Nclat Rejects Appeal To Re-Assess And Withdraw Approved Resolution Plan

Rhia Marshall & Vatsala Khandelwal

In a recent decision of the National Company Law Appellate Tribunal issues relating to whether the act of seeking extensions to re-assess or negotiate the terms of an approved resolution plan by a successful resolution applicant, invites contempt, and whether amendments could be made to an approved resolution plan at the request of the successful resolution applicant, were adjudicated upon.

Factual Background

Amtek Auto Limited (‘Amtek’) was subject to a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (‘IBC’). Amtek had originally been directed to undergo liquidation by the National Company Law Appellate Tribunal (‘NCLAT’) but the Supreme Court stayed the NCLAT’s order and permitted the invitation of fresh resolution plans. Pursuant to an invitation of expression of interest, Deccan Value Investors LP (‘DVI’) submitted a resolution plan which was approved by the National Company Law Tribunal, Chandigarh bench, (‘NCLT’) by its order dated 9 July 2020. While approving the plan, the NCLT rendered the precondition of DVI for a long-term lease ‘infructuous’.

In September 2020, DVI invoked the force majeure clause, citing the ongoing pandemic that had worsened Amtek’s performance, seeking to terminate the resolution plan. DVI filed an application before the NCLAT inter alia seeking an extension to assess the impact of Covid-19 on the plan and Amtek, with a prayer to withdraw its submission of the resolution plan. The committee of creditors filed a contempt petition before the Supreme Court pursuant to DVI’s attempt at withdrawing the approved resolution plan. The Supreme Court noted that several extensions had been granted to the resolution professional to invite and evaluate resolution plans. Though DVI had not specifically asked for any extensions or directions from the Court in this regard, such extensions had extended to benefit DVI in its assessment of Amtek and the subsequent submission of its resolution plan. The Supreme Court dismissed the application and directed the NCLAT to decide on the objections, while categorically stating that any further attempts on part of DVI to “wriggle out of its obligations” would invite action for contempt.

Subsequently, DVI preferred another application before the NCLAT challenging the original order of the NCLT approving the resolution plan and concluding that the precondition in respect of the long-term lease is infructuous. DVI argued that the NCLT’s order was in excess of its jurisdiction and urged that the NCLT cannot waive a pre-condition as it does not have the power to re-write a resolution plan. Accordingly, the NCLAT has delivered its decision in the matter of Deccan Value Investors L.P. v. Dinkar T. Venkatasubramanian.

The Decision

The NCLAT held that the IBC does not permit negotiations or discussions after a resolution plan has been approved by the committee of creditors and that DVI “would not be permitted to backtrack and seek exit from its Resolution Plan on any pretext whatsoever.” It was further held that the ground for challenge of the original NCLT order, is wrongly construed as a conditionality to the approval of the resolution plan, when in fact it was a condition precedent to the implementation of the resolution plan. The NCLAT stated that once approved, the resolution plan is binding on all stakeholders, including the successful resolution applicant, who is then bound to take necessary steps to implement such resolution plan, on the terms set out therein.

However, in dismissing the appeal of DVI, the NCLAT underlined the NCLT’s limited power to intervene when adjudicating a challenge to a resolution plan approved by the committee of creditors and reiterated that the NCLT is only to ascertain if the fundamental requisites of a plan are met. The NCLAT also refused to initiate contempt proceedings, championing that contempt jurisdiction is to be exercised sparingly.

Our Thoughts

In the context of the ongoing pandemic, resolution applicants have found it increasingly infeasible to adhere to the resolution plans submitted by them owing to the adverse effect on their initial valuation of businesses. The interpretation of the NCLAT in separating the conditions required for the approval and conditions required for implementation of a resolution plan, may pave way for successful resolution applicants to plead inability to perform in accordance with an approved resolution plan pursuant to a force majeure event.

In the past, there have been cases wherein successful resolution applicants have sought modification of approved resolution plans citing inter alia unfeasibility owing to efflux of time. In one such instance, in the matter of Sunil Kumar Agarwal, RP of Digjam Limited v. Suspended Board of Directors, Digjam Limited and Others, modifications to the extent that timelines were concerned, were permitted, as no revision to the terms of the plan was sought. In the case of Deccan Value Investors L.P v. Deutsche Bank AG in the matter of State Bank of Indiav. Metalyst Forgings Ltd, NCLT Mumbai permitted the withdrawal of resolution plan after approval of the committee of creditors because the information supplied to the resolution applicant was found to be incorrect and misleading. NCLT Mumbai stated that “the IBC neither confers the power or jurisdiction on the Adjudicating Authority to compel specific performance of a plan by an unwilling resolution applicant” and that “the letter and spirit of the Insolvency and Bankruptcy Code mandate the acceptance of only a viable and lawful resolution plan being implemented at the hands of a willing resolution applicant.”

