Case BriefsSupreme Court

Supreme Court: A Division Bench of Dr D.Y. Chandrachud and M.R. Shah, JJ. has held that under Insolvency and Bankruptcy Code, 2016, a Resolution Applicant is not entitled to withdraw or modify its Resolution Plan, once it has been submitted to the National Company Law Tribunal (Adjudicating Authority). The Supreme Court held:

“The existing insolvency framework in India provides no scope for effecting further modifications or withdrawals of CoC-approved Resolution Plans, at the behest of the successful Resolution Applicant, once the plan has been submitted to the Adjudicating Authority.”

The Court observed that a Resolution Applicant, after obtaining the financial information of the Corporate Debtor through the informational utilities and perusing the Information Memorandum, is assumed to have analysed the risks in the business of the Corporate Debtor and submitted a considered proposal. A submitted Resolution Plan is binding and irrevocable as between the Committee of Creditors (“CoC”) and the successful Resolution Applicant in terms of provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”).

At the same time, the Court recognised that long delays in approving the Resolution Plan by NCLT affect subsequent implementation of the plan. It was observed:

“These delays, if systemic and frequent, will have an undeniable impact on the commercial assessment that the parties undertake during the course of the negotiation. … Such inordinate delays cause commercial uncertainty, degradation in the value of the Corporate Debtor and makes the insolvency process inefficient and expensive.”

The Supreme Court urged NCLT and NCLAT to be sensitive to the effect of such delays on the insolvency resolution process and be cognizant that adjournments hamper the efficacy of the judicial process. The Court said:

“The NCLT and the NCLAT should endeavor, on a best effort basis, to strictly adhere to the timelines stipulated under the IBC and clear pending resolution plans forthwith. Judicial delay was one of the major reasons for the failure of the insolvency regime that was in effect prior to the IBC. We cannot let the present insolvency regime meet the same fate.”

The Court was deciding appeals filed against the judgments of NCLAT whereby it had upheld the orders passed by NCLT rejecting withdrawal applications filed by Resolution Applicants (appellants before the Supreme Court).

Following is a comprehensive report of Supreme Court’s legal and factual analysis.

Question of Law

In the instant case, the task before the Supreme Court was to answer the question of law: Whether a Resolution Applicant is entitled to withdraw or modify its Resolution Plan, once it has been submitted by the Resolution Professional to NCLT and before it is approved by the latter under Section 31(1) of the Insolvency and Bankruptcy Code, 2016?

Legal Analysis and Observations

Purpose of a law on insolvency

Discussing the dynamic and comprehensive nature of IBC, the Supreme Court noted that the procedure designed for the insolvency process is critical for allocating economic coordination between the parties who partake in, or are bound by the process. This procedure produces substantive rights and obligations. The Court said:

“Upholding the procedural design and sanctity of the process is critical to its functioning. The interpretative task of the Adjudicating Authority, Appellate Authority, and even this Court, must be cognizant of, and allied with that objective.”

The Court opined that any judicial creation of a procedural or substantive remedy that is not envisaged by the statute would not only violate the principle of separation of powers, but also run the risk of altering the delicate coordination that is designed by IBC framework and have grave implications on the outcome of the Corporate Insolvency Resolution Process (“CIRP”), the economy of the country and the lives of the workers and other allied parties who are statutorily bound by the impact of a resolution or liquidation of a Corporate Debtor. It was observed:

“The adjudicating mechanisms which have been specifically created by the statute, have a narrowly defined role in the process and must be circumspect in granting reliefs that may run counter to the timeliness and predictability that is central to the IBC.”

Nature of a Resolution Plan

The Supreme Court sought to determined the nature of a Resolution Plan after its approval by CoC but prior to its approval by NCLT. This would help establish the source of legal force of a Resolution Plan ─ whether it is IBC or the law of contract. It was noted that the insolvency process, as governed by IBC, does not merely structure the conduct of participants in the process after finalisation and approval of a Resolution Plan by CoC, but also the conduct stemming from the very first steps of inviting prospective Resolution Applicants. Discussing the statutory framework, the Court observed:

“[F]eatures of a Resolution Plan, where a statute extensively governs the form, mode, manner and effect of approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented to it.”

