In the realm of insolvency and bankruptcy law, the approval of a resolution plan by the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) imposes stringent obligations on the Successful Resolution Applicant (SRA). The SRA must adhere strictly to the conditions of the approved plan, with no room for deviations or adjustments. This principle is enshrined in Sections 30 and 31 of the Insolvency and Bankruptcy Code (IBC), 2016.
Section 30 details the submission process for resolution plans. A resolution applicant submits a plan along with an affidavit affirming eligibility under Section 29A, based on the information memorandum. The resolution professional must examine each plan to ensure it meets several criteria. These include prioritizing the payment of insolvency resolution process costs, satisfying debts owed to operational creditors, and ensuring financial creditors are paid at least as much as they would receive in a liquidation scenario under Section 53.
The plan must also outline the management and oversight of the corporate debtor’s affairs post-approval. Upon confirmation of these conditions, the resolution professional presents the plan to the committee of creditors, which can approve it with a 66% majority vote, considering its feasibility and proposed distribution method. The resolution applicant can attend these meetings but lacks voting rights unless they are also a financial creditor.
Once the committee of creditors approves a resolution plan, it is submitted to the Adjudicating Authority. Section 31 mandates that the Authority must approve the plan if it meets the requirements of Section 30. This approval binds the corporate debtor, its employees, creditors, and relevant government authorities to the plan’s terms. If the plan fails to meet these standards, the Authority may reject it.
In a notable case, State Bank of India and others versus JC Flowers Asset Reconstruction Pvt. Ltd. and Punjab National Bank versus The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch, the Supreme Court addressed the issue of adherence to the conditions precedent in a resolution plan. The SRA, having been approved by the committee of creditors and the NCLT, was required to infuse funds in tranches and meet specific conditions to recommence operations as an aviation company. However, the SRA sought to adjust the final tranche of payment against a Performance Bank Guarantee (PBG), which the NCLAT permitted.
The Supreme Court, however, held that such an adjustment was impermissible. The SRA was obligated to deposit the final tranche of Rs 150 crores as initially agreed, emphasizing that compliance with the resolution plan’s terms is non-negotiable. The Court directed the SRA to deposit the amount by a specified deadline and maintained the PBG until the NCLAT’s final decision.
The Court underscored that the conditions precedent must be fulfilled as stipulated, without adjustments. The lenders’ argument that the SRA failed to meet these conditions was acknowledged, and the Court provided clear directions to ensure compliance.
The decision reaffirms the sanctity of the resolution plan process, emphasizing that any deviation undermines the integrity of the insolvency resolution framework. The SRA’s conduct and adherence to the stipulated terms are crucial in maintaining creditor confidence and ensuring the effective resolution of corporate insolvency.
This landmark ruling underscores the binding nature of approved resolution plans and the stringent compliance required from SRAs. It serves as a critical reminder of the procedural rigor and accountability embedded within the IBC framework, ensuring that the resolution process remains transparent, fair, and effective.
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