Supreme Court Rules Creditors Cannot Withdraw Approved Insolvency Plan Solely Because Debtor Becomes More Profitable

Approved insolvency plans bind creditors

The Supreme Court has refused to permit a Committee of Creditors (CoC) to withdraw its approval of an insolvency resolution plan after that plan was submitted to the National Company Law Tribunal (NCLT). A Bench of Justices J.B. Pardiwala and K. Vinod Chandran held that the Insolvency and Bankruptcy Code, 2016 does not provide an exit route merely because the corporate debtor's financial condition has improved while approval remains pending.

The ruling came in Bank of India and Others v. S.M. Kamal Pasha and Others, Civil Appeal No. 12045 of 2026. The Court declined to interfere with the National Company Law Appellate Tribunal's conclusion that the CoC lacked jurisdiction to retract its approval. Importantly, the Supreme Court did not itself grant final approval to the resolution plan.

Why the creditors wanted to reverse course

The dispute arose from insolvency proceedings involving a company operating a toll-collection business on National Highway 45. Its financial position had weakened during the COVID-19 pandemic. A consortium submitted a resolution plan of approximately ₹172.55 crore, which the CoC approved when the debtor's opening cash balance was about ₹30 crore.

Litigation delayed implementation. During the intervening period, the company's financial position improved, and its opening cash balance reportedly reached approximately ₹165 crore. The CoC then sought to withdraw its earlier approval and issue a fresh invitation for expressions of interest. It argued that proceeding with the original plan would leave the successful resolution applicant with an unintended financial advantage.

The NCLT initially permitted the withdrawal after unanimous support from the CoC. The NCLAT reversed that decision, holding that the statutory framework did not authorise withdrawal of an approved plan at this stage. The creditors appealed to the Supreme Court. A separate application from the debtor's holding company proposed ending the insolvency process through a one-time settlement.

The competing legal submissions

Senior Advocate Gopal Sankaranarayanan, representing the creditor appellants, argued that inviting fresh bids could maximise the debtor's asset value and improve recovery for creditors. He relied on the CoC's commercial wisdom and the considerable increase in the company's cash position. This was the creditors' submission, not a finding that the original plan was legally defective.

Senior Advocate Nidhesh Gupta, appearing for the successful resolution applicant, maintained that the approved plan was binding on both sides. He argued that the CoC could not abandon its commitment merely because circumstances had become more favourable to creditors, just as a resolution applicant could not ordinarily walk away when conditions deteriorated. Senior Advocate Nikhhil Nayyar, appearing for the holding company, pressed the proposed settlement as an alternative route.

How the Supreme Court interpreted the Code

Justice K. Vinod Chandran, who authored the judgment, applied the reasoning in Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited. That precedent recognises that a CoC-approved resolution plan has binding consequences even during the interval before NCLT confirmation. The Supreme Court explained that the same restriction on unilateral withdrawal applies to creditors as well as successful resolution applicants.

The Bench read Section 12A, which governs withdrawal of insolvency applications, alongside Sections 30 and 31 of the Code. It concluded that the withdrawal power cannot be treated as continuing indefinitely after the CoC approves a plan and places it before the adjudicating authority. Commercial wisdom remains important, but it does not create a statutory power to reopen an already approved plan simply to pursue a better bargain.

The Court also distinguished the CoC's continuing role in the insolvency process from a power to alter the submitted plan. Creditors may retain a legitimate interest in implementation, yet that does not authorise a reversal of the approval already granted under the statutory voting process.

What the NCLT must now examine

The Supreme Court emphasised that the NCLT still has to perform its statutory scrutiny. It must consider whether the resolution plan satisfies Section 30(2), as required for approval under Section 31(1). The debtor's current financial position and available cash balance are relevant to that assessment, but improved profitability alone is not a valid reason to reject a plan that otherwise meets the legal requirements.

The Bench clarified that its observations, apart from the binding nature of the plan between the CoC and the successful resolution applicant, were prima facie. They must not prejudge the NCLT's final decision. Both the application seeking approval of the resolution plan and the holding company's separate one-time-settlement application remain for consideration.

The Court requested the NCLT to take up those applications together and decide them as expeditiously as possible, taking account of the delay already suffered. The appeal was disposed of without replacing the tribunal's statutory decision-making role.

Practical consequence and case details

The decision reinforces certainty in corporate insolvency resolution: a creditor-approved plan cannot be treated as a provisional offer that either side may abandon whenever market conditions change. At the same time, it preserves the tribunal's responsibility to verify statutory compliance before confirming a plan.

Case: Bank of India and Others v. S.M. Kamal Pasha and Others. Citation: 2026 INSC 1154. Bench: Justices J.B. Pardiwala and K. Vinod Chandran. The immediate next step is a joint and prompt NCLT consideration of the pending applications, rather than an automatic approval or withdrawal of the resolution plan.