No Blowing Hot and Cold: Supreme Court Rules Successful Resolution Applicants Cannot Renegade on Approved Plans or Challenge 'Conditional' Letters of Intent to Avoid Forfeiture.
In the high-stakes world of corporate insolvency, a Resolution Plan is often seen as the "holy grail" that saves a company from the brink of death. But what happens when the savior starts to hesitate? A recent landmark judgment by the Supreme Court of India in Sanjay Dave vs. Andhra Bank Ltd. & Ors. has sent a clear message to all investors: once you are in the game, you cannot simply walk away by claiming the rules have changed.
The Myth of the 'Conditional' Letter of Intent
The appellant, a promoter-turned-resolution applicant, tried to argue that the Letter of Intent (LoI) issued to him was "conditional" because it mentioned that the approval was subject to pending court orders. The Supreme Court dismantled this argument with surgical precision. The Court noted that every legal process is inherently subject to the final decision of a judicial body. Adding such a clause doesn't make a contract "conditional"; it simply states the obvious reality of the rule of law.
The Doctrine of 'Approbate and Reprobate'
One of the most academic yet practical takeaways is the Court's application of the principle that you cannot "blow hot and cold" at the same time. The appellant had participated in meetings, stayed silent when risks were discussed, and even requested the LoI. To later claim those very terms were unacceptable was viewed by the Court as a "clever ploy" and a "subterfuge".
"A person cannot say at one time that a transaction is valid and thereby obtain some advantage... and then turn round and say it is void for the purpose of securing some other advantage."
Commercial Wisdom is Non-Justiciable
The judgment reinforces the "paramount status" of the Committee of Creditors (CoC). When the appellant failed to provide a performance guarantee, the CoC voted for liquidation. The Court reiterated that judges should not—and cannot—second-guess the business decisions of financial creditors. If the creditors decide that liquidation is better than waiting for a vacillating applicant, the law must respect that "commercial wisdom".
The Cost of Hesitation: Forfeiture of EMD
For many, the most impactful part of this ruling is the validation of the forfeiture of the Earnest Money Deposit (EMD). The appellant lost a staggering Rs. 1 Crore because he failed to submit a performance guarantee within the stipulated time. The Court held that the Insolvency and Bankruptcy Code (IBC) is a time-bound process, and any attempt to delay it through "vacillation" will have heavy financial consequences.
Conclusion: Protecting the IBC Architecture
This judgment serves as a warning against "lulling" creditors into a false sense of security. By preventing applicants from withdrawing or modifying plans after approval, the Supreme Court has ensured that the IBC remains a swift, credible, and serious mechanism for economic resolution rather than a playground for endless negotiation.
Case: SANJAY DAVE v. ANDHRA BANK LTD.
Law: Insolvency and Bankruptcy Code.
Citation: 2026 INSC 580
Decision Date: 27-05-2026