Judgement Passed by The Hon'ble Supreme Court in the Matter of Ebix Singapore

Pvt. Ltd. Vs. Committee of Creditors of Educomp Solutions Limited & Anr

Brief Note on the judgment passed by the Supreme Court in Ebix Singapore Pte Ltd
vs. Committee of Creditors of Educomp Solutions Ltd. and Ors. (Civ. Appeal No.
3224 of 2020)

The Supreme Court (“Hon’ble Court”) vide its judgment dated 13th September 2021, in
Ebix Singapore Pte Ltd vs. Committee of Creditors of Educomp Solutions Limited and Ors.
(“Ebix Appeal”) has decided on the long-pending issue relating to the withdrawal of the
Resolution Plan submitted by the Resolution Applicant (“RA”) for the revival of a Corporate
Debtor after its approval by the Committee of Creditors in accordance with Section 30(4) of
the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Factual Background

Ebix Singapore Pte. Ltd. (“Ebix/ SRA”) pursuant to the approval of its Resolution Plan by
the CoC and during the pendency of the plan approval application before the Adjudicating
Authority filed under Section 31 of the Insolvency and Bankruptcy Code, 2016 (“IBC”)
sought to withdraw its Resolution Planinter-alia on the following grounds: a) inordinate
delay in the approval of the Resolution Plan by the NCLT beyond the period of 6 months
envisaged under RFRP and b) Pending/Ongoing SFIO and CBI Investigations
(“Investigations”) into the management and affairs of Educomp.

The NCLTallowed the Withdrawal Application filed byEbix and held that the Resolution Plan
becomes binding only after it is approved by the Adjudicating Authority and on account of
pending SFIO and CBI Investigations corroborated with inordinate loss of time, and
unwilling SRA could not be expected to effectively implement the Resolution Plan. As a
consequence of this order, the NCLT dismissed the Plan Approval Application filed by the
Resolution Professional (“RP”) being infructuous.

An appeal was preferred by the COC of Educomp before the NCLAT against the NCLT’s order
and the NCLATreversed the NCLT’s order permitting withdrawal of the plan and held that
i)the Adjudicating Authority after approval of the ‘Resolution Plan’ by the ‘Committee of
Creditors had no jurisdiction to entertain or to permit the withdrawal application filed by the
Ebix/Resolution Applicantand ii) the Third Withdrawal Application was barred by Res-
Judicata.

Thereafter, Ebixfiled a Civil Appeal(“Ebix Appeal”) before the Supreme Court under Section
61 of the Code assailing the NCLAT’s judgment dated 29.07.2020 broadly on the following
grounds:

• Ebix is not bound by the Resolution Plan until the same is approved by the
Adjudicating Authority.
• Events are subsequent to the submission of the Plan like inordinate delay in the
approval of the application under Section 31 and pending investigations into the
affairs of Educompcalled for withdrawal.
• The Adjudicating Authority is empowered under the Code to permit the withdrawal of
a resolution plan prior to its approval under Section 31 of the Code.
Per contra, the Respondents (CoC and RP) refuted the submissions of Ebixinter-aliaon the
following grounds:

• The Resolution Plan approved by the CoC is a binding agreement inter se CoC and
SRA.
• Non-implementation of Resolution Plans after approval from the Adjudicatory
Authority under Section 31 attracts prosecution under Section 74(3) of the Code.
• Permitting the withdrawal would push Educomp towards liquidation.
• Ebix’s contention that the 6 months time period under RFRP for approval also
includes its approval by the Adjudicating Authority is contrary to the Code since the
parties, through an agreement, cannot impose a restriction/condition on judicial
authority.
• Clause 1.1.6 of the RFRP, which states that the Resolution Plan will be binding on all
stakeholders only after the approval of the Adjudicating Authority, does not militate
the binding effect of the CoC-approved Resolution Plan inter se CoC and SRA which is
a concluded contract.
• The delay in the Resolution Process is not attributable to the CoC.
• The withdrawal of a Resolution Plan after its approval by the CoC is not contemplated
either by the UNCITRAL or by the BLRC Report

The legal issue which came up for consideration before the Court in the facts of
the present case was:

“Whether the withdrawal or modification of Resolution Plan is permitted after it

has been approved by the CoC in the absence of any speaking provisions under the
Code”.

