Shareholders’ approval not required for sanction of Resolution Plan under the Insolvency and Bankruptcy Code

Under the Insolvency and Bankruptcy Code, 2016 (“Code”), the resolution professional is required to examine each resolution plan and confirm that such plan does not contravene any applicable law in force. Further, Section 31(1) of the Code states that if the Adjudicating Authority is satisfied that if any ‘resolution plan’ as approved by the committee of creditors is in compliance of applicable law, it shall by order approve such resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

Clarifications have been sought by stakeholders on whether approval of ‘shareholders’ of the corporate debtor is required for a resolution plan at any stage during the process of its consideration as laid down under Sections 30 and 31 of the Code.

It has been clarified by the Ministry of Corporate Affairs (“MCA”) vide the circular dated October 25, 2017, that there is no requirement of obtaining approval of shareholders of the corporate debtor, at the time of examination and finalization of the resolution plan, and on approval of the plan by the Adjudicating Authority.