“Same Line of Business” under MSCS Act Section 64(d) is Bye-law-Object Driven for IBC Section 30(2)(e) Compliance

Case: M/S. NIRMAL UJJWAL CREDIT CO-OPERATIVE SOCIETY LTD. v. RAVI SETHIA & ORS.
Citation: 2026 INSC 338 (Supreme Court of India)
Date: 09-04-2026
Coram: J.B. Pardiwala, J. and K.V. Viswanathan, J.

1. Introduction

The dispute arose in the Corporate Insolvency Resolution Process (CIRP) of Morarji Textiles Ltd. (“Corporate Debtor”) under the Insolvency and Bankruptcy Code, 2016 (IBC). The appellant, a Multi-State Co-operative Society (MSCS) registered under the Multi-State Cooperative Societies Act, 2002 (“2002 Act”), submitted a resolution plan. The Resolution Professional (RP) later declared the appellant ineligible, invoking Section 30(2)(e) IBC (a plan must not contravene any law) read with Section 64(d) of the 2002 Act (restrictions on MSCS investment of funds), and by-law limitations.

The NCLT held the appellant ineligible, and the NCLAT affirmed—primarily on the footing that the appellant’s bye-laws did not permit the acquisition/investment and that the Corporate Debtor was neither a subsidiary institution nor an institution “in the same line of business” as the MSCS.

The Supreme Court used the occasion to clarify the meaning and scope of the phrase “any other institution in the same line of business” in Section 64(d), and how that restriction interacts with Section 30(2)(e) IBC.

2. Summary of the Judgment

• IBC gateway: Under Section 30(2)(e) IBC, the RP must ensure a resolution plan does not contravene “any law”. For an MSCS resolution applicant, compliance with Section 64 of the 2002 Act can therefore be a threshold legality issue.
• Two permitted investment categories under Section 64(d): an MSCS may invest in: (i) a subsidiary institution, or (ii) any other institution in the same line of business.
• Interpretive anchor: “Same line of business” is not to be construed expansively; it is a restrictive standard introduced to curb misuse of the earlier open-ended phrase “any other institution”.
• Decisive yardstick: Whether the target is in the “same line of business” must be determined primarily by reference to the MSCS’s bye-laws, especially its objects and functions.
• Substance over incidental overlap: A broad sector label (e.g., “textiles”) is insufficient if the bye-law objects confine activities (here, to agro-products/processing) and do not cover the target’s industrial activity (here, man-made fibre/viscose manufacturing).
• Revenue/profit is irrelevant: The Court disagreed with the NCLAT’s reliance on income/profit figures to determine “line of business”; the test is anchored in bye-laws (objects), not financial performance.
• Amending an “investment” clause is not enough: A bye-law amendment reproducing Section 64(d) (investment permissions) does not expand the MSCS’s “line of business” unless the object clause itself is correspondingly amended.
• Additional evidence discipline: The Court refused reliance on a belatedly produced registration certificate of bye-law amendment, holding it did not satisfy Order XLI Rule 27 CPC.
• Disposition: Appeal permitted to be withdrawn; CIRP to continue under the IBC; CIRP cost deposit issue left to the Adjudicating Authority.

3. Analysis

3.1 Precedents Cited

No prior judicial precedents were cited in the text to interpret Section 64(d) of the 2002 Act or Section 30(2)(e) IBC. Instead, the Court relied on:

• Legislative history: the Joint Parliamentary Committee (JPC) report dated 15.03.2023, explaining why “in the same line of business” was inserted into Section 64(d).
• Analogous regulatory guidance (illustrative only): the approach under the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021 (including the use of principal economic activity and NIC codes), explicitly treated as non-binding and merely indicative.
• Civil procedure standard for fresh evidence: Order XLI Rule 27 of the Code of Civil Procedure, 1908.

3.2 Legal Reasoning

A. The IBC–MSCS Act interface via Section 30(2)(e)

The Court’s starting point was structural: Section 30(2)(e) IBC requires the RP to filter out any plan that contravenes “any law”. For an MSCS, Section 64 of the 2002 Act (investment of funds) becomes directly relevant because a resolution plan commonly entails deployment of funds to acquire shares/assets or to take over the corporate debtor as a going concern. Consequently, “eligibility” is not limited to Section 29A IBC; it also includes compliance with other governing statutes applicable to the applicant.

B. Why “same line of business” is restrictive

Using the JPC report, the Court located the 2023 amendment’s purpose: the earlier phrase “any other institution” was open-ended and had been “misused” for dubious investments; the new language was meant to introduce financial discipline and protect members’ deposits. The Court therefore held that “same line of business” cannot be read broadly to legitimise remote or incidental connections; it sets a real threshold.

