State Bank of India & Ors. vs The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr.

2. The nature of the Conditions Precedent laid out under the Resolution Plan were such that several of them could not be fulfilled before the operationalization of the Corporate Debtor – The assertion that the Effective Date would kick in only upon fulfilment of all the Conditions Precedent and since the Appellants had challenged the fulfilment of the Conditions Precedent, such a date could not be said to have yet arrived not accepted – It was repeatedly declared by different fora that the Effective Date was frozen on 20.05.2022 and the obligation of the SRA to implement the Resolution Plan was absolute – All steps necessary should have been undertaken by the SRA, at least post the impugned order of the NCLAT dated 12.03.2024 – To contend that its hands were tied since the Conditions Precedent were still being challenged before this Court is nothing but a reflection of the mala fide intention on the part of the SRA to not fulfil its obligations in accordance with the Resolution Plan under the garb of pendency of litigation. [Paras 97, 98]

3. The Effective Date was frozen on 20.05.2022 – As per Clause 6.3.1(g) on the “Infusion of Funds and Timelines”, and Serial No.11 under Clause 7.7, the first tranche payment of Rs. 350 Crore had to be made by the SRA, upfront, within a period of 180 days from the Effective Date – As per the Resolution Plan, this 180-day timeline otherwise would have expired on 16.11.2022 – Several extensions were granted to the SRA to infuse this amount, at different stages of this litigation, by the NCLT, the NCLAT and this Court (vide order dtd.18.01.2024, 180 days time for infusion was extended up to 31.01.2024) as well. [Para 98]

4. Further, an adjustment of the PBG against the first tranche payment was also in violation of Regulation 36B(4A) of the 2016 Regulations – The PBG had to be kept alive until the complete implementation of the Resolution Plan as per Regulation 36B(4A) – This was also provided under Clauses 3.13.2 and 3.13.8 of the RFRP (Request for Resolution Plan) respectively wherein the PBG was required to be kept alive and was to be returned to the SRA only upon 100% completion of the implementation of the Resolution Plan – This binding nature of the RFRP was transferred onto the Resolution Plan through Clauses 7.3 and 9.4 respectively of the Resolution Plan – Even in light of the NCLAT’s own order dated 26.05.2023, it does not follow that the PBG could have been adjusted by the SRA, mid-implementation, against its payment obligation. [Paras 104, 105, 107]

5.1 Once the Adjudicating Authority has approved the plan u/s.31(1) of the IBC, 2016, the Resolution Plan is binding on all the stakeholders including those stakeholders who are not direct participants of the CIRP – Therefore, there is absolutely no scope for modification of the terms of a Resolution Plan which has received the imprimatur of the Adjudicating Authority, be it by the Adjudicating Authority itself, the CoC or the SRA. [Para 116]

5.2 The NCLT had approved the present Resolution Plan vide order dated 22.06.2021, the Resolution Plan was immune to any modification or alteration whatsoever – The submission of the SRA that the Lender’s Affidavit required an infusion of Rs. 350 Crore in cash, while the Resolution Plan allowed for the payment of Rs. 200 Crore in cash and Rs.150 Crore through adjustment of the PBG, rejected – The conditions imposed on the SRA under the Lender’s Affidavit and the Resolution Plan were one and the same, the only difference being that the Appellants had offered not to press issues relating to the compliance of the Conditions Precedent and grant of extensions/exclusions along with offering to withdraw the Company Appeal and the Appeals pending before this Court – In view of clear order dated 18.01.2024, the PBG of Rs.150 Crore could not have been allowed to be adjusted with the first tranche payment of Rs. 350 Crore – Non-compliance of the SRA with the order of this Court has led to a dereliction of its obligations to implement the Resolution Plan – SRA failed to implement the Resolution Plan by not infusing the first tranche payment of Rs. 350 Crore in cash, as required by Clause 6.3.1(g) and the Implementation Schedule under Clause 7.7 of the Resolution Plan. [Paras 117, 121 124, 125]

Insolvency and Bankruptcy Code, 2016 – ss.33(3), 31(1) – Whether there were sufficient grounds before the NCLAT to hold that Respondent No.1-SRA had contravened the terms of the approved Resolution Plan and that the Corporate Debtor must be directed to be liquidated u/s.33(3) – Whether SRA failed to implement the Resolution Plan on non-payment of the Airport Dues as per the terms of the Resolution Plan – Whether SRA could be said to have failed to implement the Resolution Plan on account of the non-payment of workmen and employees’ dues as per the terms of the Resolution Plan and the order of the NCLT dated 21.10.2022 which was confirmed by the order dated 31.01.2023 of this Court – Need for “timely liquidation” over “endless resolution process” emphasised:

