When a resolution plan fails

A resolution plan under the Insolvency and Bankruptcy Code, 2016 (“the Code”) is not approved merely because it offers the highest value. Before it binds the corporate debtor and its stakeholders, the plan, and the person proposing it, must satisfy a series of distinct requirements at each stage of the corporate insolvency resolution process (“CIRP”). Non-compliance at any one stage is sufficient to defeat the plan.

This note examines those requirements in the order in which they arise in the process: first, the eligibility of the resolution applicant; secondly, the procedure for submission of plans; thirdly, the mandatory contents of the plan; fourthly, its approval by the Committee of Creditors (“CoC”); fifthly, its scrutiny by the Adjudicating Authority; sixthly, the remedy of appeal; and lastly, the consequences that follow approval or rejection. The law is stated as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, the relevant provisions of which came into force on 26 May 2026.

1. Eligibility of the resolution applicant

Eligibility criteria fixed for the process. The first threshold is set within the CIRP itself. Under Section 25(2)(h), the Resolution Professional, with the approval of the CoC, lays down the eligibility criteria for prospective resolution applicants, having regard to the complexity and scale of operations of the corporate debtor, such as minimum net worth and relevant experience. These criteria are published in the invitation for expressions of interest. A person who does not satisfy them is excluded from the process, irrespective of the merit of its proposal.

The statutory bar under Section 29A. Section 29A operates as a bar on the person and not on the plan. It applies to the resolution applicant and to every person acting jointly or in concert with it. A person is not eligible to submit a resolution plan if it:

• is an undischarged insolvent (clause (a));
• is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (clause (b));
• at the time of submission of the plan, has an account, or an account of a corporate debtor under its management or control or of which it is a promoter, classified as a non-performing asset, where at least one year has lapsed from the date of such classification till the date of commencement of the CIRP, unless all overdue amounts with interest and charges relating to that account are paid before the plan is submitted (clause (c));
• has been convicted of an offence punishable with imprisonment for two years or more under an enactment specified in the Twelfth Schedule, or for seven years or more under any law for the time being in force (clause (d));
• is disqualified to act as a director under the Companies Act, 2013 (clause (e));
• is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets (clause (f));
• has been a promoter of, or in the management or control of, a corporate debtor in which a preferential, undervalued, extortionate credit or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under the Code (clause (g));
• has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under the Code, where the guarantee has been invoked by the creditor and remains unpaid in full or in part (clause (h));
• is subject to a disability, corresponding to any of the above clauses, under any law in a jurisdiction outside India (clause (i)); or
• has a connected person who is not eligible under any of clauses (a) to (i) (clause (j)). A connected person includes the promoter of, or person in management or control of, the resolution applicant; a person who will be a promoter of, or in management or control of, the business of the corporate debtor during the implementation of the plan; and the holding company, subsidiary, associate company or related party of any of them (Explanation I).

Exceptions. The provisos and Explanations are as significant as the bars themselves:

• Clause (c) does not apply to a resolution applicant which is a financial entity and is not a related party of the corporate debtor. A regulated financial entity does not become a related party merely because it acquired shares on conversion of debt into equity before the insolvency commencement date.
• Clause (c) also does not apply, for a period of three years from the date of approval, where the non-performing account was acquired under a resolution plan approved under the Code (Explanation II).
• The bar under clause (d) ceases on the expiry of two years from the date of release from imprisonment. Clauses (d) and (e) do not apply to a connected person falling within clause (iii) of Explanation I.
• Clause (g) does not apply where the transaction took place before the resolution applicant acquired the corporate debtor under a resolution plan approved under the Code, or a scheme or plan approved by a financial sector regulator or a court, and the applicant has not otherwise contributed to it.
• Clause (iii) of Explanation I does not apply to a resolution applicant which is a financial entity and is not a related party of the corporate debtor.
• Under Section 240A, clauses (c) and (h) do not apply to a resolution applicant in respect of a corporate debtor which is a micro, small or medium enterprise. The promoters of such an enterprise may, therefore, propose a plan for it notwithstanding a non-performing account or an invoked guarantee.

