Can Conditional Letters of Intent Be Enforced in Insolvency? Supreme Court Clarifies
Sanjay Dave vs Andhra Bank Ltd. & Ors.
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• 4 min readKey Takeaways
• A court cannot treat a Letter of Intent as conditional merely because it references pending applications.
• Section 62 of the Insolvency and Bankruptcy Code allows appeals against NCLAT decisions on insolvency matters.
• A successful resolution applicant cannot withdraw from an approved resolution plan based on alleged conditionalities.
• The Committee of Creditors has the authority to decide on liquidation before confirming a resolution plan.
• Earnest Money Deposits can be forfeited for non-compliance with the terms of the resolution plan.
Introduction
The Supreme Court of India recently addressed the enforceability of conditional Letters of Intent (LoIs) in the context of insolvency proceedings in the case of Sanjay Dave vs Andhra Bank Ltd. & Ors. The judgment clarifies the legal standing of LoIs issued during the Corporate Insolvency Resolution Process (CIRP) and the implications for resolution applicants. This ruling is significant for practitioners navigating the complexities of the Insolvency and Bankruptcy Code (IBC).
Case Background
The appeals arose from the Corporate Insolvency Resolution Process concerning M/s. Oracle Home Textiles Limited, which was admitted on August 9, 2018. Sanjay Dave, the appellant and Promoter/Director of the corporate debtor, submitted a Resolution Plan that was approved by the Committee of Creditors (CoC) with a 99.90% majority. However, the process faced complications due to pending applications from other prospective resolution applicants (PRAs).
On May 23, 2021, a Letter of Intent was issued to the appellant, which he claimed was conditional. The appellant sought an unconditional LoI, arguing that the conditions imposed were contrary to the IBC. Subsequent LoIs were issued, but the appellant failed to comply with the terms, leading to the forfeiture of his Earnest Money Deposit (EMD).
What The Lower Authorities Held
The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) dismissed the appellant's applications, stating that the conditions in the LoIs were not unreasonable and that the appellant was aware of the ongoing litigations involving other PRAs. The NCLAT upheld the findings of the NCLT, emphasizing that the appellant could not insist on his plan being considered without subjecting it to the outcome of the pending applications.
The Court's Reasoning
The Supreme Court, while reviewing the case, found that the appellant's arguments regarding the conditional nature of the LoIs lacked merit. The Court noted that the stipulations in the LoIs merely acknowledged the existence of pending judicial proceedings, which is a standard practice in insolvency matters. The Court emphasized that the approval of the resolution plan by the CoC was binding and that the appellant could not withdraw from it based on alleged conditionalities.
The Court further highlighted that the appellant had participated in the CoC meetings where the conditions were discussed and had not raised objections at that time. This indicated acquiescence to the terms, which the Court found significant in determining the enforceability of the LoIs.
Statutory Interpretation
The judgment involved a detailed interpretation of the Insolvency and Bankruptcy Code, particularly Section 62, which allows for appeals against decisions made by the NCLAT. The Court reiterated that the commercial wisdom of the CoC is paramount and that their decisions regarding liquidation are not subject to judicial review unless there is a clear statutory violation.
Constitutional or Policy Context
The ruling underscores the importance of adhering to the timelines and processes established under the IBC. The Court's decision reinforces the notion that the insolvency framework is designed to facilitate timely resolutions and prevent delays that could harm creditors and the corporate debtor.
Why This Judgment Matters
This judgment is crucial for legal practitioners as it clarifies the enforceability of conditional LoIs in insolvency proceedings. It establishes that resolution applicants must be diligent in their compliance with the terms set forth by the CoC and cannot later contest those terms if they have acquiesced to them. The ruling also emphasizes the binding nature of approved resolution plans, which is essential for maintaining the integrity of the insolvency process.
Final Outcome
The Supreme Court dismissed the appeals, affirming the decisions of the lower authorities and allowing the liquidation process to proceed as per the provisions of the IBC. The Court directed the Liquidator to continue with the liquidation process in accordance with the Code.
Case Details
- Citation: 2026 INSC 580
- Court: In The Supreme Court Of India
- Bench: Justice K.V. Viswanathan, Justice Vipul M. Pancholi
- Date of Judgment: May 27, 2026