The Court opined that a Resolution Plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by CoC and the approval of NCLT.

Further, the Court opined that a Resolution Plan cannot be classified even as a ‘statutory contract’. There is no provision under IBC referring to a Resolution Plan as a contract. The legal force of a Resolution Plan arises due to the framework provided under IBC. Reiterating that IBC is a self-contained Code, the Court concluded:

“Principles of contractual construction and interpretation may serve as interpretive aids, in the event of ambiguity over the terms of a Resolution Plan. However, remedies that are specific to the Contract Act cannot be applied, de hors the overriding principles of the IBC.”

Statutory framework governing CIRP

IBC and regulations framed thereunder provide a detailed procedure for completion of CIRP. The Supreme Court noted that CIRP is a time bound process with a specific aim of maximising the value of assets. IBC and the regulations made under it lay down strict timelines which need to be adhered to by all the parties, at all stages of CIRP. The second proviso to Section 12(3) of IBC read with the judicial dictum in Essar Steel (India) Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 prescribes that CIRP in its entirety must be completed within 330 days from the insolvency commencement date, including the time taken in legal proceedings, with a short extension to be granted only in exceptional cases. This is indicative of the strong emphasis of IBC on its timelines and its attempt to thwart the prospect of stakeholders engaging in multiple litigations solely with the intent of causing undue delay. The Court observed:

“Delays are also a cause of concern because the liquidation value depletes rapidly, irrespective of the imposition of a moratorium, and a delayed liquidation is harmful to the value of the Corporate Debtor, the recovery rate of the CoC and consequentially, the economy at large.”

The evolution of IBC framework, through an interplay of legislative amendments, regulations and judicial interpretation, consistently emphasises the predictability and timeliness of IBC. If CIRP is not completed within the prescribed timeline, the Corporate Debtor is sent into liquidation. Relying on Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, 2021 SCC OnLine SC 194, the Court said:

“The stipulation of timelines and a detailed procedure under the IBC ensures a timely completion of CIRP and introduces transparency, certainty and predictability in the insolvency resolution process. … This Court should proceed with caution in introducing any element in the insolvency process that may lead to unpredictability, delay and complexity not contemplated by the legislature.”

Withdrawal of Resolution Plan by a successful Resolution Applicant under IBC

Absence of legislative hook or regulatory tether to enable withdrawal

Analysing the statutory framework governing CIRP and periodic reports of the Insolvency Law Committee, the Supreme Court observed that it is a creditor-driven process. It was noted that IBC is silent on whether a successful Resolution Applicant can withdraw its Resolution Plan. However, the statutory framework laid down under IBC and the CIRP Regulations provide a step-by-step procedure which is to be followed from the initiation of CIRP to the approval by NCLT. It was observed:

“The absence of any exit routes being stipulated under the statute for a successful Resolution Applicant is indicative of the IBC’s proscription of any attempts at withdrawal at its behest.”

The Court took note of the fact that Section 12-A was inserted in IBC by an amendment whereby the Corporate Debtor and CoC have been empowered to withdraw from CIRP, but the Parliament chose not to introduce any explicit provision for allowing any amendment of the Resolution Plan after approval of creditors, let alone a power to withdraw the Resolution Plan at that stage. Keeping in mind the principles for interpretation of economic statutes, the Court opined:

“In the absence of any provision under the IBC allowing for withdrawal of the Resolution Plan by a successful Resolution Applicant, vesting the Resolution Applicant with such a relief through a process of judicial interpretation would be impermissible. Such a judicial exercise would bring in the evils which the IBC sought to obviate through the back-door.”

