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CS Professional · Insolvency and Bankruptcy - Law and Practice · Resolution Strategies (Elective 7.5)

Gangotri Textiles Ltd is undergoing CIRP. The Adjudicating Authority approves the resolution plan under section 31(1). Sethi Bank, a financial creditor that voted against the plan, argues that it is not bound by the plan. Which statement is correct?

The approved plan binds the corporate debtor, employees, members, creditors, guarantors and other stakeholders, including statutory authorities. A creditor that voted against it is still bound, because section 31(1) makes the order binding on all stakeholders involved in the plan, not just those who approved it.

  1. AThe plan binds only the creditors who voted in favour of it
  2. BThe plan binds the corporate debtor, its employees, members, creditors, guarantors and other stakeholders, including dissenting creditorsCorrect
  3. CThe plan binds the corporate debtor but not statutory authorities such as the Central or State Government
  4. DThe plan binds creditors only if the resolution professional separately obtains their written consent

Explanation

Once approved under section 31(1), the plan is binding on the corporate debtor and its employees, members, creditors (including the Central Government, State Governments and local authorities owed statutory dues), guarantors and other stakeholders. A dissenting vote does not exempt a creditor. The option limiting the plan to assenting creditors is wrong because the binding effect is not dependent on how a creditor voted.

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