Held: 1.1 The Resolution Plan contemplated that the Airport Charges be subsumed within the CIRP Dues and since all of the different CIRP dues cannot be satisfied through the bank balance which stands to the credit of the Corporate Debtor, a separate sum of Rs. 25 Crore was demarcated towards the remaining CIRP payments – Hence, NCLAT was right in arriving at the conclusion that Airport Dues were indeed a part of the CIRP costs. [Para 129]

1.2 The impugned order of the NCLAT nowhere caps the Airport Dues to a maximum of Rs. 25 Crore – Moreover, such a mention of Rs. 25 Crore is plainly absent in its observations regarding Airport Dues – The Resolution Plan, too, does not contemplate the CIRP costs to be strictly subject to a maximum of Rs. 25 Crore – To accept such a contention of the Appellants would be to misinterpret the observations made in the impugned order. [Paras 129, 130]

1.3 The SRA not having infused the first tranche payment of Rs. 350 Crore as per Clause 6.3.1(g) and S. No. 11 of the Implementation Schedule under Clause 7.7 within a period of 180 days from the Effective Date and within the multiple extensions granted therefrom, defaulted on its obligation towards the payment of CIRP costs (which include airport dues) under Clause 6.4.1 as well. [Para 132]

2. By not infusing the first tranche payment of Rs. 350 Crore as per the Implementation Schedule of the Resolution Plan, the SRA breached the terms of the Resolution Plan which required a minimum liquidation value of Rs.113 Crore to be paid towards the Workmen and Employees’ Dues as well – Moreover, both the Provident Fund and Gratuity Dues amounting to Rs. 226 Crore should also have been paid by the SRA as per the order dated 21.10.2022 of the NCLAT in fulfillment of its obligations, which it failed to do. [Para 140]

3.1 The NCLAT declined to accept the submission of the Appellant that on account of non-deposit of Rs.150 Crore as directed by this Court, the Corporate Debtor should be liquidated – This was based on the incorrect assumption that the direction of this Court to infuse to Rs.150 Crore in cash was only confined to the terms of the Lenders Affidavit dated 16.08.2023 – The Lender’s Affidavit could not have provided for conditions incompatible with the terms of the Resolution Plan – Such an affidavit would have been in direct contravention with s.31(1) of the IBC, 2016 – Therefore, the direction of this Court in its order dated 18.01.2024 was w.r.t both the Lenders Affidavit and the underlying terms of the Resolution Plan – The same was so understood by all the parties involved. [Para 142]

3.2 The Lender’s Affidavit in precise terms stated that “Failing to comply with the conditions mentioned in Para 8(a) to (c) above, the Corporate Debtor should be directed to go into liquidation” – It was in this context that this Court stated that, “the SRA shall peremptorily on or before 31 January 2024, deposit an amount of Rs. 150 crores into the designated account of SBI, failing which the consequences under the Resolution Plan will follow” – Therefore, it is incorrect to contend that this Court neither considered nor expressed any opinion on the question of liquidation of the Corporate Debtor – The consequence of non-implementation of the Resolution Plan by the SRA must necessarily be liquidation of the Corporate Debtor in accordance with s.33(3) of the IBC, 2016. [Para 143]

3.3 The SRA failed to infuse the first tranche payment of Rs. 350 Crore as envisaged in the Resolution Plan despite the Effective Date being fixed on 20.05.2022 – Consequently, the payment of CIRP costs, workmen and employees’ dues etc. which must be made in priority over the dues of the other creditors were also not made – More than 5 years have passed and the implementation of the Resolution Plan still seems to be a dim light at the far end of a long tunnel – Over this period of 5 years, several dues such as the Airport dues to be paid by the Corporate Debtor have increased multi-fold due to the fault of the SRA and this Court must ensure that such debts stop running at some point in time. [Para 147]

