The Telangana High Court recently while dismissing a writ petition, in case of Mandava Holdings Private Limited vs Ptc India Financial Services Limited (Writ Petition no. 20620 OF 2024) has held that once a resolution plan has been duly approved by the Committee of Creditors (CoC), it is deemed binding upon all stakeholders, which encompass creditors and the resolution applicant. It has been further held that the petitioner’s attempts to withdraw or amend the Corporate Insolvency Resolution Process proceedings are legally impermissible and without merit.
Facts of the Case:
The petitioners, Mandava Holdings Private Limited, promoter of NSL Nagapatnam Power and Infratech Limited (NNPIL), an entity undergoing Corporate Insolvency Resolution Process (CIRP) on January 18, 2018, following its application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC).
During the CIRP, Mandava Holdings proposed a One-Time Settlement (OTS) offer of ?90 crores to R1, which was rejected on October 30, 2023. The respondents being PTC India Financial Services Limited, being the financial creditor (R1), Reserve Bank of India (R2), and Successful Resolution Applicant (R3).
The petitioner challenged the rejection of its OTS proposal and sought mandamus directing R1 to reconsider it in line with the RBI’s Framework for Compromise Settlements dated June 8, 2023.
Issues:
1. Whether the petitioner is entitled to relief after the commencement of the Corporate Insolvency Resolution Process (CIRP).
a. Does the the IBC permit withdrawal or reconsideration of CIRP-related actions once initiated?
b. Can the RBI Framework for Compromise Settlements override the provisions of the IBC?
2. Whether the writ petition is maintainable in light of the alternative remedy under the IBC.
a. Is the High Court an appropriate forum for resolving disputes arising out of CIRP?
b. Was the writ petition filed within a reasonable time, considering the rejection of the OTS and the CIRP timeline?
Key Contentions:
Petitioner’s Arguments:
The rejection of the OTS was arbitrary and did not comply with the RBI Framework for Compromise Settlements dated June 8, 2023. It was stated that section 12A of the IBC allows withdrawal of CIRP applications at any stage. The petitioner argued that R1’s lack of a board-approved policy for compromise settlements rendered the rejection invalid. It contended that the RBI Framework imposes binding obligations on lenders, and the pendency of CIRP should not bar R1 from entertaining the OTS.
PTC India Financial Services Limited’s Defense (R1):
R1, being the financial creditor, asserted that the IBC’s provisions supersede the RBI Framework, as it is a self-contained code. The OTS was proposed during CIRP, making it impermissible to consider and that the total outstanding debt was approximately ?671 crores, far exceeding the proposed OTS of ?90 crores, which lacked any prior agreement.
Successful Resolution Applicant’s Defense (R3):
R3 argued that the petitioner’s delayed filing of the writ petition, nearly six years after CIRP commencement, was aimed at derailing the resolution process. It was emphasized that the RBI Framework was not applicable to entities under CIRP and highlighted the absence of NNPIL as a party to the writ petition.
Findings:
1. The petitioner, being promoters, is not entitled to relief after the commencement of CIRP.
a. Section 12A of the IBC governs withdrawal of CIRP applications, requiring approval from 90% of the CoC. The Supreme Court in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited, (2022) 2 SCC 401, held that once a resolution plan is approved by the CoC, it is binding and cannot be undone.
b. The IBC, being a self-contained code, overrides the RBI Framework. Innoventive Industries Limited v. ICICI Bank, (2018) 1 SCC 407, affirmed that rights not provided under the IBC cannot be created through other regulations. R1's rejection of the OTS proposal was not invalid as the RBI Framework does not mandate lenders to accept OTS proposals. Moreover, the corporate debtor was already under CIRP, making the rejection consistent with legal provisions.
2. The writ petition is not maintainable due to the existence of an alternative remedy under the IBC.
a. Section 60(5) of the IBC provides exclusive jurisdiction to the NCLT for disputes arising out of insolvency processes, making the High Court an inappropriate forum.
b. The petitioner delayed filing the writ petition, undermining its bona fide and contravening the IBC’s principle of timely resolution.
Further, once a resolution plan is approved by the CoC, it becomes binding on all stakeholders, including creditors and the resolution applicant. The petitioner’s actions to withdraw or modify CIRP proceedings are legally impermissible.
Conclusion:
The court dismissed the writ petition on several grounds i.e., the petition was deemed not maintainable as the IBC offers a sufficient alternative remedy through the National Company Law Tribunal (NCLT). The petitioner did not adhere to necessary statutory requirements, specifically failing to include NNPIL as a party in the proceedings. It was found that Respondent No. 1 acted within its legal authority under the IBC, and the petitioner did not demonstrate any infringement of their rights.
Author’s Note:
The Constitution of India enables an aggrieved persons to approach the High Courts and Supreme Court under the aegis of Article 226 and Article 32 respectively for the enforcement of rights. The doctrine of existence of alternate remedy is a legal principle whereby the High Courts and Supreme Court can refuse to entertain a petition in cases where an alternate and equally effective alternate remedy exists. Through analysis of various case laws evolved in time, although section 60(5) of the IBC, appears to grant extensive powers to the NCLT for the matters related to or concerning the corporate insolvency resolution process, the Hon’ble Supreme Court in the cases of Embassy Property Developments (Private) Limited v. State of Karnataka (decided on December 3, 2019) and Gujarat Urja Vikas Nigam Limited v. Mr. Amit Gupta, has emphasized the inherent limitations of the NCLT’s authority. Accordingly, this remains an area of law that has not yet been firmly established, as jurisprudence continues to evolve and is subject to interpretation based on the specific facts and circumstances of each individual case.
Please find attached a copy of the judgement.
This update has been contributed by Somdutta Bhattacharyya (Partner) and Kiran Sharma (Senior Associate).
Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.
Download Pdf
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3
New Delhi – 110020
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.