In the matter of Kundan Care Products Limited v. Amit Gupta, The absolute withdrawal of an approved resolution plan has been rejected by the NCLAT, on the ground that the approved resolution plan is binding on all stakeholders once the NCLT passes an order under section 31 of the IBC, and therefore, the successful applicant is not at liberty to withdraw the plan to the detriment of all other stakeholders. This order of the NCLAT has been stayed by the Supreme Court. It will be interesting to see how the Supreme Court deals with the issue of whether an approved resolution plan can be withdrawn by the resolution applicant.

Undoubtedly, a withdrawal of an approved resolution plan would severely impact the stakeholders due to the disruption of the entire corporate insolvency resolution process of a corporate debtor and the resultant wastage of financial resources, further depreciation in the value of the corporate debtor’s assets, and the opportunity cost of denial of other resolution applicants. However, the question which arises here is whether an unwilling resolution applicant, after being forced to go ahead with a bargain that it no longer considers viable, be trusted with the revival of a corporate debtor.

For more information please contact:

Rhia Marshall, Partner, Disputes, [email protected]

Murtaza Somjee, Partner, Disputes and Insolvency, [email protected]

Vatsala Khandelwal, Associate, Disputes and Insolvency, [email protected]

Venue — Seat Conundrum — Supreme Court Clarifies Effect Of Change In Venue By Mutual Consent

Rhia Marshall & Aviva Jogani

In a recent decision, a division bench of the Supreme Court in Inox Renewables Ltd. v Jayesh Electricals Ltd, considered the effect of a change in venue or place of arbitration by mutual consent of the parties to an arbitration agreement. The Supreme Court held that parties to an arbitration agreement are free to change their seat of arbitration by mutual agreement and observed that shifting of the “venue” was really a shifting of the seat of arbitration; resultantly transferring exclusive jurisdiction to the courts of the changed place/venue. The Supreme Court also held that changing the seat of arbitration by mutual agreement, even if not made in writing, will be valid if recorded by the arbitrator in the arbitral award to which no challenge is made by either party.

Factual Background

A purchase order [‘PO’] was placed by M/s. Gujarat Fluorochemicals Ltd. [‘GFL’] upon Jayesh Electricals Ltd. [‘Respondent’]. The PO contained an arbitration clause which stipulated that the venue of arbitration would be Jaipur and courts in the State of Rajasthan would have exclusive jurisdiction in respect to a challenge to the award passed by the arbitrator.

Subsequently, a slump sale of GFL’s business took place in favour of Inox Renewables Ltd. [‘Appellant’] vide a business transfer agreement [‘BTA’]. The Respondent was not a party to the BTA. The BTA contained an arbitration clause which, inter alia, designated Vadodara as the seat of arbitration, vesting the courts at Vadodara with exclusive jurisdiction over disputes arising out of the said agreement.

Disputes arose and the Respondent filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 [‘Act’] before the High Court of Gujarat for appointment of an arbitrator under the PO. The High Court of Gujarat appointed a sole arbitrator, who passed an award in favour of the Respondent [‘Award’]. With respect to the venue/ place of the arbitration, the Award held as under:

“As per arbitration agreement, the venue of the arbitration was to be Jaipur. However, the parties have mutually agreed, irrespective of a specific clause as to the [venue, that the place] of arbitration would be at Ahmedabad and not at Jaipur. The proceedings, thus, have been conducted at Ahmedabad…”

Aggrieved by the Award, the Appellant filed a petition under Section 34 of the Act before the Commercial Court at Ahmedabad, challenging the Award. The Commercial Court dismissed the petition vide order dated 25 April 2019 on the ground that courts at Vadodara were vested with exclusive jurisdiction under the BTA.

The Appellant challenged the said order before the Gujarat High Court by way of special civil application. The High Court held that as per the PO, exclusive jurisdiction was vested in the courts of Rajasthan and therefore the appropriate court would have been the court at Jaipur. Despite this, the High Court found no error in the Commercial Courts Order dated 25 April 2019 and dismissed the special civil application under an Order dated 9 October 2019. The Appellant filed a Special Leave Petition against the Order dated 9 October 2019 before the Supreme Court.