C. The governing test: bye-laws (objects and functions) as the principal measure

The Court treated the MSCS bye-laws as the “decisive charter document” for identifying the society’s permissible business domain. It followed that the inquiry is fundamentally comparative:

• Identify the MSCS’s “line of business” from its bye-laws (especially the object clause).
• Identify the target institution’s core business activities.
• Assess whether there is predominant/substantial sameness or a close nexus in core activities.

D. Application to the appellant’s bye-laws

On the appellant’s bye-laws (Clause 5), the Court read Clauses 5(a)–5(r) as revealing a predominantly financial, member-welfare cooperative: accepting deposits, advancing loans, recovering loans, providing safe deposit vaults, housing and welfare measures. Clause 5(s) permitted activity around “agro-products” for “processing” and making modern techniques available to members—an activity the Court treated as limited and tied to agro-products, not a general industrial manufacturing mandate.

Contrasted with this, the Corporate Debtor’s business was described as man-made fibre/viscose-based textiles (synthetic/semi-synthetic manufacturing). Even if both could be broadly labelled “textile sector”, the Court emphasised that the statute requires sameness in the line of business, not merely adjacency or a high-level sector overlap.

E. Two important clarifications

• Profit/revenue metrics are not the test: The Court expressly rejected the idea that predominance can be inferred from profit/loss or income shares; “same line of business” is to be tested against bye-laws and objects, not financial statements.
• Investment-clause amendment does not expand business objects: Amending Clause 52 (investment of funds) to reproduce Section 64(d) does not itself expand Clause 5 (objects and functions). Without amending the objects to align with the target’s business, “same line of business” remains unfulfilled.

F. Procedural discipline—late production of documents

The Court declined to permit reliance on the certificate of registration of bye-law amendment (dated 24.01.2024) because it was not produced before the NCLT/NCLAT despite opportunity, and the attempt did not satisfy Order XLI Rule 27 CPC. This underscores that statutory/regulatory eligibility disputes in CIRP are fact-sensitive and evidence-dependent, and parties must place foundational documents at the earliest stage.

3.3 Impact

• For MSCS resolution applicants: Participation in CIRP is not per se barred, but investment/acquisition must fit within Section 64 and the society’s bye-law objects. MSCSs seeking to bid for corporate debtors outside their present objects may need a properly registered object-clause amendment (not merely an investment-clause update), completed in time and proved on record.
• For Resolution Professionals under Section 30(2)(e): The judgment strengthens the expectation that RPs will conduct “legality” screening beyond the IBC—especially where an applicant is governed by a special statute restricting deployment of funds.
• For CoCs and litigation strategy: The Court’s approach supports CoC/RP decisions to treat certain bids as legally non-compliant even before commercial evaluation—while simultaneously cautioning that the legal test should be anchored in bye-laws/objects, not profitability comparisons.
• Interpretive discipline for “same line of business”: The judgment’s core contribution is a structured interpretive method: legislative intent (anti-misuse), restrictive reading, and bye-law-object centric application—likely to influence future disputes involving cooperatives, mutuals, or other specially regulated entities bidding in CIRP.

4. Complex Concepts Simplified

• CIRP: A time-bound process under the IBC to resolve insolvency of a corporate debtor through a resolution plan (revival) or liquidation.
• Resolution Professional (RP): Runs the CIRP, invites plans, and must ensure each plan meets statutory requirements—including Section 30(2).
• CoC (Committee of Creditors) & “commercial wisdom”: Financial creditors vote on plans based on commercial considerations; courts generally defer to this, but only after threshold legal compliance is satisfied.
• Section 30(2)(e) IBC: A mandatory legality filter—if a plan violates any applicable law, the RP must not treat it as compliant.
• MSCS & bye-laws: An MSCS is governed by the 2002 Act and its registered bye-laws. Bye-laws function like a constitution—defining what the society can and cannot do.
• Section 64(d) of the 2002 Act: Limits how an MSCS may invest its funds—relevantly, only in a subsidiary institution or another institution in the “same line of business”.
• Order XLI Rule 27 CPC: Limits when a party can introduce new evidence at the appellate stage; generally disallows filling gaps left at trial unless strict conditions are met.
• NIC Code: A classification for economic activities; the Court mentioned such classification only as an illustrative tool from another regulatory context, not as a binding test under the 2002 Act.

5. Conclusion

This decision’s lasting legal value lies in its clarification that the 2023 insertion of “in the same line of business” into Section 64(d) of the 2002 Act is a restrictive safeguard against misuse of members’ funds, and that compliance must be judged primarily by the MSCS’s bye-law objects and functions. For IBC practice, it reinforces Section 30(2)(e) as a robust cross-statute legality gate: where the resolution applicant is a specially regulated entity, its enabling statute and charter documents can be determinative of eligibility to submit or pursue a resolution plan.