Section 31 [Approval of Resolution Plan] of the Insolvency and Bankruptcy Code, 2016 (IBC) plays a pivotal role in giving legal finality and binding effect to an approved resolution plan. Once approved by the Adjudicating Authority (National Company Law Tribunal or NCLT), the resolution plan becomes binding on the corporate debtor, its employees, members, creditors, and other stakeholders, ensuring certainty and enforceability. The provision empowers the NCLT to scrutinize the plan’s compliance with statutory requirements and reject plans that are non-compliant or unviable.
It also provides for the termination of the moratorium (Section 14), mandates the submission of corporate insolvency resolution process (CIRP) records to IBBI, and outlines a time-bound framework for obtaining necessary statutory approvals post-approval. Importantly, in cases involving combinations under competition law, prior CCI approval is made mandatory before Committee of Creditors (CoC) approval.
In essence, Section 31 ensures that only lawful, feasible, and regulatorily sound resolution plans are implemented, thereby reinforcing the integrity, efficiency, and finality of the corporate insolvency resolution process under the Code.
Section 32(1) of the IBC – Approval and its binding effect.
Section 31(1) of IBC provides statutory binding force to a resolution plan once it is approved by the Adjudicating Authority. Once the CoC approves a resolution plan under Section 30(4) and the plan meets the criteria under Section 30(2) [which includes feasibility, viability, payment of debts, etc.], then the Adjudicating Authority shall formally approve the resolution plan.
Upon approval, the resolution plan becomes binding on: (i)The corporate debtor, (ii) Its employees, (iii) Members (shareholders), (iv) Creditors (including financial and operational), (v) Guarantors, (vi) Statutory authorities – such as the Central Government, State Governments, or any local authority (e.g., GST, Income Tax, PF departments) and (vii) all other stakeholders involved in the resolution plan.
Bare Text of Section 32(1) – IBC.
“31. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, 1[including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan.
2[Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.]”
_______
1. Inserted by vide Insolvency and bankruptcy Code (Amendment) Act, 2019 (26 of 2019) dated 05.08.2019, w.e.f. 16.08.2019 vide S.O. 2953(E), dated 16.08.2019.
2. Inserted by vide Insolvency and bankruptcy Code (Amendment) Act, 2018 (26 of 2018) dated 17.08.2018, w.e.f. 06.06.2018.
The proviso to Section 31(1), inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2018 dated 17.08.2018 and made effective from 06.06.2018, mandates that the Adjudicating Authority, before approving a resolution plan, must be satisfied that the plan contains adequate and practical provisions for its effective implementation.
This judicial scrutiny may involve assessing:
- Whether the resolution applicant has adequate financial and operational resources to implement the plan;
- Whether the timelines proposed are realistic and achievable;
- Whether any regulatory approvals, licenses or consents required under applicable laws can reasonably be obtained; and
- Whether the obligations of various stakeholders are clearly defined, structured, and executable.
This provision serves as a safeguard to ensure that only viable and actionable resolution plans are approved, thereby minimizing the risk of post-approval failure or non-performance by the resolution applicant and enhancing the overall credibility and effectiveness of the resolution process under the Code.
Section 32(2) of the IBC – Rejection of Resolution Plan.
Bare Text of Section 31(2) – IBC.
(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.
This provision empowers the Adjudicating Authority to reject a resolution plan if:
- It does not satisfy the requirements under Section 30(2) (e.g., payment of debts to operational creditors, compliance with existing laws, feasibility, etc.), or
- It lacks implementation viability as per the proviso to Section 31(1).
The Adjudicating Authority is not intended to function as a mere rubber stamp. It is required to actively scrutinize the resolution plan to ensure it meets all statutory criteria. This safeguards the integrity of the insolvency process by ensuring that only lawful, fair, and viable plans are approved under the Code.
Section 31(3) of the IBC – Effect after Approval of Resolution Plan.
Section 31(3) outlines the legal consequences that follow the approval of a resolution plan by the Adjudicating Authority:
Bare Text of Section 31(3) – IBC.
“(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and
(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.”
Clause (a): Termination of the Moratorium– The moratorium imposed under Section 14, which provides protection to the corporate debtor from legal proceedings during the resolution process, automatically ceases once the resolution plan is approved. This marks the end of the CIRP phase and the beginning of implementation of the resolution plan.