Terms of Resolution Plan not sufficient to effect withdrawals or modifications after submission to NCLT

The appellant−Resolution Applicants submitted that a Resolution Plan only becomes binding when it is approved by NCLT under Section 31(1) of IBC. Examining the contention that the terms of a Resolution Plan can reserve the right to modify or withdraw its contents after submission to NCLT, the Supreme Court observed:

“The language of Section 31(1) cannot be construed to mean that a Resolution Plan is indeterminate or open to withdrawal or modification until it is approved by the Adjudicating Authority or that it is not binding between the CoC and the successful Resolution Applicant.”

The Court noted that the procedure envisages a 15-day window between submission of Resolution Plan and its approval or rejection by NCLT which clearly indicates that the statute envisages a certain level of finality before the Resolution Plan is submitted for approval to NCLT.  It was observed:

“Even the CoC is not permitted to approve multiple Resolution Plans or solicit [Expressions of Interest] after submission of a Resolution Plan to the Adjudicating Authority, which would possibly be in contemplation if the Resolution Applicant was permitted to withdraw from, or modify, the Plan after acceptance by the CoC.”

Following the decision in AMTEK Auto Ltd. v. Dinkar T. Venkatasubramanian, (2021) 4 SCC 457 which thwarted similar attempt of successful Resolution Applicant relying on certain open-ended clauses in its Resolution Plan to seek a direction compelling CoC to negotiate a modification to its Resolution Plan, the Court opined:

“A Resolution Plan whose implementation can be withdrawn at the behest of the successful Resolution Applicant, is inherently unviable, since open-ended clauses on modifications/withdrawal would mean that the Plan could fail at an undefined stage, be uncertain, including after approval by the Adjudicating Authority”

The Court further explained that the negotiations between the Resolution Applicant and CoC are brought to an end after CoC’s approval. The only conditionality that remains is the approval of NCLT, which has a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan in terms of Section 30(2) of IBC.

Noting that various mandatory timelines have been imposed for undertaking specific actions under CIRP and if the legislature intended to allow withdrawals or subsequent negotiations by successful Resolution Applicants, it would have prescribed specific timelines for the exercise of such an option, the Court said:

“The recognition of a power of withdrawal or modification after submission of a CoC-approved Resolution Plan, by judicial interpretation, will have the effect of disturbing the statutory timelines and delaying the CIRP, leading to a depletion in the value of the assets of a Corporate Debtor in the event of a potential liquidation.”

Based on plain terms of the statute, the Court concluded that NCLT lacks authority to allow withdrawal or modification of Resolution Plan by a successful Resolution Applicant or to give effect to any such clauses in the Resolution Plan. Further, no such power can be vested with NCLT even under its residuary jurisdiction in terms of Section 60(5)(c) as it cannot do what IBC consciously did not provide it the power to do.

Factual Analysis and Observation

Without affecting the legal position formulated, the Supreme Court undertook an analysis on whether the individual Resolution Applicants in the instant appeal had specifically negotiated with the respective CoCs for a right of modification or withdrawal and were contractually entitled to the same.

Ebix Singapore (P) Ltd.

CIRP of Educomp Solutions Ltd. commenced in 2017, in which Ebix Singapore (P) Ltd. emerged as successful Resolution Applicant. Ebix submitted a Resolution Plan which was approved by CoC. Thereafter, the Resolution Plan was filed for approval of NCLT. However, subsequently, owing to investigations into accounts of Educomp, Ebix filed withdrawal application on account of delay in approval. It relied on inter alia the terms of the Resolution Plan that it was valid for six months only.

The Supreme Court rejected the submission since the terms related to the validity of the Resolution Plan for the period of negotiation with CoC and not for a period after the Resolution Plan was submitted for approval of NCLT. It was observed:

“The time which may be taken before the Adjudicating Authority is an imponderable which none of the parties can predict. … Parties cannot indirectly impose a condition on a judicial authority to accept or reject its Plan within a specified time period, failing which the CIRP process will inevitably come to an end.”