Before adverting on the issue involved in the facts of the case, the Courtin its judgment
observed the intent of the Legislature behind the enactment of the new insolvency regime
under the Code despite the existence of the insolvency framework under the several
disparate statutes such as the Companies Act 2013, SICA, SARFAESI, Recovery of Debts
Act, Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920. The
Court observed that the Code has been designed with the goal to provide a comprehensive
and time-bound mechanism with smooth transitions between reorganization and liquidation,
with an aim to inter alia maximize the value of assets of all persons and balance the interest
of all stakeholders.

The Court in its judgment elaborated on the purpose of the insolvency Regime under the
IBC, the nature of the Resolution Plan as to how the CoC approved Resolution Plans cannot
be termed as Pure Contracts under the realm of the Contract Act, 1872. The Court also
drew special reference to the statutory time period of 330 days prescribed for insolvency
under the enacted IBC and thereafter dealt with the withdrawal of the Resolution Plans
approved by the CoC but pending approval before the Adjudicating Authority at the instance
of SRA. (Section G to J of the Judgment)

The Hon’ble Court in its judgment has made every attempt to refer and align its reasons
with the legislative intent borrowed from UNCITRAL Guide and BLRC Report which
recommended the reforms in the earlier Insolvency Regime that existed in India. UNCITRAL
Guide has been used as the benchmark by the Parliament while drafting and enacting the
framework under IBC.
Factual analysis vis-à-vis contentions raised by Ebix in its Appeal.

·Contention by Ebix: The clauses under RFRP accepted by the CoC are binding on the CoC
and the CoC approved Resolution plan is voidable at the instance of Ebix on account of
inordinate delay in the approval of the submitted plan with the Adjudicating Authority
(“AA”)

Held: The Supreme Court rejected the argument of Ebix and observed that the 6 months’
time period under the RFRP relates to the validity of the Resolution Plan for the period of
negotiation with the CoC and not for a period after the Resolution Plan is submitted for the
approval of the Adjudicating Authority. The Court held that Parties cannot indirectly impose
a condition on a judicial authority to accept or reject its Plan within a specified time period,
failing which the CIRP process will inevitably come to an end. The time which may be taken
before the Adjudicating Authority is an imponderable which none of the parties can predict.
Even otherwise the terms of the RFRP did not provide any timeline as regards to the
approval of the Plan by the AA. (Reference Clause 1.3.7 of the RFRP).

The Court noted that the validity of the Resolution Plan being six months was not mentioned
as a condition precedent in Form H that was submitted by the RP along with the Resolution
Plan to the Adjudicating Authority, which evinces that the six-month validity was only vis-à-
vis the acceptance by the CoC.

·Contention by Ebix: New allegations as to the financial position of Educomp having a

material impact on Ebix after the submission of the Resolution Plan.

Held: Ebix was responsible for conducting its own due diligence of Educomp and could not
use that as a reason to revise/modify their approved Resolution Plan. In any event, Section
32A of the IBC grants immunity to the Corporate Debtor for offences committed prior to the
commencement of CRIP. Thus, if it is found that there was any misconduct in the affairs of
Educomp prior to the commencement of the CIRP, Ebix will be immune from any
prosecution or punishment in relation to the same. The Court further observed that the
submission that Ebix has been placed in a prejudicial position due to pending SFIO and CBI
Investigations into the affairs of Educomp is nothing but a red herring since such
investigations have no bearing on Ebix.

Further, the Court noted that no clause under the Ebix’s own Resolution Plan provided them
with the right to revise/withdraw their Resolution Plan after its approval by the CoC but
before its confirmation by the Adjudication Authority

· Contention by Ebix: RP failed in its duties under Section 29 of the Code when it failed to
inform Ebix timely about the ongoing investigations against Educompto justify its withdrawal
of the Resolution Plan.

Observation: Under the Code, RP is dutybound to collect as much information about the
Corporate Debtor as is accurately possible to do. When such information is communicated
through an IM to the Resolution Applicant, the RP must be careful to clarify when its
information is not comprehensive and what factors may cause a change.

