A Successful Resolution Applicant Cannot Escape Through A 'Conditional' Letter Of Intent

For some years, the position under the Insolvency and Bankruptcy Code, 2016 has been settled. A successful resolution applicant cannot withdraw or modify a resolution plan once the committee of creditors (CoC) has approved it and the plan has gone to the adjudicating authority. The Supreme Court said as much in Ebix Singapore (P) Ltd. v. Committee of Creditors of Educomp Solutions Ltd., 2021 LiveLaw (SC) 447, holding that the Code leaves a resolution applicant no way out and th at the NCLT cannot read one in.

What the Court did not decide there was how to treat an applicant who wants out but will not say so. That is the situation it faced on 27 May 2026 in Sanjay Dave v. Andhra Bank Ltd., 2026 INSC 580, before Justices K.V. Viswanathan and Vipul M. Pancholi. The judgment can be read quickly as one more application of Ebix. It is better read as a warning about a particular way of trying to escape a plan, and about a gap the Code has still not filled.

How the dispute arose

Oracle Home Textiles Limited had been in insolvency since 9 August 2018. Sanjay Dave, who sat on the company's suspended management, was allowed by the NCLT in February 2020 to put forward a resolution plan, and in May 2021 the CoC approved it with a 99.90% vote. What unravelled the resolution was the letter of intent that followed. The resolution professional's letter recorded that approval would hold subject to the outcome of applications then pending before the NCLT from rivals who wanted to file competing plans, and Dave seized on that wording. He described the letter as conditional and at odds with the plan the CoC had cleared, declined to accept it, and let the deadline for the performance guarantee pass. The professional forfeited his ₹1 crore deposit, and the CoC, again almost unanimously at 99.61%, resolved to liquidate the company under Section 33(2). The NCLT permitted liquidation, the NCLAT agreed, and the appeal travelled up under Section 62.

Justice Viswanathan, writing for the Court, was not persuaded. He treated the objection to the letter of intent as a clear subterfuge, an effort to do indirectly what Ebix forbids directly, by dressing up ordinary stipulations as impermissible conditions and turning the applicant's own default into a complaint against the CoC. Allowing that, he warned, would let the whole structure of the Code be undone. Once the CoC has brought its commercial judgment to bear and approved a plan, the applicant is bound to perform it in time and cannot return to the bargaining table under any description. The forfeiture was upheld, and the liquidation was traced to the Explanation to Section 33(2), in force since 16 August 2019, which the Court read as covering exactly this case: where an applicant lets the CoC believe it will perform and then resiles, the creditors are entitled to liquidate and recover.

Why this is more than a restatement of Ebix

The temptation is to log the case as another outing for the Ebix rule, but that flattens what the Court actually did. The applicants in Ebix had come to court openly asking to withdraw or modify their plans, pointing to delay and a changed business environment; whatever the merits, they were candid about wanting to leave. Dave was not. He never sought to exit. He manufactured a grievance about the letter of intent so that his unwillingness to perform could be presented as the resolution professional's doing. That is why the language of the judgment is the language of subterfuge rather than the measured contractual analysis of Ebix, and why the operative idea is substance over form: the prohibition on post-approval withdrawal does not fall away because the withdrawal is given another name, and an objection to a conditional letter that is really a way out will be treated as a way out.

What gives the point its practical bite is the place where it operates. The letter of intent sits in the short gap between the CoC's approval and the actual working-out of the plan, and an applicant who has changed its mind has every incentive to find some flaw there and call it a reason to walk. Sanjay Dave puts a price on that: the deposit is gone and the company the applicant set out to acquire may be wound up. That Dave came from the suspended management only sharpens the message, because a former promoter who has second thoughts about the price or the burden of a plan is not in the position of an outside bidder. (The judgment as reported does not explain how someone connected with the old management cleared Section 29A, whether through the small-enterprise exemption in Section 240A or otherwise, so I will not assume it.)

The exit the Code still does not provide

The firmness of the decision throws the larger problem into relief. A CoC cannot be compelled to renegotiate; its commercial judgment has been placed beyond the tribunals, as the Court has held from K. Sashidhar v. Indian Overseas Bank through Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2019 INSC 138). An applicant cannot withdraw, on Ebix and now on Sanjay Dave. So when an applicant will not perform, or cannot, the system has only one setting left: forfeit the deposit and liquidate. There is no middle path.

For someone acting in bad faith, as the Court found Dave to be, that is the right outcome. The trouble is that the same machinery runs identically when the change of circumstances is genuine. Ebix itself saw the difficulty. The applicants there spoke of plans left pending for many months beyond the statutory timelines and of businesses whose worth may have slipped while approval was awaited, and the Court, while accepting the hardship, held the line because the Code gave it nothing else to work with. It said plainly that designing any exit was a matter for the legislature.

Almost five years later, that exit has not been built, and the cost is not borne only by the opportunist. It is borne by the occasional applicant overtaken by genuine impossibility, and by the value the process exists to protect, because an applicant trapped in a plan it cannot perform will perform it badly or not at all, and the liquidation that follows may return far less than a revised plan would have. The Court has said often enough that maximising the value of the debtor's assets is among the Code's central aims. A regime whose only answer to an applicant who wants out is to refuse and then liquidate serves discipline more than it serves recovery.

None of this is an argument for diluting Ebix or Sanjay Dave. Loosen the rule and the gamesmanship the Court has just condemned comes flooding back; allow exit freely and every approved plan turns into a fresh negotiation. The better course is a narrow, statutory exit that a tribunal can apply without having to invent it: available only for a short period after approval, confined to defined grounds such as genuine supervening impossibility or a real and blameless collapse in the value of the business, and conditioned on terms that make the creditors whole for the disruption, whether by graded forfeiture of the performance security or by the CoC's consent under the adjudicating authority's eye. The bad-faith defaulter would still lose everything; the applicant overtaken by events would at least have a lawful door.

There is a smaller fix that does not wait on Parliament. A good many of these fights are born at the letter-of-intent stage, where the absence of a standard form lets parties quarrel over what may be made conditional, and the IBBI could remove much of that friction by prescribing a model letter and spelling out how a link to pending competing plans is to be expressed. On its own facts, though, Sanjay Dave needs no such help. A promoter who agreed to a plan and then engineered a reason to abandon it while blaming the process had no claim on the Court's sympathy, and a 99.90% vote of the CoC is not to be unsettled by a later change of heart wearing the costume of an objection. The decision is correct. That the Court has had to keep shutting these doors is the real signal: until the legislature provides a measured way out, applicants in difficulty will go on looking for one, and the courts will go on turning them away.

Views are personal.