra note 55 69 Page 92, BLRC Report, supra note 55 H

p. 434 Copy page pinpoint

A regime, refers to a CoC-approved Resolution Plan as a ‘binding contract’ in one instance and refers to it as a ‘binding agreement’ in other instances. The report also refers to a CoC-approved Resolution Plan as a ‘financial arrangement’70, ‘revival plan’71 or a ‘solution’72. The interchangeability of the terms – ‘agreement’, ‘contract’, ‘financial arrangement’, ‘revival plan’ and ‘solution’ indicates that there is no clear intention of the BLRC B in characterizing the nature of the Resolution Plan as a contract. The binding effect of the Resolution Plan has the consequence of preventing the CoC or the Resolution Applicant to renege from its terms after the plan has been approved by the CoC through a voting mechanism. The fleeting mention of a ‘binding contract’ on one occasion in the BLRC C Report (which was a pre-legislative text that underwent subsequent modifications by the Legislature) to indicate the binding nature of the Resolution Plan and the finality of negotiations once it is approved by the CoC, does not establish the legal nature of the document, especially when it is not complemented by the text and design of the IBC.

114Copy pinpoint114. Certain stages of the CIRP resemble the stages involved in the formation of a contract. Echoes of the process involved in the formation of a contract resonate in the steps antecedent to the approval of a Resolution Plan such as: (i) the issuance of an RFRP may be equated to an invitation to offer; (ii) a Resolution Plan can be considered as a proposal or offer; and (iii) the approval by the CoC may be similar to an acceptance of offer. The terms of the Resolution Plan contain a commercial bargain between the CoC and Resolution Applicant. There is also an intention to create legal relations with binding effect. However, it is the structure of the IBC which confers legal force on the CoC- approved Resolution Plan. The validity of the Resolution Plan is not premised upon the agreement or consent of those bound (although as a procedural step the IBC requires sixty-six percent votes of creditors), but upon its compliance with the procedure stipulated under the IBC.

115Copy pinpoint115. It was argued for the E-RP that a Resolution Plan is a contract executed in furtherance of a statutory regime under the IBC. A question arises whether a Resolution Plan can be classified as a ‘statutory contract’. This Court has defined a statutory contract in India Thermal Power Ltd. v. State of MP73 in the following terms: 70 Page 21, BLRC Report, supra note 55 71 Page 13, BLRC Report, supra note 55 72 Pages 21, 75 and 126, BLRC Report, supra note 55 H 73 (2000) 3 SCC 379

p. 435 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

“11. Section 43 empowers the Electricity Board to enter into an A arrangement for purchase of electricity on such terms as may be agreed. Section 43-A(1) provides that a generating company may enter into a contract for the sale of electricity generated by it with the Electricity Board. As regards the determination of tariff for the sale of electricity by a generating company to the B Board, Section 43(1)(2) provides that the tariff shall be determined in accordance with the norms regarding operation and plant-load factor as may be laid down by the authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined from time to time by the Central Government by a notification in the Official Gazette. These C provisions clearly indicate that the agreement can be on such terms as may be agreed by the parties except that the tariff is to be determined in accordance with the provision contained in Section 43-A(2) and notifications issued thereunder. Merely because a contract is entered into in exercise of an enabling power conferred by a statute that by itself cannot render the contract a statutory contract. If entering into a contract containing the prescribed terms and conditions is a must under the statute then that contract becomes a statutory contract. If a contract incorporates certain terms and conditions in it which are statutory then the said contract to that extent is statutory. A contract may contain certain other terms and conditions which may not be of a statutory character and which have been incorporated therein as a result of mutual agreement between the parties. Therefore, the PPAs can be regarded as statutory only to the extent that they contain provisions regarding determination of tariff and other statutory requirements of Section 43-A(2)…” (emphasis supplied)

116Copy pinpoint116. The above observations were in the context of a PPA entered into under the provisions of Electricity Supply Act 1948. Section 43- G A(1) of the Act stipulated that the generating company may enter into a contract with the Electricity Board. Thus, the judgement pre-supposes the existence of a subsisting contract. The controversy in the case was whether the PPA could be characterized as a statutory contract. To say that a Resolution Plan is a statutory contract, we must first consider H

p. 436 Copy page pinpoint

A whether the IBC envisages the CoC-approved Resolution Plan as a contract. There is no provision under the IBC referring to a Resolution Plan as a contract, unlike Section 43-A(1) of the Electricity Supply Act 1948 which mentions that a contract may be entered into between the concerned parties. The legal force of a Resolution Plan arises due to the framework provided under the IBC. The mechanisms of the IBC provide B sufficient guidance on the conduct of all participants in the process and the binding effect of the CoC-approved Resolution Plan is evidenced by the execution of a PBG furnished by the successful Resolution Applicant, in compliance with the CIRP Regulations. This PBG is returnable once the Adjudicating Authority approves the Resolution Plan under Section C 31 and makes it binding on all stakeholders. Therefore, the IBC and its regulations institute sufficient safeguards to ensure the binding effect of a CoC-approved Resolution Plan. In our discussion in Sections I and J below, we further elaborate on the nature of a CoC-approved Resolution Plan and the code of conduct that is permissible by the statutory framework. D

117Copy pinpoint117. While insolvency regimes are specific to each jurisdiction, it may be useful to analyze how Resolution Plans or similar instruments are characterized in foreign jurisdictions.

118Copy pinpoint118. Certain precedents from other jurisdictions have been cited by Mr Nakul Devan for the E-RP, to argue that contracts entered into, in furtherance of a statutory regime have to be interpreted in accordance with the objective and intent of the concerned statute. It has been submitted that the Resolution Plan is one variety of such a statutory contract. However, since we have arrived at the decision that Resolution Plans are not statutory contracts, it is not required for us to analyze whether terms of the Resolution Plan can be given effect to, as terms of a contract, as long as they further the statutory objective. It is also important to note that India adopts a unique insolvency framework where third-parties have the right to participate in an insolvency regime and acquire the Corporate Debtor as a going concern. In several jurisdictions, the insolvency arrangements are between the debtor and the creditors, which has a closer resemblance to ‘repayment plans’ by corporate debtors, as envisaged by the IBC under Section 105 and broadly prescribed under Chapter III as opposed to ‘resolution plans’ that are not proposed by debtors. In any event, an analysis of such arrangements is detailed below.