Next, Ebix argued that its position changed manifestly because of new allegations which came up in relation to the financial conduct of Educomp. However, in this regard, the Court noted that the Request For Resolution Plan (“RFRP”) directed prospective Resolution Applicants to conduct their own due diligence and independent investigations. Further noting the provisions of Section 32-A of IBC (liability for prior offences, etc.), the Court observed:

“Thus, in any case even if it is found that there was any misconduct in the affairs of Educomp prior the commencement of the CIRP, Ebix will be immune from any prosecution or punishment in relation to the same. The submission that Ebix has been placed in a prejudicial position due to the initiation of investigation into the affairs of Educomp by the CBI and SFIO is nothing but a red herring since such investigations have no bearing on Ebix.”

Lastly, the Court noted that no clause of Ebix’s own Resolution Plans provided them with a right to revise/withdraw their Resolution Plan after its approval by CoC, but before its confirmation by the Adjudication Authority. Also, Ebix did not stop pursuing their Resolution Plan after the expiry of six months, if the true import of the commercial bargain was a withdrawal of the Resolution Plan after six months of its submission.

Kundan Care Products Ltd.

CIRP of Astonfield Renewables (P) Ltd. commenced in 2018. Kundan Care Products Ltd. submitted a Resolution Plan which was approved by CoC. Thereafter, the Resolution Plan was filed for approval of NCLT. Subsequently, Kundan Care moved an application for withdrawal of its Resolution Plan because of uncertainty over the sole Power Purchase Agreement with Gujarat Urja Vikas Nigam Ltd. which formed the entirety of Astonfield’s business. However, the withdrawal application was dismissed by NCLT.

Kundan Care initially relied on terms of their Resolution Plan to argue that it had reserved the right to modify or withdraw the Plan in event of a ‘material adverse change’ which affects Astonfield. However, the Resolution Professional pointed out that the Letter of Intent awarded to Kundan Care clearly stipulated that the submitted Resolution Plan was irrevocable. This was reaffirmed by the terms of RFRP, which indicated that the condition of a ‘material adverse event’ could be exercised only until CoC was considering the Resolution Plan, and not after it had been submitted to NCLT.

Notably, in July 2021, Kundan Care addressed a communication to EXIM Bank and PFCL (lenders) seeking a revision/renegotiation of the resolution amount/financial proposal of Kundan Care for the resolution of Astonfield. Responding to Kundan Care’s request lenders were prima facie agreeable to deliberate the financial proposal seeking revision on resolution plan amount. Pursuant to this, a joint application was filed by the parties for liberty to submit a revised plan before NCLT.

Noting that EXIM Bank and PFCL represent 98% of financial creditors of Astonfield, the Supreme Court allowed the request with directions, deeming it appropriate to exercise its jurisdiction under Article 142 of the Constitution for a one-time relief.

Seroco Lighting Industries (P) Ltd.

CIRP of Arya Filaments (P) Ltd. commenced in 2018. Seroco Lighting Industries (P) Ltd. submitted a Resolution Plan which was ultimately approved by CoC. Thereafter, the Resolution Plan was filed for approval of NCLT. In June 2020, Seroco sought modification of Resolution Plan and the amount on account of economic slowdown caused by COVID-19 pandemic, and subsequently filed applications before NCLT seeking modification of the Resolution Plan on account of the original being filed over eighteen months ago. However, NCLT rejected the application. Seroco relied on terms of their Resolution Plan, but the Supreme Court found there were no such terms in the Plan that could provide such a benefit to Seroco. Concluding, the Court observed:

“This Court is cognizant that the extraordinary circumstance of the COVID-19 pandemic would have had a significant impact on the businesses of Corporate Debtors and upon successful Resolution Applicants whose Plans may not have been sanctioned by the Adjudicating Authority in time, for myriad reasons. But the legislative intent of the statute cannot be overridden by the Court to render outcomes that can have grave economic implications which will impact the viability of the IBC.”