The Decision

Relying on the arbitrator’s findings in respect of venue/ place of the arbitration, the Supreme Court held that the parties had specifically shifted the venue/ place of the arbitration from Jaipur to Ahmedabad by mutual agreement.

The Supreme Court rejected the Respondents’ submission that the place of arbitration could have been changed only by a written agreement and that the arbitrator’s findings referred to a convenient venue and not the seat of arbitration. The Supreme Court held that parties may change the seat of arbitration by mutual agreement, as has been done in the present case and which is recorded by the arbitrator in the Award. Further, the Supreme Court held that the “venue” being shifted from Jaipur to Ahmedabad was in reality the shifting of the venue/ place of arbitration with reference to Section 20(1), and not Section 20(3) of the Act, since it is clear that Jaipur will not continue to be the seat of arbitration and Ahmedabad was now the seat designated by the parties, and not a venue to hold meetings.

Relying on its previous decision in BSG SGS SOMA JV v. NHPC the Supreme Court reiterated that the moment the parties designate Ahmedabad as the seat of arbitration, it is akin to an exclusive jurisdiction clause, thereby vesting the courts at Ahmedabad with exclusive jurisdiction to deal with the arbitration. The Supreme Court followed the reasoning in BSG SGS SOMA JV v. NHPC (supra)Limited wherein designation of a chosen “venue” is really the designation of a “seat” of arbitration when there is no other significant contrary indicia.

The Supreme court further observed that the PO had to be read as whole and that the two clauses — clause designating the jurisdiction of courts and clause designating the venue of arbitration — must be read together. In effect, the Supreme Court found that the Courts in Rajasthan had been vested with jurisdiction only because the parties had chosen Jaipur as the seat of arbitration. The Supreme Court went on to clarify that once the seat of arbitration was replaced by mutual agreement to be at Ahmedabad, the courts at Rajasthan would cease to have jurisdiction as exclusive jurisdiction is now vested in the court at Ahmedabad.


This judgment delves into the long-standing venue — seat conundrum that parties, arbitrators and courts alike have been grappling with ever since the emergence of arbitration as an alternate dispute resolution mechanism. The Supreme Court has relied on earlier judgments to reiterate that (i) choosing a seat is akin to an exclusive jurisdiction clause; and (ii) if a venue/ place is designated in an arbitration agreement, in the absence of a designated seat, such venue/ place is considered the seat if there is no contrary indicia.

Echoing the principle of party autonomy, in the present case, the Supreme Court has held that parties to an arbitration agreement can change their seat of arbitration by mutual agreement. Such change of seat would be considered valid, even if not recorded in writing, but recorded in the arbitral award and not challenged by either party.

While ambiguous drafting of the arbitration clause is one of the contributors to the seat — venue conundrum, however, the lack of express provisions in the Act cannot be ignored. Whether explicit provisions relating to the choice of seat/ venue/ place and their numerous intricacies will be introduced in the Act remains to be seen. In the meantime, parties should unequivocally specify their choice of seat and the venue in the arbitration agreement to avoid potential complications and prolonged litigation.

For more information please contact:

Rhia Marshall, Partner, Disputes, [email protected]

Murtaza Somjee, Partner, Disputes and Insolvency, [email protected]

Aviva Jogani, Associate, [email protected]

Personal Guarantors To Remain On The Hook Even After A Successful Resolution Plan

In deciding a number of petitions challenging the constitutionality of the notification dated 15 November 2019, which brought into force provisions of the Insolvency and Bankruptcy Code, 2016 relating to the Insolvency Resolution Process for ‘Personal Guarantors to Corporate Debtors’ (“November 2019 Notification”), the Supreme Court in its order dated 21 May 2021 in the case titled Lalit Kumar Jain v. Union of India, has settled the legal uncertainty surrounding the liability of sureties upon approval of a Resolution Plan under the Insolvency & Bankruptcy Code.


In a flurry of petitions filed in the Supreme Court and in various High Courts across India, individuals, particularly promoters, and managing directors of defaulting companies, challenged the constitutional validity of the November 2019 Notification. These individuals had one thing in common, they had all furnished personal guarantees for amounts borrowed by their associated companies, and such companies had since defaulted in their payment obligations. The November 2019 Notification and the related rules and regulations, allowed counter parties, mostly banks and financial institutions to commence insolvency proceedings against such individual guarantors.

Banks and financial institutions welcomed this development as it provided them with an effective mechanism to recover their advances, and who so far could only seek contractual remedies against sureties or rely on British Era insolvency laws, which were as some would argue out-dated, ineffective and time- consuming. The personal guarantors on the other hand, were outraged to say the least and rallied in challenging the November 2019 Notification.

