CoC Approval Cannot Cure Resolution Plan's Failure To Meet Mandatory IBC Requirements: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has held that the Committee of Creditors' (CoC) approval cannot cure a resolution plan that fails to meet mandatory requirements under the Insolvency and Bankruptcy Code, 2016 (IBC). It ruled that the CoC's commercial wisdom on a plan's feasibility and viability applies only when the plan complies with the law.

A bench of Judicial Member Justice Mohammad Faiz Alam Khan and Technical Member Arun Baroka made the observation while dismissing appeals against the rejection of a ₹7 crore resolution plan for Worlds Window Exim Private Limited and the subsequent liquidation order.

“The Supreme Court held in Essar Steel (supra) (para 64) that what is left to the majority decision of the CoC is the “feasibility and viability” of a resolution plan. That wisdom, however, works on a plan that contains what the law requires. The approval of the CoC cannot cure a plan that does not meet a mandatory requirement. If it could, Section 30(2)(f) would have no meaning once the CoC has voted,” the tribunal ruled.

Worlds Window Exim, an asset-holding company that was not operational, entered the corporate insolvency resolution process on May 16, 2025, following a plea by Central Bank of India under Section 7 of the IBC.

During the process, debts owed to Central Bank of India, Bank of India and Bank of Baroda were assigned to Prudent ARC. It consequently held 94.86% of the CoC's voting share, while Punjab National Bank held the remaining 5.14%.

The CoC approved Dickey Special Situation Investment Trust – DSSF Series 2's resolution plan on April 23, 2026. The plan offered ₹7 crore, against a liquidation value of ₹9.42 crore.

On August 14, 2026, the NCLT rejected the plan, finding that it failed to address the cause of default and violated the dissenting financial creditor's entitlement under Section 30(2)(b) of the IBC.

The NCLAT upheld the rejection on the first ground. It noted that Clause 2.14 of the plan acknowledged that the resolution applicant was “not fully aware about the cause of default”.

Although the clause referred to the company's losses, lack of turnover and liabilities exceeding its assets, it did not explain why the default occurred. The proposal to use secured land and attempt a “viable business proposition” also failed to explain how the default would be addressed.

The tribunal held that the plan violated Regulation 38(3)(a) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This also meant that it failed to meet Section 30(2)(f) of the IBC. The tribunal held that this defect alone justified rejection of the plan.

The appellate tribunal clarified that a resolution plan need not match the liquidation value, as Clause 3.4 protected the dissenting creditor's entitlement. It upheld the investigation into the company's affairs but set aside the restriction on Prudent ARC's recovery, leaving the issue open. Both appeals were dismissed, and the liquidation order was upheld.