3.4 Although one of the key objectives of the IBC, 2016 is to ensure the survival of the corporate debtor as a going concern, yet the same must not come at the cost of efficiency – In scenarios such as the present, “timely liquidation” is indeed preferred over an “endless resolution process” – Such a view will prevent the likelihood of adversely affecting the interests of all the creditors who have been suffering due to no fault of their own and also securing the maximization of value of the remaining assets. [Para 148]

3.5 The consequence of the failure to implement the Resolution Plan in terms of Clause 9.4 of the Resolution Plan and Clause 3.13.7(iii) of the RFRP is that the Appellants are entitled to invoke the PBG automatically without any reference to the SRA – The PBG may be invoked by the Appellants in accordance with the terms of the Resolution Plan. [Para 149]

Insolvency and Bankruptcy Code, 2016 – Preamble – Timely implementation of the Resolution Plan is also one of the objectives of the IBC, 2016 – Report of the Bankruptcy Law Reforms Committee, 2015, time-bound working of the Code emphasised; time and speed are of the essence under the Code – NCLT Rules, 2016 – NCLAT Rules, 2016 – r.15 – Power of NCLT and NCLAT to extend the time limits not be exercised mechanically without any application of mind. [Paras 150, 151, 152, 154, 157, 158]

Constitution of India – Article 142 – Insolvency and Bankruptcy Code, 2016 – Plenary powers u/Article 142 – When to be exercised, discussed – Inordinate delay in due implementation of the Resolution Plan, several dues including the CIRP costs of the Corporate Debtor multiplied; appellants have to incur huge expenditure and costs every month towards maintenance of the Corporate Debtor – Corporate Debtor, if to be directed to be taken in liquidation exercising power u/Article 142: Held: Yes – The fundamental concern of this Court must not only be of doing substantial and complete justice but also to ensure expeditious resolution of the issues in the interests of the underlying objective of the IBC, 2016 and all the stakeholders involved – The terms of the Resolution Plan have been contravened and that there has been a failure to implement on part of the SRA – Resolution Plan is no longer capable of being implemented – In exercise of plenary powers u/Article 142, the Corporate Debtor is directed to be taken in liquidation – NCLT Rules, 2016 – r.11. [Paras 163-165] Insolvency and Bankruptcy Code, 2016 – Deficiencies/Shortcomings – Suggestions – Functioning of the NCLTs and NCLAT – The Guidelines for Committee of Creditors (CoC) issued by the IBBI on 06.08.2024, enumerated – Suggestions made to CoC – Role, duty and responsibility of Successful Resolution Applicant; lenders and also that of creditors: Held: 1. The Guidelines for Committee of Creditors issued by the IBBI may go a long way in streamlining the functions of the CoC – Adding to the aforesaid guidelines, it is suggested that the CoC exercise their commercial wisdom and approve/reject the Resolution Plans placed before them exhibiting fairness and with good reasons – Such a reasoned decision making on their part will only serve to further enable the other key players like the Adjudicating Authorities to understand the rationale behind their decision and to uphold the correctness of the same – Furthermore, it is also suggested that the Central Government or the IBBI explore the possibilities of better enforcement of the standards and practices enumerated in the guidelines through an independent mechanism under the auspices of an oversight committee instead of making them self-regulatory. [Para 172]

2.1 Once a resolution plan is approved under the IBC, 2016, the Successful Resolution Applicant undertakes a profound responsibility to implement the plan in both letter and spirit – This obligation is not merely an empty formality but an enduring commitment to restore the corporate debtor to viability and ensure a meaningful turnaround – The role of a Successful Resolution Applicant is far more than a transactional duty towards the creditors or stakeholders; it embodies a pivotal responsibility to the distressed entity itself, which must be approached with utmost dedication and an earnest sense of duty – Regardless of the challenges that may arise, the Successful Resolution Applicant cannot treat its obligations as optional or conditional, nor can it abdicate its responsibility in the face of unforeseen obstacles – Its efforts must reflect a determination to implement the plan fully and to rejuvenate the debtor company, as this is integral to the success of the IBC framework and the spirit of economic revival it seeks to foster – The approach, therefore, must not be frugal or narrowly profit-driven, limited to viewing the transaction through a purely commercial lens – Instead, it must recognize that rescuing a distressed company is a responsibility of significant social and economic value, demanding a holistic and responsible strategy. [Para 173]

