Introduction

The case titled Committee of Creditors of Ushdev International Limited Through State Bank of India v. Mr. Subodh Kumar Agrawal, Resolution Professional of Ushdev International Limited adjudicated by the National Company Law Appellate Tribunal (NCLAT) on March 11, 2022, marks a significant development in the realm of Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC). This comprehensive commentary delves into the background, key issues, judicial reasoning, and the broader implications of the Judgment.

Summary of the Judgment

The Appeals arose from two Orders dated February 3, 2022, issued by the National Company Law Tribunal (NCLT), Mumbai Special Bench. The first Order approved the Resolution Plan submitted by Taguda Pte. Limited, Singapore, which was supported by the Committee of Creditors (CoC) with a majority of 91.06%. The second Order dismissed an application by ICICI Bank seeking clarification on the enforceability of excluded securities under the Resolution Plan.

Mr. Subodh Kumar Agrawal, the Resolution Professional, along with ICICI Bank, challenged these Orders, leading to the concurrent hearing of both appeals by NCLAT. The primary contention was whether the excluded securities, specifically promoter and corporate guarantees, were extinguished upon the approval of the Resolution Plan.

NCLAT, upon reviewing the submissions and the Resolution Plan, held that the Adjudicating Authority erred in declaring the excluded securities unenforceable. The Tribunal emphasized that the Resolution Plan did not contemplate the extinguishment of excluded securities, as explicitly stated in the plan's provisions. Consequently, NCLAT allowed the Appeals, restoring the enforceability of excluded securities and permitting the treatment of ICICI Bank's dissenting vote as an assenting vote.

Analysis

Precedents Cited

The Judgment referenced the landmark Supreme Court case Ghanshyam Mishra and Sons Vs. Edelweiss Asset Reconstruction Company Limited. In this case, it was held that once a Resolution Plan is approved, creditors cannot pursue recovery outside the terms of the plan. However, NCLAT differentiated Ushdev's scenario by underscoring that the Resolution Plan in question did not annul the excluded securities, thereby not invoking the precedent to extinguish these securities automatically.

Legal Reasoning

The crux of NCLAT's reasoning hinged on a meticulous examination of the Resolution Plan's provisions. Specifically, the Tribunal focused on:

• Clause 3.3.(iii)(g): Explicitly stated that excluded securities would not be extinguished or waived under the Resolution Plan.
• Clause 3.3.(v): Reiterated the survival of excluded securities post the plan's approval.

NCLAT observed that the Adjudicating Authority conflated the conversion of unpaid debts into non-convertible redeemable preference shares with the extinguishment of excluded securities, despite the Resolution Plan clearly demarcating their continued enforceability. Additionally, the Tribunal noted that the Resolution Professional and the CoC did not contest the preservation of excluded securities, further reinforcing that no intention existed to waive them.

Impact

This Judgment serves as a pivotal reference for future CIRP proceedings, particularly concerning the treatment of excluded securities. It underscores the necessity for Adjudicating Authorities to align their directions with the explicit terms of the Resolution Plan. Moreover, the affirmation that dissenting votes can be treated as assenting votes, given the CoC's concurrence, paves the way for smoother approvals in cases where minor dissent does not impede the overall consensus.

Complex Concepts Simplified

Excluded Securities

Under the IBC framework, excluded securities refer to specific forms of security interests that creditors may hold, such as promoter guarantees or corporate guarantees. These securities are termed "excluded" because they typically remain enforceable even after the initiation of CIRP, unless explicitly stated otherwise in the Resolution Plan.

Resolution Plan

A Resolution Plan is a proposal submitted by a potential buyer or investor outlining the strategy to revive a financially distressed company. This plan must be approved by the Committee of Creditors and the Adjudicating Authority to become effective.

Committee of Creditors (CoC)

The Committee of Creditors comprises financial creditors of the corporate debtor. The CoC plays a crucial role in evaluating and approving the Resolution Plan, with its approval being based on a defined majority, typically exceeding 66%.