Introduction

The case of Steel Strips Wheels Ltd. v. Avil Menezes, Resolution Professional Of AMW Autocomponent Ltd. And Others adjudicated by the National Company Law Appellate Tribunal (NCLAT) on April 18, 2022, addresses pivotal issues concerning the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). The dispute centers around the legitimacy of allowing a new Resolution Plan submission after an initial plan has already been approved by the Committee of Creditors (CoC) within the stipulated CIRP timelines.

Summary of the Judgment

Steel Strips Wheels Ltd., the appellant, challenged the order passed by the Adjudicating Authority (National Company Law Tribunal - NCLT) which permitted Respondent No.3 to submit a Resolution Plan after the CoC had already approved the appellant's plan with a 98.55% voting share. The appellant argued that the CIRP timelines as prescribed under the IBC were breached and that the Adjudicating Authority exceeded its jurisdiction by allowing a late entrant to submit a competing plan.

After comprehensive deliberations, the NCLAT upheld the appellant’s position, setting aside the Adjudicating Authority’s order. The Tribunal emphasized the importance of adhering to the CIRP timelines to prevent delays that could devalue the corporate debtor's assets and undermine the insolvency resolution process's efficacy.

Analysis

Precedents Cited

The judgment extensively referenced several key cases that shaped the Tribunal’s reasoning:

• Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2021 SCC OnLine SC 707): Highlighted the binding nature of an approved Resolution Plan on the CoC and the successful resolution applicant, emphasizing that such plans are not mere contracts but have binding statutory effects under the IBC framework.
• Chhatisgarh Distilleries Ltd. v. Dushyant Dave (Resolution Professional of Anand Distilleries Pvt. Ltd.)- 2020 SCC OnLine NCLAT 1078: Reinforced the principle that once a Resolution Plan is approved by the CoC, no subsequent applications to consider new plans should be entertained by the Adjudicating Authority.
• Kalinga Allied Industries India Pvt. Ltd. v. Hindustan Coils Ltd.- 2021 SCC OnLine NCLAT 51: Addressed the issue of the Adjudicating Authority directing the CoC to consider Resolution Plans from parties not originally part of the CIRP, reaffirming that such directions are beyond the Authority's jurisdiction.

Legal Reasoning

The Tribunal's legal reasoning was grounded in the strict adherence to the IBC’s timelines and procedural mandates. Key points include:

• Finality of Approved Plans: Once the CoC approves a Resolution Plan with the requisite majority, it gains a binding effect, and no further plans should feasibly alter this decision within the same CIRP.
• Adherence to CIRP Timelines: The IBC prescribes specific timeframes for each stage of CIRP to ensure efficiency and prevent the depreciation of the corporate debtor's assets. Deviating from these timelines undermines the process's integrity.
• Jurisdictional Limits of Adjudicating Authority: The NCLT cannot overreach by directing the CoC to consider new Resolution Plans from late entrants, especially when such submissions breach the established process and timelines.
• Impact of Judicial Delays: Referencing the Ebix Singapore judgment, the Tribunal underscored that delays in CIRP can severely harm the corporate debtor's value and the recovery prospects for creditors.

Impact

This judgment significantly fortifies the sanctity of CIRP timelines and the finality of Resolution Plans approved by the CoC. Its implications are manifold:

• Strengthened CIRP Framework: By dismissing attempts to prolong CIRP through late Resolution Plan submissions, the judgment enhances the efficiency and effectiveness of the insolvency resolution process.
• Certainty for Creditors: Creditors can rely on the finality of their decisions within CIRP, reducing uncertainties and potential litigations that could arise from competing claims.
• Deterrence Against Procedural Exploits: Parties may be deterred from attempting to manipulate CIRP timelines to introduce alternative Resolution Plans post initial approvals.
• Guidance for Future CIRPs: The judgment serves as a precedent for similar cases, guiding Adjudicating Authorities and Resolution Professionals on managing CIRP timelines and Resolution Plan submissions.

Complex Concepts Simplified

Corporate Insolvency Resolution Process (CIRP)

CIRP is a structured process under the IBC aimed at resolving insolvency of corporate debtors. It involves:

• Initiation: Starts with the filing of an insolvency petition, leading to the appointment of a Resolution Professional (RP).
• Resolution Plan: Prospective Resolution Applicants submit plans to revive the corporate debtor, which are evaluated by the CoC.
• Approval and Implementation: The approved plan is sanctioned by the Adjudicating Authority (NCLT), and the RP oversees its implementation.
• Timelines: CIRP must conclude within 180 days, extendable by up to 90 days under specific conditions, ensuring a time-bound resolution.

Committee of Creditors (CoC)

The CoC comprises financial creditors of the corporate debtor and is pivotal in approving or rejecting Resolution Plans. Their decisions are binding under the IBC framework.

Resolution Plan Finality

Once the CoC approves a Resolution Plan with at least 66% voting share, it becomes binding on all stakeholders, precluding the acceptance of subsequent competing plans within the same CIRP.

Conclusion

The NCLAT’s judgment in Steel Strips Wheels Ltd. v. Avil Menezes reinforces the critical importance of adhering to CIRP timelines and upholding the finality of Resolution Plans approved by the CoC. By setting aside the Adjudicating Authority’s order that permitted a late Resolution Plan submission, the Tribunal ensures that the IBC’s objectives of efficiency, asset maximization, and timely resolution are maintained. This decision not only provides clarity to stakeholders involved in CIRP but also strengthens the overall insolvency framework by preventing procedural delays and ensuring decisive closure to insolvency proceedings.

Moving forward, this precedent serves as a guiding beacon for both Adjudicating Authorities and Resolution Professionals to strictly observe CIRP timelines and respect the binding nature of CoC-approved Resolution Plans, thereby enhancing the integrity and effectiveness of the insolvency resolution mechanism in India.