p. 437 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

119Copy pinpoint119. In the United Kingdom, the UK Act allows the directors, administrator or liquidator of a company to propose a company voluntary arrangement or a ‘CVA’ (similar to Section 10 of the IBC), which has to be approved by creditors having seventy-five per cent of the vote share. Section 5(2)(b)74 of the UK Act provides that once the CVA is approved, the company and the creditors are bound by it. Professor Roy Goode in his authoritative treatise Principles of Corporate Insolvency Law75 observes that, “[t]he wording of s.5(2)(b), discussed below, has led the courts to characterise the relationship between the parties to a CVA as essentially contractual in nature and its scope and effect are determined by its terms, which fall to be interpreted by application of the ordinary principles of contractual interpretation.” In some judgements of the Court C of Appeal, English Courts have held that a CVA creates a contractual obligation76, is a statutory contract77, or has a contractual effect and is subject to ordinary principles of interpretation applying to contracts 78. However, the position on this issue is not completely settled. In a recent decision of the High Court of Justice79, it was held that the CVA is not a D contract. Crucially the court made the following observations: “83. Further, and as noted by Mr Pymont QC in SHB Realisations Ltd, a voluntary arrangement is not formed or analysed as a contract. Certain legal principles applicable to contracts, for example their interpretation, are applied to voluntary arrangements; that is no less true of other instruments E which are not contracts. Other principles of contract law, for example those relating to penalties, are not applicable to voluntary arrangements. Mr Pymont QC concluded that a voluntary arrangement is not a contract. Characterising a CVA as a hypothetical agreement or by reference to a statutory F 74 5 …(2) The voluntary arrangement— (b) binds every person who in accordance with the rules — (i) was entitled to vote in the qualifying decision procedure by which the creditors’ decision to approve the voluntary arrangement was made, or (ii) would have been so entitled if he had had notice of it — as if he were a party to the voluntary arrangement.” 75 Roy Goode, Principles of Corporate Insolvency Law (5 th edn., Sweet and Maxwell, 2018) G 76 Re TBL Realisations Plc, Oakley-Smith v Greenberg, [2004] B.C.C. 81 (Court of Appeal) 77 Tucker v Gold Fields Mining LCC, [2010] B.C.C. 544 (Court of Appeal) 78 Heis v Financial Services Compensation Scheme Ltd, [2018] EWCA Civ 1327 (Court of Appeal) 79 Re Rhino Enterprises Properties Ltd. Schofield v Smith [2020] EWHC 2370 (Ch). H

p. 438 Copy page pinpoint

A hypothesis neatly and accurately makes clear that a CVA is different from, and is not in fact, a contract.” (emphasis supplied)

120Copy pinpoint120. In Singapore, under Section 210 (3AA and 3AB) of the Singapore Act, a compromise or arrangement between the company and its creditors becomes binding when the requisite majority of creditors agree to it and it is approved by the court. The Singapore Court of Appeal has referred to such a scheme of arrangement as a ‘contractual scheme’80. Subsequently, a controversy arose before the Singapore Court of Appeal on whether a scheme can be substantially amended after it has been approved by the court. The court observed that the answer to this question depends upon the nature of schemes of arrangement; whether the schemes derived their efficacy from the order of the court or the statute. The court observed that under the English approach81, a scheme approved by the majority of the creditors derives its efficacy from the statute and is a statutory contract. Thus, the court has a limited jurisdiction and cannot make substantial alterations to such a scheme. However, the court noted that in Australia, the scheme operates as an order of the court. The court held that its previous decision which referred to a scheme of arrangement as a ‘contractual scheme’ does not mean that in Singapore such schemes are considered as statutory contracts. E The court chose to follow the Australian approach holding that a scheme takes effect as an order of the court and like any other court order, it can be altered, in certain circumstances. The court observed: “66. ….We would also add, in respect of the latter concern, that a court order is in no way less binding than a statutory contract on F the parties to a scheme of arrangement, and it is trite law as well as common sense that a court order cannot be altered at will by the parties who are subject to the order….”

121Copy pinpoint121. In Australia, as noted above, the scheme of arrangement operates as a court order82. The Supreme Court of New South Wales, G rejecting the English approach of characterizing schemes (different from CVAs) as statutory contracts, observed:

80 Daewoo Singapore Pte Ltd v CEL Tractors Private Limited, [2001] 4 SLR 35 (Court of Appeal) 81 Kempe and Another v. Ambassador Insurance Co., [1998] 1 W.L.R. 271 82 H Caratti v Hillman [1974] WAR 92 (Supreme Court of Wester Australia)

p. 439 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

122Copy pinpoint122. Under the United States Bankruptcy Code, a restructuring plan becomes binding once it is confirmed by the court in terms of Section

1141. There are decisions of the bankruptcy courts in the United States C which indicate that such restructuring plans are characterized as contracts83.It has been held that a confirmed plan is binding on the debtor and the plan proponent and has the same effect as contract84. However, commentators have noted that the United States Bankruptcy Code’s, “embrace of a contractual paradigm is somewhat inconsistent…Both D bankruptcy courts and the Code itself are far more sympathetic to ex post than to ex ante contracting”85. It has been further observed that, “there are a few provisions in the Bankruptcy Code inviting parties to “otherwise agree” by contract and in some contexts the Code explicitly overrides ex ante contracts”, these include provisions of the Code overriding ipso facto clauses in pre-bankruptcy contracts which stipulate that a necessary condition of default is filing of an insolvency or bankruptcy petition86.

123Copy pinpoint123. The above discussion indicates the law in other jurisdictions, irrespective of differing frameworks, is not completely settled on whether instruments akin to Resolution Plans are pure contracts. To recapitulate, in the United Kingdom, while schemes of arrangement are characterized as statutory contracts, the law on CVAs, which are similar to the insolvency process initiated under Section 10 of the IBC, is not clear 83 In re Hoffinger Indus, Inc, 327 B.R. 389 (Bankr. E.D. Ark. 2005), United States Bankruptcy Court, E.D. Arkansas G 84 In Re Shenandoah Realty Partners, L.P. v. Ascend Health Care, Inc, 287 BR 867 (US Bankruptcy Court, WD) 85 David Skeel and George Triantis, ‘Bankruptcy’s Uneasy Shift to a Contractual Paradigm’, Faculty Scholarship at Penn Law, (2018), available at <https:// scholarship.law.upenn.edu/cgi/viewcontent.cgi? article = 2993 & context = faculty _ scholarship > accessed on 5 September 2021 86 Ibid. H

p. 440 Copy page pinpoint

A with the High Court of Justice noting that it is not a contract87, even though principles of interpretation applicable to contracts may be used for constructing the language of such CVAs. In Singapore, the English approach of denoting schemes as statutory contracts was rejected and it was held that the schemes operate as orders of court. A similar position was taken under the Australian law. The Singapore and Australian courts specifically indicate that schemes are more than mere contracts with a “super-added imprimatur” by a court, rather they envisage an active role to be played by court in supervising the schemes to the extent of making substantial alterations to it, if required. In the United States, restructuring plans have been equated to contracts, but as noted above there has been some inconsistency in relation to upholding the contractual bargain.

124Copy pinpoint124. The lack of an apparent international consensus on the issue of whether instruments like CoC-approved Resolution Plans are contracts, prior to the Court’s sanction, is also attributable to the peculiarity of the insolvency regime in each jurisdiction. This Court will have to be wary of transplanting international doctrines that are evolved as responses to the specific features of a jurisdiction’s insolvency regime, without identifying an analogous framework in our insolvency regime.

