Insolvency Code: Supreme Court Clarifies CoC's Role in Resolution Plans

Introduction

The Supreme Court of India recently delivered a significant judgment in the case of Kalyani Transco vs. M/s Bhushan Power and Steel Limited & Ors., addressing critical issues surrounding the role of the Committee of Creditors (CoC) in the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). This ruling clarifies the extent of the CoC's authority post-approval of a resolution plan and the implications for erstwhile promoters and operational creditors.

Case Background

The case arose from a series of appeals filed under Section 62 of the IBC by erstwhile promoters and operational creditors of Bhushan Power and Steel Limited (BPSL) against the National Company Law Appellate Tribunal's (NCLAT) judgment. The NCLAT had modified certain conditions imposed by the National Company Law Tribunal (NCLT) while approving the resolution plan submitted by JSW Steel Limited, the successful resolution applicant (SRA).

The appeals primarily contested the legality of the resolution plan's provisions, the locus standi of the erstwhile promoters, and the distribution of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) during the Corporate Insolvency Resolution Process (CIRP).

What The Lower Authorities Held

The NCLT had initially approved the resolution plan on September 5, 2019, with certain conditions. However, the NCLAT, in its judgment dated February 17, 2020, allowed the appeal filed by JSW Steel and modified some of the conditions imposed by the NCLT, leading to the present appeals.

The NCLAT's decision was based on its interpretation of the IBC and the relevant regulations, asserting that the CoC had the authority to modify the resolution plan post-approval, which was contested by the appellants.

The Court's Reasoning

The Supreme Court, in its judgment, emphasized the importance of adhering to the statutory framework established by the IBC. It clarified that the CoC does not become functus officio upon the approval of a resolution plan. Instead, it retains its authority to oversee the implementation of the plan until it is fully executed or until a challenge to its approval is resolved.

The Court noted that the term 'person aggrieved' under Section 62 of the IBC is not narrowly defined, allowing erstwhile promoters to appeal as they are directly affected by the resolution plan's outcomes. This interpretation aligns with the IBC's objectives of balancing stakeholder interests and ensuring timely resolution processes.

The Court also addressed the issue of the legality of clauses permitting the CoC to extend the implementation period of the resolution plan. It held that such provisions are valid as long as they are approved by a requisite majority of the CoC, emphasizing the CoC's commercial wisdom in managing the resolution process.

Statutory Interpretation

The judgment involved a detailed interpretation of various provisions of the IBC, particularly Sections 30 and 31, which govern the approval and implementation of resolution plans. The Court underscored that any modifications to the resolution plan post-approval must comply with the statutory requirements and cannot undermine the integrity of the resolution process.

The Court also highlighted the significance of the amendments to the IBBI (CIRP) Regulations, particularly regarding the treatment of operational creditors and the distribution of EBITDA. It clarified that the distribution of EBITDA must be explicitly provided for in the resolution plan, and any claims regarding its distribution must be consistent with the terms of the approved plan.

Why This Judgment Matters

This ruling is pivotal for legal practice as it reinforces the authority of the CoC in the insolvency resolution process and clarifies the rights of erstwhile promoters and operational creditors. It establishes that the CoC's decisions are protected under the umbrella of commercial wisdom, limiting judicial interference in their decision-making processes.

Furthermore, the judgment emphasizes the importance of adhering to the statutory framework of the IBC, ensuring that resolution plans are executed in a timely manner and that all stakeholders are treated fairly. It also sets a precedent for future cases involving the interpretation of the IBC and the rights of various stakeholders in the insolvency process.

Final Outcome

The Supreme Court dismissed the appeals filed by the erstwhile promoters and operational creditors, upholding the NCLAT's judgment and confirming the validity of the resolution plan approved by the CoC. The Court's decision reinforces the integrity of the insolvency resolution process and the importance of adhering to the statutory provisions of the IBC.

Case Details

• Case Title: Kalyani Transco vs. M/s Bhushan Power and Steel Limited & Ors.
• Citation: 2025 INSC 1165
• Court: IN THE SUPREME COURT OF INDIA
• Date of Judgment: 2025-09-26