The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted with a singular objective preserving economic value through a swift and predictable corporate rescue mechanism. Yet, despite the Code’s emphasis on certainty and finality, insolvency proceedings have frequently encountered attempts by successful bidders to retreat from commitments after obtaining approval from creditors. A recent legal discussion surrounding the Supreme Court’s decision in Sanjay Dave v. Andhra Bank Ltd. & Ors. has once again highlighted an important principle of insolvency jurisprudence successful resolution applicants cannot use allegedly “conditional” Letters of Intent (LoIs) as a means to evade obligations arising from an approved resolution plan.
The controversy strikes at the heart of the insolvency framework. Under the Corporate Insolvency Resolution Process (CIRP), financially distressed companies are offered an opportunity for revival through the submission of resolution plans by prospective investors. These plans are evaluated by the Committee of Creditors (CoC), whose commercial wisdom remains the cornerstone of the insolvency process. Once a plan secures the requisite approval of creditors, the process is intended to move steadily toward implementation rather than renegotiation. The successful bidder is expected to furnish a Performance Bank Guarantee (PBG), execute relevant documentation, and await final approval of the plan by the National Company Law Tribunal (NCLT).
Historically, however, a significant practical challenge emerged during the period between CoC approval and NCLT confirmation. This interval often created opportunities for successful bidders to reconsider the commercial viability of their commitments. Market conditions could change, asset values could fluctuate, or unforeseen liabilities could emerge. In such circumstances, some bidders attempted to withdraw from the process or seek renegotiation of terms. The Supreme Court decisively addressed this issue in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd., where it held that a resolution plan approved by the CoC acquires binding character and cannot be unilaterally withdrawn merely because subsequent developments make the transaction less attractive.
Yet insolvency litigation did not end with Ebix. Instead of openly seeking withdrawal, resolution applicants began challenging procedural documents issued after approval. The Letter of Intent became a particular focal point of dispute. Certain bidders argued that clauses referring to pending litigation, judicial proceedings, or contingent liabilities transformed the LoI into a conditional agreement that differed from the resolution plan originally submitted. By characterizing these clauses as new conditions, applicants attempted to justify withholding Performance Bank Guarantees or refusing to proceed with implementation.
The dispute in Sanjay Dave v. Andhra Bank arose in precisely this context. The successful bidder’s resolution plan had secured overwhelming approval from the Committee of Creditors. However, the Resolution Professional subsequently issued a Letter of Intent noting that the plan remained subject to pending judicial proceedings and that certain litigation-related risks would have to be borne by the successful applicant. The bidder contended that these provisions fundamentally altered the commercial bargain and rendered the LoI conditional. On this basis, he refused to unconditionally accept the LoI or furnish the required financial guarantees.
The Supreme Court rejected this argument in unequivocal terms. The Court observed that every resolution plan approved under the IBC is inherently subject to the authority of judicial and statutory forums. Section 31 of the Code itself makes implementation dependent upon approval by the adjudicating authority. Consequently, a reference in the Letter of Intent to pending court proceedings merely reflects an existing legal reality rather than creating a new contractual condition. The Court held that such clauses cannot be converted into an escape route for a bidder seeking to avoid obligations already accepted during the bidding process.
A particularly significant aspect of the judgment lies in its reliance on the doctrine of approbate and reprobate. The Court found that the bidder had been fully aware of pending litigation, rival claims, and associated risks when submitting the resolution plan. Having secured the commercial advantages of being declared the successful resolution applicant, he could not subsequently reject the very risks that formed part of the transaction. The law does not permit a party to accept benefits while simultaneously disowning corresponding obligations. Such conduct, the Court observed, amounted to a transparent attempt to circumvent a binding commitment.
The decision carries profound implications for insolvency practice in India. First, it reinforces the finality of the resolution process. The value-maximization objective of the IBC depends upon certainty. If successful bidders were permitted to reconsider commitments after approval, insolvency proceedings would become vulnerable to strategic delays and commercial opportunism. Such uncertainty would undermine creditor confidence and erode the effectiveness of the insolvency framework.
Second, the ruling strengthens the authority of the Committee of Creditors. The IBC has consistently recognized the primacy of creditors’ commercial wisdom. Once creditors approve a resolution plan after evaluating competing bids and financial implications, their decision cannot be held hostage by a bidder attempting to renegotiate terms through procedural objections. The Supreme Court’s approach ensures that the insolvency process remains driven by commercial realities rather than tactical litigation.
Third, the judgment imposes a heightened due diligence obligation upon prospective resolution applicants. Participants in the insolvency process can no longer adopt a speculative approach by submitting aggressive bids while reserving the possibility of withdrawal later. The Court’s reasoning makes it clear that all foreseeable risks including pending litigation, employee claims, regulatory issues, and contingent liabilities must be evaluated before submission of the resolution plan. Once the bid is accepted, the applicant is expected to honour its commitments irrespective of subsequent commercial regret.
From a broader policy perspective, the controversy reveals an institutional gap that continues to generate avoidable litigation. Insolvency professionals presently enjoy considerable discretion in drafting Letters of Intent. The absence of a standardized regulatory template creates opportunities for disputes concerning language, conditions, and interpretation. Several insolvency experts have therefore advocated for the introduction of a uniform LoI format by the Insolvency and Bankruptcy Board of India (IBBI). Standardization could significantly reduce litigation by clarifying the legal status of common clauses relating to pending proceedings, contingent liabilities, and implementation risks.
The significance of the judgment ultimately extends beyond the immediate dispute. The IBC was designed as a rescue mechanism intended to preserve businesses before their value deteriorates beyond recovery. Delays caused by strategic conduct on the part of successful bidders not only harm creditors but also jeopardize employees, suppliers, and the broader economic ecosystem dependent upon the corporate debtor. By refusing to permit procedural documents such as Letters of Intent to be weaponized as exit mechanisms, the Supreme Court has reaffirmed a foundational principle of insolvency law: a successful resolution plan is not a tentative commercial option but a binding legal commitment.
The ruling therefore marks another important step in the evolution of India’s insolvency jurisprudence. It strengthens transactional certainty, reinforces creditor confidence, and advances the legislative objective of timely resolution. Most importantly, it sends an unequivocal message to future bidders that participation in the insolvency process demands commercial seriousness. Once declared successful, a resolution applicant cannot hide behind allegedly conditional Letters of Intent to escape obligations voluntarily undertaken. Under the IBC, winning the bid is not the beginning of a negotiation, it is the commencement of a binding duty to perform.