The Challenge and Arguments

The petitioners’ challenge was built on numerous arguments, including those of competency and authority of the Central Government to issue the November 2019 Notification, non application of mind in issuing it, and the unreasonableness of the classification it creates.

It was also argued, and very forcefully, that a duly approved resolution plan (under Section 31 of the Insolvency & Bankruptcy Code, 2016) in respect of the corporate debtor — the primary borrower— would propose to extinguish and discharge the liability of the principal borrower to the financial creditor. Therefore, the petitioners’ liability as guarantors under the personal guarantee — which is co-extensive with the principal debtor — would also stand completely discharged.

The Union of India, rebutted this line of argument and argued that neither the guarantor’s obligations are absolved nor discharged in terms of Sections 133 to 136 of the Indian Contract Act, 1872, on account of release/discharge/composition or variance of contract which a principal borrower may secure by way of operation of law for instance as under the Code. Therefore, by way of approval of a resolution plan, any release/discharge secured by the principal borrower or entering into a composition with the principal borrower (reference to Section 135 of the Contract Act) cannot discharge the guarantor in any manner what so ever. It was further submitted that while the creditors were entitled to a ‘double dip’ there were enough safeguards in law, which do not permit the creditor to recover more than the total debt owed to it.

The Judgement

The Supreme Court while pronouncing its judgement, discussed its previous judgements on the issue of personal guarantor’s liability under the Code, particularly in the case of SBI v. V. Ramakrishnan, and Committee of Creditors of Essar Steel (I) Ltd. v. Satish Kumar Gupta. In the former, the court had held that the resolution plan would be binding on the guarantors while in the latter, the court had refused to interfere with pending proceedings against the personal guarantors.

The ratio of the court was however based on the judgement in Maharashtra
State Electricity Board Bombay v. Official Liquidator, High Court, Ernakulum
and Punjab National Bank v. State of U.P.. The first case arose pursuant to the liquidation of the principal borrower and the second pursuant to the nationalization of the principal borrower, both involuntary acts which either extinguished or modified the liabilities of the principal borrower.

It finally held that:

…approval of a resolution plan does not ipso facto discharge a personal guarantor (of a corporate debtor) of her or his liabilities under the contract of guarantee. As held by this court, the release or discharge of a principal borrower from the debt owed by it to its creditor, by an involuntary process, i.e. by operation of law, or due to liquidation or insolvency proceeding, does not absolve the surety/guarantor of his or her liability, which arises out of an independent contract.

Whats next?

We do expect fresh petitions seeking review of the Supreme Court order, as the proposition of law would have ramifications beyond the Code. Individual guarantors continue to defend themselves in multiple proceedings before civil courts, debt recovery tribunals and criminal courts, for dues of companies who have since extinguished/restructured their liabilities and had a fresh start under a new control and management, pursuant to an approved resolution plan. This ruling will have a direct impact on such proceedings.

At the same time the creditors have got a shot in the arm, and should now be able to recover a few more cents to a dollar than what they recovered in the the resolution plan. Although asset tracing, and questioning undervalue or fraudulent transactions, will pose their own challenges.

Going forward, individual promoters and directors ought to exercise caution in furnishing such guarantees, and will be well advised to negotiate the terms of the surety keeping the Supreme Court’s judgement in mind.

For more information please contact:

Murtaza Somjee, Partner, Disputes and Insolvency, [email protected]

Rhia Marshall, Partner, Disputes, [email protected]

Resolution Plan Sacrosanct — Claims Stand Extinguished If They Do Not Form Part Of The Approved Resolution Plan

Rhia Marshall & Vatsala Khandelwal

A recent judgement of the Supreme Court of India affords clarity on the treatment of unsatisfied claims after the approval of the resolution plan. The decision once and for all puts to rest the issue of continuing proceedings before various judicial forums, proving to be a drawback for prospective resolution applicants. This ruling of the Supreme Court decidedly establishes that the overriding purpose of IBC is to enable the revival of the business of the corporate debtor with a clean slate.

Under the Insolvency and Bankruptcy Code, 2016 [‘IBC’], once a defaulting entity, the corporate debtor, is admitted into the corporate insolvency resolution process [‘CIRP’], the resolution professional invites and collates crystallised claims of various creditors of the corporate debtor. Thereafter, prospective resolution applicants submit their resolution plan, setting out, inter alia, the treatment of the claims admitted by the resolution professional. A successful resolution plan is approved by the Adjudicating Authority i.e. the National Company Law Tribunal after satisfying itself that the resolution plan approved by the Committee of Creditors meets the requirements under the IBC. Under Section 31, the resolution plan is then binding on the Corporate Debtor, its employees, members, creditors, guarantors and other stake holders involved in the resolution plan.