Held: The issues in relation to financial investigations into the conduct of Educomp arose
when the two articles were published by The Wire, both of which came out after the filing of
Approval Application by the RP. Further, Ebix was aware of all the proceedings before the
NCLT since the various applications were often listed along with the Approval Application, in
which EbIx continued to appear. Finally, Ebix has brought nothing on record to prove that
RP knew of the SFIO and CBI investigations before a regulatory disclosure was made by
Educomp.

The Court, therefore, rejected Ebix’s submissions and held that it cannot be stated that the
RP had faltered in its duty to provide relevant information to Ebix.

The decision by the Hon’ble Court

The Hon’ble Court held that the residuary powers conferred on the Adjudicating Authority
under Section 60(5)(c) of the IBC cannot be exercised to create procedural remedies which
have substantive outcomes on the process of insolvency. The existing framework only
enables Adjudicating Authority to permit withdrawals from the CIRP under Section 12A of
the IBC and Regulation 30A of the CIRP Regulations. Conferring jurisdiction on the NCLT to
deal with withdrawals or modifications of the Resolution Plan at the behest of the successful
Resolution Applicant, once it has been submitted to the Adjudicating Authority, would create
another tier of negotiations and trigger litigations not akin to the object of the IBC thereby
would risk delaying the insolvency process under the IBC. The lapse of time in such
litigations or negotiations would vindicate the basic objective of the timely revival of the
Corporate Debtor which would consequently result in depreciated assets with a delayed
liquidation.

The Hon’ble Court further observed that the existing framework of insolvency under IBC
and the CIRP Regulations do not provide anything with regard to the withdrawal or
modification of the CoC Approved Resolution Plans. Had the legislature intended to
recognize the concept of withdrawals or modifications to a Resolution Plan after it has been
submitted to the Adjudicating Authority, it must have specifically provided for the same. In
the absence of provisions in this regard, such omission cannot be supplied by way of the
judicial construction. Thus, the Parliament did not legislate to provide for such an
eventuality which would defeat the purpose of IBC.

The Hon’ble Court also discusses that whilst the Court has upheld the position in law that
the withdrawal/modification is not available to the SRA after its submission with the
Adjudicating Authority, however, at the same time one cannot ignore the impact of the long
judicial delays that entail in approving the Resolution Plan by the Adjudicating Authority on
the subsequent implementation of the plan. This eventually results in commercial
uncertainty, degradation in the value of the Corporate Debtor and makes the insolvency
process inefficient and expensive. Accordingly, the Hon’ble Court urged the NCLT and NCLAT
(being Adjudicatory Mechanisms under IBC) to be sensitive to the effect of such delays
involving CIRP and be cognizant that adjournments hamper the efficacy of the judicial
process. The Hon’ble Court issued consequent directions to the NCLT and the NCLAT to
endeavour, on a best effort basis, to strictly adhere to the timelines stipulated under the
IBC and clear pending resolution in a time-effective manner.

The present judgment emphasizes that the framework under IBC indicates the clarity of its
purpose i.e. primacy of the interests of the creditors who are seeking to cut their losses
through a CIRP. The provisions of the IBC cannot be construed to be traditional models
which are based on equity or fairness as the same are not aligned with the goals of the
statute which is a speedy, predictable and timely resolution. Meaning thereby, though the
parties have the freedom to negotiate certain commercial terms of the Resolution Plan,
however, their ability to negotiate is circumscribed by the governing statute.

The Hon’ble Court in view of its observations and finding in the facts of the case held as
follows:

The existing insolvency framework in India provides no scope for effecting further
modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the
Successful Resolution Applicant, once the plan has been submitted to the Adjudicating
Authority.

A Resolution Applicant, after obtaining the financial information of the Corporate Debtor
through the informational utilities and perusing the IM, is assumed to have analyzed the
risks in the business of the Corporate Debtor and submitted a considered proposal.

A submitted Resolution Plan is binding and irrevocable as between the CoC and the
successful Resolution Applicant in terms of the provisions of the IBC and the CIRP
Regulations.

In light of the above ruling, the Hon'ble Court was pleased to dismiss the Civil Appeal
preferred by Ebix.