Implementing approved resolution plans amid Covid a challenge for India Inc

Experts point out the basic philosophy of the Code is to refer to the commercial wisdom of the CoC

debt resolution, IBC
Illustration by Binay Saha
Sudipto Dey New Delhi
4 min read Last Updated : Jun 29 2020 | 12:24 AM IST
Implementing approved resolution plans during the pandemic is turning out to be tricky for corporate India. At least half-a-dozen such plans -- approved by committees of creditors (CoCs) and the National Company Law Tribunals -- are currently under re-negotiation on the pricing front or for relaxation in performance parameters, say experts.

While the government has announced measures to ensure that there is no fresh initiation of pandemic-induced insolvency proceedings over the next six to 12 months, it has so far chosen to remain silent on the implementation challenges faced by the existing resolution applicants. The Insolvency and Bankruptcy Code (IBC), too, does not provide any legislative safeguards for resolution applicants faced with pandemic-like situations, say experts.

“Covid-19 has hurt all the sectors and, therefore, some bidders may legitimately feel they have overpaid or not have access to funds to close the bid,” says Suharsh Sinha, partner, AZB& partners.


Experts point out the Code has no provision regarding the implementation of the approved resolution plan, other than providing criminal liability, in case of a wilful contravention of the plan. Further, this could be a ground for the initiation of liquidation of the corporate debtor.

Typically, the CoC procures a performance bank guarantee from the winning bidder of a resolution plan. This could be encashed in the event of non-performance, say experts. Section 74 of the Code provides for criminal liability for non-performance of a plan approved by the NCLT. The penalty amount could be to the tune of Rs 3 crore, along with imprisonment extending up to five years, say lawyers.

Experts say resolution applicants generally safeguard their rights and interest in such unprecedented times through the force majeure (FM) clause or through material adverse change (MAC) clause in their plans. However, the onus is on the applicant to prove the facts that an MAC led to the deterioration in the quality of the assets under consideration.


In case both MAC and FM clauses are missing in the resolution plan, an applicant can turn to the doctrine of frustration, claiming the impossibility of performance. However, this is a difficult option to exercise as the threshold for allowing relief is high, say experts.

Though the NCLT may not have powers to revise a resolution plan approved under Section 31 of the Code, it could still use its inherent powers to refer the matter to the CoC for reconsideration in light of the pandemic crisis, points out Nitin Jain, partner at Agama Law Associates.

Recently, the Ahmedabad Bench of NCLT allowed the winning bidder of the textile manufacturing unit of Digjam to change the payment schedule on account of the pandemic. Another noted insolvency lawyer confirmed that several of his clients -- including resolution applicants -- are in talks with debtors for relaxation in payment timelines or trying to convince them why performance bank guarantees should not be invoked amid the pandemic. The resolution applicant has to approach the NCLT after getting approval from the creditors on any modifications in the plan.

Sinha feels in these circumstances, the CoC and the NCLT must give the bidder a patient hearing to determine if the proposed renegotiation of price or a delay in performance is necessitated by genuine and unforeseen hardship or merely a tactic to escape performance.


Most legal experts say amending the Code to deal with implementation challenges is need of the hour.  However, the amendment has to be done keeping in mind that before approval, the resolution plans are proposed and negotiated, considering prevalent business trends and risks, which might have drastically changed due to the lockdown, says advocate Manisha Sravan Unnam.

“A blanket rule of extending all the timelines will not be of any effect with regards to safeguarding businesses,” she adds.
According to Unnam, the legislature should amend the Code by only introducing a procedure to modify the approved resolution plan and should leave the substance of the modification to be negotiated and settled between the applicant and the creditors.

Experts point out the basic philosophy of the Code is to refer to the commercial wisdom of the CoC. “The Code should not get too prescriptive, or else it would curtail the ability of lenders and bidders to curate bespoke solutions taking into account the extent of damage caused by Covid-19,” says Sinha.


The Code should rely on the wisdom of the CoC to determine whether the price needs to be renegotiated or if the performance bank guarantee must be invoked, experts add.

Topics :Coronavirusdebt resolutionIBC resolutionIndia Inc Q4

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