Section 31 IBC: Approval of Resolution Plan and Clean Slate

Approval by the NCLT turns a resolution plan into a binding settlement of the corporate debtor's past. From that moment, the plan binds the company, its creditors, its shareholders and even the government, and claims not provided for in it are extinguished. This clean slate is what makes a company attractive to a buyer. This note explains how the NCLT approves a plan, whom it binds, what it extinguishes and what survives, together with the changes made in 2026.

1. Approval or Rejection

• Section 31(1). If the NCLT is satisfied that the resolution plan as approved by the committee of creditors under section 30(4) meets the requirements of section 30(2), it shall by order approve the plan.
• Proviso. Before approving the plan, the NCLT must be satisfied that it has provisions for its effective implementation.
• Section 31(2). Where the NCLT is satisfied that the plan does not conform to the requirements of section 31(1), it may reject the plan by order.
• Scope of review. The NCLT examines compliance with the statutory requirements and the process, not the commercial merits of the plan (Topic 28); where it finds a defect, it may send the plan back to the committee.
• 2026 changes. The NCLT must decide on approval within thirty days, recording reasons for any delay, and may give the committee notice to rectify defects before rejecting a plan; a new proviso also allows the NCLT to approve the plan for implementation first and to settle disputes about distribution among creditors within thirty days thereafter, so that such disputes do not hold up implementation.

2. Who Is Bound

Figure 1: Persons bound by an approved plan

• Section 31(1). The approved plan is 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 is owed, guarantors and other stakeholders involved in the plan.
• Governments. The express reference to governments and local authorities was inserted in 2019, confirming that tax and other statutory dues are dealt with by the plan like other operational debts.
• Dissenting creditors. Creditors who voted against the plan, and those who did not file claims, are bound like everyone else.

3. Consequences of Approval

• Section 31(3). The moratorium ceases to have effect, and the resolution professional forwards all records relating to the conduct of the process and the plan to the IBBI for its database.
• Section 31(4). The resolution applicant must obtain the approvals required under any law within one year of the approval of the plan, or within such period as the plan provides, whichever is later.
• CCI approval. Where the plan contains a provision for a combination under the Competition Act, 2002, the approval of the Competition Commission of India is required; the Supreme Court held in 2025 that it must precede approval by the committee, but the 2026 Amendment now requires it only before the plan is filed with the NCLT (proviso to section 31(4); Topic 44)
• Implementation. The plan is implemented under the supervision of a monitoring committee or other mechanism provided in it (Topic 45)

4. The Clean Slate

• Essar Steel, 2019. The Supreme Court held that a successful resolution applicant cannot be faced with undecided claims after its plan has been accepted, as that would amount to a hydra head popping up and throw into uncertainty the amounts payable by a prospective applicant; all claims must be submitted to and decided by the resolution professional so that the applicant starts on a fresh slate.
• Ghanashyam Mishra and Sons v Edelweiss Asset Reconstruction, 2021. Decided on 13 April 2021, the Court held that once a plan is approved under section 31(1), the claims provided for in it are frozen and binding, and all claims not part of the plan stand extinguished; no person is entitled to initiate or continue any proceedings in respect of a claim that is not part of the plan.
• Statutory dues. The 2019 amendment, being clarificatory, applies from the inception of the Code, so dues owed to the Central Government, State Governments and local authorities that are not part of the plan are also extinguished, and no proceedings can be taken for them in respect of the period before approval.

Figure 2: What is extinguished and what survives

5. The 2026 Additions

Figure 3: Changes made by the 2026 Amendment

• Section 31(5). Protects licences, permits, registrations, concessions and clearances granted to the corporate debtor from suspension or termination after approval of the plan on account of the corporate debtor's past, so that the new owner can run the business.
• Section 31(6). Reformulated to provide that claims relating to the period before approval against the assets of the corporate debtor are extinguished, strengthening the clean slate in respect of property as well as the debtor itself.

6. What Survives

• Guarantors. The plan binds guarantors but does not discharge their liability; creditors may recover the unpaid balance from them (Lalit Kumar Jain, 2021; Topic 12)
• Individuals. Section 32A protects the corporate debtor and its assets from liability for offences committed before the process, once control passes to new hands, but the former promoters, directors and officers remain liable (Topic 46)
• Obligations under the plan. The applicant's obligations under the plan itself, including deferred payments, are enforceable; failure to implement the plan may lead to liquidation under section 33(3) (Topic 45)
• Future dues. Taxes and other liabilities arising after approval are payable in the ordinary way.

7. Frequently Asked Questions

Can a tax department recover dues for years before the plan was approved?

No, if those dues are not provided for in the plan. Ghanashyam Mishra (2021) held that all such claims, including statutory dues, are extinguished on approval, and no proceedings can be taken for the period before approval.

Does approval of the plan discharge the personal guarantor of the company's loan?

No. The plan binds guarantors, but the Supreme Court in Lalit Kumar Jain (2021) held that a release of the principal debtor by operation of law does not discharge the guarantor's liability.

When must CCI approval be obtained if the plan involves a combination?

After the 2026 Amendment, before the plan approved by the committee is filed with the NCLT. Earlier, the Supreme Court in Independent Sugar Corporation (2025) had read the proviso to section 31(4) as requiring CCI approval before the committee's vote. Other regulatory approvals may be obtained within one year of the plan's approval or the period provided in the plan.

8. Related Topics

• Topic 43: Government Dues and Tax Claims. Rainbow Papers and after.
• Topic 45: Implementation, Withdrawal and Failure of Plans. After approval.
• Topic 46: Section 32A. Immunity for the corporate debtor.