Interpretation by the Supreme Court. In ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2018), the Supreme Court held that ineligibility under Section 29A attaches at the time the resolution plan is submitted, and that the bar under clause (c) can be removed only by payment of the overdue amounts before submission. The Court also held that the corporate veil may be lifted to identify the persons who are in substance behind the resolution applicant. In Swiss Ribbons Pvt. Ltd. v. Union of India (2019), the Court upheld the constitutional validity of Section 29A as a reasonable classification excluding persons whose antecedents render them undesirable as resolution applicants, and read the expressions “related party” and “relative” in clause (j) as confined to persons connected with the business activity of the resolution applicant. In Bank of Baroda v. MBL Infrastructures Ltd. (2022), the Court held that the expression “such creditor” in clause (h) extends to similarly placed creditors, so that invocation of the guarantee by any one of them attracts the bar. In Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. (2021), the Court held that a person ineligible under Section 29A cannot propose a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013 in respect of a company in liquidation under the Code.

Declarations and due diligence. The expression of interest must be accompanied by undertakings that the applicant is not ineligible under Section 29A, that it will intimate the Resolution Professional forthwith if it becomes ineligible, and that the information furnished by it is true, with the consequence that the discovery of false information attracts ineligibility (Regulation 36A(7) of the CIRP Regulations). The plan must be accompanied by an affidavit stating that the applicant is eligible under Section 29A (Section 30(1) and Regulation 39(1)). The Resolution Professional is required to conduct due diligence to satisfy himself as to the eligibility of each applicant (Regulation 36A(8)).

2. Procedure for submission of plans

A plan which is not received in accordance with the procedure laid down for the CIRP cannot be considered. Under Regulation 39(1B), the CoC shall not consider a resolution plan which is received after the time specified under Regulation 36B, which is received from a person who does not appear in the final list of prospective resolution applicants, or which does not comply with Section 30(2) and Regulation 39(1). A plan must also conform to the request for resolution plans and the evaluation matrix issued under Regulation 36B.

The procedure also limits revisions. Under Regulation 39(1A), the Resolution Professional may, if the request for resolution plans so provides, either allow modification of the plans received, but not more than once, or use a challenge mechanism to enable applicants to improve their plans. The National Company Law Appellate Tribunal has held that this limit restrains the Resolution Professional and not the CoC, which remains free to negotiate with the applicants (Sagar Stone Industries v. Sajjan Kumar Dokania, 2025). A modification permitted by the Resolution Professional beyond what the Regulation and the request for resolution plans allow is liable to be challenged as a material irregularity.

3. Mandatory contents of the plan

Under Section 30(2), the Resolution Professional must examine each plan and confirm that it provides for:

• payment of the insolvency resolution process costs in priority to the repayment of other debts of the corporate debtor (clause (a));
• payment to operational creditors of an amount not less than the higher of the amount payable to them in the event of liquidation under Section 53 and the amount that would have been payable to them if the amount distributable under the plan had been distributed in the order of priority under Section 53(1) (clause (b));
• payment to financial creditors who do not vote in favour of the plan of an amount not less than the lower of the amount payable to them in liquidation under Section 53 and the amount payable to them if the amount distributable under the plan were distributed in the order of priority under Section 53(1), such distribution being fair and equitable to them (clause (ba), inserted with effect from 26 May 2026, which does not apply where the plan was approved by the CoC before that date);
• the management of the affairs of the corporate debtor after approval of the plan (clause (c));
• the implementation and supervision of the plan (clause (d));
• no contravention of any provision of the law for the time being in force (clause (e)); and
• conformity with such other requirements as may be specified by the Insolvency and Bankruptcy Board of India (clause (f)).