125Copy pinpoint125. The absence of any specific provision in the IBC or the regulations referring to a CoC-approved Resolution Plan as a contract and the lack of clarity in the BLRC report regarding the nature of such a Resolution Plan, constrains us from arriving at the conclusion that CoC-approved Resolution Plans will be governed by the Contract Act and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the IBC. Regulation F 39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth Amendment) Regulations 2020 and applicable to the three appellants before us, enabled a framework where a draft Resolution Plan would involve several rounds of negotiations and revisions between the Resolution Applicant and the CoC, before it is approved by the latter and submitted to the Adjudicating Authority88. However, this statutorily- 87 Rhino supra note 78 88 “(3) The committee shall evaluate the resolution plans received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record its deliberations on the feasibility and viability of the resolution plans’’

p. 441 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

enabled room for commercial negotiation is not enough to over-power the other elements of regulation that detract from the view that CoC- approved Resolution Plans are contracts. CoC-approved Resolution Plans, before the approval of the Adjudicating Authority under Section 31, are a function and product of the IBC’s mechanisms. Their validity, nature, legal force and content is regulated by the procedure laid down under the IBC, and not the Contract Act. The voting by the CoC also occurs only after the RP has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. The amended Regulation 39(3)89 further regulates the conduct of the CoC on voting on Resolution Plans and has introduced the requirement of simultaneous voting. The IBBI’s Discussion Paper issued on 27 August 2021 has invited comments on regulating the process on revisions that can be made to resolution plans submitted to the CoC90. These developments bolster the conclusion that the mechanism prior to submission of a CoC-approved resolution plan is subject to continuous procedural scrutiny by the IBC and cannot be considered as a simple contractual negotiation between two parties. Section J below details how a common law remedies of withdrawal or modification on account of frustration or force majeure are not applicable to CoC-approved Resolution Plans owing to the nature of the IBC. Similarly, the whole host of remedies such as liquidated and unliquidated damages, restitution, novation and frustration, unless specifically provided by the IBC, are not available to a successful Resolution Applicant whose Plan has been approved by the CoC and is awaiting the approval of the Adjudicating Authority. The Insolvency Law Committee Report of February 2020 89 “39….(3)The committee shall-(a) evaluate the resolution plans received under sub- regulation (2) as per evaluation matrix; (b) record its deliberations on the feasibility and viability of each resolution plan; and (c) vote on all such resolution plans simultaneously. F (3A) Where only one resolution plan is put to vote, it shall be considered approved if it receives requisite votes. (3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved: Provided that where two or more resolution plans receive equal votes, but not less than G requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting: Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code……….” 90 available at < https://www.ibbi.gov.in/uploads/whatsnew/ fbe59358a8c440d001f3b950be4a1c67.pdf > accessed on 5 September 2021 H

p. 442 Copy page pinpoint

A has recommended the CIRP process to mandate Resolution Plans to provide for the apportionment of the profit or loss accrued by the Corporate Debtor during the CIRP91. These reports are periodically commissioned by the parliament to review the functioning of the Code and suggest amendments. However, if the intention was to view a CoC- approved Resolution Plan as a contract, the principles of unjust enrichment B would have been sufficient to address the issue and an amendment may not be considered necessary. A Resolution Applicant, as a third party partaking in the insolvency regime, seeks to acquire the business of the Corporate Debtor without the entirety of its debts, statutory liabilities and avoiding certain transactions with third parties. These benefits are a C function of the coercive mechanisms of the IBC which enable a third party to acquire the assets of a Corporate Debtor without its liabilities, for a negotiated amount of the debt that is owed by the Corporate Debtor. Typically, resolution amounts envisage payment of a fraction of debt that is owed to the creditors and the business is acquired as a going concern with its employees. The Resolution Plan is drafted in a way that D it is implementable in the future and brings about a quietus to the CIRP. Enabling Resolution Applicants to seek remedies that are not specified by the IBC, by seeking recourse to the Contract Act would be antithetical to the IBC’s insolvency regime. The elements of contractual interpretation can be relied upon to construe the language of the terms of the Resolution E Plan, in the event of a dispute, but not to re-fashion and distort the mechanism of the IBC altogether. This Court in Laxmi Pat Surana v. Union Bank of India92 has held that the IBC is a self-contained Code. Thus, importing principles of any other law or a statute like the Contract Act into the IBC regime would introduce unnecessary complexity into the working of the IBC and may lead to protracted litigation on F considerations that are alien to the IBC. To give an example, the CoC can forfeit the PBG furnished by the successful Resolution Applicant under certain circumstances in terms of the RFRP and Resolution Plan including, inter alia, on the ground that the Resolution Applicant has failed to implement the resolution or has contributed to its failure. G Regulation 36B (4A) of CIRP regulations provides for the furnishing of such performance security once the plan is approved by creditors. The

91 Pages 55-56, Report of the Insolvency Law Committee (February 2020), Ministry of Corporate Affairs, available at <http s://www.mca.gov.in/Ministry/pdf/ ICLReport_05032020.pdf> accessed on 20 August 2021 92 H (2020) SCC OnLine SC 1187

p. 443 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

Regulations do not provide that the performance security has to be a A reasonable estimate of loss as is expected of penalty clauses under contract law, rather the explanation provides that the performance security should be of “such nature, value, duration and source, as may be specified in the request for resolution plans with the approval of the committee, having regard to the nature of resolution plan and business of the corporate B debtor”. Further, in the event that the CoC enters into a settlement with the Corporate Debtor and withdraws from the CIRP under Section 12A, Regulation 30A provides for only payment of insolvency costs and not compensation or damages to Resolution Applicant for investing time and money in the process. The parties may resort to invoking principles of frustration or force majeure to evade implementation of the Resolution C Plan leading to unnecessary litigation. This Court in Amtek Auto (supra), had curbed a similar attempt by a successful Resolution Applicant who had relied on a force majeure clause in its Resolution Plan to seek a direction compelling the CoC to negotiate a modification to its Resolution Plan. The Court held that there was no scope for negotiations between the parties once the Resolution Plan has been approved by the CoC. Thus, contractual principles and common law remedies, which do not find a tether in the wording or the intent of the IBC, cannot be imported in the intervening period between the acceptance of the CoC and the approval by the Adjudicating Authority. Principles of contractual construction and interpretation may serve as interpretive aids, in the event of ambiguity over the terms of a Resolution Plan. However, remedies that are specific to the Contract Act cannot be applied, de hors the over-riding principles of the IBC. I Statutory framework governing the CIRP

126Copy pinpoint126. The CIRP is a time bound process with a specific aim of maximizing the value of assets. IBC and the regulations made under it lay down strict timelines which need to be adhered to by all the parties, at all stages of the CIRP. The CIRP is expected to be completed within 180 days under Section 12(1) of the IBC. In terms of sub-Section (2) and (3) of Section 12, an extension can be sought from the Adjudicating G Authority for extending this period up to 90 days. The first proviso to Section 12(3) clarifies that such an extension can only be granted once. In Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta93, this Court had held that the time taken in legal proceedings in relation to the 93 (2019) 2 SCC 1, para 86 H

