Essar Steel Case: Commercial Wisdom and Plan Approval
The 2019 ruling on who decides a resolution plan, and how little the NCLT can change it.
Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, decided by a three-judge bench of the Supreme Court on 15 November 2019, settled who decides a resolution plan and how far the NCLT can second-guess it. The NCLAT had approved ArcelorMittal's plan for Essar Steel but redistributed the money so that financial and operational creditors were paid at the same rate. The Supreme Court set that aside and restored the distribution the CoC had approved.
The judgment is the reference point for plan approval questions: commercial wisdom of the CoC, the limited review by the Adjudicating Authority, differential payment to creditor classes, the 330-day limit and the rule that no undecided claim survives an approved plan.
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The Five Holdings to Know
- Commercial wisdom of the CoC
- Whether to approve a plan, and how much each class is paid, is a business decision for the CoC. The NCLT cannot interfere on merits.
- Limited judicial review
- The NCLT checks that the CoC considered three things: keeping the debtor a going concern, maximising the value of its assets, and the interests of all stakeholders, including operational creditors. If not, it may send the plan back to the CoC. Otherwise it must approve a plan that meets section 30(2).
- Equitable, not equal, treatment
- Creditors are treated fairly within their class: secured or unsecured, financial or operational. Paying a secured financial creditor a higher percentage than an operational creditor is permitted. The NCLAT's flat equality approach was wrong.
- 330 days
- The word "mandatorily" added to section 12 in 2019 was struck down as manifestly arbitrary. CIRP must ordinarily finish within 330 days of the insolvency commencement date, including litigation time; the NCLT or NCLAT may extend it only in exceptional cases where little time remains and the delay is mainly the tribunal's own.
- No undecided claims
- All claims must be submitted to and decided by the resolution professional. A successful resolution applicant cannot face fresh claims after approval: the court called that a "hydra head popping up". Claims of guarantors by way of subrogation could be extinguished by the plan.
Other Points Decided
- check_circleA CoC may appoint a sub-committee to negotiate with resolution applicants or do other administrative acts, provided the CoC itself ratifies them. The approval of a plan under section 30(4) cannot be delegated.
- check_circleThe 2019 substitution of section 30(2)(b) was upheld. It is a beneficial provision: operational creditors and dissenting financial creditors are guaranteed a minimum.
- check_circleThe section 53 order of priority is not built into a resolution plan. Section 30(2)(b) refers to section 53 only to fix the minimum each protected class must receive; above that, the CoC decides the distribution within section 30(2) and Regulation 38 of the CIRP Regulations.
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Essar Steel Against the 2026 Amendment
The exam tests the law as on 4 February 2025. These changes took effect on 26 May 2026.
Dissenting financial creditors' minimum
At the exam's cut-off
Not less than what they would get in liquidation under section 53 (old section 30(2)(b))
From 26 May 2026
New section 30(2)(ba): not less than the lower of their liquidation amount or their share if the plan amount were distributed in section 53(1) order
CoC approval
At the exam's cut-off
Vote of at least 66% of voting share
From 26 May 2026
Same threshold, and the CoC must record reasons for approval
Claims not in the plan
At the exam's cut-off
Extinguished (Essar, then Ghanashyam Mishra)
From 26 May 2026
Written into new section 31(6)
330-day limit
At the exam's cut-off
Ordinary outer limit with exceptional extension
From 26 May 2026
Section 12 not amended by the 2026 Act
| Point | At the exam's cut-off | From 26 May 2026 |
|---|---|---|
| Dissenting financial creditors' minimum | Not less than what they would get in liquidation under section 53 (old section 30(2)(b)) | New section 30(2)(ba): not less than the lower of their liquidation amount or their share if the plan amount were distributed in section 53(1) order |
| CoC approval | Vote of at least 66% of voting share | Same threshold, and the CoC must record reasons for approval |
| Claims not in the plan | Extinguished (Essar, then Ghanashyam Mishra) | Written into new section 31(6) |
| 330-day limit | Ordinary outer limit with exceptional extension | Section 12 not amended by the 2026 Act |
How the Limited Insolvency Examination Tests This
Case studies give you a CoC vote and a disgruntled creditor. Say a CoC with 70% voting share in favour approves a plan paying secured banks 60% and operational creditors 20%, and an operational creditor owed ₹1.2 crore asks the NCLT to equalise. Essar decides it: different percentages for different classes are lawful, provided the operational creditor gets the statutory minimum and the CoC considered its interests.
The trap answers give the NCLT a merits review ("the NCLT may modify the distribution"), treat 330 days as an absolute bar, or let a creditor who never filed a claim sue the new owner after approval.
FAQs
What was decided in the Essar Steel case?expand_more
On 15 November 2019 the Supreme Court held that the committee of creditors' commercial wisdom governs plan approval and distribution, the NCLT's review is limited, creditor classes may be paid differently, 330 days is the ordinary outer limit for CIRP, and no undecided claims survive an approved plan.
Is the 330-day CIRP limit mandatory?expand_more
Not absolutely. Essar struck down the word "mandatorily" in section 12. Completion within 330 days is the general rule, but the NCLT or NCLAT may extend time in exceptional cases.
Can the NCLT change the distribution in a resolution plan?expand_more
No. It can check that the plan meets section 30(2) and that the CoC considered going concern, value maximisation and all stakeholders' interests, and send it back if not, but it cannot substitute its own distribution.
Must financial and operational creditors be paid equally?expand_more
No. Essar held that equitable treatment applies within each class, so secured financial creditors may receive a higher recovery than operational creditors, subject to the statutory minimum for operational creditors.
Next steps
- Landmark judgmentsarrow_forward
- Resolution Planarrow_forward
- Committee of Creditorsarrow_forward
- CIRP Timelinesarrow_forward
65 questions, case-study format, negative marking.