Regulation 38 prescribes further mandatory contents: a statement as to how the plan has dealt with the interests of all stakeholders (Regulation 38(1A)); a statement whether the applicant or any of its related parties has failed to implement, or contributed to the failure of implementation of, any other resolution plan approved under the Code (Regulation 38(1B)); the term of the plan and its implementation schedule, the management and control of the business during its term, and adequate means for supervising its implementation (Regulation 38(2)); and a demonstration that the plan addresses the cause of default, is feasible and viable, has provisions for its effective implementation and for the approvals required, and that the applicant has the capability to implement it (Regulation 38(3)). These are requirements of law. Their absence cannot be cured by the approval of the CoC.

Only plans which satisfy Section 30(2) are placed before the CoC (Section 30(3)).

4. Approval by the Committee of Creditors

A resolution plan must be approved by a vote of not less than sixty-six per cent of the voting share of the financial creditors, after the CoC has considered its feasibility and viability and the manner of distribution proposed (Section 30(4)). Under the amended Section 30(4), the CoC must also record reasons for its approval. Where more than one plan is put to vote, the CoC votes on all of them simultaneously, and the plan which receives the highest votes, being not less than the requisite majority, is approved (Regulations 39(3) and 39(3B)).

The approval is open to challenge where the requisite majority is not obtained, where the prescribed procedure for voting is not followed, or where a financial creditor which is a related party of the corporate debtor has been permitted to participate contrary to the first proviso to Section 21(2). In Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. (2021), the Supreme Court held that the exclusion also extends to a creditor whose debt arises from collusive transactions intended to secure a place on the CoC.

The decision of the CoC, once validly taken, is a matter of its commercial wisdom. In K. Sashidhar v. Indian Overseas Bank (2019) and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2019), the Supreme Court held that the commercial wisdom of the CoC, including its assessment of the value offered and of the manner of distribution among creditors, is not justiciable, and that equitable treatment of creditors does not require that all creditors be treated identically. The observation in K. Sashidhar that the CoC is not obliged to record reasons must now be read with the amended Section 30(4).

5. Scrutiny by the Adjudicating Authority

The Resolution Professional submits the plan approved by the CoC to the Adjudicating Authority (Section 30(6)). Under Section 31(1), the Adjudicating Authority shall approve the plan if it is satisfied that the plan meets the requirements of Section 30(2) and has provisions for its effective implementation. If it is not so satisfied, it may reject the plan (Section 31(2)).

The jurisdiction so conferred is supervisory and limited. The Adjudicating Authority cannot substitute its commercial assessment for that of the CoC, nor can it modify the plan. In Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd. (2021), the Supreme Court held that where the plan does not meet the statutory requirements, the Adjudicating Authority may only remit it to the CoC for reconsideration. That course is now recognised by statute: before rejecting a plan, the Adjudicating Authority may give notice to the CoC to rectify the defects in it (proviso to Section 31(2)). The Adjudicating Authority is required to pass its order within thirty days of receipt of the plan, and to record reasons in writing if it does not do so (Section 31(2A)).

Where the plan contains a provision for combination within the meaning of the Competition Act, 2002, the approval of the Competition Commission of India is a mandatory precondition. In Independent Sugar Corporation Ltd. v. Girish Sriram Juneja (2025), the Supreme Court held the requirement in the proviso to Section 31(4) to be mandatory. As amended, the proviso requires such approval to be obtained before the plan is submitted to the Adjudicating Authority. Other approvals required under any law are to be obtained within one year of the approval of the plan, or such period as that law provides, whichever is later (Section 31(4)).

6. Appeal

An appeal against an order approving a resolution plan lies to the National Company Law Appellate Tribunal within thirty days, extendable by fifteen days for sufficient cause (Section 61(2)), and only on the grounds set out in Section 61(3):

• the approved plan is in contravention of the provisions of any law for the time being in force;
• there has been material irregularity in the exercise of the powers of the Resolution Professional during the CIRP;
• the debts owed to operational creditors have not been provided for in the plan in the manner specified by the Board;
• the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or
• the plan does not comply with any other criteria specified by the Board.