p. 444 Copy page pinpoint

A CIRP must be excluded from the timeline mentioned in Section 12. Since this could extend the CIRP indefinitely, the Insolvency and Bankruptcy Code (Amendment) Act 2019, inserted a second proviso to Section 12(3) with effect from 16 August 2019 to state that the CIRP in its entirety must be mandatorily completed within 330 days from the insolvency commencement date, including the time taken in legal proceedings. A B legislative amendment that takes away the basis of a judicial finding is indicative of the strong emphasis of the IBC on its timelines and its attempt to thwart the prospect of stakeholders engaging in multiple litigations, solely with the intent of causing undue delay. Delays are also a cause of concern because the liquidation value depletes rapidly, irrespective of the imposition of a moratorium, and a delayed liquidation is harmful to the value of the Corporate Debtor, the recovery rate of the CoC and consequentially, the economy at large. In Essar Steel (supra) a three judge Bench of this Court, emphasized the rationale of the Insolvency and Bankruptcy Code (Amendment) Act 2019, which introduced the second proviso to Section 12(3). The court adverted to the BLRC report which underscored delays in legal proceedings as the cause of the failure of the previous insolvency regime under the SICA and the recovery mechanism in SARFAESI. It also extracted a Speech of the Union Minister in the Rajya Sabha to explain the proposal for the amendment in 2019, which was to avoid the same pitfalls in the IBC. E The Court, speaking through Justice R F Nariman, noted: “119. The speech of the Hon’ble Minister on the floor of the House of the Rajya Sabha also reflected the fact that with the passage of time the original intent of quick resolution of stressed assets is getting diluted. It is therefore essential to have time-bound F decisions to reinstate this legislative intent. It was also pointed out on the floor of the House that the experience in the working of the Code has not been encouraging. The Minister in her speech to the Rajya Sabha gives the following facts and figures: “Now, regarding the Corporate Insolvency Resolution Process G (CIRP), under the Code, I want to give you data again as of 30-6-2019. First, I will talk about the status of CIRPs. Number of admitted cases is 2162; number of cases closed on appeal, which I read out about, is 174; number of cases closed by withdrawal under Section 12-A, is 101, I have given you a slightly later data; number of cases closed by resolution is 120; closed by liquidation, H

p. 445 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

475; and ongoing CIRPs are 1292. So, now, I would like to mention A the number of days of waiting. I would like to mention here the details of the ongoing CIRPs, along with the timelines. Ongoing CIRPs are 1292, the figure just now I gave you. Over 330 days, 335 cases; over 270 days, 445 cases; over 180 days and less than 270 days, 221 cases; over 90 days but less than 180 days, 349 B cases; less than 90 days, 277 cases. The number of days pending includes time, if any, excluded by the tribunals. So, that gives you a picture on what is the kind of wait and, therefore, why we want to bring the amendments for this speeding up.” […] C

123. As the speech of the Hon’ble Minister on the floor of the House only indicates the object for which the amendment was made and as it contains certain data which it is useful to advert to, we take aid from the speech not in order to construe the amended Section 12, but only in order to explain why the Amending Act of 2019 was brought about.” D

127Copy pinpoint127. The decision in Essar Steel (supra) while reiterating the rationale of the IBC for ensuring timely resolution of stressed assets as a key factor, had to defer to the principles of actus curiae neminem gravabit, i.e., no person should suffer because of the fault of the court or the delay in the procedure. In spite of this Court’s precedents which otherwise strike down provisions which interfere with a litigant’s fundamental right to non-arbitrary treatment under Article 14 by mandatory conclusion of proceedings without providing for any exceptions, this Court refused to strike down the second proviso to Section 12(3) in its entirety. It noted that the previous statutory experiments for insolvency had failed because of delay as a result of extended legal proceedings and chose to only strike down the word ‘mandatorily’, keeping the rest of the provision intact. Therefore, the law as it stands, mandates the conclusion of the CIRP – including time taken in legal proceedings, within 330 days with a short extension to be granted only in exceptional cases. However, the Court has warned that this discretion must be exercised sparingly and only in the following situations: “127…Thus, while leaving the provision otherwise intact, we strike down the word “mandatorily” as being manifestly arbitrary under Article 14 of the Constitution of India and as being an excessive H

p. 446 Copy page pinpoint

A and unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the corporate resolution process of the corporate debtor must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. However, on the facts of a given case, if it can be shown to the Adjudicating Authority and/or Appellate Tribunal under the Code that only a short period is left for completion of the insolvency resolution process beyond 330 days, and that it would be in the interest of all stakeholders that the corporate debtor be put back on its feet instead of being sent into liquidation and that the time taken in legal proceedings is largely due to factors owing to which the fault cannot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days. Likewise, even under the newly added proviso to Section 12, if by reason of all the aforesaid factors the grace period of 90 days from the date of commencement of the Amending Act of 2019 is exceeded, there again a discretion can be exercised by the Adjudicating Authority and/or Appellate Tribunal to further extend time keeping the aforesaid parameters in mind. It is only in such exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation.”

128Copy pinpoint128. The evolution of the IBC framework, through an interplay of legislative amendments, regulations and judicial interpretation, consistently emphasizes the predictability and timeliness of the IBC. The legislature and the IBBI have been proactive to introduce amendments to the procedural framework, that respond to changes in the economy. For instance, Regulation 40(c), which came into effect on 20 April 2020, was inserted in the CIRP Regulations to take into account the delay that may be caused to the CIRP on account of the lockdown being imposed by the Central Government due to the COVID-19 pandemic. Regulation H 40(c) provides that the delay in completing any activity related to the

p. 447 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

CIRP because of imposition of lockdown will not be counted for the A purposes of the timeline that has been stipulated under the statutory framework. If the CIRP is not completed within the prescribed timeline, the Corporator Debtor is sent into liquidation. This understanding of the evolution of the law is critical to our task of judicial interpretation. We cannot afford to be swayed by abstract conceptions of equity and B ‘contractual freedom’ of the parties to freely negotiate terms of the Resolution Plan with unfettered discretion, that are not grounded in the intent of the IBC.

129Copy pinpoint129. The IBC and the regulations provide a detailed procedure for the completion of CIRP. An application for initiation of CIRP is filed either by the financial creditor, operational creditor or the Corporate C Debtor itself under Sections 7, 9 and 10 of the IBC, respectively. Once the application is admitted by the Adjudicating Authority, it passes the following orders under Section 13(1) of the IBC: (i) declaration of a moratorium for the purposes referred to in Section 14 of the IBC; (ii) causing a public announcement to be made for the initiation of CIRP and D issuing a call for submissions of claims as may be specified under Section 15 of the IBC; and (iii) appointing an IRP in accordance with Section 16 of the IBC.

130Copy pinpoint130. Section 13(2) provides that the public announcement is to be made immediately after the appointment of an IRP. The word E ‘immediately’ here means not later than three days from the date of appointment as provided in the explanation to Regulation 6(1) of the CIRP Regulations. Section 15 of the IBC lists down the information that should be included in the public announcement of CIRP. It should specify the last date up to which the claims, i.e., a right of payment or right to remedy as defined under Section 3(6) of the IBC, can be made by F creditors, workmen and employees. Regulation 6(2)(c) provides that the last date of submission of claims shall be fourteen days from the date of appointment of the IRP. The public announcement also specifies the date on which the CIRP shall close, which is the one hundred and eightieth day from the date of the admission of the application under Sections 7, 9 G or 10, as may be applicable. Regulation 6 of the CIRP Regulations stipulates additional requirements relating to how the public announcement is to made.

131Copy pinpoint131. On receipt of claims from the operational creditors, financial creditors, workmen and employees, the IRP prepares a list of creditors H

p. 448 Copy page pinpoint

A after verifying the claims. Regulation 13(1) provides that the verification of all the claims is to be done within seven days from the last date of receipt of the claims. Thereafter, the IRP constitutes a CoC in accordance with Section 21(1) of the IBC. Regulation 17 of the CIRP Regulations stipulates that the IRP must submit a report certifying the constitution of the CoC within two days of the claims being verified. The IRP is required B to hold the first meeting of the CoC within seven days of filing of the report under the said regulation. If the appointment of the RP by the CoC is delayed, the IRP is to perform the functions of the RP from the fortieth day of the insolvency commencement date till the RP is appointed under Section 22 of the IBC.

