Approval of Resolution Plan by Committee of Creditors 

The Insolvency and Bankruptcy Code, 2016 (IBC) is one of the most transformative legislations in India’s financial and legal framework. It aims to ensure the time-bound resolution of insolvency cases while maximising the value of assets and balancing the interests of all stakeholders. A crucial stage in the corporate insolvency resolution process (CIRP) is the approval of the resolution plan by the Committee of Creditors (CoC).

The CoC plays a central role as it represents the financial creditors and holds commercial decision-making powers during the resolution process. The decision of the CoC, especially regarding the approval of the resolution plan, has far-reaching effects on the fate of the corporate debtor and its stakeholders. 

This article discusses in detail the legal framework, procedure, conditions, and judicial interpretation surrounding the approval of a resolution plan by the CoC under the IBC.

Legal Framework on Approval of Resolution Plan by Committee of Creditors

The process of approval of a resolution plan is primarily governed by:

• Section 30 and Section 31 of the Insolvency and Bankruptcy Code, 2016.
• Regulation 39 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

These provisions together provide a detailed structure for the submission, evaluation, modification, and approval of resolution plans, along with the post-approval consequences.

Role of the Committee of Creditors (CoC)

The CoC has been given exclusive decision-making powers under the Code. Its commercial wisdom is considered paramount, and courts generally refrain from interfering in its decisions unless there is a clear violation of the law or procedural irregularity.

The CoC’s main responsibility at this stage is to evaluate the feasibility and viability of resolution plans submitted by prospective resolution applicants and approve the plan that best ensures the revival of the corporate debtor while maximising asset value.

Submission of the Resolution Plan

Under Regulation 39, any prospective resolution applicant who appears in the final list may submit one or more resolution plans to the Resolution Professional (RP) electronically, within the time specified in the Request for Resolution Plan (RFRP).

Each plan must be accompanied by:

• Affidavit under Section 29A: Declaring that the applicant is eligible to submit the resolution plan.
• Undertaking: Confirming that all information and records provided in connection with the plan are true and correct. If any false information is discovered later, the applicant may be declared ineligible, lose the refundable deposit, and face penal action under the Code.

This requirement ensures that only genuine, law-abiding applicants participate in the resolution process.

Conditions for Considering the Resolution Plan

The CoC shall not consider any resolution plan if:

• It is received after the deadline specified under Regulation 36B.
• It is submitted by a person not in the final list of prospective resolution applicants.
• It does not comply with Section 30(2) of the IBC, which sets out mandatory contents and conditions for a resolution plan.

This helps maintain transparency, fairness, and compliance with statutory requirements.

Modification and Challenge Mechanism

The RP may allow modification of a resolution plan if such a provision is included in the RFRP. However, only one modification is permitted. Alternatively, a challenge mechanism may be used to allow resolution applicants to improve their plans through competitive bidding.

This mechanism promotes competition among applicants, ensuring that the CoC receives the most beneficial proposal.

Evaluation of Resolution Plans

Once all the resolution plans are received, the RP examines whether they comply with the requirements of the Code and the regulations. The RP then submits the compliant plans to the CoC.

The CoC must then:

• Evaluate each plan using the evaluation matrix approved earlier.
• Record deliberations on the feasibility and viability of each plan.
• Vote simultaneously on all the plans.

Each resolution plan is evaluated on several factors such as financial capability, repayment structure, future viability, implementation strategy, and potential for revival of the corporate debtor.

Voting Process for Approval of Resolution Plan by Committee of Creditors

Voting by the CoC is done based on the voting share of each financial creditor. The approval of a resolution plan requires at least 66% of the voting share of the financial creditors.

The following scenarios may arise during voting:

1. Where none of the plans receives the requisite majority: The CoC shall again vote on the plan that received the highest number of votes earlier, subject to the timelines under the Code.
2. Where two or more plans receive equal votes but not less than the requisite percentage: The CoC may approve any one of them as per the tie-breaker formula announced before voting.
3. Where multiple plans are voted simultaneously: The plan that receives the highest number of votes (but not less than 66%) shall be deemed approved.
4. Where only one plan is put to vote: It will be considered approved if it receives at least 66% votes.