The legislative intent behind section 31 was to extinguish any remaining debts/ claims which do not form part of the resolution plan. Despite this, the Central / State Government authorities, local authorities and tax authorities continued proceedings in respect of debts owed to them. If such proceedings are permitted, a resolution applicant could be faced with claims after the resolution plan has been accepted, and which were not factored into the resolution plan, which in turn, could throw the entire CIRP into jeopardy.

In order to cure this mischief, an amendment was made in Section 31 of the IBC, with effect from 16 August 2019 [‘the Amendment’] to clarify that the resolution plan will be binding on the Corporate Debtor, its employees, members, creditors, “including Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed”guarantors and other stake holders involved in the resolution plan.

The treatment of the unsatisfied claims of creditors, being Central/ State Government, local authorities has been addressed by a three judge bench of the Supreme Court in the case of Ghanshyam Mishra v. Edelweiss Asset Reconstruction Company Limited.

Factual Background

The Supreme Court clubbed together a batch of matters with the common issue of whether upon approval of a resolution plan by the Adjudicating Authority, a creditor may be entitled to initiate proceedings for recovery of any dues, which do not form a part of the successful resolution plan.

In all three matters presented before the Supreme Court, the Adjudicating Authority had approved the resolution plan in accordance with the IBC. Upon appeal before the National Company Appellate Law Tribunal [‘NCLAT’], each of the three resolution plans was upheld in the concerned matters. However, the NCLAT in each of the matters carved out for certain classes of creditors, the liberty to initiate proceedings to recover unsatisfied claims against the corporate debtor despite the implementation of the successful resolution plan. Aggrieved by these decisions and the resultant surge in legal proceedings against the new entity (previously the corporate debtor), the successful resolution applicants in each of the three matters moved the Hon’ble Supreme Court.

Another question which arose before the Supreme Court was in relation to treatment of dues, not included in the resolution plan, if they pertain to a period wherein petitions under section 7 have been admitted prior to 16 August 2019, i.e. prior to the Amendment coming into force.

The Decision

The Supreme Court adopted the ‘clean slate theory’, whereby once a resolution plan is duly approved by the Adjudicating Authority under Section 31 of the IBC, the claims as provided in the resolution plan stand frozen and remain binding on each of the creditors. Accordingly effective from the date of the approval of the resolution plan by the Adjudicating Authority, all such claims which relate to the period prior to the date of approval of the resolution plan, and which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to the unaccepted or unsatisfied claims.

The Court stated that “the legislative intent behind this is, to freeze all the claims so that the resolution applicant starts on a clean slate and is not flung with any surprise claims”, to enable a new management to begin with afresh to revive the business of the corporate debtor.

The Supreme Court also clarified that the words “other stakeholders” in Section 31(1) would squarely cover the Central Government, State Government or local authorities. Accordingly, the Supreme Court held that the Amendment is clarificatory and declaratory in nature and therefore has retrospective operation. It was further clarified that even if the Amendment was not effected, the Central / State Government and local authorities would be bound by the resolution plan once approved by the Adjudicating Authority.


Permitting recovery proceedings to be initiated by certain classes of creditors of a corporate debtor after the conclusion of the CIRP, will lead to endless legal proceedings, and essentially defeat the purpose of resolution envisaged within IBC. Moreover, such liberties would conflict with the assumptions and the calculations that the resolution plan is founded upon, rendering the plan ineffectual or unviable, thereby having an effect contrary to the resuscitation of the corporate debtor, as intended by IBC.

The Supreme Court placed reliance on its earlier decisions where the Hon’ble Court had explored the object of IBC. One such decision being in the matter of Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta & Ors, where the Hon’ble Supreme Court stated that “all claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor. This the successful resolution applicant does on a fresh slate.”

A reading of the Supreme Court’s earlier decision in the matter of Swiss Ribbonsv. Union of India & Ors., helps establish the legislative intent behind IBC, being to economically rehabilitate the corporate debtor and for that purpose, the timelines protect the corporate debtor’s assets from further dilution. For this purpose, IBC allows for the settlement of debts at a reduced value.

For more information please contact:

Rhia Marshall, Partner, Disputes, [email protected]

Murtaza Somjee, Partner, Disputes and Insolvency, [email protected]

Vatsala Khandelwal, Associate, Disputes and Insolvency, [email protected]