132Copy pinpoint132. The CoC, in its first meeting, appoints the RP in terms of Section 22(2) of the IBC. Section 23(1) provides that the RP is responsible for conducting the entire CIRP and managing the operations of the Corporate Debtor during the CIRP period. The RP continues to manage the operations of the Corporate Debtor after the expiry of CIRP period D until an order approving the resolution is passed by the Adjudicating Authority under Section 31(1) of the IBC or a liquidator is appointed under Section 34 of the IBC. The intent of this Section is to ensure that the Corporate Debtor remains a going concern until the Resolution Plan is approved by the Adjudicating Authority. The powers and duties of the RP are listed under Section 23(2) of the IBC. E

133Copy pinpoint133. The significant, if not the most important, duty of the RP is to solicit Resolution Plans. The RP is empowered to invite prospective Resolution Applicants who fulfil the criteria as laid down by the RP and approved by the CoC, considering the complexity and the scale of the business operations of the Corporate Debtor and other such conditions specified by the IBBI, to submit a Resolution Plan or Plans under Section 25(2)(h) of the IBC. Further, a person should not be ineligible to be a Resolution Applicant under Section 29A of the IBC. Section 5(25) defines a Resolution Applicant in the following terms: “resolution applicant” means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25; or pursuant to section 54K, as the case may be.”

p. 449 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

134Copy pinpoint134. The first step in the process of soliciting a Resolution Plan is the preparation of an IM containing relevant information as specified by the IBBI for formulating a Resolution Plan in accordance with Section 29(1) of the IBC. The contents of the IM are specified under Regulation 36(2) of the CIRP Regulations. Regulation 36(1) of the CIRP Regulations specifies the timelines within which the RP must submit the IM to members of the CoC, which is within two weeks of his appointment but not later than the fifty-fourth day from the insolvency commencement date, whichever is earlier. Thereafter, the RP issues an invitation of EOI not later than the seventy-fifth day from the insolvency commencement date to seek expressions of interest from eligible prospective Resolution Applicants in terms of Regulation 36A of the CIRP Regulations. A C prospective Resolution Applicant is required to submit an unconditional EOI within the time stipulated under the invitation, which shall not be less than fifteen days from the date of the issue of invitation. The RP conducts a due diligence of the Resolution Applicant based on material available on record in terms of Regulation 36A(8) of the CIRP D Regulations. Thereafter, the RP issues a provisional list of eligible prospective Resolution Applicants within ten days of the last date for submission of EOIs to the CoC and to all the prospective Resolution Applicants who had submitted the EOI. Regulation 36A also specifies the timeline within which any objection can be made against the inclusion or exclusion of a prospective Resolution Applicant on the list, which is E five days from the issue of the list. The RP is required to publish a final list of prospective Resolution Applicants within ten days of the last date for the receipt of objections by the CoC.

135Copy pinpoint135. Under Regulation 36B of the CIRP Regulations, the RP has to issue the IM, evaluation matrix for consideration of the Resolution F Plan and an RFRP within five days of the date of issue of the provisional list of Resolution Applicants to every prospective Resolution Applicant on the list and any other prospective Resolution Applicants who have contested their non-inclusion in the list. Regulation 36B stipulates that the RFRP shall contain detailed steps of each process and the manner and purposes of interaction between the RP and the prospective resolution G applicant along with the corresponding timelines. A minimum of thirty days is given to the prospective Resolution Applicant to submit a Resolution Plan. A Resolution Plan is defined under Section 5(26) of the IBC:

p. 450 Copy page pinpoint

A “resolution plan” means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II; Explanation.—For the removal of doubts, it is hereby clarified that a resolution plan may include provisions for the restructuring B of the corporate debtor, including by way of merger, amalgamation and demerger;”

136Copy pinpoint136. The timeline for the submission of Resolution Plans can be extended by an RP with the approval of the CoC. The RFRP must require the resolution applicant to furnish a performance security in case their C Resolution Plan is approved by the CoC under Regulation 36B(4A). The performance security shall stand forfeited if, after the approval of the Resolution Plan by the Adjudicating Authority, the Resolution Applicant fails to implement or contributes to the failure of implementation of the plan. Under the regulation, a performance security is defined as “security of such nature, value, duration and source, as may be specified in the request for resolution plans with the approval of the committee, having regard to the nature of resolution plan and business of the corporate debtor”. Regulations 37 and 38 list down the mandatory contents of the Resolution Plan.

137Copy pinpoint137. The RP is required to review the Resolution Plan submitted in terms of Section 30(2) of the IBC, which provides that: “Section 30 - Submission of resolution plan […] (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than— (i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under section 53; or

p. 451 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

(ii) the amount that would have been paid to such creditors, if the A amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53, whichever is higher and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, B which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor. Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors. C

Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor— D

(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority; (ii) where an appeal has been preferred under section 61 or section 62 or such an appeal is not time barred under any provision of law E for the time being in force; or (iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; (c) provides for the management of the affairs of the F Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; G

(f) conforms to such other requirements as may be specified by the Board. Explanation.— For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of H

p. 452 Copy page pinpoint

A 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.” (emphasis supplied) B Sub-Section (3) of Section 30 of the IBC provides that the RP shall present Resolution Plans which conform to the above requirements before the CoC for approval. Sub-Section (4) of Section 30 stipulates that the CoC may approve a Resolution Plan by a vote of not less than sixty-six per cent after considering the feasibility and viability of the plan and any such requirements specified by the IBBI.

138Copy pinpoint138. The CoC has been given wide powers under the IBC. It can direct the Corporate Debtor into liquidation any time before the approval by the Adjudicating Authority, under Section 33(2) of the IBC. Further, under Section 12A of the IBC the Adjudicating Authority may allow withdrawal of the application submitted under Sections 7, 9 or 10 of the IBC for initiation of the CIRP (i.e., initiation of the CIRP by the financial creditor, operational creditor and the corporate applicant, respectively) if the withdrawal is approved by ninety per cent of the voting share of the CoC. Dealing with the question whether a successful Resolution Applicant can retreat through the route provided under Section 12A of the IBC, a three-judge Bench of this Court in Maharashtra Seamless v. Padmanabhan Venkatesh 94 observed that, “[t]he exit route prescribed in Section 12A is not applicable to a Resolution Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the code”. However, this Court left the question whether a successful Resolution Applicant “altogether forfeits their right to withdraw from such process [CIRP] or not”, open for subsequent judicial determination95.