2.2 In this collaborative effort, the duty to implement the plan does not fall on the Successful Resolution Applicant alone; lenders and creditors are equally obligated to support the process by offering constructive and continuous cooperation – They must not impede the implementation process through unnecessary demands beyond the pale of the resolution plan or with delays in implementation plan but rather should facilitate the Successful Resolution Applicant’s efforts to revive the corporate debtor – Given their vested interest in the corporate debtor’s successful revival, lenders have a fundamental duty to act in good faith and with transparency, recognizing that their cooperative stance is essential for overcoming the inevitable challenges of the resolution process – The lender's role is not merely passive; it requires active support that aligns with the ultimate goal of the IBC, 2016- to provide a fair and equitable resolution that maximizes asset value while enabling the debtor’s recovery – Therefore, the lenders must balance their financial interests with the broader objective of rehabilitation – They should not take an obstructive approach or seek to leverage the resolution process solely for individual benefit, as such actions would risk destabilizing the corporate debtor’s recovery trajectory – Instead, they must be prepared to collaborate fully, sharing the responsibility to make the resolution process work in practice. [Paras 174, 175]

2.3 The IBC, 2016 is silent as regards the phase of implementation of the Resolution Plan by the Successful Resolution Applicant – This is mostly due to the fact that each Resolution Plan might be unique and customized to the specific needs of the Corporate Debtor and an excessive amount of statutory control over the implementation of the Plan may prove to be counterproductive to the cause of the Corporate Debtor – However, this has unfortunately led to the consequence of giving excessive leeway to the Successful Resolution Applicants to act in flagrant violation of the terms of the Resolution Plan in a lackadaisical manner – The SRAs repeatedly approach the Adjudicating Authority or the NCLAT for the grant of reliefs in relation to relaxation of the strict compliance to the terms of the Plan, including the timelines imposed therein – The NCLT and NCLAT more often than not, accede to such requests in exercise of their inherent powers under Rule 11 or their power to extend time under Rule 15 of the NCLT and NCLAT Rules, 2016 respectively – The NCLT and NCLAT must not entertain such repeated attempts at violating the integrity of a CoC approved Resolution Plan by accommodating the incessant requests of the Successful Resolution Applicants – The exercise of discretion as regards altering the binding terms of the Resolution Plan, including the timelines imposed, must be kept at a minimum, at best – The NCLTs/NCLATs need to be sensitised of not exercising their judicial discretion in extending the timelines fixed under IBC, 2016 or the Resolution Plan, in such a way that it may make the Code lose its effectiveness thereby rendering it obsolete. [Para 176]

2.4 Section 30(2)(d) of the IBC, 2016 states that the resolution professional shall mandatorily examine each resolution plan that is received to confirm that it provides for the implementation and supervision of the resolution plan – Regulation 38 of the 2016 Regulations provides for the mandatory contents of a Resolution Plan – Regulation 38(2) specifically states that the Resolution Plan shall provide for the term of the plan and its implementation schedule, along with adequate means for supervising its implementation – Further, under Regulation 38(3), a resolution plan must demonstrate that it addresses the cause of default, is feasible and viable, has provisions for its effective implementation, has provisions for approvals required and the timelines for the same and, that the resolution applicant has the capability to implement the resolution plan – Therefore, in light of these provisions of the IBC, 2016 and the 2016 Regulations, it can be seen that the resolution plan must be impermeable to any shortcuts that prevent its implementation, including timely implementation, by the successful resolution applicant – A consideration of these provisions reinforces the idea that timely implementation and strict adherence to the terms of the resolution plan is crucial. [Para 177]

2.5 Section 74(3) of the IBC, 2016 provides for the punishment for contravention of the resolution plan – The Code comes down heavily on any knowing and willful contravention of the terms of the Resolution Plan, committed by any person, on whom the approved Resolution Plan has been made binding under Section

31 of the IBC, 2016 – A punishment of minimum one year which may extend up to five years or minimum fine of one Lakh which may be up to one Crore rupees, or both, has been prescribed for such a contravention – In light of such strict consequence provided for the contravention of the resolution plan envisaged under the scheme of the Code itself, there is good reason for us to ensure that the successful resolution applicants abide by their commitments made under the Resolution Plan – Therefore, it is suggested that the authorities including the NCLT and NCLAT must not aid the Successful Resolution Applicants in circumventing the strict mandates of the law by acceding to their requests to relax the terms of the plan itself. [Paras 178, 179]