This democratic and transparent voting process reflects the collective commercial wisdom of the creditors.

Submission to the Adjudicating Authority

After the CoC approves a resolution plan, the RP is required to submit it to the Adjudicating Authority (NCLT). As per Regulation 39(4), the RP must endeavour to submit the approved plan at least 15 days before the maximum period for completion of the CIRP.

The submission must include:

• Compliance Certificate (Form H) confirming adherence to the Code and regulations.
• Evidence of receipt of performance security as required under Regulation 36B(4A).

Upon submission, the NCLT examines whether the plan complies with all legal requirements before granting approval.

Effect of Approval by the Adjudicating Authority

Once the Adjudicating Authority approves a resolution plan under Section 31, several important consequences follow:

1. Binding Effect: The approved resolution plan becomes binding on the corporate debtor, its employees, members, creditors, Central and State Governments, local authorities, guarantors, and all other stakeholders.
2. Cessation of Moratorium: Under Section 31(3), once the resolution plan is approved, the moratorium declared under Section 14 ceases to have effect.
3. Immunity from Past Offences (Section 32A): If the approved resolution plan results in a change of management or control of the corporate debtor, the debtor shall not be prosecuted for any offence committed prior to the commencement of CIRP. This provision was introduced to encourage genuine buyers to take over stressed assets without fear of past liabilities.
4. Communication to Creditors: Within 15 days of the NCLT’s approval, the RP must inform all claimants about the payments due to them under the approved plan.
5. Protection of Resolution Professional: No legal proceedings can be initiated against the Interim Resolution Professional (IRP) or RP for actions of the corporate debtor that occurred prior to the insolvency commencement date.
   
6. Implementation Assistance: The person in charge of managing the corporate debtor after approval may seek help from the district administration for implementing the plan.
7. Remedy for Aggrieved Creditors: If any creditor is aggrieved due to non-implementation of the resolution plan, they may approach the Adjudicating Authority for directions.

Landmark Judgements on Approval of Resolution Plan by Committee of Creditors

Ebix Singapore PTE Ltd. v. CoC of Educomp Solutions Ltd. (2021)

The Supreme Court held that a resolution plan approved by the CoC cannot be treated as a mere “contract” under the Indian Contract Act, 1872. Once approved by the CoC, it cannot be withdrawn or altered on grounds like frustration or force majeure, as the IBC is a complete code in itself. Allowing withdrawal would defeat the purpose of timely insolvency resolution.

PNC Infratech Ltd. v. Deepak Maini (2022)

The National Company Law Appellate Tribunal (NCLAT) held that an unsuccessful resolution applicant has no right to challenge the evaluation matrix or scoring adopted by the CoC and RP. If the CoC has approved a plan after following due process and there are no material irregularities, the Adjudicating Authority will not interfere in technical or commercial matters.

Vallal RCK v. Siva Industries and Holdings Ltd. (2022)

The Supreme Court reaffirmed that the commercial wisdom of the CoC is paramount and cannot be substituted by judicial opinion. Courts must refrain from questioning the merits or feasibility of the plan, provided the decision of the CoC meets statutory requirements. This judgment reinforced that the IBC aims to ensure swift and independent decision-making by the CoC.

Conclusion

The Committee of Creditors acts as the heart of the corporate insolvency resolution process. Its approval of the resolution plan marks the culmination of the entire CIRP, ensuring that the corporate debtor either revives as a going concern or moves toward liquidation if resolution fails.

The combination of legal oversight by the Adjudicating Authority and commercial discretion of the CoC strikes the right balance between regulation and business judgment. By entrusting financial creditors with this responsibility, the IBC has established a creditor-driven process that ensures transparency, efficiency, and accountability.