Caveat Emptor - 'No Surrendering After Bidding'

  • Nakul Sachdeva & Aakarshan Sahay
  • 06:32 PM, 28 Sep 2021

Read Time: 01 hours

It wasn’t long ago that Peter F. Drucker stated, “Unless commitment is made, there are only promises and hopes… but no plans” ; however, now the quote comes to life in relation to a Resolution Plan submitted under the Insolvency and Bankruptcy Code, 2016.

A Corporate Insolvency Resolution Process (“CIRP”) can be summarized in three broad stages: (i) the first stage is prior to and ends with the approval of the Resolution Plan by the CoC; (ii) the second stage is the interim period between the Resolution Plan’s approval by the CoC and before its confirmation by the Adjudicating Authority; and (iii) the third stage is after the approval of the Resolution Plan by the Adjudicating Authority. This Article seeks to examine the true scope and purport of the powers of the NCLT and NCLAT under S. 60 (5) of the Code to permit withdrawal of a Resolution Plan in the second stage.

There has been divergence of judicial opinion amongst various NCLT’s on its power to permit withdrawal of Resolution post CoC’s approval. The Principal Bench [1] and NCLT Ahmedabad [2] permitted withdrawal of Resolution Plan in the second stage; however, other Benches of the same respective NCLT’s [i.e NCLT Delhi [3] and NCLT Ahmedabad [4]], have held to the contrary. Notably, the NCLAT persistently maintained and held that once a Resolution Plan is approved by the CoC, the NCLT does not have the jurisdiction to permit its withdrawal. The raison d’etre provided by NCLAT has been dealt in subsequent paragraphs of this Article.

This particular question of law ‘whether a resolution plan can be withdrawn by the resolution applicant post CoC’s approval but prior to NCLT’s acceptance’ is no longer res integra in view of the Supreme Court’s judgment in Ebix Singapore [5], wherein the Supreme Court authoritatively and conclusively answered against withdrawal. Two other matters namely, Kundan Care [6] and Soreco [7], with similar question of law, were tagged and decided by the Supreme Court along with Ebix Singapore.

Background of the case

Three separate applications for withdrawing the Resolution Plan before the concerned NCLT were filed in Ebix Singapore case. Interestingly, the in all the three Applications, withdrawal of the Plan was sought on the same ground of pendency and delay in obtaining NCLT’s approval. While the first and second applications were dismissed, albeit not on merits, the third withdrawal application was allowed on merits. The raison d’etre provided by NCLT was that: (i) a Resolution Plan becomes binding after it is approved by it as the Adjudicating Authority; (ii) under Section 30(2) of the IBC, the Adjudicating Authority has the power to examine whether the Resolution Plan can be effectively enforced and implemented; and (iii) in the ‘present circumstances’, an unwilling successful Resolution Applicant would be unable to effectively implement the Resolution Plan. In the Appeal [8] preferred by the CoC, the NCLAT set aside the order of the NCLT allowing withdrawal of the Resolution Plan. On the merits of the application for withdrawal, the NCLAT inter aliaheld that: (i) once the Resolution Plan was approved by the CoC, the NCLT did not have jurisdiction to permit its withdrawal; (ii) the Adjudicating Authority could not enter upon the wisdom of the decision of the CoC to approve the Resolution Plan; (iii) the Resolution Applicant had accepted the conditions of the Resolution Plan and no change could be permitted.