139Copy pinpoint139. In terms of Regulation 39(4), the RP shall endeavour to submit the Resolution Plan approved by the CoC before the Adjudicating Authority G for its approval under Section 31 of the IBC, at least fifteen days before the maximum period for completion of CIRP. Section 31(1) provides that the Adjudicating Authority shall approve the Resolution Plan if it is satisfied that it complies with the requirements set out under Section 30(2) of the IBC. Essentially, the Adjudicating Authority functions as a 94 (2020) 11 SCC 467 H 95 Para 29, Ibid.

p. 453 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

check on the role of the RP to ensure compliance with Section 30(2) of A the IBC and satisfies itself that the plan approved by the CoC can be effectively implemented as provided under the proviso to Section 31(1) of the IBC. Once the Resolution Plan is approved by the Adjudicating Authority, it becomes binding on the Corporate Debtor and its employees, members, creditors, guarantors and other stakeholders involved in the B Resolution Plan. Section 31(1) of the IBC is extracted below: “Section 31 - Approval of resolution plan (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub- C section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.” (emphasis supplied) A contravention of a Resolution Plan binding under Section 31 is punishable under Section 74 (3) of the IBC. Section 74 (3) of the IBC F provides thus: “Section 74 - Punishment for contravention of moratorium or the resolution plan [….] (3) Where the corporate debtor, any of its officers or creditors or G any person on whom the approved resolution plan is binding under section 31, knowingly and wilfully contravenes any of the terms of such resolution plan or abets such contravention, such corporate debtor, officer, creditor or person shall be punishable with imprisonment of not less than one year, but may extend to five H

p. 454 Copy page pinpoint

A years, or with fine which shall not be less than one lakh rupees, but may extend to one crore rupees, or with both.”

140Copy pinpoint140. If the Resolution Plan is rejected by the Adjudicating Authority, the Corporate Debtor goes into liquidation in accordance with Section 33(1) of the IBC. The order of the Adjudicating Authority rejecting B a Resolution Plan and directing liquidation under Section 33 of the IBC can be appealed only on the grounds of material irregularity or fraud, as stipulated under Section 61(4) of the IBC. The order of the Adjudicating Authority approving a Resolution Plan can be appealed before the NCLAT under Section 61(3) of the IBC only on the grounds specified in that section. The grounds of appeal are as follows: C “Section 61 - Appeals and Appellate Authority [….] (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:— D (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; E (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided F for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. (4) An appeal against a liquidation order passed under section 33, or sub-section (4) of section 54L, or sub-section (4) of section G 54N, may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.”

141Copy pinpoint141. Under Regulation 39(5) of the CIRP Regulations, the RP is required to send a copy of the order of the Adjudicating Authority accepting

p. 455 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

or rejecting the Resolution Plan on a ‘forthwith basis’. Regulation 39(5A) A specifies that within fifteen days of the date of the order of Adjudicating Authority approving the Resolution Plan, the RP must inform each claimant about the principle or formulae for the payment of debts under the Resolution Plan.

142Copy pinpoint142. As noted above, Section 12 of the IBC stipulates the timeline within which the CIRP is to be completed. The RP on the instructions of the CoC may make an application for extension of the CIRP. Regulation 40A of the CIRP Regulations provides a detailed model timeline for CIRP which accounts for all the procedural eventualities that are permitted by the statute and the regulations. Regulation 40A is extracted below:

“40-A. Model time-line for corporate insolvency resolution process.—The following Table presents a model timeline of corporate insolvency resolution process on the assumption that the interim resolution professional is appointed on the date of commencement of the process and the time available is hundred and eighty days:

p. 456 Copy page pinpoint

p. 457 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

p. 458 Copy page pinpoint

A Provisional List Within 10 days T+100 of RAs by RP from the last day of receipt of EoI Submission of For 5 days T+105 objections to from the date provisional list of provisional B list Final List of Within 10 days T+115 RAs by RP of the receipt of objections Regulation 36-B Issue of RFRP, Within 5 days T+105 including of the issue of C Evaluation the provisional Matrix and IM list Receipt of At least 30 T+135 Resolution days from issue Plans of RFRP (Assume 30 days) D Regulation 39(4) Submission of As soon as T+165 CoC approved approved by Resolution Plan the CoC to AA Section 31(1) Approval of T=180 resolution plan by AA E AA: Adjudicating Authority; AR: Authorised Representative; CIRP: Corporate Insolvency Resolution Process; CoC: Committee of Creditors; EoI: Expression of Interest; IM: Information Memorandum; IRP: Interim Resolution Professional; RA: Resolution Applicant; RP: Resolution Professional; RFRP: Request F for Resolution Plan.”

143Copy pinpoint143. The statutory framework governing the CIRP seeks to create a mechanism for resolving insolvency in an efficient, comprehensive and timely manner. The IBC provides a detailed linear process for undertaking CIRP of the Corporate Debtor to minimize any delays, G uncertainty in procedure and disputes. The roles and responsibilities of the important actors in the CIRP are clearly defined under the IBC and its regulations. In Innoventive Industries Ltd v. ICICI Bank96 a three judge Bench of this Court observed that “one of the important objectives of the Code is to bring the insolvency law in India under a H 96 (2018) 1 SCC 407, para 13.

p. 459 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

single unified umbrella with the object of speeding up of the insolvency process”. Recently, in Gujarat Urja97 (supra) a three judge Bench of this Court observed that a “delay in completion of the insolvency proceedings would diminish the value of the debtor’s assets and hamper the prospects of a successful reorganization or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner”. The stipulation of timelines and a detailed procedure under the IBC ensures a timely completion of CIRP and introduces transparency, certainty and predictability in the insolvency resolution process. The UNCITRAL Guide also states that the insolvency law of a jurisdiction should be transparent and predictable. It notes the value of such predictability in the following C terms98: “11. An insolvency law should be transparent and predictable. This will enable potential lenders and creditors to understand how insolvency proceedings operate and to assess the risk associated with their position as a creditor in the event of insolvency. This D will promote stability in commercial relations and foster lending and investment at lower risk premiums. Transparency and predictability will also enable creditors to clarify priorities, prevent disputes by providing a backdrop against which relative rights and risks can be assessed and help define the limits of any discretion. Unpredictable application of the insolvency law has the potential to undermine not only the confidence of all participants in insolvency proceedings, but also their willingness to make credit and other investment decisions prior to insolvency. As far as possible, an insolvency law should clearly indicate all provisions of other laws that may affect the conduct of the insolvency proceedings (e.g. labour law; commercial and contract law; tax law; laws affecting foreign exchange, netting and set-off and debt for equity swaps; and even family and matrimonial law).” This Court should proceed with caution in introducing any element in the insolvency process that may lead to unpredictability, delay and complexity not contemplated by the legislature. With this birds’-eye view of the framework of insolvency through the CIRP, we proceed to answer the question of law raised in this judgement - whether a Resolution 97 (2021) SCC OnLine 194, para 71. 98 Page 13, UNCITRAL Guide, supra 56 H

p. 460 Copy page pinpoint

A Applicant is entitled to withdraw or modify its Resolution Plan, once it has been submitted by the Resolution Professional to the Adjudicating Authority and before it is approved by the latter under Section 31(1) of the IBC. J Withdrawal of the Resolution Plan by a successful B Resolution Applicant under the IBC J.1 The absence of a legislative hook or a regulatory tether to enable a withdrawal

144Copy pinpoint144. The analysis of the statutory framework governing the CIRP and periodic reports of the Insolvency Law Committee indicates that it is a creditor-driven process. The aim of the process, in preferential order, is to: first, enable resolution of the debt by maintaining the corporate debtor as a going concern, in order to preserve the business and employment of the personnel; second, maximize the value of the assets of the corporate debtor and enable a higher pay-back to its creditors than under liquidation; and third, enable a smoother and faster transition to liquidation in the event that a time bound CIRP fails, in a bid to avert further deterioration of value.