Decision

In such view of the matter, the appeals filed by Ebix and Seroco were dismissed, and parties to the appeal preferred by Kundan Care were directed to abide by the directions issued by the Court in exercise of powers under Article 142 as a one-time relief. [Ebix Singapore (P) Ltd. v. Educomp Solutions Ltd. (Committee of Creditors), 2021 SCC OnLine SC 707, decided on 13-9-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Op EdsOP. ED.

In the backdrop of the pandemic, much discussion on the Insolvency and Bankruptcy Code, 2016[1] (the Code) has revolved around whether creditors should continue to have a right to commence insolvency proceedings. However, the pandemic induced lockdowns and the recession that has followed have also raised important questions pertaining to the rights of resolution applicants (RA). The scheme of the Code is such that when insolvency resolution proceedings are initiated against a corporate debtor (CD), a committee of its creditors (CoC) calls for bids from parties who may be interested in taking over or purchasing the assets or business of that company. The party whose bid is accepted is the successful RA under the Code.

Expectedly, after the pandemic, financial pressures have mounted not only on companies who have debts due to banks and other lenders, but also on such RAs. To successfully buy the assets and businesses of CDs, an RA would have to infuse sizable sums of money. Generally, this money is arranged for in two to three different ways. One source of funds is the cash in hand that the RA may have. A second is the revenues that can be generated from the business and assets of the CD. A third is fresh debt raised from the market to pay off the institutional lenders of the CD. In the present recession-hit economy, it is only natural that all these sources of funds would be under some stress. Therefore, it is likely that RAs may no longer want to purchase companies that they were interested in before the lockdown. To cut the long story short, RAs may want to withdraw from the corporate insolvency resolution process (CIRP). Pertinently though, the question of withdrawal from the CIRP is not relevant only in the context of a recession-hit economy. It is an independent question of law that needs to be answered sooner rather than later.

It is in this context that a recent decision of the National Company Law Appellate Tribunal (NCLAT) in Kundan Care Products v. Amit Gupta[2] assumes significance. The NCLAT held that a successful RA is not entitled to withdraw a resolution plan (the plan). The appellant, Kundan Care, had emerged as the successful RA in the CIRP of Astonfield Solar (Gujarat) Pvt. Ltd. (Astonfield). Although Kundan Care’s plan had been accepted by the CoC on, it was yet to be approved by the NCLT. In the meantime, Kundan Care approached the NCLT to withdraw its plan, on the grounds that the plan had been rendered commercially unviable due to delay in concluding the CIRP. The NCLT rejected this application, prompting Kundan Care to prefer an appeal.

Before the NCLAT, Kundan Care argued that the Code does not contain any provision to compel specific performance of the plan. As a corollary, an application to withdraw a plan found to be unviable had to be permitted.

The NCLAT not only declined to grant permission to withdraw, but also held that “the argument advanced on behalf of the appellant that there is no provision in the  Insolvency and Bankruptcy Code compelling specific performance of resolution plan by the successful resolution applicant has to be repelled”. The NCLAT provided four distinct reasons for the same:

 (a) First, that the Code had no specific provision permitting withdrawal of accepted plans.

(b) Second, once the plan was approved, it became a binding contract between the parties, which “is not a contract of personal service which may be legally unenforceable”.

(c) Third, the RA would be estopped from “wiggling out” of the liabilities flowing from the resolution plan.

(d) Fourth, the assets of the CD were bound to deplete during the time consumed by the CIRP process, and if this were accepted as a ground for withdrawal, every RA would “walk out with impunity”.

The overarching rationale behind the decision was that any withdrawal by the RA could bring about “disastrous consequences” for the CD, and push the CD into liquidation. The NCLAT also observed that by permitting withdrawal, it would be interfering with the commercial wisdom of the CoC. This decision was then carried in appeal before the Supreme Court, which was pleased to grant an ad interim stay on the judgment.