In the case of Kundan Care, the NCLT had dismissed an application filed by Kundan Care under Section 60(5) of the IBC to withdraw its Resolution Plan submitted for the Corporate Debtor, Astonfield. In Appeal [9], the NCLAT upheld the NCLT’s decision, relying on its judgment in the Ebix Appeal. It held that an application filed by a Resolution Applicant to withdraw from the Resolution Plan approved by the CoC could not be allowed since: (i) it contravenes the principles of IBC, which require the CIRP to be conducted in a time-bound manner in order to maximise the value of the assets of the Corporate Debtor (ii) permitting Kundan Care to withdraw would sabotage the CIRP, where the CoC had previously rejected other prospective Resolution Applicants in favor of Kundan Care (iii) there is no specific provision in the IBC for allowing withdrawal (iv) the Resolution Plan incorporated contractual terms binding the Resolution Applicant, and it is not akin to a contract of personal service which is legally unenforceable (v) by the virtue of the principle of estoppel of conduct, Kundan Care is estopped from withdrawing and (vi) the withdrawal may lead to the Astonfield’s liquidation, and the value of its assets were bound to have depleted in the interim. The application filed Seroco, wherein it sought permission to modify its Resolution Plan submitted for the Corporate Debtor – Arya Filaments, met the same like as Kundan Care.

The correctness of NCLAT’s view in the aforesaid matters (Ebix Singapore, Kundan Care and Soreco) was under determination before the Supreme Court in Ebix Singapore. The following broad arguments came up for consideration:

Arguments supporting withdrawal

  1. Resolution Applicant is not bound by the Resolution Plan prior to the approval of the Adjudicating Authority, in terms of the CIRP documents read with the scheme of IBC.
  2. Section 31(1) of the IBC, which provides that the Resolution Plan is “binding…on all stakeholders” only upon approval by the Adjudicating Authority;
  3. Section 74(3) of the IBC, which provides that a person can be prosecuted or punished for contravening the Resolution Plan only after its approval by the Adjudicating Authority;
  4. The documents underlying the CIRP, i.e., invitation of EOI, the RFRP, sanction letter and Resolution Plan take effect of a binding contract only upon the approval of the Adjudicating Authority and the execution of definitive agreements thereafter;
  5. The Resolution Plan constitutes an offer qualified by time and cannot be enforced against the parties after such a long period of time has elapsed.
  6. The implementation and viability of a Resolution Plan is to be assessed at the time of consideration of such plan by the competent Court/Tribunal, and not at the time of submission of the Plan. The subsequent events that have transpired after the submission of the Resolution Plan are relevant for evaluating the commercial viability and the capability to implement the plan.
  7. The legislative background of Section 31 of the IBC does not contemplate circumstances that could arise after submission of the Resolution Plan to the Adjudicating Authority
  8. There is no concluded and binding contract between the Resolution Applicant and the CoC, prior to approval by the Adjudicating Authority. Since there is no concluded contract, withdrawal of an offer prior to acceptance is a settled principle in contract law and the Adjudicating Authority can give effect to this under Section 60(5) of the IBC;
  9. The RFRP is in the nature of an invitation to offer. Resolution Plan is an offer that is made in pursuance of the RFRP. A contract is concluded and becomes binding between the parties, only upon the communication of its acceptance under Regulation 39(5) of the CIRP Regulation, after the approval of the Adjudicating Authority under Section 31 of the IBC. It would be incorrect to term it as a concluded contract, since it would have unforeseeable public ramifications;

