Supreme Court Bars CoC From Withdrawing Approved Plan Over Better Finances

New Delhi: The Supreme Court has held that the committee of creditors cannot withdraw a resolution plan after it has been approved merely because the financial position of the corporate debtor has improved. The Court said such a withdrawal is not permitted under the Insolvency and Bankruptcy Code, and that an approved plan acquires finality once the creditor approval process is complete.

The ruling addresses a recurring question in corporate insolvency cases: whether lenders can step back from a plan they have already voted to accept if later developments make the deal look less attractive for them. The Court answered in the negative, holding that subsequent financial upside for the company is not a ground to reopen or abandon the approved arrangement.

The decision reinforces the sanctity of approved plans. Under the Code, creditor approval is treated as a decisive commercial decision. Once that decision is taken in accordance with the statutory procedure, it binds the process and cannot be revisited on the basis of a later change in the debtor's balance sheet or business prospects.

For lenders, resolution applicants and debtors, the message is direct. Parties in insolvency proceedings must treat the vote on a plan as final. A bidder who has secured the required majority cannot be asked to improve its offer because the company's position has strengthened, and lenders cannot seek to cancel the plan to pursue a better recovery elsewhere.

How approval works under Code

To understand the ruling, it helps to recall what is resolution plan in ibc practice. It is the proposal for revival of a company undergoing the Corporate Insolvency Resolution Process. It may provide for payment to creditors, restructuring of debt, change in management, sale of assets, merger, or any other measure aimed at keeping the company as a going concern and maximising value for all classes of creditors.

The Insolvency and Bankruptcy Code, 2016 lays down a sequenced process for consideration of such proposals. A resolution applicant submits its proposal to the resolution professional, who examines it for compliance with the law and places it before the Committee of Creditors for deliberation. The law requires the plan to provide for payment of insolvency resolution costs, payment to operational creditors and dissenting financial creditors in the manner prescribed, and compliance with other eligibility and feasibility conditions.

A draft resolution plan under ibc is therefore not an informal offer. It is a detailed commercial and legal document prepared after due diligence on the debtor's assets, liabilities, claims admitted, ongoing contracts, litigation and regulatory requirements. It sets out the source of funds, the timeline for payment, the treatment of each class of creditor, the manner of management and supervision during implementation, and the reliefs and concessions sought for effective revival.

There is no single rigid statutory form for such a document. The format of resolution plan under ibc is largely driven by the requirements of Sections 30 and 31 of the Code read with the regulations framed by the Insolvency and Bankruptcy Board of India. In practice, professionals and law firms often refer to a sample resolution plan under ibc to ensure that mandatory clauses on feasibility, viability, payment priority and implementation are covered, but each plan must be tailored to the specific company, its sector and its debt structure.

The stage of approval of resolution plan under ibc is governed by Section 30. The Committee of Creditors examines the plan on the basis of feasibility, viability and the manner of distribution proposed, taking into account the order of priority among creditors. If the plan meets the statutory conditions, the Committee may approve it by a vote of not less than sixty-six per cent of the voting share of financial creditors. That vote reflects the commercial wisdom of the creditors.

After creditor approval, the plan is placed before the Adjudicating Authority for sanction under Section 31. The National Company Law Tribunal does not sit in appeal over commercial wisdom. Its role is to satisfy itself that the plan complies with the law, provides for the payments mandated by the Code, and is feasible and viable for implementation. Once approved by the Tribunal, the plan becomes binding on the corporate debtor, its employees, members, creditors, governments and other authorities involved.

Why the committee of creditors cannot reopen approval

The central issue before the Supreme Court was whether that sequence could be reversed at the instance of the creditors themselves. The argument in favour of withdrawal was based on changed circumstances. If the corporate debtor's finances had improved after approval, the creditors contended, they should be allowed to reconsider and seek better terms rather than remain bound by an earlier assessment made when prospects appeared weaker.

The Court rejected that contention. It held that an ibc resolution plan, once approved by the requisite majority, cannot be withdrawn on the sole ground of improved financial position. The financial fortunes of a company can move in either direction during and after insolvency proceedings. Allowing withdrawal whenever the movement is upward would make every approved plan provisional and subject to second guessing.

The Court's reasoning rests on finality. The Code is designed as a time-bound process. It provides for invitation of plans, negotiation, voting and adjudication within defined stages. If creditors were permitted to withdraw approval because later accounts showed higher cash flows, better order books or appreciation in asset value, no bidder would have certainty, no implementation could start on time, and the entire timetable would collapse.

Such an approach would also create asymmetry. Creditors do not offer to reduce the bidder's liability if the debtor's position deteriorates after approval. The Court has therefore treated both sides equally. The approval binds the creditors in the same way that an approved plan, after sanction, binds the successful applicant to implement it. Neither side can walk away because subsequent events make the bargain more or less favourable.

This understanding is consistent with the treatment of a resolution plan under ibc 2016 in earlier administration of the law. Courts have repeatedly said that the commercial wisdom of the Committee, once exercised, is not to be substituted by the adjudicating authority or the appellate tribunal. The present ruling extends that logic to the Committee itself. Having exercised its wisdom, the Committee cannot invoke a later improvement to disown it.

The ruling does not mean that fraud, material non-compliance with the Code, or failure to meet the conditions of Section 30 can be ignored. Those remain separate grounds governed by the statute and subject to scrutiny by the Tribunal. What the Court has barred is withdrawal based only on a claim that the debtor can now pay more or that creditors could have obtained more if they had waited.