Necessarily, this question will now be resolved by the Supreme Court. However, there are several legal issues that subliminally undercut the decision of the NCLAT, and which we believe merit a widespread discussion..

No specific provision permitting withdrawal

 The absence of a specific provision in the Code permitting withdrawal only means that the NCLT lacks the jurisdiction to entertain an application for withdrawal. This is borne out by the decision in Educomp Solutions Ltd. v. Ebix Singapore Pte. Ltd.[3], where the NCLAT held that the adjudicating authority had no jurisdiction to entertain an application for the withdrawal of a plan after it had been approved.

However, this does not mean the withdrawal of a resolution plan is always prohibited by the Code. Let us consider a scenario, as in the present case, where the plan is yet to be approved by the NCLT. Section 31 of the Code needs the adjudicating authority to assess whether a plan may be implemented efficiently, before approving the plan. An RA who at the outset suggests that it may no longer be in a position to abide by the plan on account of a downturn in the economy or otherwise, would be a prime indicator of the fact that the plan may not be successfully implemented. In such cases, the plan ought to be rejected by the NCLT. In effect, even without considering a separate application for withdrawal, the NCLT can indirectly permit the RA to withdraw.

A separate application for withdrawal is not needed because the Code envisages liquidation as the solution in such situations. Sections 33(3) and (4) clearly stipulate that where a plan has been contravened, the adjudicating authority “shall pass a liquidation order”, upon application by an aggrieved party. Thus, instead of compelling an unwilling RA to perform a plan, the Code rightly considers liquidation as an efficacious alternative to the CIRP. Liquidation also follows when CIRP fails.

The NCLAT’s suggestion that liquidation would necessarily be a worse outcome, that has to be avoided at all costs, is not borne out by the Code. In fact, sale of assets in liquidation in a time-bound fashion may be more effective than protracted litigation to compel an RA to abide by the plan.

Resolution Plan is a binding contract capable of specific performance

 By holding that withdrawal cannot be permitted, the NCLAT in Kundan Care[4] effectively holds that the NCLT has the power to compel an RA to specifically perform a plan. This is directly contrary to the NCLAT’s own decision in Metalyst Forging Ltd. v. Deccan Value Investors LP[5], where the NCLAT observed as follows:

“In the aforesaid background, the adjudicating authority (National Company Law Tribunal), Mumbai Bench rightly observed that the Insolvency and Bankruptcy Code do(es) not confer any power and jurisdiction on the adjudicating authority to compel specific performance of a plan by an unwilling resolution applicant ”.

It is now a well-settled position in law that specific performance may only be awarded of a contract[6]. Whether a plan is a contract is itself ambiguous. The scheme of the Code is such that various RAs who may be interested in the assets of a CD submit their plans to the resolution professional of the CD, who in turn places them before the CoC. By an internally decided mechanism, this Committee then selects one of the plans as the successful plan.

Following this logic, the two parties to the contract would have to be the CoC and the RA.  Were the plan a “contract”, it would only bind the parties thereto. However, Section 31 makes it clear that the plan is a document in rem – it binds every stakeholder of the CD, including those who may not have consented to the plan. Moreover, for there to be a concluded contract there must be an offer and an acceptance. In a CIRP though, the mere acceptance of one of a plan, does not amount to an acceptance of the offer. This is simply because a plan comes into force and becomes legally binding only if it is approved by the NCLT. No concluded contract comes to be only on the CoC selecting a plan.

Further, the transaction covered under the plan indicates that it is not truly a “contract” at all. Under a plan, the consideration that flows to the RA is control over the CD.  However, the CD does not belong to the CoC – under company law, the CD is owned by its shareholders. It is a settled position in law that a party cannot pass a better title than what she possesses. Therefore, conventionally the CoC would have no authority to transfer the CD. Ownership and control would have to be passed by shareholders themselves, either as parties to the contract or at the behest of the CoC. However, this is evidently not the case in a plan. Therefore, the power given to the CoC to “transfer” the Company is only statutory and not contractual in nature.

