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CS Professional · Corporate Restructuring, Valuation and Insolvency · Preparation and Approval of Resolution Plan

Meridian Steels Ltd is in CIRP. The committee of creditors approved a resolution plan under section 30(4), and the resolution professional filed it before the Adjudicating Authority. The Authority is satisfied that the plan meets the requirements of section 30(2) and has provisions for its effective implementation. What is the legal effect of its approval order under section 31(1)?

An approved resolution plan binds the corporate debtor, its employees, members, all creditors including the Central Government, State Governments and local authorities owed statutory dues, guarantors and other stakeholders. Section 31(1) makes the binding effect wide, so it is not limited to dissenting or voting creditors or to the applicant.

  1. AThe plan binds only the financial creditors who voted in favour of it
  2. BThe plan binds the corporate debtor, its employees, members, creditors including Central and State Governments and local authorities owed statutory dues, guarantors and other stakeholdersCorrect
  3. CThe plan binds only the corporate debtor and the successful resolution applicant
  4. DThe plan binds the stakeholders only after the Board registers it on its database

Explanation

Section 31(1) says an approved plan is binding on the corporate debtor and its employees, members, creditors (including the Central Government, State Governments and local authorities to whom statutory dues are owed), guarantors and other stakeholders. It is not confined to the voting creditors or the applicant. Forwarding records to the Board is a separate duty under section 31(3)(b) and is not a condition for the plan to bind.

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