Clause (b): Submission of all records to IBBI- The Resolution Professional (RP) is required to submit all records of the CIRP and the approved resolution plan to the Insolvency and Bankruptcy Board of India (IBBI). This ensures regulatory oversight, transparency, and proper documentation in the IBBI’s centralized database.
Section 31(4) of the IBC – Effect after Approval of Resolution Plan.
Section 31(4) deals with statutory and regulatory approvals needed post-approval of a resolution plan.
Bare Text of Section 31(4) – IBC.
3[4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under subsection (1) or within such period as provided for in such law, whichever is later.
Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of the Competition Act, 2002, the resolution applicant shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.]”
_______
3. Inserted by vide Insolvency and bankruptcy Code (Amendment) Act, 2018 (26 of 2018) dated 17.08.2018, w.e.f. 06.06.2018.
Time-bound Compliance Requirement:
The Corporate Debtor is required to obtain all necessary statutory and regulatory approvals under applicable laws within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority, or within such extended period as may be prescribed under the relevant law, whichever is later. This ensures compliance with sector-specific legal requirements while providing a reasonable timeline for implementation.
Mandatory CCI Approval for Combinations:
The proviso to Section 31(4) of the IBC stipulates that if a resolution plan involves a “combination”—such as a merger or acquisition—as defined under Section 5 of the Competition Act, 2002, the resolution applicant is required to obtain prior approval from the Competition Commission of India (CCI). Crucially, this approval must be obtained before the resolution plan is approved by the CoC. This provision ensures that any anti-competitive effects arising from the proposed transaction are examined at the pre-approval stage, preserving market integrity and compliance with competition law.
Conclusion: Section 31 serves as the legal cornerstone for the approval and enforcement of a resolution plan under the Insolvency and Bankruptcy Code. It ensures that once a resolution plan is approved by the Adjudicating Authority (NCLT), it becomes binding on all stakeholders, including the corporate debtor, creditors, employees, and government authorities.
Other compliances regarding approval of Resolution Plan.
Pursuant to Notification G.S.R. 675(E) dated 24.07.2018, the Central Government amended Rule 19A of the Securities Contracts (Regulation) Rules, 1957, to provide that where the public shareholding in a listed company falls below 25% as a result of the implementation of a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, the company shall increase its public shareholding to at least 25% within a maximum period of three years from the date of such fall. Furthermore, where the public shareholding falls below 10%, it must be increased to at least 10% within a maximum period of twelve months from the date of such fall, in the manner specified by SEBI.
Subsequently, Notification G.S.R. 423(E) dated 18.06.2021 further amended Rule 19A to mandate that every listed company shall maintain a minimum public shareholding of at least 5% even after the implementation of a resolution plan approved under Section 31 of the Code.
Clarification regarding Approval of Resolution Plans under Sections 30 and 31 – General Circular No. IBC/01/2017 dated 25.10.2017:
The Insolvency and Bankruptcy Board of India (IBBI) issued a general clarification vide Circular No. GC-IBC/01/2017 dated 25.10.2017 addressing the process of approval of resolution plans under Sections 30 and 31 of the IBC. The clarification was sought in view of the requirement under section 30(2)(e) of the Code for the resolution professional to confirm that each resolution plan received by him does not contravene any of the provisions of the law for the time being in force.
The matter has been examined in the Ministry in the light of provisions of sections 30 and 31 of the Code which provide a detailed procedure from the time of receipt of resolution plan by the resolution professional to its approval by the Adjudicating Authority and there is no requirement for obtaining approval of shareholders/members of the corporate debtor during this process.
Furthermore, it is also clarified that the approval of shareholders/members of the corporate debtor/company for a particular action required in the resolution plan for its implementation, which would have been required under the Companies Act, 2013 or any other law if the resolution plan of the company was not being considered under the Code, is deemed to have been given on its approval by the Adjudicating Authority.
It is to be noted that an Explanation to clause (b) of sub-section (2) of Section 30 was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (Act No. 26 of 2018), dated 17.08.2018, and came into effect from 06.06.2018. The inserted Explanation provides as follows:
“Explanation: For the purpose of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.”
This Explanation reinforces the position that approval of shareholders under companies Act or under any other law is not a prerequisite for the CoC or Adjudicating Authority to approve a resolution plan. Instead, such approvals, if required for implementation purposes, are deemed to have been given upon approval of the plan under the IBC.
*****
Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.
Author Bio