In any case, even if a plan is assumed to be a concluded contract, it is not one of which specific performance can be awarded. Under Section 14(b) of the Specific Relief Act, a resolution plan would be a contract which needs constant supervision by the court and is thus, not capable of specific performance. Suppose, for a moment, that the CD operated a restaurant chain and was taken over by an RA in the CIRP. The plan submitted by the RA envisioned that 30% of the revenues earned through the restaurant business every year would be used to pay off the debts of the CD. In the current climate, the RA no longer wants to proceed with adding a restaurant chain to its line of businesses. To compel the RA to specifically perform this contract would mean that he would necessarily have to operate a chain of restaurants, do business and garner revenues. These are obligations that no court can constantly supervise. Similarly, when a plan envisages that an RA will raise fresh debt to finance the older debts of the CD, a court cannot compel him to take a loan. Therefore, we say that even if a plan were assumed to be a contract, it is not one of which specific performance can be readily awarded by a civil court.

 Estoppel

 The other prominent reason provided by the NCLAT to repel Kundan Care’s submissions was that it was barred by estoppel from withdrawing the plan. At the outset, it is seen that the decision is internally inconsistent on this point. As we have seen above, the NCLAT considers the plan to be a concluded contract. Once that is so, it is doubtful whether a question of estoppel can arise –– estoppel is a doctrine which enforces promises when there is no contract, on the basis that the other party has relied upon the promise and acted to his detriment. When there is a contractual relationship, remedies would presumably exist under the contract and estoppel would not coexist.

In any case, there are other reasons why estoppel cannot apply here. First, the courts have previously had the occasion to observe that the highest bidder in an auction is not estopped from retracting his bid.[7] Rightly so, because this is not a scenario where an equitable intervention is warranted. When an auction fails, property may be reauctioned or the bidder may be sued for damages or, as in the present case, the company may be liquidated. This, as stated, is also the scheme of the Code, which provides for liquidation of companies where plans cannot be successfully implemented. Second, injuncting an RA from withdrawing on the grounds of estoppel, would be tantamount to indirectly awarding specific performance of a contract that is not capable of specific performance.

 Conclusion

 Based on our opinion on the issues that arise in this context, we contend that the decision of the NCLAT in Kundan Care[8] is incorrect and deserves to be revisited. Otherwise, we might find ourselves in a situation where struggling businesses are handed over to unwilling RAs, who are looking for every opportunity to exit. These outcomes may well be counterproductive. Moreover, there is also the associated question of refund of performance guarantees and/or earnest money deposits usually provided by RAs along with the plan. This is an independent question, which too will have to be considered by the SC when it revisits Kundan Care[9]. For the paucity of space though, we have not examined it in this piece.


Advocate, Bombay High Court. Graduated from National Law School of India University, Bangalore, BCL from University of Oxford. Works in the chambers of Mr Shyam Kapadia.

‡ Advocate, Bombay High Court. Graduated from National Law School of India University, Bangalore. Works in the chambers of Sr. Advocate Mr Venkatesh Dhond.

[1] Insolvency and Bankruptcy Code, 2016

[2] 2020 SCC OnLine NCLAT 670

[3] 2020 SCC OnLine NCLAT 592

[4] 2020 SCC OnLine NCLAT 670.

[5] 2020 SCC OnLine NCLAT 837.

[6] Kerala Financial Corpn. v. Vincent Paul, (2011) 4 SCC 171 and Amrit Lal Suri v. C.P. Gupta, 1990 SCC OnLine Del 87

[7] Vishal Builders (P) Ltd. v. Delhi Development Authority, 1977 SCC OnLine Del 29  and Shakharamseth Employees Union v. ICICI Bank Limited, 2009 SCC OnLine Bom 1707

[8] 2020 SCC OnLine NCLAT 670.

[9] Ibid.