Arguments against withdrawal

  1. The basic tenets of any insolvency law are to ensure the sanctity of the prescribed processes and timelines. Maximization of the value of assets and resolution of the Corporate Debtor are the core objectives of the IBC, as held by this Court in Swiss Ribbons (P) Ltd v. Union of India. Enabling withdrawals, especially at the tail end of the process, would push financially distressed Corporate Debtors into liquidation.;
  2. Permitting withdrawal of an approved Resolution Plan would tread on the exclusive domain of the CoC, which has the power to determine the feasibility and viability of a Resolution Plan.
  3. The mandate of Section 30(2)(d) of the IBC, which envisages ‘implementation and supervision of the resolution plan’, would be breached if the Court would allow withdrawals by holding that an unwilling Resolution Applicant would make a Resolution Plan itself un-implementable;
  4. The scope of judicial review with the Adjudicatory Authority, under Section 31 of the IBC, is confined to parameters delineated in Section 30(2), which does not envisage the withdrawal or unwillingness of the Resolution Applicant to continue with a CoC-approved Resolution Plan. The Adjudicating Authority, as a creature of the statute, cannot exercise jurisdiction beyond the scope of the IBC or second-guess the commercial wisdom of the CoC,);
  5. Section 30(4) of the IBC does not contemplate any statutory exit after the approval of the Resolution Plan by the CoC, which determines its feasibility and viability;
  6. Upon the approval of a Resolution Plan by the CoC, a concluded contract comes into existence between the Resolution Applicant and CoC. Any withdrawal of the Resolution Plan would violate the concluded contract;
  7. The withdrawal would also be in violation of the objective of the IBC which is to ensure the revival and continuation of the Corporate Debtor. The withdrawal of the Resolution Plan at a belated stage, would lead to the Corporate Debtor going into liquidation;
  8. There is no direct provision with respect to withdrawal of a Resolution Plan under the IBC by a Resolution Applicant, once approved by the CoC. Consequently, the Adjudicating or Appellate Authority has no jurisdiction to direct withdrawals or modification of Resolution Plans;;
  9. The penal provision under Section 74(3) is applicable to a successful Resolution Applicant as it is a stakeholder in the CIRP. The existence of a penal provision indicates that the legislature intended to deter and discourage withdrawals of Resolution Plans;
  10. CIRP is a time bound process of 180 days, which can be further extended up to 330 days. If a successful Resolution Applicant is allowed to withdraw its Resolution Plan, it will set the clock back on the time spent on receiving the Resolution Plan, evaluating it under Section 30(2) of the IBC, putting it to vote before the CoC and finally obtaining its approval from the Adjudicating Authority;

Whether Resolution Plan is a contract

It was considered necessary by the Supreme Court to first establish the legal sanctity of a Resolution Plan so as to determine its nature i.e whether the sanctity of a Plan flows from the IBC or is the Plan to be governed by the Indian Contract Act. This required the Supreme Court to analyze whether all elements of contract formation have been satisfied, including the question of whether the acceptance of the Resolution Plan by the CoC fulfils the criteria laid down under Section 7 of the Contract Act or whether the conditionality of seeking approval from the Adjudicating Authority makes the Resolution Plan a contingent contract. After a due and careful examination of the scheme of the Code, the Supreme Court came to the conclusion that a Resolution Plan cannot be construed purely as a ‘contract’ governed by the Contract Act, in the period intervening its acceptance by the CoC and the approval of the Adjudicating Authority. Certain stages of the CIRP resemble the stages involved in the formation of a contract. However, it is the structure of the IBC which confers legal force on the CoC-approved Resolution Plan. It was accordingly concluded that in the absence of any specific provision in the IBC or the regulations referring to a CoC-approved Resolution Plan as a contract and the lack of clarity in the BLRC report regarding the nature of such a Resolution Plan, CoC approved Resolution Plans will not be governed by the Contract Act and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the IBC.

Findings of Supreme Court

The Supreme Court noted that in the wake of Covid-19 pandemic, there has been a clamor on behalf of successful Resolution Applicants who no longer wish to abide by the terms of their submitted Resolution Plans that are pending approval under Section 31, on account of the economic slowdown that impacted every business in the country. While being conscious to the problems faced by the Resolution Applicants, the Supreme Court, nonetheless, did not allow them to withdraw the Resolution Plan. The Supreme Court reiterated that 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.

The Supreme Court went on to hold that IBC does not envisage a dichotomy in the binding character of the Resolution Plan in relation to a Resolution Applicant between the stage of approval by the CoC and the approval by the Adjudicating Authority. The binding nature of a Resolution Plan on a Resolution Applicant, who is the proponent of the Plan which has been accepted by the CoC cannot remain indeterminate at the discretion of the Resolution Applicant. The negotiations between the Resolution Applicant and the CoC are brought to an end after the CoC’s approval. The only conditionality that remains is the approval of the Adjudicating Authority, which has a limited jurisdiction to confirm or deny the legal validity of the Resolution Plan in terms of Section 30 (2) of the IBC.

