Extending Payment Deadlines in Approved Resolution Plans: Jurisdictional Perspective from NCLAT

CORAM:Mr. Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member). 

INTRODUCTION

The National Company Law Appellate Tribunal (NCLAT), Delhi, in the case of Ashok Dattatray Atre and Ors.  (Appellant) v. State Bank of India and Ors. (Respondents)^[i] has reaffirmed a significant precedent regarding the adjudicating authority’s powers under the Insolvency and Bankruptcy Code (IBC). The NCLAT held that the National Company Law Tribunal (NCLT), serving as the adjudicating authority, has the jurisdiction to extend payment timelines stipulated in an approved resolution plan without necessitating the express concurrence of the Committee of Creditors (CoC). This decision has profound implications for the interpretation of the powers vested in the NCLT and the role of the CoC in the insolvency resolution process.

FACTS

The facts of the case leading to the present case are as follows:

1. The Appellant, a promoter of M/s Transparent Energy Systems Pvt. Ltd., submitted a resolution plan for the revival of the corporate debtor, offering a settlement amount of INR 19,72,00,000 (Rupees Nineteen Crore Seventy-Two Lakh Only).

2. The CoC, consisting solely of the State Bank of India (SBI/Respondent) with a 100% (one hundred percent) vote share, approved the resolution plan on April 16, 2021. The plan outlined payments to be made in 6 (six) tranches over 3 (three) years, from April 16, 2021, to April 16, 2023.

3. The successful resolution applicant i.e. Appellant made payments for the first 3 (three) tranches but faced difficulties in paying the 4^th (fourth) tranche due in April 2023. Consequently, the Appellant by way of an application sought an extension before the NCLT, citing expected recoveries from pending litigation.

4. In August 2023, Respondent moved an application, seeking liquidation of the corporate debtor due to the Appellant’s default in paying the 4^th (fourth) tranche.

5. While the aforementioned applications were pending, the Appellant sent a letter on November 10, 2023, to the Chairman of the Monitoring Committee, highlighting efforts to recover funds from litigation. The letter mentioned that an arbitration award dated November 9, 2023, awarded approximately INR 1,02,00,000 (Rupees One Crore Two Lakh Only) to the corporate debtor from M/s Lloyd Steel Industries, exceeding the INR 50,00,000 (Rupees Fifty Lakhs Only) projected in the resolution plan.

6. Despite efforts to arrange funds and offers to utilize assets for payments, disagreements persisted between the Appellant and Respondent. This led to the NCLT dismissing the application seeking an extension of time moved by the Appellant and thereby allowing the application seeking liquidation moved by the Respondent vide order dated January 4, 2024. Hence, the Appellant preferred an appeal against the said order.

ISSUE

Whether the NCLT has the power to extend the payment timelines of a resolution plan without the concurrence from the CoC?

SUBMISSION OF THE PARTIES

Submissions of the Appellant

The Appellant contended that liquidation was not appropriate in this case. The Appellant successfully made the first 3 (three) tranche payments on time, and the total amount was to be paid by April 16, 2024. The funds for the 4^th (fourth) tranche were available, but Respondent did not allow their utilization. 

The Appellant’s further contended that application seeking extension of time provided valid reasons for extending the timeline for the remaining payments under the resolution plan. However, the application was rejected on the mistaken belief that the CoC had not agreed to the extension. Since the CoC was solely constituted by Respondent, they should have cooperated with the Appellant to implement the resolution plan. Respondent’s uncooperative stance prevented the Appellant from executing the resolution plan. 

Furthermore, an offer to sell the Shirwal Factory was submitted on February 26, 2024, which was permissible under the resolution plan. However, the Respondent did not consent to the sale. Had the sale been permitted, the 4^th (fourth) and 5^th (fifth) tranche payments could have been completed, and funds would have been available for the final tranche. The resolution plan allowed asset sales as a last resort, but Respondent’s refusal to permit the sale hindered timely payments. The Appellant reiterated that it remains committed to implementing the entire resolution plan and is ready to pay the outstanding amounts for the remaining tranches.

Submissions of the Respondent

The Respondent refuted the Appellant’s submissions by asserting that the Appellant failed to pay the 4^th (fourth) tranche due on April 15, 2023. Consequently, Respondent proceeded ahead for approval seeking liquidation. The Respondent further stated that the Appellant’s subsequent request to utilize funds from various accounts, including a performance guarantee of INR 40,00,000 (Rupees Forty Lakhs Only), was duly addressed by them. Given the non-payment, Respondent rightfully initiated liquidation proceedings.

It was further argued that the NCLT correctly rejected the application in which the Appellant sought an extension for paying the final tranches. According to the Respondent, extending the payment timeline constitutes a modification of the resolution plan, a jurisdiction not within the purview of the NCLT. The Respondent cited the Hon’ble Supreme Court’s judgment in Ebix Singapore Pvt. Ltd. vs. Committee of Creditors of Educomp Solutions Ltd. and Anr.^[ii], which holds that a resolution plan cannot be modified or withdrawn by a successful resolution applicant.

ANALYSIS AND JUDGEMENT

Pursuant to the analysis of the contentions and submissions of both the parties, the NCLAT set aside the orders of the NCLT and allowed the Appellant’s appeal for extension of time by giving the following reasons;

1. Extension of Timelines for Financial Obligations: In the context of insolvency resolution under the IBC, the NCLAT clarified that extending the timelines for complying with financial obligations under a resolution plan does not equate to modifying the plan itself. This ruling aligns with previous judgments in cases such as Tricounty Premier Hearing Services^[iii], GP Global Energy Pvt. Ltd.^[iv], and Consortium of Jalan and Fritsch^[v]. These cases established that adjustments to payment schedules do not alter the substantive terms of the resolution plan, thus not constituting a modification. The decision implies that the restriction on modifying resolution plans, as established in Ebix Singapore, which typically prohibits changes that affect the resolution plan’s core terms, does not extend to merely extending deadlines for financial obligations.

2. Role of the CoC: The NCLAT’s ruling emphasized that it is not mandatory for the CoC to approve extensions of payment deadlines. The NCLT holds the power to grant such extensions based on the circumstances of the case. This underscores the NCLT’s authority in managing procedural aspects of the resolution process, ensuring flexibility where necessary to facilitate compliance with the resolution plan.

3. Interest on Extended Timelines: For extensions granted beyond the original deadline of April 16, 2023, the NCLAT determined that the Appellant would be liable to pay interest at the rates prescribed by the Respondent to ensure that the financial interests of creditors are protected, compensating them for the delay in payments beyond the stipulated timeline.

The decision underscored the flexibility within the resolution process to accommodate practical needs, such as asset sales, which are necessary to implement the resolution plan effectively.

CONCLUSION

This decision by the NCLAT addresses common obstacles faced by resolution applicants during the implementation phase of resolution plans. By clarifying that the CoC does not need to approve extensions for financial obligations and that asset sales can be utilized to meet these obligations, the judgment significantly enhances the feasibility of resolution plans. These rulings are instrumental in making plans more practical and in safeguarding the interests of investors. 

Such decisions underscore the importance of a proactive and supportive role for the NCLT throughout the implementation phase, rather than merely overseeing the initial approval of the resolution plan. This approach not only facilitates the effective execution of resolution plans but also helps prevent unnecessary liquidations, promoting a more flexible and investor-friendly resolution process.