Supreme Court: CoC Cannot Withdraw Resolution Plan Due to Improved Finances

• The Supreme Court ruled that a Committee of Creditors cannot withdraw an approved insolvency resolution plan due to the corporate debtor's improved financial position.
• An insolvency resolution plan becomes binding on the CoC and the resolution applicant upon creditor approval, even before NCLT confirmation.
• The Insolvency and Bankruptcy Code, 2016, does not permit withdrawal of an approved plan based on subsequent changes in financial attractiveness.
• The Insolvency and Bankruptcy Code (Amendment) Bill, 2026, now permits the withdrawal of the insolvency process only after the constitution of the Committee of Creditors (CoC) and before the first invitation for submission of a resolution plan.
• This ruling stemmed from a case involving the Bank of India and a toll collection company whose financial position deteriorated during the Covid-19 pandemic.

The Court unequivocally stated that an insolvency resolution plan becomes legally binding on both the Committee of Creditors and the successful resolution applicant the moment it receives approval from the creditors.

The Supreme Court recently clarified a crucial aspect of corporate insolvency resolution, ruling that a Committee of Creditors (CoC) cannot retract an already approved insolvency resolution plan solely on the grounds that the corporate debtor's financial health has improved. This significant decision, delivered by a bench comprising Justices JB Pardiwala and K Vinod Chandran, arose from the case of Bank of India & Ors. v. S.M. Kamal Pasha & Ors., establishing a firm precedent for the finality of such plans.

The specific dispute involved insolvency proceedings initiated by the Bank of India against a company primarily engaged in toll collection activities on National Highway 45. This corporate debtor experienced a severe financial downturn during the Covid-19 pandemic, leading to the initiation of the resolution process. Ultimately, a resolution plan valued at ₹172.55 crore was approved by the Committee of Creditors. At the time of this approval, the corporate debtor possessed an opening cash balance, indicating its operational status despite the financial distress.

Central to the Supreme Court's determination was its interpretation of the Insolvency and Bankruptcy Code, 2016 (IBC). The Court unequivocally stated that an insolvency resolution plan becomes legally binding on both the Committee of Creditors and the successful resolution applicant the moment it receives approval from the creditors. This binding effect takes hold even prior to its formal confirmation by the National Company Law Tribunal (NCLT), underscoring the weight of the CoC's decision.

The October 26 judgment explicitly clarified that the IBC 2016 resolution plan binding nature means neither the CoC nor the resolution applicant possesses the power to withdraw from an approved plan simply because subsequent events have altered the financial attractiveness of the transaction. The Insolvency and Bankruptcy Code (Amendment) Bill, 2026, which received presidential assent on April 6, 2026, now permits the withdrawal of the insolvency process only after the constitution of the Committee of Creditors (CoC) and before the first invitation for submission of a resolution plan. Once the plan is approved by the CoC and subsequently presented to the Adjudicating Authority, any possibility of withdrawal, whether of the application itself or the approved resolution plan, is foreclosed. This ruling solidifies the principle that the Committee of Creditors withdrawal powers are time-limited.

This ruling carries substantial implications for the stability and integrity of the insolvency resolution framework in India. By affirming that an approved resolution plan is binding even before NCLT confirmation, the Supreme Court reinforces the finality of the CoC's decisions and prevents opportunistic withdrawals based on post-approval market changes or improved financial conditions of the debtor. This ensures that the resolution process, once a plan is agreed upon, moves forward with certainty, reducing delays and potential for renegotiation.

The decision highlights the critical importance of thorough due diligence and strategic foresight for all parties involved, particularly the Committee of Creditors and resolution applicants. They must ensure that all financial assessments and future projections are robust before the CoC approves a plan, as the opportunity to withdraw is strictly limited to the period preceding this approval. This judicial pronouncement contributes to the predictability of the IBC process, fostering greater confidence among stakeholders in the efficacy of resolution mechanisms.

Lawyers advising Committees of Creditors or resolution applicants must understand that an approved insolvency resolution plan is binding even before NCLT confirmation, and cannot be withdrawn due to subsequent improvements in the corporate debtor's financial position. This necessitates thorough due diligence and strategic planning before plan approval, as the window for withdrawal is limited to before CoC approval.

Source: Reporting based on a legal news source