Supreme Court Reinforces Strict Compliance in Corporate Insolvency Resolution: Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayan & Others

1. Introduction

The case of Kridhan Infrastructure Pvt. Ltd. (Now Known As Krish Steel And Trading Pvt. Ltd.) v. Venkatesan Sankaranarayan And Others (2021 INSC 127) adjudicated by the Supreme Court of India on March 1, 2021, revolves around the corporate insolvency resolution process under the Insolvency and Bankruptcy Code (IBC) 2016. The appellant, Kridhan Infrastructure Pvt. Ltd., submitted a Resolution Plan for Tecpro Systems Limited, which was undergoing corporate insolvency proceedings. The Committee of Creditors (CoC) approved the Resolution Plan, and subsequently, the National Company Law Tribunal (NCLT) approved it as well. However, the appellant failed to fulfill its obligations under the plan, leading to liquidation proceedings.

The key issues in this case include the appellant's non-compliance with the approved Resolution Plan, the appropriateness of liquidation as a remedy under the IBC, and the court's role in ensuring the enforcement of compliance with the resolution mechanisms established by the Code.

2. Summary of the Judgment

The Supreme Court upheld the decision of the National Company Law Appellate Tribunal (NCLAT) to proceed with the liquidation of the Corporate Debtor due to the appellant's failure to implement the approved Resolution Plan. Despite the appellant's assurances to deposit an additional amount and rectify its non-compliance, the Court found insufficient grounds to deviate from the liquidation order. The Court emphasized that liquidation should remain a measure of last resort and underlined the necessity for resolution applicants to adhere strictly to their commitments under the IBC framework.

3. Analysis

3.1 Precedents Cited

The judgment referenced the landmark case of Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407, which underscored the importance of adhering to the timelines and procedural requirements under the IBC. In Innoventive Industries, the Supreme Court highlighted that the objectives of the IBC are best served when resolution plans are implemented promptly and with good faith efforts by all parties involved.

By citing this precedent, the Court in the Kridhan Infrastructure case reinforced the principle that corporate insolvency resolutions must be executed within stipulated timeframes, and any undue delays or non-compliance can justifiably lead to liquidation.

3.2 Legal Reasoning

The Court emphasized that the primary objective of the IBC is to resolve insolvency efficiently, balancing the interests of all stakeholders, including creditors and the corporate debtor. Liquidation is intended as a last resort, to be pursued only when resolution efforts fail.

In this case, the appellant had previously demonstrated some intention to comply by depositing Rs. 15 crores in an escrow account and committing to an additional Rs. 50 crores. However, despite these commitments, substantial time elapsed without fulfillment of these obligations. The Court noted that such delays undermine the efficacy of the IBC's framework, which relies heavily on time-bound processes to prevent indefinite uncertainty.

The Court also considered the role of the CoC and the NCLT/NCLAT in ensuring that resolution plans are not only approved but are also implemented effectively. The appellant's failure to act within the agreed timelines indicated a lack of bona fide effort to resolve the insolvency, justifying the continuation of liquidation proceedings.

3.3 Impact

This judgment serves as a stern reminder to resolution applicants about the importance of adhering to the commitments they make during the insolvency resolution process. It underscores that the judiciary will not hesitate to enforce liquidation if there is significant non-compliance or delays in implementing approved Resolution Plans.

Furthermore, the decision reinforces the structured timeline established under the IBC, promoting a more disciplined approach to insolvency resolutions. This ensures that the process remains efficient and that stakeholders can rely on timely resolutions, thereby enhancing the credibility of the IBC framework.

Additionally, by upholding the liquidation order despite the appellant's attempts to delay, the Court reinforces the principle that resolutions must be executed in good faith, discouraging opportunistic behaviors that could prolong insolvency proceedings to the detriment of creditors and other stakeholders.

4. Complex Concepts Simplified

Corporate Insolvency Resolution (CIR) Process: A legal framework under the IBC that facilitates the restructuring or sale of an insolvent company's assets to repay creditors, aiming to revive the business and preserve value.
Resolution Plan: A proposal submitted by an interested party (resolution applicant) outlining how the insolvent company will be restructured or sold to resolve its debts.
Committee of Creditors (CoC): A body comprising the creditors of the insolvent company, responsible for approving or rejecting Resolution Plans based on majority consensus.
National Company Law Tribunal (NCLT): The adjudicating authority for corporate insolvency cases in India, responsible for approving Resolution Plans and overseeing the CIR process.
Liquidation: The process of winding up a company's operations by selling its assets to repay creditors when a Resolution Plan fails or is not implemented.
Inherent Power under Rule 11: The authority of the NCLAT to take necessary actions to ensure justice is served, even if no specific provision exists in the law.

5. Conclusion

The Supreme Court's judgment in Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayan & Others underscores the critical importance of timely and bona fide execution of Resolution Plans under the Insolvency and Bankruptcy Code 2016. By upholding the liquidation order in the face of the appellant's non-compliance, the Court reinforced the IBC's framework aimed at efficient insolvency resolution, discouraging delays and non-fulfillment of commitments.

This decision highlights the judiciary's role in ensuring that the objectives of the IBC are met, balancing the interests of creditors and providing relief to corporates where genuine efforts are made towards resolution. It sets a clear precedent that failure to adhere to approved Resolution Plans will lead to liquidation, thereby promoting accountability and integrity within the corporate insolvency process.