01. CoC will have the last word on resolution plans under IBC

The Apex Court has reiterated that the Committee of Creditors (CoC) will have the final say in the resolution plan after analysing and assessing all factors of the resolution plan. The CoC can decide on proportion and manner of distributing funds amidst different class of creditors. Clearly, the CoC must maintain the balance between using its discretion and also satisfying interest of all stakeholders – primarily financial and operational creditors. The SC also ruled that while the CoC has power to constitute subcommittee(s) for negotiating with the resolution applicant and related duties, the acts or decisions of such committees would require the ultimate approval / ratification of the CoC.

02. Limited power to NCLT/ NCLAT to review resolution plans finalized by the CoC

The Supreme Court has strongly emphasised that the resolution plan(s) okayed by the CoC can be reviewed by the NCLT and or NCLAT only to a limited extent. The NCLT / NCLAT has to ensure that the resolution plan will result in the maximization of value of assets of the corporate debtor, whether operational creditors get their minimum due and finally on whether the corporate debtor can function as a going concern on the effective execution of the resolution plan. The adjudicating authority cannot go beyond the basic principles in reviewing the resolution plan. This puts to rest the questions of the level of involvement of the adjudicating authority in the resolution plan. While this addresses the issue of the adjudicating authority being less burdened with work, it also addresses the issue of exceeding the moratorium period due to delay in legal process.

03. Financial creditors and operational and other creditors – Don’t treat unequal’s equally

The Supreme Court has strongly emphasised that the resolution plan(s) okayed by the CoC can be reviewed by the NCLT and or NCLAT only to a limited extent. The NCLT / NCLAT has to ensure that the resolution plan will result in the maximization of value of assets of the corporate debtor, whether operational creditors get their minimum due and finally on whether the corporate debtor can function as a going concern on the effective execution of the resolution plan. The adjudicating authority cannot go beyond the basic principles in reviewing the resolution plan. This puts to rest the questions of the level of involvement of the adjudicating authority in the resolution plan. While this addresses the issue of the adjudicating authority being less burdened with work, it also addresses the issue of exceeding the moratorium period due to delay in legal process.

04. Resolution professional can admit notional value for disputed or unquantifiable claims

The Apex Court has also set on record that for those claims cannot be quantified or are disputed at the time of collation of claims by the resolution professional (RP), then the RP can assign a notional value to such claims and while putting it in the resolution plan. Thereafter there cannot be litigation on non inclusion of claims in the resolution plan. This will enable the resolution applicant to know exactly the extent of liability that will be incurred while taking over the corporate debtor.

05. Guarantors not relieved from their obligation to pay

In its July 2019 judgement, the NCLAT ruled that guarantors of promoters or promoter groups of the corporate debtor would be relieved from any payment once the debt payable by the corporate debtor is cleared. However, the Supreme Court has set aside that order stating that such relief to guarantors is contrary to section 31(1) of the IBC which makes the final resolution plan binding on the guarantors.

06. Resolution plan to be “ordinarily” completed within 330-day timeline, not “mandatorily”

The IBC (Amendment) Act, 2019 introduced a “mandatory” timeline of 330 days for completion of CIRP failing which the corporate debtor would be liquidated. The SC, in its current judgement opined that liquidating a corporate debtor if the entire resolution process is not completed within 330 days is arbitrary and unreasonable. This is especially true if the CIRP is mired in litigation and the delay is beyond the control of the corporate debtor. The corporate debtor should not suffer for the judicial delays. Hence the SC stated that the provision should be read and interpreted as “the CIRP should be “ordinarily” completed within 330 days.” The SC further stated that if it could be shown that only a short period is left beyond 330 days for the effective implementation of the resolution plan and it is beneficial to all stakeholders, then such extension may be granted. The 330 days period is only to ensure that the resolution plan has been approved and initiated.

07. Role of various parties in the resolution process:

1. Resolution professional (RP)

   The Supreme Court while clearly laying down role of a resolution professional has stated that the role of an RP is administrative and not adjudicatory. The RP must manage the affairs of the corporate debtor as a going concern during the CIRP process. Further the RP should ensure that the CoC meetings are regularly. The RP should examine the claims of creditors placed before such meetings and involve in the final negotiations.

2. Resolution applicant (RA)

   The resolution plan submitted by the RA should contain measures that provide for maximization of asset value of the corporate debtor. It should contain measures to address the interests of secured creditors and reduction in amount payable to different classes of creditors. The RA is entitled to know from the RP, the exact amount of payment to be made to enable take over the business of the corporate debtor.

3. Committee of Creditors (CoC)

   The CoC must in entirety consider the commercial feasibility and effectiveness of a resolution plan. The CoC must take into account all aspects of the plan including the distribution of funds among various class of creditors. The CoC must actively participate in the final negotiations of approving the best resolution plan. Though the powers of the CoC are administrative, it cannot delegate powers of the resolution professional to any other person as contained u/s 28(1)(h) of the IBC. Similarly, the power to approve a resolution plan u/s 30(4) of the IBC cannot be delegated by the CoC. Sub committees may be constituted for this purpose, though the final approval / ratification rests with the CoC.

08. Constitutional validity of amendment of Section 30 of the Code

Section 30(2) has been amended to ensure that operational financial creditors shall be paid an amount of: (a) amount to be paid to such creditors in the event of liquidation of corporate debtor OR (b) amount which could have been paid to such creditors if it had been distributed in order of priority u/s 53 of the Code, whichever is HIGHER.

The amendment also provides for payment of dissenting financial creditors in such manner as prescribed by the Board but not less than the amount to be paid to such creditors in the even of liquidation u/s 53(1) of the Code.

Section 30(2)(b) is a beneficial provision in favour of OCs and dissentient FCs as they are now to be paid a certain minimum amount.