Section 31 of IBC : Section 31: Approval Of Resolution Plan

Explanation using Example

Imagine a company, "TechWidgets Ltd.", is unable to pay its debts and enters into Corporate Insolvency Resolution Process (CIRP). The Committee of Creditors (CoC), including banks and financial institutions, approves a resolution plan submitted by an entity, "InnovateCorp", which proposes to invest in and restructure TechWidgets Ltd. to make it financially viable.

The National Company Law Tribunal (NCLT), acting as the Adjudicating Authority, reviews the resolution plan. The NCLT confirms that the plan meets the requirements under section 30(2) of the Insolvency and Bankruptcy Code, such as adequate provision for payment of insolvency resolution process costs, management of the affairs of TechWidgets Ltd., and payment of debts to creditors. Satisfied, the NCLT approves the resolution plan.

As a result, the plan becomes binding on all stakeholders, including TechWidgets Ltd., its employees, members, and creditors, even the government bodies to whom statutory dues are owed. The moratorium that was in place during the CIRP is lifted, and InnovateCorp is now responsible for implementing the plan, including obtaining necessary approvals from regulatory bodies within the stipulated time frame.

If InnovateCorp had proposed a merger or acquisition as part of the resolution plan, it would need to obtain approval from the Competition Commission of India before the CoC approves the plan.