The Supreme Court has ruled that a Committee of Creditors (CoC) cannot withdraw its approval of an insolvency resolution plan simply because the corporate debtor’s financial position has improved since the plan was agreed upon. Once approved by the CoC and placed before the adjudicating authority, the plan cannot be unilaterally abandoned by either the creditors or the successful resolution applicant.
A Bench of Justices JB Pardiwala and K Vinod Chandran delivered the ruling in Bank of India & Ors. v. S.M. Kamal Pasha & Ors., emphasising that the Insolvency and Bankruptcy Code, 2016 (IBC) does not allow parties to walk away from an approved plan merely because changing circumstances make the original arrangement less financially attractive.
The Court clarified that withdrawal is permissible before the CoC approves a resolution plan. Once the approved plan is submitted to the National Company Law Tribunal (NCLT), however, neither the application nor the plan can ordinarily be withdrawn at the parties’ discretion.
Financial turnaround triggered a dispute
The case arose from insolvency proceedings initiated by the Bank of India against a company involved in toll collection on National Highway 45.
The company’s financial position had weakened during the Covid-19 pandemic, prompting a resolution plan worth ₹172.55 crore. At that stage, the corporate debtor had an opening cash balance of around ₹30 crore.
Implementation of the plan was subsequently held up by prolonged litigation. During the delay, the company’s finances improved substantially, with its opening cash balance rising to approximately ₹165 crore.
The improved position changed the creditors’ assessment of the original arrangement. The CoC unanimously decided to withdraw its approval and invite fresh expressions of interest, arguing that implementing the existing plan would give the successful resolution applicant an unexpected financial advantage.
The creditors maintained that a fresh bidding process could unlock greater value from the company’s assets and improve recoveries.
NCLAT rejected the withdrawal
The NCLT initially permitted the CoC to withdraw the resolution plan. The National Company Law Appellate Tribunal (NCLAT), however, overturned that decision, holding that the creditors could not retract their approval once the plan had crossed the relevant statutory stage.
The creditors challenged the appellate tribunal’s ruling before the Supreme Court.
Senior Advocate Gopal Sankaranarayanan, appearing for the creditors, argued that reopening the process and inviting new bids could maximise the value of the corporate debtor and benefit those owed money.
Senior Advocate Nidhesh Gupta, representing the successful resolution applicant, opposed the move. He contended that creditors could not abandon a commitment already made simply because the company’s financial circumstances had changed.
IBC does not permit opportunistic reversals
The Supreme Court upheld the NCLAT’s view that an improvement in the corporate debtor’s finances was not, by itself, a valid ground for the CoC to withdraw an approved resolution plan.
The Bench relied on its earlier ruling in Ebix Singapore v. Committee of Creditors of Educomp Solutions, reiterating that the statutory insolvency framework does not provide a general right to unilaterally withdraw or modify an approved resolution plan.
The Court also took note of the successful resolution applicant’s contention that the creditors’ decision appeared to reflect a desire for a more favourable financial outcome rather than a change in their legitimate commercial assessment.
The judgment observed that the allegation that the CoC had reversed course because of “shortsighted opportunism” and “institutionalized rapacity” could not simply be disregarded.
The central principle, the Bench stressed, is that the binding effect of an approved resolution plan applies equally to creditors and the successful resolution applicant. Neither side can treat the arrangement as provisional merely because subsequent developments alter its financial appeal.
NCLT to examine the company’s present position
While settling the question of withdrawal, the Supreme Court did not itself decide whether the resolution plan should ultimately receive approval from the NCLT.
The matter was left to the tribunal, which must also consider a pending application seeking to conclude the corporate insolvency resolution process through a one-time settlement.
The NCLT was directed to examine the company’s current financial position, including its available cash balance, while considering the resolution plan.
At the same time, the Court made clear that improved profitability alone would not justify rejecting a plan that otherwise meets the statutory requirements.
The Bench clarified that its observations on the merits of the resolution plan were prima facie and would not bind the NCLT in its final determination. Its ruling on the binding nature of a CoC-approved plan, however, remains the key legal takeaway.
The decision reinforces a fundamental principle of the insolvency process: a better financial outlook does not give creditors a free hand to reopen a resolution deal after committing to it.