Promoter Cannot Cry Conditional LoI to Escape CoC-Approved Resolution Plan, Supreme Court Holds
A bench of Justices K.V. Viswanathan and Vipul M. Pancholi dismisses a promoter-SRA's challenge to LoI conditions, EMD forfeiture, and the subsequent liquidation order under the IBC.
The Supreme Court has dismissed appeals filed by Sanjay Dave, the promoter-director of M/s. Oracle Home Textiles Limited and its Successful Resolution Applicant (SRA), who had refused to accept three successive Letters of Intent issued by the Resolution Professional, characterised them as conditional, and then challenged the forfeiture of his earnest money deposit and the eventual liquidation of the corporate debtor. The Court, in Civil Appeal Nos. 12264–12266 of 2024 decided on 27 May 2026, found that the clauses Dave objected to were not conditions that entitled him to walk away from the plan. The minutes of multiple Committee of Creditors meetings showed he had expressly agreed to those very terms. The Court held that his conduct was a “clever ploy” to renege indirectly from a plan he could not withdraw from directly, and that permitting such artifices would undermine the entire architecture of the Insolvency and Bankruptcy Code, 2016.
How the Dispute Reached the Supreme Court
The Corporate Insolvency Resolution Process for M/s. Oracle Home Textiles Limited was admitted on 9 August 2018. A Request for Resolution Plan was issued on 6 February 2019. Dave, the promoter-director of the corporate debtor — which held an MSME certificate — was permitted by the NCLT to submit a resolution plan. On 10 May 2021, he was informed that the Committee of Creditors had approved his plan with a voting majority of 99.90%.
At the time Dave's plan was under consideration, two third parties had moved the Adjudicating Authority seeking permission to file their own resolution plans. Those applications were pending. It was against this backdrop that the Resolution Professional issued a Letter of Intent to Dave on 23 May 2021. Dave refused to accept it, calling it conditional because it stated that the CoC's approval was subject to the outcome of an order reserved by the NCLT Mumbai Bench in a hearing held on 21 January 2021.
Dave filed IA No. 1205 of 2021 seeking re-issuance of an unconditional LoI. While that application was pending, a second LoI was issued on 23 June 2021 — this time because Dave had failed to submit the accepted copy of the first LoI within the stipulated time. The second LoI carried the same subject-to-outcome clause. A third LoI followed on 23 July 2021, again on the same terms, with a specific direction that an unconditional performance guarantee be submitted within seven days in terms of clause 1.10 of the RFRP.
Dave did not accept the third LoI either. On 2 August 2021, the Resolution Professional forfeited his earnest money deposit of Rs. 1,00,00,000 (one crore rupees) under clause 1.9.4 of the RFRP for non-acceptance of the LoI dated 23 June 2021. Dave then filed IA No. 2029 of 2021 before the Adjudicating Authority on 27 August 2021 seeking restoration of the EMD.
The CIRP period ended on 21 February 2023. With no valid resolution plan in place, the CoC voted on 5 June 2023 to liquidate the corporate debtor, with a voting percentage of 99.61%. The Resolution Professional filed IA No. 3914 of 2023 seeking approval for liquidation. On 30 April 2024, the Adjudicating Authority dismissed Dave's two applications and allowed the RP's liquidation application. Dave appealed to the NCLAT, which dismissed all three company appeals on 29 October 2024. He then approached the Supreme Court under Section 62 of the Code.
The Three Contentions Dave Pressed
Before the Supreme Court, counsel for Dave advanced three arguments. First, all three LoIs were conditional because they made the CoC's approval subject to the outcome of pending applications filed by prospective resolution applicants — proceedings to which Dave was not even a party. Second, the clause requiring the SRA to bear the risk and cost of any litigation initiated by staff, employees, and workers also made the LoI conditional. Third, the original 45-day period for submitting the performance guarantee — granted at the 27th CoC meeting on 6 May 2021 on account of the COVID-19 pandemic — was improperly reduced to seven days in the third LoI of 23 July 2021.
Respondents — Union Bank of India (as lead bank, successor to Andhra Bank) and the Liquidator — relied on the findings of both the Adjudicating Authority and the NCLAT, and drew the Court's attention to the minutes of multiple CoC meetings.
Why the Court Rejected the “Conditional LoI” Argument
The Court found no merit in the first contention. It reasoned that even without the subject-to-outcome clause, the order of the Adjudicating Authority would ultimately prevail unless set aside by a higher forum. A stipulation that the LoI would be subject to the final decision of a judicial body in a proceeding to which the CoC and RP were already privy did not, in the Court's view, make the LoI conditional in any sense that entitled Dave to renege from the plan.
The Court also found that Dave was fully aware of the pending litigation. The minutes of the 15th CoC meeting held on 24 January 2020 showed he was present when the resolution plans of M/s. Faze Three Limited and M/s. Munish Kohli and Associates were discussed, and when the two pending applications — MA Nos. 2005 and 1618 of 2019 — were deliberated upon. Dave had himself submitted his initial resolution plan only after the NCLT passed an order on 18 February 2020 in MA No. 608 of 2020. The NCLT had found it “irrational, absurd and untenable in law” for Dave to insist his plan be considered without subjecting it to the outcome of those proceedings.
