The has definitively ruled that a (CoC) cannot withdraw its approval of a once the document has been formally submitted to the (NCLT) for confirmation. Delivering a significant judgment in a case involving and a consortium of , the bench clarified that improvements in a ’s financial position during the intervening period do not provide legal grounds for creditors to renege on their commitments. The ruling reinforces the of the (IBC), ensuring that commercial unpredictability does not undermine the structural integrity of the insolvency process.
The dispute emerged after the CoC sought to withdraw an approved originally valued at ₹172.55 crore. At the time the plan was initially accepted, the —a toll collection entity operating on National Highway 45—was financially distressed, exacerbated by the global economic downturn and the impact of the Covid-19 pandemic. However, during the prolonged period required to secure regulatory and judicial clearances, the debtor’s financial health saw a substantial recovery, with its opening bank balance rising from ₹30 crore to approximately ₹165 crore. The CoC argued that implementing the original would now result in a “windfall gain” for the successful resolution applicant, as the fresh capital infusion required would be significantly lower than what was initially estimated. The creditors, supported by the erstwhile promoters, sought permission to abandon the process entirely in favor of a .
Financial Turnaround Does Not Justify Plan Withdrawal
The Supreme Court’s decision, authored by Justice K. Vinod Chandran, dismissed the argument that improved liquidity within the justifies the unilateral withdrawal of an already approved plan. While acknowledging the frustration caused by delays—some of which were attributed to prior judicial interventions—the Court held that the IBC does not grant the CoC the discretion to treat an approved plan as a flexible, revocable agreement based on market fluctuations.
The Court observed that the financial turnabout was a foreseeable contingency in corporate turnarounds. Furthermore, the bench pointedly addressed the shifting motivations of the creditors, noting that the SRA’s opposition to the withdrawal was well-founded in the context of the IBC’s legislative intent. The Court cautioned against viewing the resolution process through the lens of short-term opportunism, emphasizing that the primary objective is the maximization of asset value in a manner that remains consistent with the statutory timelines and the binding nature of the CoC’s own previous decisions.
Binding Nature of Statutory Insolvency Framework
Central to the Court’s reasoning was the interpretation of the legal status of a once it has received the required majority vote from the CoC. Relying on established jurisprudence, including the precedent set in , the Court highlighted that the resolution process transcends a simple contractual relationship. The judgment underscored that once the CoC votes in favor of a proposal, the resulting plan operates within a strict regulatory framework rather than a traditional, negotiable contract.
Regarding the legal status of these agreements, the Court clarified: “The cannot be construed purely as a ‘contract’ governed by the , in the period intervening its acceptance by the CoC and the approval of the . Even at that stage, its binding effects are produced by IBC framework.” By rejecting the creditors' attempt to equate the plan to an ordinary contract subject to common law frustration or , the Supreme Court maintained that the sanctity of the insolvency process depends on the participants adhering to the decisions they have reached through their collective . The Court further noted that even under , which provides a mechanism for the withdrawal of insolvency applications, the process does not authorize creditors to treat an approved as a disposable commodity merely because the debtor has become more profitable.
NCLT Directed to Expedite Final Resolution
Despite ruling against the CoC’s right to withdraw, the Supreme Court did not fully foreclose the possibility of addressing the current financial reality of the debtor. Instead, it adopted a pragmatic approach by directing the NCLT to finalize the matter while ensuring that all stakeholders’ contentions are heard in conjunction with the confirmation application. The Court affirmed that while the CoC cannot unilaterally abandon the plan, the still holds the responsibility to verify that any adheres to the requirements of , which mandates fair and equitable distribution to creditors.
The NCLT has been directed to take up the pending application for the confirmation of the and the application filed by the debtor’s holding company for an OTS simultaneously. The Supreme Court specified that the NCLT’s final adjudication should be based on an updated assessment of the ’s current financial status, including its cash balances, in relation to the terms of the . However, the Court warned that improved profitability, in and of itself, is insufficient to justify the rejection of an otherwise compliant plan.
By disposing of the appeal, the Supreme Court has cleared the path for the NCLT to resolve the litigation expeditiously. The order serves as a stern reminder that the “ ” of the CoC, often cited in insolvency proceedings, cannot be invoked to dismantle a process that has already moved past the approval stage. The case remains pending before the NCLT, with instructions to prioritize the conclusion of these proceedings to mitigate further delays and provide certainty to all parties involved in the insolvency resolution of the .
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