How resolution plans are evaluated under the IBC

A resolution plan is the heart of a CIRP — the proposal that decides whether a distressed company is revived and how much creditors recover. But not every plan can be approved. Here's how a plan is tested, who decides, and why the Section 30(2) checks matter so much.

What is a resolution plan?

A resolution plan is a proposal submitted by a resolution applicant to take over and revive the corporate debtor. It sets out how creditors will be paid, how the business will be run, where the funds will come from, and the timeline for implementation. The Resolution Professional (RP) and the Committee of Creditors (CoC) then put it through two filters: a legal compliance test and a commercial judgement test.

Filter 1 — The Section 30(2) compliance check

Before any plan goes to a vote, the RP must confirm that it complies with Section 30(2) of the Code. In essence, a compliant plan must:

• Pay insolvency resolution process costs in priority, in full, ahead of everything else;
• Pay operational creditors at least what they would have received in a liquidation (their liquidation value), and not later than financial creditors;
• Pay dissenting financial creditors at least their liquidation value, in priority;
• Provide for the plan's implementation and supervision;
• Not contravene any law for the time being in force; and
• Confirm the resolution applicant is eligible under Section 29A (the bar that keeps defaulting promoters and certain connected persons out).

Filter 2 — The CoC's "commercial wisdom"

If a plan is compliant, it goes to the Committee of Creditors, which votes on it. The CoC weighs feasibility, viability, the credibility of the applicant, the source of funds and — crucially — the recovery offered against the company's fair value and liquidation value. The courts have repeatedly held that this commercial judgement of the CoC is largely non-justiciable: tribunals do not second-guess a well-reasoned commercial decision.

The 66% vote

A resolution plan must be approved by creditors holding at least 66% of the voting share in the CoC. Once that threshold is met, the plan is submitted to the NCLT under Section 31.

NCLT sanction and the "clean slate"

The NCLT examines whether the plan meets the requirements of the Code and then sanctions it. On approval, the plan becomes binding on all stakeholders — the corporate debtor, creditors, employees, guarantors and government authorities. Claims not part of the approved plan are extinguished, giving the revived company a "clean slate."

What makes a plan succeed

In practice, the strongest plans share a few traits: a realistic fund-flow rather than a paragraph of promises; a clear implementation schedule; demonstrable Section 29A eligibility; and a recovery that the CoC can defend as better than liquidation. Rigour at the evaluation stage is what keeps a plan from being unwound later.