CoC-Approved Resolution Plan Is Binding: Successful Resolution Applicant Cannot Renege by Labeling Agreed LoI Terms as Conditional

1. Introduction

In SANJAY DAVE v. ANDHRA BANK LTD., the Supreme Court of India considered whether a Successful Resolution Applicant could refuse to accept a Letter of Intent on the ground that it was “conditional”, after the Committee of Creditors had approved his resolution plan under the Insolvency and Bankruptcy Code, 2016.

The Corporate Debtor was M/s. Oracle Home Textiles Limited. The appellant, Sanjay Dave, was a promoter/director of the Corporate Debtor and had submitted a resolution plan, which was approved by the CoC with a voting majority of 99.90%. However, he objected to certain clauses in the Letter of Intent, particularly those making the plan subject to pending NCLT proceedings by prospective resolution applicants and placing litigation-related risks concerning workers and employees on him.

After the appellant failed to accept the LoI and failed to submit the performance guarantee, the Resolution Professional forfeited his earnest money deposit of Rs. 1 crore. Eventually, the CoC voted for liquidation with 99.61% voting share. The NCLT and NCLAT upheld these actions, leading to the appeal before the Supreme Court.

2. Summary of the Judgment

The Supreme Court dismissed the appeals and upheld the orders of the NCLT and NCLAT. It held that:

  • The clauses objected to by the appellant did not make the Letter of Intent conditional.
  • The appellant was aware of the pending litigations and had participated in CoC meetings where these issues were discussed.
  • The appellant had expressly agreed to bear the risk arising from workers’ and employees’ claims.
  • Having agreed to the terms earlier, the appellant could not later approbate and reprobate.
  • Once a resolution plan is approved by the CoC, the Successful Resolution Applicant cannot seek modification or withdrawal on indirect grounds.
  • The forfeiture of the EMD was valid under the Request for Resolution Plan.
  • The CoC’s decision to liquidate the Corporate Debtor under Section 33 of the Code was within its commercial wisdom and not open to judicial review except on limited statutory grounds.

3. Analysis

A. Precedents Cited

Chairman, State Bank of India and Another v. M.J. James

This case was cited to explain the doctrine of acquiescence. The Court reiterated that acquiescence arises when a party, knowing its rights, stands by and allows another party to act in a manner inconsistent with those rights. Such conduct may amount to silent assent or tacit consent.

Applying this principle, the Supreme Court found that Sanjay Dave had participated in the CoC meetings, knew about the pending proceedings, and had agreed to the relevant terms. Therefore, he could not later object to those same terms as being conditional.

Nagubai Ammal and Others v. B. Shama Rao and Others

This decision was relied on for the principle that a party cannot approbate and reprobate. In other words, a party cannot accept a transaction as valid when it is beneficial and later reject it when it becomes inconvenient.

The appellant had accepted the process and participated in discussions leading to approval of his plan. He could not later challenge the LoI by characterising agreed terms as impermissible conditions.

Rajasthan State Industrial Development & Investment Corporation and Another. v. Diamond & Gem Development Corporation Limited and Another

This precedent further developed the doctrine of election and equitable estoppel. The Court cited it to emphasize that a party cannot “blow hot and cold” or accept and reject the same arrangement.

The appellant’s conduct, according to the Court, showed an attempt to derive benefit from the CoC-approved plan while avoiding the obligations attached to it. Such conduct was barred by equitable principles.

Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another

This was the central insolvency precedent. The Supreme Court relied on it to reaffirm that once the CoC approves a resolution plan, the Successful Resolution Applicant is bound by it. The only remaining step is approval by the Adjudicating Authority under Section 31, whose jurisdiction is limited to checking statutory compliance under Section 30(2).

The Court reiterated that allowing modification or withdrawal of CoC-approved plans would create uncertainty, delay insolvency resolution, reduce asset value, and undermine the time-bound structure of the IBC.

Manish Kumar v. Union of India

This case was cited on the scope of Section 33 of the IBC. The Supreme Court noted that if no resolution plan is successfully implemented or approved within the statutory framework, liquidation follows. Section 33(2) allows the CoC to decide to liquidate the Corporate Debtor before confirmation of a resolution plan, provided the required voting threshold is met.

Here, the CoC had voted for liquidation by 99.61%, far above the statutory threshold. Therefore, the liquidation decision was valid.

K. Sashidhar v. Indian Overseas Bank

This precedent was cited for the doctrine of commercial wisdom of the CoC. The Court reaffirmed that the Adjudicating Authority and Appellate Authority cannot sit in appeal over the commercial decision of the CoC, including rejection of a plan or decision to liquidate, unless statutory requirements are violated.

Since the CoC’s decision to reject the appellant’s plan and proceed to liquidation was based on the appellant’s own default and was approved by an overwhelming majority, the Court refused to interfere.

B. Legal Reasoning

The Supreme Court rejected the appellant’s argument that the LoI was conditional. The Court held that a clause making the LoI subject to the outcome of pending NCLT proceedings did not create an impermissible condition. Even without such a clause, any order passed by the Adjudicating Authority would bind the parties unless set aside by a higher forum.

The Court also found that the risk concerning workers’ and employees’ claims had been discussed in the CoC meetings and expressly accepted by the appellant. Therefore, he could not later claim surprise or unfairness.

On the performance guarantee, the appellant argued that he was entitled to 45 days rather than 7 days. The Court rejected this, noting that the 45-day relaxation was given due to the COVID-19 pandemic and had already expired. In a later CoC meeting, the appellant himself agreed to submit the performance bank guarantee within 7 days as required by the RFRP.

The Court held that the appellant’s conduct was a “subterfuge” and an indirect attempt to withdraw from a CoC-approved plan, which is prohibited under the IBC framework.

C. Impact of the Judgment

This judgment strengthens certainty in the insolvency resolution process. It confirms that:

  • Successful Resolution Applicants cannot use technical objections to delay or avoid implementation of approved plans.
  • Terms discussed and accepted during CoC meetings cannot later be challenged as unexpected or conditional.
  • Forfeiture of EMD is valid where the RFRP permits it and the applicant fails to comply with post-approval obligations.
  • The CoC’s decision to liquidate under Section 33 is protected as commercial wisdom when statutory requirements are satisfied.

The ruling will likely discourage resolution applicants from strategic backtracking after CoC approval and will help preserve the time-bound character of the IBC.

4. Complex Concepts Simplified

  • Successful Resolution Applicant: The bidder whose resolution plan is approved by the Committee of Creditors.
  • Letter of Intent: A formal communication stating that the CoC has accepted the applicant’s plan, usually requiring unconditional acceptance and submission of a performance guarantee.
  • Acquiescence: When a person silently or expressly accepts a situation and later cannot object to it.
  • Approbate and Reprobate: A legal principle preventing a party from accepting and rejecting the same transaction at different times.
  • Commercial Wisdom of CoC: The business judgment of financial creditors, which courts generally cannot review on merits.
  • Section 33 IBC: The provision dealing with liquidation of the Corporate Debtor when resolution fails or when the CoC decides to liquidate.

5. Conclusion

The Supreme Court’s decision in SANJAY DAVE v. ANDHRA BANK LTD. reinforces the binding nature of CoC-approved resolution plans. A Successful Resolution Applicant who has participated in negotiations, accepted terms, and benefited from the process cannot later evade obligations by describing the Letter of Intent as conditional.

The judgment is significant because it protects the integrity, certainty, and speed of the IBC process. It also reaffirms that the commercial wisdom of the CoC, including the decision to liquidate, remains largely immune from judicial interference when exercised within the framework of the Code.