Final and Binding: Supreme Court Affirms Resolution Plan's Finality and Prohibits Claim Reopening
- REEDLAW
- Nov 3
- 4 min read
REEDLAW Legal News Network reports: In a landmark judgment, the Supreme Court reaffirmed that once a resolution plan is duly approved under the Insolvency and Bankruptcy Code, 2016, its terms attain finality and are binding on all stakeholders. The Apex Court emphasised that reopening settled claims or questioning the Committee of Creditors’ commercial wisdom would undermine the sanctity and certainty of the corporate insolvency resolution process, thereby upholding the principle of finality in insolvency proceedings.
The Supreme Court Three-Judge Bench comprising Justice B.R. Gavai, Chief Justice of India, Justice Satish Chandra Sharma, and Justice K. Vinod Chandran, while adjudicating a batch of six Appeals, held that once a resolution plan is duly approved under the Insolvency and Bankruptcy Code, 2016, the classification of claims and the hierarchy of payments stand conclusively settled. The Court ruled that any attempt to reopen such claims or challenge the commercial wisdom of the Committee of Creditors is impermissible. The Bench reinforced that the finality of resolution plans ensures stability and prevents endless litigation, thereby preserving the integrity of the CIRP mechanism envisaged by the IBC.
The Supreme Court heard a batch of six appeals filed under Section 62 of the Insolvency and Bankruptcy Code, 2016, by erstwhile promoters and operational creditors challenging the resolution process and approval of the resolution plan of the Corporate Debtor. Following the RBI’s directive, CIRP proceedings commenced with substantial claims admitted, multiple negotiations held, and the Committee of Creditors (CoC) approving a resolution plan submitted by the Successful Resolution Applicant (SRA). Asset attachment by the Enforcement Directorate under PMLA caused delays and legal disputes before NCLT and NCLAT, which approved the plan with conditions and later modified some but dismissed all appeals challenging approval.
The Supreme Court admitted related appeals and review petitions, eventually quashing previous NCLT and NCLAT orders, rejecting the plan for non-compliance with statutory requirements, and directing liquidation proceedings. It retained all questions of law for subsequent adjudication. The Senior Counsel for promoters argued EBITDA reflected true operating profit, supporting this with NCLAT’s interchangeable use of “profits” and “EBITDA” terms and the Resolution Professional’s affidavit quantifying EBITDA at ₹1,813 crore. The Court reflected that deductions affecting EBITDA figures were non-cash and did not impact liquidity for financial creditors.
Challenges were raised on the locus of promoters as “persons aggrieved” under Section 62, but the Court underscored IBC’s objective of speedy resolution and balancing stakeholders’ interests, rejecting attempts to derail the process. It highlighted minimal promoter participation and efforts to delay the process as observed by NCLT. The Court upheld the continued existence and authority of the CoC post-resolution plan approval until implementation or liquidation, empowered to supervise via a monitoring committee.
The Court noted the appeals arose mainly from concurrent findings and emphasised the limited scope of appeals under Section 62, confined to specified grounds under Section 61, which were not met in this case. The validity of a clause empowering the CoC to extend the plan implementation period was affirmed, distinguishing it from impermissible renegotiations. Delays in implementation were attributed mainly to external factors, including criminal investigations and provisional asset attachments. Claims of law contravention concerning payment priorities were addressed, affirming compliance with prevailing laws at plan submission.
The Court analysed amendments to Regulation 38(1)(b) concerning payment priority to operational creditors (OCs), noting the Resolution Plan complied with regulations at submission, and subsequent amendments had no retrospective effect. Payments to OCs made after financial creditors (FCs) were deemed ex gratia and lawful. The appellants’ contentions on this were dismissed. Upfront fund infusion was validated as the compulsorily convertible debentures (CCDs) issued by the SRA qualified as equity, supported by CoC approval, and the Court rejected the appellants’ challenges respecting commercial wisdom.
On EBITDA distribution, the Court traced judicial evolution—from NCLAT Essar’s favouring distribution to Supreme Court Essar’s reversal mandating adherence to the Resolution Plan and RfRP, which were silent on EBITDA. The CoC’s consistent lawful stance supporting retention of EBITDA within the Corporate Debtor was enforced, disallowing contrary positions raised belatedly. It reiterated the finality of claims included in an approved plan to prevent recurring liabilities and uncertainty for resolution applicants.
Finally, the Court dismissed appeals concerning the operational creditor Jaldhi’s classification as a contingent creditor, upheld findings on pre-CIRP dues of Medi and Darcl per the Resolution Plan, and unanimously upheld the NCLAT judgment of 17th February 2020, disposing of pending applications. The decision reaffirmed statutory adherence, upheld commercial wisdom, and preserved the integrity and finality of the corporate insolvency resolution process.
Mr. Dhruv Mehta and Mr. Balbir Singh, Senior Advocates, Mr. Arjun Asthana and Mr. Manu Beri, Advocates, represented the Appellant.
Mr. Navin Pahwa, Senior Advocate, appeared for the Resolution Professional.
Mr. Pinaki Misra, Senior Advocate, represented the Resolved Entity, i.e. BPSL.
Mr. Tushar Mehta, Solicitor General, appeared for the CoC.
Mr. Gopal Jain and Mr. Neeraj Kishan Kaul, Senior Advocates, appeared for the SRA–JSW.
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