2.6 One another suggestion that may aid in a coordinated and non-adversarial implementation of the Resolution Plan by all the stakeholders is that the Adjudicating Authority while approving a Resolution Plan under Section 31 of the IBC, 2016, should record the next steps which are to be taken by the respective parties for commencement of implementation of the approved Resolution Plan – This will ensure that the parties are ad idem about the next round of their obligations that each of them is required to discharge under the approved Resolution Plan and that they do not delay the implementation by initiating any further litigation on this aspect. [Para 180]

2.7 As regards the implementation of the approved Resolution Plan, it is suggested that the IBC, 2016 statutorily provide for the constitution of a Monitoring Committee, once the plan has been approved, for a smooth handover of the Corporate Debtor to the Successful Resolution Applicant – Presently, such a provision is absent in the Code and it is the Adjudicating Authority that orders for the constitution of a Monitoring Committee to ensure smooth implementation of the Plan – The CoC must be empowered to constitute the Monitoring Committee which may, by default, include the Resolution Professional and also include other nominees from the CoC and the Resolution Applicant respectively – Such a Monitoring Committee would be entrusted with the powers of monitoring and supervising the resolution plan till the expiry of the term of the Resolution Plan – The Committee shall also be required to ensure all statutory compliances during the implementation of the plan along with updating the Adjudicating Authorities, Financial and other Creditors about the status of implementation of the Resolution Plan, on a quarterly basis. [Para 181]

3.1 As regards certain efficiency issues within the NCLTs and NCLAT, it has been noticed over a period of time that there is a serious lack of timely admission and disposal of the applications filed as regards the initiation of CIRP, approval of the resolution plan and liquidation – This only adds to the uncertainty of the process and prolongs the dispute thereby jeopardizing the interest of all the stakeholders involved – Adjudication in a time-bound manner would help prevent any further deterioration of the value of the corporate entity – The integrity of the original timelines laid down by the Code and the Resolution Plan must not be allowed to be violated since it would dilute the objective of the Code in its entirety, erode investor confidence and hinder all corporate restructuring efforts. [Para 182]

3.2 The Members often lack the domain knowledge required to appreciate the nuanced complexities involved in high-stake insolvency matters in order to properly adjudicate such matters – One of the salutary objects of the Code, 2016 is to protect the assets of the corporate entity in a timely manner and take prompt decisions, however, it has become a practice of the NCLT(s) and NCLAT to ignore the urgent mentionings and listings of time-sensitive matters and show no deference to long-pending matters resulting in value erosion of the assets of the Corporate Debtor and rendering their insolvency resolution process a foregone conclusion – Over a period of time, this Court has noticed the growing tendency amongst Members of the NCLT(s) and NCLAT to ignore the orders of this Court or act in its defiance – Any act of contravention of this Court’s order and the larger rubric of judicial propriety will not be tolerated – The NCLT(s) and the NCLAT must seriously rethink their approach towards admission and disposal of insolvency matters, they should not act as a mere rubberstamping authority and must take their roles seriously in ensuring time-bound hearings and resolutions – Proper and effective hearings, both virtually and in-court, must be given to insolvency matters of public importance, and the NCLT(s) and NCLAT(s) must earnestly work towards ensuring that the IBC, 2016 achieves its avowed object. [Para 183]

3.3 One another serious issue pertaining to the functioning of the NCLTs and NCLAT is that there is often a shortage of members in the Tribunals and inadequate infrastructure to support their functioning – These vacancies heavily impact the insolvency reform initiative undertaken by the government since they lead to operational inefficiencies – Consequently, the strict timelines provided in Section 12 of the IBC, 2016 are not complied with – Filling such vacancies with experts having adequate domain knowledge in the field must be prioritized along with addressing the infrastructure needs of the Tribunals to prevent any adverse effect on the resolution process – There must be strict mandates regarding the functioning of the Tribunals within its normal working hours – The appointment of new members must be done in a manner such that it coincides with the date of retirement of the sitting members in a seamless manner to avoid such operational inefficiencies – Persons with high ideals & impeccable integrity should be appointed as Members in the NCLT as well as NCLAT – There should be no political appointment. [Para 184]

Insolvency and Bankruptcy Code, 2016 – s.62 – Exercise of the jurisdiction under – Code of Civil Procedure, 1908 – s.100 – “substantial question of law”, when arises – Discussed. [Paras 87-90]