A) ABSTRACT / HEADNOTE
The Supreme Court addressed the issue of withdrawal or modification of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The appellants challenged the decisions of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), alleging misrepresentation and fraud by the resolution professional, causing them to seek withdrawal of the approved resolution plan. The Court, relying on its earlier judgment in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401, held that once the resolution plan is approved by the Committee of Creditors (CoC), it becomes binding and cannot be unilaterally withdrawn or modified without statutory provisions allowing such withdrawal. The Court emphasized that resolution plans are prepared by financial experts, and ambiguity in financial data or due diligence failures does not entitle resolution applicants to withdraw. The appeals were allowed, and the NCLAT judgment was set aside.
Keywords: Insolvency and Bankruptcy Code, Resolution Plan, Withdrawal or Modification, Financial Experts, Misrepresentation.
B) CASE DETAILS
i) Judgment Cause Title: Deccan Value Investors L.P. & Anr. v. Dinkar Venkatasubramanian & Anr.
ii) Case Number: Civil Appeal No. 2801 of 2020.
iii) Judgment Date: March 6, 2024.
iv) Court: Supreme Court of India.
v) Quorum: Justice Sanjiv Khanna and Justice Dipankar Datta.
vi) Author: Justice Sanjiv Khanna.
vii) Citation: [2024] 3 S.C.R. 1044.
viii) Legal Provisions Involved: Sections 30 and 31 of the Insolvency and Bankruptcy Code, 2016.
ix) Judgments Overruled by the Case (if any): None.
x) Case Related to Law Subjects: Corporate Law, Insolvency Law.
C) INTRODUCTION AND BACKGROUND OF JUDGMENT
This appeal arose from the NCLAT’s decision upholding the NCLT’s order approving the resolution plan submitted by the appellants for Metalyst Forgings Limited. The appellants sought to withdraw their resolution plan, citing allegations of fraud and concealment by the resolution professional. The NCLAT had dismissed these allegations and upheld the NCLT’s decision. The Supreme Court had to examine the propriety of withdrawal after the plan’s approval and the sufficiency of the allegations of fraud.
D) FACTS OF THE CASE
- Corporate Debtor: Metalyst Forgings Limited, a company undergoing Corporate Insolvency Resolution Process (CIRP).
- Appellants: Deccan Value Investors L.P. and DVI PE (Mauritius) Ltd., successful resolution applicants.
- Respondents: Resolution Professional and the Committee of Creditors.
- Claims by Appellants:
- Misrepresentation by the resolution professional.
- Concealed information regarding:
- Revenue source of the corporate debtor.
- Allegedly incorrect Mott Macdonald Report.
- Misleading statements on uninstalled imported components.
- Inaccurate financial data due to ongoing forensic audits.
E) LEGAL ISSUES RAISED
i) Can a resolution applicant withdraw or modify the resolution plan after approval by the CoC?
ii) Does the resolution professional’s alleged misconduct amount to fraud warranting withdrawal of the resolution plan?
F) PETITIONER/APPELLANT’S ARGUMENTS
i) The appellants argued that fraudulent conduct by the resolution professional made the resolution plan unviable. They alleged concealment of key financial and operational details of the corporate debtor, including:
- Overstated manufacturing revenue.
- Incorrect reports affecting valuation.
- Misleading data regarding uninstalled components.
- Ongoing audits casting doubt on financial reliability.
ii) They contended that these factors undermined their ability to make an informed decision, amounting to fraud under the IBC.
G) RESPONDENT’S ARGUMENTS
i) The resolution professional and CoC argued that:
- The information provided was comprehensive and accessible through the virtual data room.
- Appellants were financial experts and should have conducted due diligence.
- Allegations of fraud were unsubstantiated.
- Permitting withdrawal would jeopardize the CIRP and contravene legal provisions.
H) JUDGMENT
a. RATIO DECIDENDI
i) A resolution applicant cannot unilaterally withdraw or modify the resolution plan once approved by the CoC, as established in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401.
ii) Allegations of fraud must meet a high threshold and be substantiated with evidence. Vague claims do not suffice.
iii) Ambiguities or perceived deficiencies in data do not justify withdrawal after plan approval.
b. OBITER DICTA
i) The Supreme Court observed that the principle of “clean slate” applies to resolution plans, emphasizing the need for resolution applicants to exercise caution and perform thorough due diligence.
c. GUIDELINES
- Resolution applicants must thoroughly evaluate all data before submitting a plan.
- Once approved, plans are binding and can only be rescinded under specific statutory provisions.
- Courts must scrutinize allegations of fraud rigorously to ensure CIRP integrity.
I) CONCLUSION & COMMENTS
This judgment reinforces the finality of resolution plans under the IBC, emphasizing the importance of due diligence by resolution applicants. It also underscores the limited scope for courts to interfere in approved plans, ensuring CIRP efficiency and creditor protection.
J) REFERENCES
a. Important Cases Referred
- Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401.
b. Important Statutes Referred
- Insolvency and Bankruptcy Code, 2016 – Sections 30 and 31.