Suraksha Asset Reconstruction Appeal

The Suraksha Appeal [10], perhaps is the first case which places reliance on the Ebix Singapore judgment to set aside NCLT’s order permitting withdrawal of Resolution Plan, in the second stage, as dealt in the Article. It will be interesting to see whether Suraksha prefers an Appeal against NCLAT’s order.


The Supreme Court in the Ebix Singapore has concluded that Resolution Plans are not in a nature of a traditional contract per se, and the process leading up to their formulation and acceptance by the CoC is comprehensively regulated by the insolvency framework and that the IBC framework, does not enable withdrawals or modifications of Resolution Plans, once they have been submitted by the RP to the Adjudicating Authority after their approval by the CoC. The judgment removes all uncertainties attached to the power of the NCLT to permit modification and/or withdrawal of Resolution Plans, post CoC’s approval and prior to NCLT’s acceptance. This judgment according to the Author, will deter non-serious bidders from participating in the insolvency process and cautions the interested bidder to diligently conduct due diligence of the corporate debtor before submitting the Resolution Plan which is accompanied by the performance bank guarantee.

The IBC was introduced as a water-shed moment for insolvency law in India that consolidated processes under several disparate statutes such as the 2013 Act, SICA, SARFAESI, Recovery of Debts Act, Presidency Towns Insolvency Act 1909 and the Provincial Insolvency Act 1920, into a single code. A comprehensive and time-bound framework was introduced with smooth transitions between reorganization and liquidation, with an aim to inter alia maximize the value of assets of all persons and balance the interest of all stakeholders. Permitting the Adjudicating Authority to exercise its residuary powers under Section 60(5) to allow for further modifications or withdrawals at the behest of the successful Resolution Applicant, would be in the teeth of the decision of this Court in Essar Steel[11] which held that “[s]ection 60(5)(c) cannot be used to whittle down Section 31(1) of the IBC, by the investment of some discretionary or equity jurisdiction in the Adjudicating Authority outside Section 30(2) of the Code, when it comes to a resolution plan being adjudicated upon by the Adjudicating Authority”. Enabling Resolution Applicants to seek remedies that are not specified by the IBC, by seeking recourse to the Contract Act would be antithetical to the IBC’s insolvency regime. In a nutshell the Supreme Court has reiterated the words of Les Brown - “Honor your commitments with integrity”.



[1] Educomp Solutions Limited CP (IB) No. 101 (PB) of 2017

[2] IDBI Ltd vs Wind World (India) Ltd CP (IB) 14(AHM) 2018

[3] M/s. Astonfield Solar  Gujarat Pvt. Ltd IA No. 1679 of 2019 in CP No. (IB)-940 (ND) of 2018

[4] Kotak Mahindra Bank Limited vs. Arya Filaments Pvt. Ltd I.A. No. 96 of 2020 in CP(IB) No. 29/7/NCLT/AHM/2018

[5] Ebix Singapore Pte Ltd vs. CoC of Educomp Solution Limited & Anr. [Civil Appeal No. 3224   of 2020].

[6] Kundan Care Products Ltd. Vs. Mr. Amit Gupta & Ors. Civil Appeal No. 3560/2020

[7] Seroco Lighting Industries Private Ltd. Vs Arya Filaments Pvt. Ltd & Ors. Civil Appeal No. 297/2021

[8] Educomp Sol Ltd VS Mahendar Kumar Khandelwal Company Appeal (AT) (Ins) No. 587 of 2020

[9] Kundan Care Products Ltd vs Amit Gupta & Ors. Company Appeal (AT) (Ins) No. 653 of 2020

[10] Shailen Shah, Resolution Professional of Wind World (India) Ltd vs. Suraksha Asset Reconstruction Limited  Company Appeal (AT) (Ins) No. 826 of 2020

[11] Committee of Creditors of Essar Steel India Limited  vs. Satish Kumar Gupta & Ors. (2020) 8 SCC 531


Authors Description: Nakul Sachdeva is a Partner at L&L Partners. Akarshan Sahay is Managing Associate at L&L Partners.

[The Views expressed by the Authors are purely personal and are the Authors' own. Lawbeat does not endorse them]