The NCLAT had gone further, recording that Dave never objected to the subject-to-outcome condition at any stage up to the 28th CoC meeting. He had in fact requested the CoC to issue him a LoI. It was only after the LoI was circulated to him on 24 May 2021 that his advocate raised preliminary objections on 29 May 2021. The NCLAT characterised this as an afterthought. The Supreme Court agreed.
On the second contention — the workers' litigation risk clause — the Court turned to the minutes of the 27th CoC meeting. Those minutes showed that Dave had been specifically asked by the RP to elaborate on clause 7.11 of his own addendum, which dealt with the workers' dues. A representative of Union Bank of India stated that all such applications were the risk of the resolution applicant. The minutes recorded: “Mr. Sanjay Dave agreed to the same.” The Court held that Dave could not be permitted to blow hot and cold.
On the third contention, the Court accepted the submission of senior counsel for the respondent that the 45-day extension had been granted specifically because of the COVID-19 pandemic. By the time the third LoI was issued on 23 July 2021, that period had long since expired without Dave conveying acceptance. There was therefore no basis for granting a further 45 days. The Court also noted that the minutes of the CoC meeting of 23 July 2021 recorded Dave himself stating that he had agreed to submit the performance bank guarantee in seven days as prescribed in the RFRP document.
Acquiescence, Approbation, and the Binding Nature of a CoC-Approved Plan
The Court applied the doctrine of acquiescence, drawing on Chairman, State Bank of India and Another v. M.J. James (2022) 2 SCC 301, which distinguishes acquiescence from delay and laches. Acquiescence, the Court recalled, applies when a party having a right stands by and sees another dealing in a manner inconsistent with that right, and thereafter cannot complain. On the facts, the Court found that Dave had not merely acquiesced — he had expressly agreed to the very terms he later objected to.
The Court also invoked the principle against approbation and reprobation, citing Nagubai Ammal and Others v. B. Shama Rao and Others (1956) 1 SCC 698 and Rajasthan State Industrial Development & Investment Corporation and Another v. Diamond & Gem Development Corporation Limited and Another (2013) 5 SCC 470. A person cannot accept the benefits of a transaction and then turn around and say it is void to secure some other advantage.
The Court then addressed the binding nature of a CoC-approved resolution plan, relying on Ebix Singapore Private Limited v. Committee of Creditors of Educomp Solutions Limited and Another (2022) 2 SCC 401. That judgment had held that once a resolution plan is approved by the CoC, the successful resolution applicant is prohibited from negotiating further. The only conditionality that remains is the approval of the Adjudicating Authority, which has limited jurisdiction under Section 30(2) of the Code. Enabling withdrawals or modifications at the behest of the SRA after CoC approval would create an unregulated tier of negotiations with a deleterious impact on the corporate debtor, its creditors, and the economy.
The Court found that Dave was deliberately trying to delay implementation of the plan by citing the purported conditionality of the LoI. It described his conduct as a device to renege indirectly from a plan he could not withdraw from directly — a “clear subterfuge”. The Court warned that if such artifices were allowed to succeed, the entire architecture of the IBC would crumble.
EMD Forfeiture and the Liquidation Order
On the forfeiture of the Rs. 1 crore EMD, the Court found no illegality. Clause 1.9.4 of the RFRP expressly entitled the designated lender to forfeit the EMD where the successful applicant failed to submit the performance guarantee within the stipulated time or in case of any other non-compliance with the resolution plan process. The proviso to that clause — which protects the SRA from forfeiture where non-compliance arises due to non-receipt of the LoI or due to additional terms being stipulated by the CoC — did not apply on the facts. The minutes of the 31st CoC meeting held on 26 July made clear the basis on which the EMD was forfeited: Dave had been given sufficient opportunities and had misused them.
On the liquidation order, the Court reproduced Section 33(2) of the Code and its Explanation, which came into force on 16 August 2019. The Explanation makes clear that the CoC may take the decision to liquidate the corporate debtor at any time after its constitution and before confirmation of the resolution plan, including before preparation of the information memorandum. The Court held that where an SRA lulls the CoC into believing it will comply and then reneges, and the CoC resolves to liquidate so as to realise money and disburse claims, no fault can be found with that process.
The Court also relied on Manish Kumar v. Union of India (2021) 5 SCC 1, which had explained that Section 33(2) contemplates that before confirmation of the resolution plan, if the CoC approves liquidation by not less than 66% of the voting share, the Adjudicating Authority is bound to pass the liquidation order. And on the non-justiciability of the CoC's commercial wisdom, the Court cited K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150, which held that the legislature has not endowed the NCLT with jurisdiction to analyse or evaluate the commercial decision of the CoC.
The Court held that the fora below had rightly refused to interfere in the CoC's well-informed commercial decision to reject Dave's plan and liquidate the corporate debtor, a decision approved with a voting percentage of 99.61%.
Order
The Supreme Court dismissed all three civil appeals. All interim orders were vacated. The Liquidator — respondent No. 3 — was directed to proceed with the remaining part of the liquidation in accordance with the Code. No order as to costs was made.