Court’s Decision
The Delhi High Court dismissed the petition challenging the enforcement of obligations arising under an approved resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The Court reiterated that once a resolution plan is approved by the adjudicating authority under Section 31 of the IBC, it becomes binding on the corporate debtor, its employees, members, creditors, and all stakeholders, including the resolution applicant. The Court refused to interfere with the National Company Law Appellate Tribunal’s (NCLAT) order affirming the binding nature of the resolution plan and upheld the enforcement measures taken by the respondent.
Facts
The dispute arose out of a corporate insolvency resolution process (CIRP) initiated against the corporate debtor. A resolution plan submitted by the petitioner was approved by the Committee of Creditors (CoC) and later sanctioned by the National Company Law Tribunal (NCLT) under Section 31 of the IBC.
Subsequently, disputes emerged regarding the petitioner’s compliance with the payment obligations and other commitments in the resolution plan. The successful resolution applicant argued that certain financial and operational difficulties, allegedly caused by external factors, prevented timely performance. The respondent creditors, however, initiated enforcement measures, citing the binding nature of the plan.
The petitioner approached the High Court seeking to restrain the enforcement of its obligations, contending that the circumstances amounted to frustration of the contract.
Issues
- Whether a resolution applicant can avoid or modify obligations after approval of the resolution plan by the adjudicating authority.
- Whether alleged post-approval difficulties constitute legal grounds to frustrate or alter the plan under the IBC framework.
Petitioner’s Arguments
The petitioner contended that the unforeseen financial and market conditions after the approval of the plan rendered its performance commercially impossible. They argued that the principles under Sections 32 and 56 of the Indian Contract Act (regarding frustration and contingent contracts) should apply.
It was submitted that enforcement of the plan in its original form would cause grave prejudice to the petitioner and undermine the objectives of the IBC by potentially pushing the corporate debtor back into insolvency. The petitioner also argued that the creditors should adopt a pragmatic approach, allowing restructuring of timelines and obligations.
Respondent’s Arguments
The respondents maintained that the IBC contains a complete code regarding insolvency resolution, and post-approval modification is neither contemplated nor permissible except in extraordinary situations provided in the statute. They emphasized that Section 31(1) of the IBC explicitly makes the resolution plan binding on all stakeholders once approved by the adjudicating authority.
They further submitted that the petitioner’s reliance on the doctrine of frustration was misplaced as the IBC overrides other laws, and there was no fundamental change in circumstances destroying the basis of the contract. Allowing such a plea would, according to the respondents, destabilize the insolvency resolution framework.
Analysis of the Law
The Court examined Section 31 of the IBC, highlighting that the legislative intent is to give finality and enforceability to a resolution plan to ensure certainty for all stakeholders. The overriding effect of Section 238 of the IBC was also noted, which ensures that the provisions of the Code prevail over any inconsistent provisions in other laws, including the Contract Act.
The Court observed that the IBC does not permit unilateral withdrawal or modification of a plan post-approval, except in limited circumstances specifically provided under the Code, such as in cases involving fraud or material misrepresentation.
Precedent Analysis
The Court referred to the Supreme Court’s rulings in:
- Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta — where it was held that the successful resolution applicant is bound to implement the resolution plan and that commercial wisdom of the CoC cannot be altered post-approval.
- Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. — which clarified that withdrawal or modification of a resolution plan is impermissible after its approval by the adjudicating authority.
These cases reinforced that finality and certainty are the cornerstones of the IBC process.
Court’s Reasoning
The Court rejected the petitioner’s reliance on frustration of contract, holding that the IBC creates a special statutory framework overriding general contract principles. It stressed that the petitioner, having voluntarily submitted the plan and benefited from its approval, cannot later resile from its obligations.
The Court emphasized that permitting such avoidance would undermine creditor confidence, destabilize the resolution process, and defeat the IBC’s objective of timely revival of distressed companies.
Conclusion
The High Court upheld the NCLAT’s decision, affirming that the petitioner is bound to comply with the resolution plan as approved. The petition was dismissed with the observation that “once a resolution plan is approved, it is binding on all stakeholders, and performance cannot be avoided on grounds of commercial difficulty.”
Implications
This judgment reinforces the sanctity of an approved resolution plan under the IBC and limits the scope for post-approval modifications. It provides greater certainty to creditors and strengthens the enforceability of resolution outcomes, thereby enhancing the credibility of the insolvency regime.
Cases Referred and Their Role
- Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta — Established that resolution applicants must adhere to the approved plan without alteration.
- Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. — Clarified that no withdrawal or modification is permissible post-approval.
FAQs
1. Can a resolution applicant withdraw from an approved resolution plan under IBC?
No. Once approved under Section 31 of the IBC, the resolution plan is binding, and withdrawal or modification is impermissible except in specific statutory situations.
2. Does the doctrine of frustration apply to resolution plans under IBC?
No. The IBC overrides the Indian Contract Act, and commercial difficulties do not amount to frustration in the IBC context.
3. What happens if the resolution applicant fails to comply with the plan?
The applicant may face enforcement measures, including proceedings for contempt, liquidation of the corporate debtor, or other remedies available to creditors.
