NCLAT Delhi: Once CoC approves Resolution Plan, No Withdrawal Application U/S 12A of IBC can be entertained
The National Company Law Appellate Tribunal (for short NCLAT), Principal Bench comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal ruled that once the Committee of Creditors (for short CoC) approve a resolution plan, no withdrawal application under Section 12A of Insolvency and Bankruptcy Code, 2016 (for short IBC) can be entertained. Approval of a Resolution Plan by the CoC prohibits the Resolution Applicant to modify or withdraw from the Plan, the same embargo is placed on CoC from changing its stand.
The corporate debtor- Pawan Doot Estate Pvt. on 10th May, 2019 was admitted into Corporate Insolvency Resolution Process (in short CIRP) by the Adjudicating Authority. On 18th January, 2020, Letter of Intent was issued by the Resolution Professional to the Successful Resolution Applicant – M/s. Mehar Footwear Private Limited. The Letter of Intent was unconditionally accepted by the Successful Resolution Applicant and Performance Bank Guarantee amount was deposited on 2nd February, 2020.
The Resolution Professional filed an application before the Adjudicating Authority for approval of the Resolution Plan on 4th February, 2020. Subsequently, on 11th August, 2022 Mr. Hem Singh Bharana (Ex- Promoter of Corporate Debtor) submitted a Settlement Proposal under Section 12A of IBC before the Financial Creditors. Moreover, the Ex- Promoter filed an application before the Adjudicating Authority praying that the application for approval of resolution plan be kept in abeyance.
On 23rd November, 2022, the Adjudicating Authority rejected the application of the Ex-Promoter before NCLAT. Further, the appellant contended that approval of a Resolution Plan by CoC was no impediment in acceptance of a Settlement Proposal under Section 12A by the CoC.
The counsel for the appellant argued that the commercial wisdom of the CoC is paramount and the CoC in its commercial wisdom can accept the Settlement Proposal under Section 12A, which is a better financial proposal as compared to the approved Resolution Plan. Under Section 33(2) of the Code, the CoC has the power, even after approving the Resolution Plan, but before the approval of the Resolution Plan by the Adjudicating Authority, to approve the liquidation of the Corporate Debtor. Hence, the CoC can certainly approve a Settlement Proposal under Section 12A, contended the appellant.
The issue before the Appellate Tribunal was Whether after approval of Resolution Plan by CoC and filing of an Application before the Adjudicating Authority for its approval, any Settlement Proposal under Section 12A (filed by Ex-Promoter) can be entertained while deferring consideration of approval of Resolution Plan by the Adjudicating Authority?
The Appellate Tribunal comprehensively discussed the relevant provision- Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (for short IBBI) and observed that under Regulation 30A of CIRP Regulations, an application for withdrawal under Section 12A can be made after issuance of 'Expression of Interest' only when sufficient reasons exist to justify the withdrawal.
"In event Section 12A, Application was contemplated to be filed even after approval of the Resolution Plan by the CoC, Regulation 30A(2)(a) and (b) ought to have included the expenses both under Regulations 33 and 34. Non-mention of Resolution Professional costs in Regulation 30A(2) also give support to the contention that Scheme under the Regulation does not contemplate filing of Section 12A Application after approval of Resolution Plan by the CoC," observed the Appellate Tribunal.
The Appellate Tribunal pertinently noted that, "when the invitation was issued inviting Expression of Interest, it was open for all who were eligible to submit the Resolution Plan under Section 29A. Whether the Promoter, who has now submitted Settlement Proposal was eligible or not under Section 29A, is also a relevant question and after approval of Resolution Plan, these enquiries cannot be entertained and embarked upon to find out the eligibility of the Applicant."
The NCLAT opined that since the Adjudicating Authority was not satisfied that there was adequate reason to accept the prayer of the Appellant, no error had been committed by the Adjudicating Authority in rejecting the Application and accordingly, dismissed the appeal.