The Appellate Tribunal must now dispose of the appeal within three months of its receipt (Section 61(6)). A further appeal lies to the Supreme Court under Section 62, within forty-five days, on a question of law.

These grounds are exhaustive. In Torrent Power Ltd. v. Ashish Arjunkumar Rathi (2026), the Supreme Court dismissed the appeals of unsuccessful resolution applicants and held that the appellate jurisdiction is confined to the grounds prescribed by Parliament, that the improvement of an offer by the successful applicant in response to clarifications sought from it did not fall within those grounds, and that a Resolution Professional acting on the instructions of the CoC does not commit a material irregularity. An unsuccessful applicant must, therefore, bring its challenge within one of the grounds in Section 61(3); a challenge to the commercial merits of the successful plan is not maintainable.

7. Consequences of approval and rejection

Approval. An approved plan is binding on the corporate debtor and its employees, members and creditors, including the Central Government, any State Government and any local authority to whom statutory dues are owed, guarantors and other stakeholders (Section 31(1)). In Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021), the Supreme Court held that all claims which do not form part of the plan stand extinguished on its approval. Section 31(6), inserted in 2026, now gives statutory effect to this principle in respect of the corporate debtor, while preserving claims against guarantors, promoters and other co-obligors. Under Section 32A, upheld in Manish Kumar v. Union of India (2021), the liability of the corporate debtor for an offence committed before the commencement of the CIRP ceases where the plan results in a change in management or control to persons who were not connected with the earlier management; the liability of the individuals responsible for the offence continues.

Obligation of the successful applicant. The plan binds the successful resolution applicant as well. In Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. (2021), the Supreme Court held that a resolution applicant cannot withdraw or modify its plan after it has been approved by the CoC. Where an approved plan is contravened by the corporate debtor, any person other than the corporate debtor whose interests are prejudicially affected may apply to the Adjudicating Authority for a liquidation order (Section 33(3)). A knowing and wilful contravention of the terms of an approved plan is punishable under Section 74(3).

Rejection. Where the Adjudicating Authority rejects the plan under Section 31(2), it is required to pass an order for liquidation of the corporate debtor (Section 33(1)). Rejection of the plan is, therefore, ordinarily followed by liquidation, and it is for this reason that the opportunity to rectify defects under the proviso to Section 31(2) assumes particular importance.

8. Practical considerations

Resolution applicants should examine their eligibility under Section 29A, and that of every connected person, before submitting an expression of interest, including non-performing accounts and invoked guarantees anywhere in the group; consider whether Section 240A or the exemption for financial entities is available; obtain the approval of the Competition Commission of India before the plan is submitted to the Adjudicating Authority; and proceed on the footing that the plan binds them once the CoC approves it.

Financial creditors should ensure that the CoC records reasons for its approval, that related parties are excluded from the vote, and that dissenting financial creditors receive not less than the amount required by Section 30(2)(ba).

Resolution Professionals should maintain a complete record of the due diligence on eligibility, of compliance with the request for resolution plans, and of every modification or clarification sought from applicants, since it is on that record that a challenge founded on material irregularity will be decided.

Unsuccessful applicants and objectors should identify, at the outset, a ground recognised by Section 61(3). A challenge which seeks to reopen the commercial merits of the successful plan will not succeed.

Arclegal advises resolution applicants, financial and operational creditors, resolution professionals and corporate debtors at every stage of the resolution process, from the assessment of eligibility and the structuring of the plan to proceedings before the National Company Law Tribunal, the National Company Law Appellate Tribunal and the Supreme Court of India.

This note states the law as on 5 November 2026. It is intended for general information on the provisions and decisions referred to, and does not constitute legal advice on any specific matter.