A Resolution Plan Approved by the CoC is Binding and Cannot Be Unilaterally Reneged Upon by the Successful Applicant.

In brief

The question

1. Whether the stipulations in the Letters of Intent (LoI) regarding pending litigation rendered the LoIs "conditional," thereby allowing the Successful Resolution Applicant (SRA) to renege on the approved plan.

The court held

(i) the LoI was not conditional and the Appellant could not renege on his binding commitment; (ii) the forfeiture of the EMD was legal due to non-compliance with the RFRP; and (iii) the CoC's decision to liquidate the Corporate Debtor was a valid exercise of statutory power under Section 33(2) of the Code.

It also directed

The Supreme Court dismissed the appeals and affirmed the NCLAT judgment, directing the Liquidator to proceed with the liquidation process.

01Facts

The Appellant was the Promoter/Director of M/s. Oracle Home Textiles Limited (Corporate Debtor), an MSME.

¶ 2

Following the initiation of CIRP on August 9, 2018, the Appellant’s Resolution Plan was approved by the Committee of Creditors (CoC) with a 99.90% majority on May 10, 2021.

¶ 2

The Resolution Professional (RP) issued Letters of Intent (LoI) on May 23, June 23, and July 23, 2021.

¶ 4, 5, 7

The Appellant refused to accept the LoIs, claiming they were "conditional" because they were subject to pending applications by third-party prospective resolution applicants and required the Appellant to bear the risk of pending litigation by staff and workers.

¶ 4, 6

Due to non-acceptance and failure to submit the Performance Guarantee, the RP forfeited the Appellant's Earnest Money Deposit (EMD) of ₹1 Crore on August 2, 2021.

¶ 8

Consequently, the CoC voted with a 99.61% majority to liquidate the Corporate Debtor.

¶ 10

The NCLT dismissed the Appellant's challenges and allowed the liquidation, a decision upheld by the NCLAT.

¶ 11

02Issues

i.1. Whether the stipulations in the Letters of Intent (LoI) regarding pending litigation rendered the LoIs "conditional," thereby allowing the Successful Resolution Applicant (SRA) to renege on the approved plan.

¶ 13/19

ii.2. Whether the CoC was justified in forfeiting the Earnest Money Deposit (EMD) due to the Appellant's failure to submit the Performance Guarantee and accept the LoI.

¶ 9/33

iii.3. Whether the CoC has the power under Section 33 of the IBC to resolve to liquidate the Corporate Debtor after a Resolution Plan has been approved by the CoC but before its confirmation by the Adjudicating Authority.

¶ 36/39

03Law Applied

The Court applied Section 33(2) of the Insolvency and Bankruptcy Code (IBC) and its Explanation, which empowers the CoC to liquidate a Corporate Debtor at any time before the confirmation of a resolution plan.

¶ 38

The Court relied on the principle from Ebix Singapore Private Limited v. CoC of Educomp Solutions Ltd., which establishes that a CoC-approved resolution plan is binding and irrevocable for the SRA, leaving no scope for subsequent withdrawals or negotiations.

¶ 31

The Court invoked the equitable doctrine of "Approbate and Reprobate" as discussed in Nagubai Ammal v. B. Shama Rao and Rajasthan State Industrial Development v. Diamond & Gem Development Corp., preventing a party from accepting the benefits of a transaction while simultaneously challenging its validity.

¶ 28-29

The Court applied the doctrine of "Acquiescence" as defined in Chairman, State Bank of India v. M.J. James.

¶ 27

Provisions in the judgment · 7 · Linked ones open on LawLens

Insolvency and Bankruptcy Code, 2016. Section 12 Section 21 Section 30 Section 31 Section 33 Section 61 Section 62

04Reasoning

The Court held that the LoI stipulations were not truly "conditional" but merely reflected the legal reality that the plan was subject to judicial orders, of which the Appellant was fully aware through CoC meetings.

¶ 19-20

The Appellant had expressly agreed in the 27th CoC meeting to bear the risks of worker litigation and to submit the Performance Guarantee, thereby acquiescing to these terms.

¶ 21, 23, 25

The Court characterized the Appellant's objections as a "subterfuge" and a "clever ploy" to indirectly withdraw from a binding plan, which is prohibited under the Ebix Singapore framework.

¶ 30-31

Since the Appellant failed to comply with the RFRP terms, the forfeiture of the EMD was valid under Clause 1.9.4 of the RFRP.

¶ 33-34

Regarding liquidation, the Court noted that Section 33(2) provides the CoC with the "commercial wisdom" to liquidate the debtor even after plan approval if the SRA fails to implement it.

¶ 37-39