IBC Section 31: Approval of Resolution Plan

Section 31 of Insolvency and Bankruptcy Code, 2016: Approval of Resolution Plan

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force is owed, guarantors and other stakeholders involved in the resolution plan.

On the approval of a resolution plan under sub-section (1), the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect.

Legal Commentary & Landmark Judgments: Section 31

Section 31 provides for the binding judicial approval of resolution plans by the NCLT and codifies the landmark 'Clean Slate' doctrine in Indian insolvency jurisprudence.

Evidentiary Proof & Admissibility: Once approved by the CoC, the resolution plan is presented to the NCLT under Section 31(1).
Core Legal Standard: If satisfied that the plan complies with Section 30(2), the NCLT passes an order approving the plan, whereupon it becomes binding on the corporate debtor, employees, members, creditors, guarantors, Central Government, State Governments, and local authorities.
Operational Mechanism: The 2019 amendment explicitly included government bodies within this binding mandate.

Upon approval, the moratorium under Section 14 ceases, and all unsubmitted or unapproved historical claims are permanently extinguished.

Key Landmark Precedents:

Ghanshyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. (2021) 9 SCC 657: The Supreme Court authoritatively established the 'Clean Slate' doctrine, holding that once a resolution plan is approved under Section 31, all past claims not included in the plan stand permanently extinguished, and statutory authorities cannot demand historical tax or regulatory dues.
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531: Reaffirmed that a successful resolution applicant cannot be faced with sudden historical claims or undecided liabilities; the clean slate principle is vital to commercial turnaround.
State Tax Officer v. Rainbow Papers Ltd. (2022) SCC OnLine SC 1162 / Sanjay Kumar Agarwal (2023 Review): Clarified that while statutory authorities may claim secured creditor status if state legislation creates a statutory first charge, such claims must be dealt with under the approved plan and cannot bypass the Code.

Legal Commentary:

Section 31 represents the most vital economic guarantee in the IBC. The Clean Slate doctrine ensures that new acquirers inherit a clean corporate entity free from past regulatory, tax, or commercial claims, providing certainty to long-term capital allocators.