The Hon'ble Supreme Court has addressed some much-needed clarifications towards the significance and contents of a Letter of Intent ("LoI") issued to a Successful Resolution Applicant ("SRA") and the conduct of the SRA during the process of CIRP. The ruling, however, is still a reminder on the supremacy of commercial wisdom of the Committee of Creditors ("CoC"). The Hon'ble Court has addressed the grievances of the SRA with respect to the LoI being conditional in two ways — judicially and on merits. It was stated that the LoI, even without express mention, would be bound by any and every such order of the Adjudicating Authority, unless duly called in question and set aside before the higher body, which will prevail. Additionally, the conduct of the SRA after being privy to each such piece of information potentially impacting the Resolution Plan was observed to be conforming.

The Court held that once a resolution plan has been approved by the CoC, an SRA cannot indirectly withdraw from the process by alleging that the LoI was conditional, particularly when the applicant had accepted or acquiesced in those very conditions during the CIRP. The ruling reinforces the finality of the resolution process, reiterates the binding nature of a CoC-approved resolution plan, and applies the equitable doctrines of acquiescence and approbation and reprobation within the IBC framework.

Background

The Corporate Debtor, M/s Oracle Home Textiles Limited, was admitted into the Corporate Insolvency Resolution Process (CIRP) in August 2018. The appellant, who was a promoter/director of the Corporate Debtor, submitted a resolution plan which was approved by the CoC with an overwhelming voting share of 99.90% in May 2021. At the relevant time, applications filed by third parties seeking permission to submit competing resolution plans were pending before the Adjudicating Authority (NCLT). Keeping this in view, the Resolution Professional (RP) issued three Letters of Intent to the appellant incorporating, inter alia, two stipulations:

  1. The approval of the resolution plan would remain subject to the outcome of the pending proceedings before the NCLT; and
  2. The SRA would bear the risk and costs arising from any litigation initiated by employees or workers.

The SRA refused to unconditionally accept the LoI on the ground that they were "conditional". The SRA also sought extension of time from seven days to forty-five days for furnishing the Performance Bank Guarantee (PBG), contrary to the timeline prescribed under the Request for Resolution Plan (RFRP). As the appellant failed to accept the LoI and furnish the PBG, the RP forfeited the Earnest Money Deposit (EMD) of ₹1 crore in accordance with the RFRP. Since no resolution plan could be successfully implemented within the CIRP period, the CoC, by a voting share of 99.61%, resolved to liquidate the Corporate Debtor. The NCLT and the NCLAT upheld these actions, leading to the appeal before the Supreme Court under Section 62 of the IBC.

Submissions

The SRA contended that the LoI was conditional and, as such, contrary to the IBC as well as the plan submitted by the SRA. The stipulation of the Resolution Plan being subject to the orders reserved by the NCLT in applications filed by the PRAs makes the LoI a conditional one. Additionally, it was contended that the obligation to underwrite any liability arising out of the litigation initiated by the workmen makes the LoI conditional. Moreover, the reduction of the time period granted for the submission of the PBG in the second LoI dated 23.07.2021 was contrary to the resolution of the CoC.

The Respondents highlighted the observations of the Hon'ble NCLT and NCLAT. The fact that the SRA was present in the relevant meetings of the CoC and had acquiesced itself with the ongoing litigations was observed by the Hon'ble NCLT. The Hon'ble NCLAT had also observed that the pendency of the application of the PRA was discussed in the presence of the SRA. It went on to hold that the objections raised by the SRA regarding the existence of conditions in the LoI were merely an afterthought and that the Hon'ble NCLT rightly refused to entertain the objections since withdrawal or modification of a resolution plan after approval by the CoC is not permissible in law.

Analysis

1. The Letter of Intent was not conditional

The Supreme Court rejected the appellant's contention that the LoI was conditional. The Court observed that making the LoI subject to the outcome of pending judicial proceedings merely acknowledged the legal position that any order passed by the Adjudicating Authority would bind all stakeholders. Such a clause neither altered the resolution plan nor imposed any additional contractual condition upon the SRA. The Court also noted that the appellant had participated in several CoC meetings where the pending proceedings were discussed and had raised no objection to the incorporation of such clauses. The objections surfaced only after the issuance of the LoI, indicating that the challenge was an afterthought rather than a genuine grievance.

A significant aspect of the judgment is the Court's application of equitable principles. Relying upon Chairman, State Bank of India v. M.J. James (2022), the Court reiterated that acquiescence is established where a party, with full knowledge of the relevant facts, consciously accepts or permits a course of action and subsequently seeks to challenge it. The minutes of the CoC meetings clearly demonstrated that the appellant had agreed to bear the litigation risk relating to employees and had also accepted the requirement of furnishing the PBG within seven days. The Court further relied upon Nagubai Ammal v. B. Shama Rao (1956) 1 SCC 698 and Rajasthan State Industrial Development Corporation v. Diamond & Gem Development Corporation (2013) 5 SCC 470 to reiterate the settled principle that a party cannot approbate and reprobate — namely, accept the benefits of a transaction while rejecting its corresponding obligations. The Court found that the appellant's conduct was nothing but an indirect attempt to withdraw from a resolution plan after obtaining CoC approval, something which the IBC does not permit.

2. A CoC-Approved Resolution Plan Cannot Be Withdrawn

The Court reaffirmed the principles laid down in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. (2022) 2 SCC 401. It reiterated that once a resolution plan has been approved by the CoC under Section 30(4), the stage of negotiation comes to an end. Thereafter, the Adjudicating Authority exercises only a limited jurisdiction under Section 31 to examine whether the statutory requirements under Section 30(2) have been satisfied. The IBC does not contemplate withdrawal, modification, or renegotiation of a resolution plan at the instance of the Successful Resolution Applicant after CoC approval.

Accordingly, the Court upheld the forfeiture of the Earnest Money Deposit under Clause 1.9.4 of the RFRP, holding that the appellant's failure to accept the LoI and furnish the PBG attracted the contractual consequences agreed between the parties.

3. The CoC's Decision to Liquidate was Valid

The Supreme Court also upheld the decision of the CoC to liquidate the Corporate Debtor under Section 33(2) of the IBC. Relying upon K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150 and Manish Kumar v. Union of India (2021) 5 SCC 1, the Court reiterated that the commercial wisdom of the CoC is generally not amenable to judicial review except on limited statutory grounds. Since no valid resolution plan remained capable of implementation after the appellant failed to comply with the RFRP and LoI, the CoC was fully justified in resolving to liquidate the Corporate Debtor.

Conclusion

The Supreme Court's decision strengthens the certainty and finality of the insolvency resolution process under the IBC. The Court has made it clear that once a resolution plan receives the approval of the Committee of Creditors, a Successful Resolution Applicant cannot subsequently avoid its obligations by challenging the Letter of Intent or attempting to renegotiate the agreed terms.

Equally important, the judgment reiterates that the commercial wisdom of the CoC, including its decision to proceed with liquidation under Section 33, will not ordinarily be interfered with by the courts.

For Resolution Professionals and financial creditors, the decision reinforces the importance of maintaining comprehensive records of CoC deliberations. For resolution applicants, it serves as a reminder that objections must be raised during the resolution process itself and cannot be introduced after the plan has been approved. The ruling therefore furthers the IBC's objective of ensuring a time-bound and efficient insolvency resolution framework.