145Copy pinpoint145. Since the aim of the statute is to preserve the interests of the corporate debtor and the CoC, it was recognized that settlements between the corporate debtor and the CoC may be in the best interests of all stakeholders since insolvency is averted. Two decisions of two judge Benches of this Court, in Lokhandwala Kataria Construction (P) Ltd v. Nisus Finance and Investment Managers LLP 99 and Uttara Foods and Feeds (P) Ltd v. Mona Pharmachem100, (prior to the insertion of Section 12A which enabled withdrawal of the CIRP on account of settlement between the parties), had refused to effectuate this remedy by exercising inherent powers of the Adjudicating Authority under Rule 11 of the NCLT Rules 2016 or the power of parties to make applications to the Adjudicating Authority under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016. In G Uttara Foods (supra) this Court had granted a one-time relief under Article 142 of the Constitution since all the parties were present before it and had presented it with signed consent terms. This course of action, in refraining from the exercise of inherent powers to effect procedures 99 (2018) 15 SCC 589 100 H (2018) 15 SCC 587

p. 461 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

and remedies that were not specifically envisaged by the statute, was explicitly affirmed by the Insolvency Law Committee Report dated March 2018101 which proceeded to suggest amendments to the IBC and recommended a ninety per cent voting threshold by the CoC for withdrawals of a CIRP and a specific amendment to Rule 8 of the then existing CIRP Rules to enable parties to file such applications. This report led to the insertion of Section 12A which vested the CoC with the power to withdraw the CIRP or vote on such withdrawal, if sought by the Corporate Debtor. This provision was introduced with retrospective 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) C 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 D 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 Rajagopal102 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 E 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.e.f. 25 July 2019 to reiterate the decision of this Court. The newly amended provision allows for withdrawals even after the invitation for expression of interest has been issued, provided that the applicant states the reasons justifying such withdrawal. Similarly, on 25 January 2019, a two judge Bench of this Court in Swiss Ribbons (supra) interpreted the true import of Section 12A and clarified that if the CoC is not yet constituted, a party can approach the Adjudicating Authority, which may in exercise of its inherent powers under Rule 11 of the NCLT Rules 2016, allow or reject an application for withdrawal or

101 Pages 5 and 101, Report of the Insolvency Law Committee, Ministry of Corporate Affairs (March 2018) available at < https://ibbi.gov.in/uploads/resources/ ILRReport2603_03042018.pdf > accessed on 20 August 2021 102 (2018) SCC OnLine SC 3154 H

p. 462 Copy page pinpoint

A settlement. On 25 July 2019, the IBBI (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2019 amended Regulation 30A in terms of this decision in interpreting Section 12A and now specifically provides the procedure under the IBC that relates to affecting a withdrawal under Section 12A before the constitution of the CoC. The applicant submits an application for withdrawal through the B IRP, directly before the Adjudicating Authority, since the CoC is not yet constituted to consider such an application. To ensure that the process for withdrawal is timely and efficient, the present Regulation 30A provides that the IRP shall submit an application for withdrawal of the CIRP prior to the constitution of the CoC to the Adjudicating Authority on behalf of the applicant within three days of the receipt. Alternatively, if the application for withdrawal is made after the constitution of the CoC, such application will be considered by the CoC within seven days of its receipt. If the CoC approves such an application with ninety per cent voting share, it is to be submitted to the Adjudicating Authority within three days of approval. Further, the application for withdrawal has to be accompanied by a bank guarantee towards estimated expenses relating to costs of the IRP (in case of a withdrawal prior to constitution of the CoC) or insolvency resolution process costs (where withdrawal is after constitution of the CoC). It is clear that withdrawal of the CIRP is allowed only if it upholds the interests of the CoC, is time-bound, and takes into consideration how the expenses relating to the insolvency process up to withdrawal shall be borne. Thus, even the exit under Section 12A of the CoC, which is not available to the Resolution Applicant, 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 F 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 G 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 H

p. 463 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

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 that are represented in the Resolution Plan in a manner that hampers the objectives of the IBC which is a speedy, predictable and timely resolution. The Resolution Applicant is deemed to be aware of the IBC and its mechanisms before it steps into the fray and consents to be bound by its underlying objectives. A Resolution Applicant, after obtaining the financial information of the Corporate Debtor through the informational utilities and perusing the IM, is assumed to have analyzed the risks in the business of the Corporate Debtor and submitted a considered proposal. It cannot demand vesting of certain powers and rights which have been conspicuously omitted by the legislature under the statute, in furtherance of the policy objectives of the IBC. A court may not be able to lay down such detailed guidance on how a mechanism for withdrawal, if any, may be provided to a successful Resolution Applicant without disturbing the statutory timelines and adequately evaluating the interests of creditors and other stakeholders, which is ultimately a matter of legislative policy. In Essar Steel (supra), a three judge Bench of this Court, affirmed a two judge Bench decision in K Sashidhar103 (supra), prohibiting the Adjudicating Authority from second-guessing the commercial wisdom of the parties or directing unilateral modification to the Resolution Plans 104. These are binding precedents. Absent a clear legislative provision, this court will not, by a process of interpretation, confer on the Adjudicating Authority a power to direct an unwilling CoC to re-negotiate a submitted Resolution Plan or agree to its withdrawal, at the behest of the Resolution Applicant. The Adjudicating Authority can only direct the CoC to re-consider certain elements of the Resolution Plan to ensure compliance under Section F 30(2) of the IBC, before exercising its powers of approval or rejection, as the case may be, under Section 31105. In Government of Andhra Pradesh v. P Laxmi Devi106, while determining the constitutionality of a statute, this Court observed that it should be wary of transgressing into the domain of the legislature, especially in matters relating to economic and regulatory legislation. This Court observed: G

103 Para 62, supra note 35 104 Paras 64-73, supra note 35 105 Para 73, Essar Steel supra note 34 106 (2008) 4 SCC 720 H

p. 464 Copy page pinpoint

A “80. As regards economic and other regulatory legislation judicial restraint must be observed by the court and greater latitude must be given to the legislature while adjudging the constitutionality 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 B 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.” C (emphasis supplied)

146Copy pinpoint146. 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 law-making power of the legislature and disturbing the delicate balance of separation of powers between the legislature and the judiciary. Judicial restraint must be exercised in such cases as a matter of prudence, since the court neither has the necessary expertise nor the power to hold consultations with stakeholders or experts to decide the direction of economic policy. A court may be inept in laying down a detailed procedure for exercise of the power of withdrawal or modification by a successful Resolution Applicant without impacting the other procedural steps and the timelines under the IBC which are sacrosanct. Thus, judicial restraint must be exercised while intervening in a law governing substantive outcomes through procedure, such as the IBC. In this case, if Resolution F Applicants are permitted to seek modifications after subsequent negotiations or a withdrawal after a submission of a Resolution Plan to the Adjudicating Authority as a matter of law, it would dictate the commercial wisdom and bargaining strategies of all prospective Resolution Applicants who are seeking to participate in the process and G the successful Resolution Applicants who may wish to negotiate a better deal, owing to myriad factors that are peculiar to their own case. The broader legitimacy of this course of action can be decided by the legislature alone, since any other course of action would result in a flurry of litigation which would cause the delay that the IBC seeks to disavow.

