The Supreme Court has held that a Committee of Creditors (CoC) cannot withdraw its approval to a resolution plan merely because the corporate debtor’s financial position improves while the plan awaits approval from the National Company Law Tribunal (NCLT).
The Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran ruled that a resolution plan approved by the CoC binds both the creditors and the successful resolution applicant. The company’s improved profitability alone cannot justify refusing approval if the plan satisfies the statutory requirements under the Insolvency and Bankruptcy Code, 2016 (IBC).
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The judgment arose from an appeal by Bank of India and other creditors against an order of the National Company Law Appellate Tribunal (NCLAT), which had rejected their attempt to withdraw approval to a resolution plan.
While declining to interfere with the appellate tribunal’s order, the Supreme Court directed the NCLT to expeditiously consider the pending resolution-plan approval application together with the holding company’s application seeking an end to the insolvency proceedings.
The central question was whether creditors could withdraw a resolution plan already approved by the requisite majority when subsequent delays, not attributable to the successful resolution applicant, coincided with a substantial improvement in the corporate debtor’s finances.
The creditors sought a fresh bidding process, arguing that implementing the existing plan would give the successful applicant a windfall. The successful resolution applicant maintained that creditors could not abandon their commitment simply because a potentially better recovery had become available.
According to the creditors’ submissions, the resolution plan proposed a resolution amount of ₹172.55 crore, against an opening balance of approximately ₹30 crore with the corporate debtor.
By the time earlier proceedings before the Supreme Court concluded, the balance had allegedly increased to approximately ₹165 crore.
The creditors argued that this improvement would substantially reduce the fresh funds the successful resolution applicant needed to introduce. They contended that a fresh process could secure better recoveries and advance the IBC’s objective of maximising the value of the corporate debtor’s assets.
The corporate debtor operated a toll-collection business on National Highway 45. Its financial difficulties at the time of the resolution process were attributed to the impact of the COVID-19 pandemic.
The resolution professional, acting on the CoC’s unanimous decision, sought withdrawal of the approved plan. The NCLT permitted the withdrawal, but the NCLAT reversed that decision and revived the application seeking approval of the plan.
The corporate debtor’s holding company, which was also its sole promoter, supported withdrawal of the plan but sought a different outcome from the creditors.
While the CoC wanted a fresh Form G inviting expressions of interest, the holding company sought closure of the corporate insolvency resolution process through a one-time settlement.
It submitted that the company’s improved financial position supported an exit from insolvency and that there was a feasible alternative involving discharge of the admitted creditors’ balance in full, in addition to the settlement.
Its application remained pending before the NCLT.
The successful resolution applicant opposed both the fresh bidding proposal and the proposed closure of the insolvency process.
It argued that the binding effect of a CoC-approved plan operates equally against creditors and the successful applicant. Just as an applicant cannot walk away because the corporate debtor’s financial condition deteriorates, creditors cannot withdraw their approval because its finances improve.
The applicant also maintained that the possibility of financial recovery had already been contemplated in the plan. Had the corporate debtor been handed over within the expected timelines, the income subsequently generated from its business would have accrued to the applicant.
The Supreme Court relied extensively on its decision in Ebix Singapore (P) Ltd. v. Committee of Creditors of Educomp Solutions Ltd., which addressed attempts by successful resolution applicants to withdraw or modify CoC-approved plans pending adjudicatory approval.
The Bench held that the principle applied equally to the CoC.
Although Ebix Singapore arose in the context of withdrawal sought by resolution applicants, the Court explained that the insolvency framework does not provide a corresponding route for creditors to withdraw an approved plan at their own instance.
Once the CoC approves a plan through the statutory voting mechanism, neither side can freely resile from its terms.
The Court examined Section 12A, which provides for withdrawal of an insolvency application with the approval of creditors holding 90% of the CoC’s voting share, alongside Regulation 30A and the provisions governing approval of resolution plans.
It held that Section 12A must be understood within the broader statutory scheme, particularly Sections 30 and 31.
The judgment states, “The withdrawal of an application can only be till the CoC approves the plan…”
The Court further held that after the approved plan is placed before the adjudicating authority, neither the insolvency application nor the approved resolution plan can be withdrawn.
The ruling therefore rejects the proposition that even unanimous creditor support, by itself, permits withdrawal at that stage.
The creditors also relied on Kalyani Transco v. Bhushan Power & Steel Ltd. to argue that the CoC continues to exist and retain an interest in the process until implementation of the resolution plan.
The Supreme Court accepted that creditors have a continuing interest because their payments depend on implementation. However, that continuing role does not dilute the binding nature of the approved plan.
The Court explained that the CoC’s continuing existence cannot be treated as authority to take decisions affecting the resolution plan submitted to the adjudicating authority.
The creditors argued that the judicial deference ordinarily accorded to the CoC’s commercial wisdom should also extend to its unanimous decision to initiate a fresh bidding process.
The Court nevertheless declined to interfere with the NCLAT’s finding that the CoC lacked jurisdiction to withdraw its approval.
It also noted the successful applicant’s counterargument that the financial turnaround was contemplated under the plan and that the creditors’ changed position could reflect an attempt to secure a better bargain after committing to an earlier one.
The Bench recognised the expenses incurred by the successful applicant in maintaining its performance bank guarantee over the prolonged period. It noted that the IBC does not provide for reimbursement of those expenses if approval is ultimately not granted.
The Supreme Court directed the NCLT to assess whether the resolution plan meets the requirements of Section 30(2), as mandated by Section 31(1).
That assessment must include verification of the corporate debtor’s present financial position and cash balance against the terms of the plan.
However, the Court expressly clarified, “The improved profitability alone cannot be a reason to refuse approval…”
The direction preserves the NCLT’s statutory scrutiny of the plan while preventing financial improvement from becoming an independent ground for rejecting an otherwise compliant proposal.
The Supreme Court left the NCLAT’s order undisturbed and requested the NCLT to take up the plan-approval application and the holding company’s application together, deciding them as expeditiously as possible in view of the delay already occasioned.
It clarified that, apart from its ruling on the binding nature of the resolution plan between the CoC and the successful resolution applicant, its observations were prima facie and need not govern the NCLT’s final adjudication.
The Court did not itself approve the resolution plan or sanction the proposed settlement. Those pending applications remain for the NCLT to decide within the legal framework explained in the judgment.
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