Enforceability of Approved Resolution Plans under IBC: NCLAT's Ruling in GP Global Energy Pvt Ltd v. Anil Kohli & Ors.

Introduction

The case of M/s. GP Global Energy Pvt Ltd v. Anil Kohli & Ors. was adjudicated by the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi on December 15, 2022. The appellant, GP Global Energy Private Limited (now known as Nivaya Resources Pvt. Ltd.), filed two appeals challenging the orders passed by the National Company Law Tribunal (NCLT) regarding the insolvency resolution process of Tirupati Infra Projects Private Limited.

The core issue revolved around the cancellation of the Resolution Plan approved on January 4, 2020, due to the appellant's failure to fulfill its financial obligations as per the plan. Additionally, the appellant contested the forfeiture of ₹20 Crore deposited as part of the Resolution Plan.

Summary of the Judgment

The NCLAT, after thorough deliberation, upheld the cancellation of the Resolution Plan approved by the NCLT. The tribunal affirmed that the appellant had not demonstrated a genuine intent or capacity to implement the Resolution Plan, as evidenced by the non-payment of the outstanding ₹232 Crore within the stipulated timeframe. Consequently, the tribunal set aside the direction to refer the matter to the Insolvency and Bankruptcy Board of India (IBBI) under Section 74(3) of the Insolvency and Bankruptcy Code, 2016 (IBC), due to insufficient evidence of "knowing and willful contravention" by the appellant.

Furthermore, the tribunal dismissed the appellant's applications seeking directions and clarified that the Resolution Plan's implementation was not contingent upon unresolved disputes unrelated to the plan's immediate execution.

Analysis

Precedents Cited

The judgment extensively referenced several pivotal cases that influenced its decision:

Ebix Singapore (P) Ltd. Vs. Educomp Solutions Ltd.: Established that once a Resolution Plan is approved, it cannot be withdrawn or modified unilaterally by the Resolution Applicant.
M/s. Gurpreet Singh Ahluwalia Vs. District Magistrate: Clarified that "as is where is basis" in a Resolution Plan does not allow for conditional implementation based on property disputes.
Llovegeet Dhuria Vs. State Bank of India: Highlighted that secured creditors should not withhold information about pending litigations affecting asset sales.
Haryana Financial Corporation and Anr. Vs. Rajesh Gupta: Reinforced that Resolution Applicants cannot retrospectively burden the Resolution Plan with new conditions not stipulated at its approval.
United Bank of India Vs. Official Liquidator & Ors.: Emphasized that sale proceeds are based on existing records, and purchasers must verify asset titles independently.

Legal Reasoning

The tribunal grounded its decision on the following legal principles:

Binding Nature of Approved Resolution Plans: Once a Resolution Plan is approved by the Committee of Creditors (CoC) and the NCLT, it becomes binding and enforceable. The plan cannot be unilaterally withdrawn or altered by the Resolution Applicant.
Fulfillment of Financial Obligations: The appellant failed to pay the prescribed ₹232 Crore within 30 days of the plan's approval. This non-compliance indicated a lack of genuine intent or capability to implement the plan.
No Conditionality Based on External Disputes: The appellant attempted to link the implementation of the Resolution Plan to the pending litigation regarding the fifth floor's ownership. The tribunal found that such external disputes were not conditions precedent to the plan's execution.
Responsibility of Resolution Applicants: Resolution Applicants are expected to conduct thorough due diligence and are deemed to understand the IBC's mechanisms and obligations upon submitting a Resolution Plan.
Timeliness and Efficiency under IBC: The judgment highlighted the importance of adhering to the IBC's timelines to ensure a swift and effective insolvency resolution process, preventing unnecessary delays that could detriment the corporate debtor's value and creditors' interests.

Impact

This judgment has significant implications for future insolvency cases under the IBC:

Strengthened Creditor Protections: By affirming the binding nature of approved Resolution Plans, creditors can be more confident in the enforceability of such plans, reducing uncertainties in the insolvency process.
Discouragement of Post-Approval Conditions: Resolution Applicants are deterred from introducing new conditions or leveraging external disputes to avoid fulfilling their obligations under the approved plan.
Emphasis on Due Diligence: The ruling underscores the necessity for Resolution Applicants to thoroughly understand and respect the IBC's framework, promoting accountability and integrity in the insolvency resolution process.
Streamlined Insolvency Proceedings: By discouraging delays and ensuring timely resolution of disputes related to the Resolution Plan, the judgment contributes to the IBC's objective of providing an efficient and predictable insolvency process.

Complex Concepts Simplified

Understanding the judgment requires clarity on certain legal concepts:

Corporate Insolvency Resolution Process (CIRP): A legal framework under the IBC for restructuring or liquidating financially distressed companies to maximize creditor value.
Resolution Plan: A proposal submitted by a bidder (Resolution Applicant) outlining how the corporate debtor will be restructured and debts repaid.
Committee of Creditors (CoC): A body comprising all financial creditors of the corporate debtor, responsible for approving the Resolution Plan.
Section 74(3) of IBC: Provisions that penalize the corporate debtor or associated persons for knowingly and willfully contravening the approved Resolution Plan.
Information Memorandum: A document prepared by the Resolution Professional containing comprehensive details about the corporate debtor’s assets, liabilities, and ongoing litigations, guiding prospective Resolution Applicants in formulating their bids.

Conclusion

The NCLAT's decision in GP Global Energy Pvt Ltd v. Anil Kohli & Ors. reinforces the integrity and enforceability of approved Resolution Plans under the Insolvency and Bankruptcy Code. By upholding the cancellation of the Resolution Plan due to non-compliance and dismissing attempts to introduce post-approval conditions, the tribunal ensures that the IBC's objectives of protecting creditor interests and promoting efficient insolvency resolution are upheld. This judgment serves as a crucial precedent, deterring Resolution Applicants from undermining the insolvency process post-plan approval and reinforcing the legal framework's robustness in managing corporate insolvencies.