p. 465 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

147Copy pinpoint147. The IBC is silent on whether a successful Resolution A Applicant can withdraw its Resolution Plan. However, the statutory framework laid down under the IBC and the CIRP Regulations provide a step-by-step procedure which is to be followed from the initiation of CIRP to the approval by the Adjudicating Authority. Regulation 40A describes a model-timeline for the CIRP that accounts for every B eventuality that may arise between the commencement of the CIRP and approval of the Resolution Plan by the Adjudicating Authority, including the different stages for pressing a withdrawal of the CIRP under Section 12A. Even a modification to the RFRP is envisaged by the CIRP Rules and is subject to a timeline. The absence of any exit routes being stipulated under the statute for a successful Resolution C Applicant is indicative of the IBC’s proscription of any attempts at withdrawal at its behest. The rule 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 Interpretation107, 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 alternative lies between either supplying by implication words which appear to have been accidentally omitted, or adopting a construction which deprives certain existing words of all meaning, it is permissible to supply 107 GP Singh, Principles of Statutory Interpretation (1st edn., Lexis Nexis 2015) H

p. 466 Copy page pinpoint

A the words”. A departure from the rule of literal construction may be legitimate so as to avoid any part of the statute becoming meaningless. Words may also be read to give effect to the intention of the Legislature which is apparent from the Act read as a whole. Application of the mischief rule or purposive construction may also enable reading of words by implication when there is no doubt about the purpose which the Parliament intended to achieve. But before any words are read to repair an omission in the Act, it should be possible to state with certainty that these or similar words would have been inserted by the draftsman and approved by Parliament had their attention been drawn to the omission before the Bill passed into law.” In the wake of the COVID-19 pandemic, several Resolution Plans remained pending before Adjudicating Authorities due to the lockdown and significant barriers to securing a hearing. An Ordinance was swiftly promulgated on 5 June 2020 which imposed a temporary suspension of initiation of CIRP under Sections 7, 9 and 10 of the IBC for defaults arising for six months from 25 March 2020 (extendable by one year). This was followed by an amendment through the IBC (Second Amendment) Act 2020 on 23 September 2020 which provided for a carve-out for the purpose of defaults arising during the suspended period. The delays on account of the lockdown were also mitigated by the IBBI E (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations 2020, which inserted Regulation 40C on 20 April 2020, with effect from 29 March 2020, and excluded such delays for the purposes of adherence to the otherwise strict timeline. Recently, the IBC (Amendment) Ordinance 2021 was promulgated with effect from 04 April 2021 providing certain directions to preserve businesses of MSMEs and a fast-track insolvency process. There has been a clamor on behalf of successful Resolution Applicants who no longer wish to abide by the terms of their submitted Resolution Plans that are pending approval under Section 31, on account of the economic slowdown that impacted every business in the country. However, no legislative relief for enabling withdrawals or re-negotiations 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 H

p. 467 Copy page pinpoint

EDUCOMP SOLUTIONS LTD. [DR DHANANJAYA Y CHANDRACHUD, J.]

exercise would bring in the evils which the IBC sought to obviate through A the back-door.

148Copy pinpoint148. It is pertinent to note that even the UNCITRAL Guide does not contain any provisions for withdrawal of a submitted Plan. It only discusses the possibilities of amending a Resolution Plan. The UNCITRAL Guide indicates that it contemplates that the Legislature B should choose if it wants to allow any amendments to a submitted Resolution Plan. In the event, it does, it should lay down the detailed steps of proposing amendments to a submitted resolution plan108. In fact, even the scope of negotiations between the Resolution Applicant and the CoC has to be specifically envisaged by the statute109. Further, the UNCITRAL Guide envisages that amendments can be made to the C Resolution Plan after it is approved by the creditors only in limited circumstances. It mentions that, “[a]n insolvency law may include limited provision for a plan to be modified after it has been approved by creditors (and both before and after confirmation) if its implementation breaks down or it is found to be incapable of performance, whether in whole or in part, and the specific problem can be remedied”110. If permitted by the statute, the recommendations strongly urge the establishment of a mechanism for amendment after approval by creditors which details requirements of, inter alia, approval by creditors of the modification and consequences of failure to secure approval to the amendments111. The BLRC Report has relied on the UNCITRAL Guide while designing the IBC112 and it is a critical tool for ascertaining legislative choice and intent. Parliament has not introduced an explicit provision under the IBC 108 IV.A.52., page 225, and Recommendation 155: “155. The insolvency law should permit amendment of a plan and specify the parties that may propose amendments and the time at which the plan may be amended, including between submission and approval, approval and confirmation, after confirmation and during implementation, where the proceedings remain open.” of the UNCITRAL Guide, supra note 56 109 Ibid. 110 IV. A. 66, page 230 of the UNCITRAL Guide, supra note 56 111 Recommendation 156: “The insolvency law should establish the mechanism for approval of amendments to a plan that has been approved by creditors. That mechanism should require notice to be given to the creditors and other parties affected by the proposed modification; specify the party required to give notice; require the approval of creditors and other parties affected by the modification; and require the rules for confirmation (where confirmation is required) to be satisfied. The insolvency law should also specify the consequences of failure to secure approval of proposed amendments.”, UNCITRAL Guide, supra note 56 112 3.3.1, supra note 55 H

p. 468 Copy page pinpoint

A for allowing any amendment of the Resolution Plan after approval of creditors, let alone a power to withdraw the Resolution Plan at that stage. At the same time, the Corporate Debtor and the CoC have been empowered to withdraw from the CIRP. If it intended to permit parties to amend the Resolution Plan after submission to the Adjudicating Authority, based on its specific terms of the Resolution Plan, it would B have adopted the critical safeguards highlighted by the UNCITRAL. J.2 Terms of the Resolution Plan are not sufficient to effect withdrawals or modifications after its submission to the Adjudicating Authority

149Copy pinpoint149. It has been contended by the three appellants that a Resolution Plan only becomes binding when it is approved by the Adjudicating Authority under Section 31(1) of the IBC. Further, since Section 74(3) of the IBC, provides that a person can be prosecuted or punished for contravening the Resolution Plan only after its approval by the Adjudicating Authority, the successful Resolution Applicant is entitled to withdraw the Plan, on the terms of its contractual provisions, as long as it is not made binding under Section 31(1) of the IBC. We have held in Section H that a CoC-approved Resolution Plan is a creature of the IBC and cannot be construed as a pure contract between two consenting parties, prior to its approval under Section 31 of the IBC. In this section, independent of the above finding, we proceed to examine the contention that the terms of a Resolution Plan can reserve the right to modify or withdraw its contents after submission to the Adjudicating Authority.

150Copy pinpoint150. The approval of the Adjudicating Authority under Section 31(1) of the IBC has the effect of making the Resolution Plan binding on all stakeholders. These stakeholders include the employees of the corporate debtor whose terms of employment would be governed by the Resolution Plan, the Central and State Governments who would receive their tax dues on the basis of the terms of the Resolution Plan and local authorities to whom dues are owed. These stakeholders are not direct participants in the CIRP but are bound by its consequence by virtue of the approval of the Resolution Plan, under Section 31(1) of the IBC. Section 31(1) ensures that the Resolution Plan becomes binding on all stakeholders after it is approved by the Adjudicating Authority. The language of Section 31(1) cannot be construed to mean that a Resolution Plan is indeterminate or open to withdrawal or modification until it is H