Jurisdiction of CoC to Substitute the Successful Resolution Applicant (SRA) Post-Approval of the Resolution Plan: NCLAT’s Decision

Introduction:

 In the matter of ‘Swan Energy Ltd. Vs. Chandan Prakash Jain, RP of E-Complex Pvt. Ltd. and Ors.,’ the Hon’ble NCLAT delivered a significant ruling with the following key points: (i) A Resolution Plan from a person not listed in the final list of Prospective Resolution Applicants (PRAs) cannot be considered under the clear provisions of the statute. (ii) The Committee of Creditors (CoC) lacks jurisdiction to approve a Resolution Plan by Respondent No. 4 or to substitute Respondent No. 4 as the Resolution Applicant. (iii) The clause for equity infusion does not imply that the Successful Resolution Applicant (SRA) can nominate another entity as SRA. Infusion of equity is distinct from Respondent No. 4 becoming the SRA, and this clause does not support the Respondent’s position. (iv) The CoC cannot modify a Resolution Plan already approved and submitted to the Adjudicating Authority under Section 30(6) of the IBC. However, modifications to make the plan compliant with Section 30(2) are permissible under certain circumstances, either by order of the Adjudicating Authority or a CoC resolution.

 Facts of the Case:

1. The Resolution Plan submitted by Invent Assets Securitization & Reconstruction Pvt. Ltd. (Respondent No. 3) was approved with 72.97% votes.
2. Following the approval, the Resolution Professional filed an Interim Application (IA) on 25.10.2021 for the plan’s approval.
3. During the IA’s pendency, the RBI issued a Circular on 11.10.2022 stating that Asset Reconstruction Companies (ARCs) are not permitted to undertake any business other than securitisation or asset reconstruction without prior RBI approval.
4. Consequently, Respondent No. 3 was deemed ineligible to continue as a Resolution Applicant without prior RBI approval.
5. Respondent No. 3 filed an IA on 14.12.2022 seeking to substitute its name with Westend Investment and Finance Consultancy Pvt. Ltd. (Respondent No. 4) as the Resolution Applicant.
6. On 09.04.2023, the Adjudicating Authority allowed Respondent No. 3 to withdraw the IA with the liberty to make a representation before the Committee of Creditors (CoC).
7. The CoC subsequently approved the modification of the Resolution Plan, substituting Respondent No. 4 with a 100% vote.
8. The Resolution Professional filed the modified Resolution Plan for approval on 05.06.2023.
9. On 01.09.2023, the Adjudicating Authority directed the Resolution Professional to file the Request for Resolution Plan (RFRP) and highlight relevant provisions allowing a change in the Resolution Applicant post-approval.
10. The CoC re-approved the Resolution Plan on 12.09.2023 and amended the RFRP to include provisions for substituting the Resolution Applicant on 20.10.2023.
11. The Resolution Professional submitted an updated Form-H on 24.11.2023.
12. On 04.12.2023, the Adjudicating Authority approved the modified Resolution Plan with Respondent No. 4 as the Resolution Applicant.
13. Aggrieved, an appeal was filed by another Resolution Applicant.

Questions for Consideration:

1. Whether the CoC have the jurisdiction to substitute the Successful Resolution Applicant (SRA) after the Resolution Plan is approved and submitted to the Adjudicating Authority?
2. Whether the CoC have jurisdiction to modify an already approved Resolution Plan and submit it for approval under Section 30(6) of the IBC?

The Decision of the NCLAT:

A. The Locus of the Appellant:

• The Appellant claimed the CIRP should restart from the Form-G stage after Respondent No. 3 became ineligible, allowing all applicants, including the Appellant, a fair chance. The Appellant argued the CoC and Resolution Professional followed a process contrary to the IBC and CIRP Regulations 2016, denying them participation.
• The grounds raised are covered under Section 61(3) of the IBC, making the Appellant an aggrieved party with the right to appeal. Thus, the objection to the Appellant’s locus was rejected.

B. Observation on NCLT Order Dated 19.04.2023:

• The NCLT order did not express any opinion on IA No. 1 of 2023; it allowed Respondent No. 3 to withdraw the application with the liberty to move a representation before the CoC.
• This order did not authorize the CoC to substitute Respondent No. 4 as the SRA.

C. Amendment in RFRP After Approval of the Resolution Plan:

• Despite the CoC’s approval to amend the RFRP on 20.10.2023, no actual amendments were made. There was no provision in the RFRP allowing a change in the Resolution Applicant post-approval of the Resolution Plan.

D. Resolution Plan from Non-Prospective Resolution Applicant (PRA):

• The statute prohibits considering a Resolution Plan from a non-PRA.
• Respondent No. 4, not being part of the final PRA list, was ineligible. Hence, the CoC had no jurisdiction to approve the Resolution Plan with Respondent No. 4 as SRA, violating Regulation 39(1)(B).

E. Infusion of Equity Vs. Nomination of SRA:

• The clause on equity infusion does not equate to substituting the SRA with a nominee. The clauses in the Resolution Plan do not support the substitution of Respondent No. 4 as SRA.

F. Rulings and Precedents:

• Judgments in ‘Puissant Towers India Pvt. Ltd. Vs. Neueon Towers Ltd.’, ‘Ebix Singapore Private Limited Vs. CoC of Educomp Solutions Limited and Anr.’, and ‘SREI Multiple Asset Investment Trust Vision India Fund Vs. Deccan Chronicle Marketeers and Ors.’ clarified that the CoC cannot modify the Resolution Plan post-approval, except to make it compliant with Section 30(2). The judgment in ‘UV Asset Reconstruction Company Ltd. & Anr. Vs. Aircel Ltd.’ supports the Appellant’s stance.

Conclusion:

The Appellate Tribunal opined that the Adjudicating Authority erred in approving the modified Resolution Plan with Respondent No. 4 as SRA. Furthermore, the CoC and Resolution Professional’s actions post-filing for approval of the Resolution Plan were non-compliant with IBC and CIRP Regulations 2016. Therefore, the appeal was allowed and the order dated 04.12.2023 was set aside. The Tribunal while disposing of the appeal held that fresh Form-G be issued within 90 days and if no plan is approved, the Resolution Professional may apply for liquidation under Section 33 of the IBC.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. The content may not reflect the most current legal developments and is not guaranteed to be accurate, complete, or up-to-date. Readers should consult a qualified legal professional before taking any action based on the information provided. The authors and publishers disclaim any liability for any loss or damage incurred as a result of reliance on this article. This article does not create an attorney-client relationship.