Successful Resolution Applicant Cannot Renegotiate After CoC Approves Resolution Plan: Supreme Court

The Supreme Court on Wednesday held that a Successful Resolution Applicant cannot seek to renegotiate or stall implementation of a resolution plan after it has been approved by the Committee of Creditors (CoC).

A Bench of Justices K. V. Viswanathan and Vipul M. Pancholi passed the ruling while dismissing appeals filed by Sanjay Dave, former promoter-director and Successful Resolution Applicant (SRA) of Oracle Home Textiles Ltd.

The Court held that once the CoC approves a resolution plan in exercise of its commercial wisdom, the SRA is expected to implement it in a time-bound manner. It said the SRA cannot continue negotiating by objecting to conditions already accepted during CoC meetings. Relying on Ebix Singapore Private Limited vs. Committee of Creditors of Educomp Solutions Limited and Another, the court observed,

“Therefore, it is clear that once the CoC, after applying its commercial wisdom, has approved the resolution plan, the SRA is prohibited from negotiating further and is expected to act in a time bound manner to implement the plan. In the present case, it is seen that the appellant was deliberately trying to delay the implementation of the plan citing the purported conditionality of the LoI.”

The court upheld the liquidation of Oracle Home Textiles. The Court also upheld forfeiture of Dave's Rs. 1 crore earnest money deposit.

The court vacated all interim orders. It directed the liquidator to continue the remaining liquidation process in accordance with the Code.

The case arose from CIRP proceedings against Oracle Home Textiles, which entered insolvency on August 9, 2018. Sanjay Dave, a promoter-director of the company, later submitted a resolution plan after securing permission from the NCLT. He was subsequently declared the Successful Resolution Applicant.

On May 10, 2021, Dave was informed that the CoC had approved his plan with a 99.90% voting share.

The dispute began after Dave raised objections to conditions contained in a series of Letters of Intent issued between May and July 2021. Among other things, the LoIs stated that the approved plan would remain subject to pending applications moved by prospective resolution applicants before the NCLT.

The LoIs also stated that risks arising from employee and worker litigation would be borne by the SRA.

Rejecting the appellant's contention that the LoIs were conditional, the Court relied on earlier Supreme Court decisions on the doctrines of acquiescence and approbate-and-reprobate. It held that the appellant could not object to stipulations that he had knowingly accepted during CoC meetings.

Rejecting the appellant's contention that the LoIs were conditional, the Court relied on earlier Supreme Court decisions holding that a party cannot approbate and reprobate after knowingly accepting contractual terms. The Court noted that the appellant had expressly agreed to the stipulations during CoC meetings and could not later seek to avoid them.

“In view of the abovementioned decisions of this Court, the appellant cannot be permitted to approbate and reprobate and the fora below have rightly dismissed the objections of the Appellant in this regard. Not only did the appellant not object to the terms, as evidenced from the minutes of the meetings, he had expressly agreed for the same. The device adopted by the appellant was an indirect attempt to renege from the plan,” the Court held.

Calling the appellant's conduct “a clear subterfuge”, the Court said he was attempting to indirectly withdraw from the plan by portraying accepted stipulations as conditionalities.

“It was a clear subterfuge. Knowing fully well that one cannot withdraw directly from the plan approved by the CoC, an attempt was made in an indirect manner by harping on about certain stipulations as conditionalities to shift the blame on the CoC for the appellant's unwillingness to take the plan forward.”, the court observed.

The Court further held that where an SRA, after lulling the CoC to believe that it would comply with the plan, later reneges from it, the CoC can validly resolve to liquidate the company.

“A plain reading of clause 2 of Section 33 and specifically the explanation to the said clause 2, which came into force from 16.08.2019, makes it clear that where an SRA after lulling the CoC to believe that it will comply with the plan, reneges from the plan and where the CoC resolves to liquidate the company so as to realize the money and disburse the claims of the different claimants, no fault can be found with the process.”, it noted.

The court also upheld forfeiture of the earnest money deposit. It found that the appellant had failed to comply with the terms of the resolution process and had not accepted the LoI despite repeated opportunities.

Accordingly, the court dismissed the appeals and directed the liquidator to proceed with the remaining liquidation process in accordance with the Code.