Introduction
In a case that could have far-reaching implications for the interpretation of the Insolvency and Bankruptcy Code (IBC), 2016, the Supreme Court of India has decided to examine whether multi-state cooperative societies can submit resolution plans for corporate entities undergoing insolvency proceedings.
A bench comprising Justice JB Pardiwala and Justice KV Viswanathan has directed that the Central Registrar of Multi-State Cooperative Societies be made a party to the ongoing appeal filed by Nirmal Ujjwal Credit Co-operative Society Ltd.—a Nagpur-based multi-state cooperative—against a National Company Law Appellate Tribunal (NCLAT) judgment that declared the society ineligible to participate in a corporate insolvency resolution process (CIRP).
The Court’s decision to seek the Central Registrar’s opinion underscores the complex legal interplay between the Multi-State Cooperative Societies Act, 2002 and the Insolvency and Bankruptcy Code, 2016, raising crucial questions about how far cooperative institutions can go in participating in corporate restructurings.
Background of the Case
The dispute stems from the NCLAT’s order disqualifying Nirmal Ujjwal Credit Co-operative Society Ltd. from submitting a resolution plan for Morarjee Textiles Ltd., a corporate debtor under insolvency.
The NCLAT had ruled that the cooperative society’s bye-laws and statutory limitations under the Multi-State Cooperative Societies Act, 2002 barred it from making such an investment. The tribunal found that Section 64(d) of the 2002 Act permits investments only in subsidiary institutions or in entities engaged in the same line of business as the cooperative.
In this case, Morarjee Textiles Ltd.—a company manufacturing cotton and man-made fabrics—was held to be outside the scope of the cooperative’s permitted business, which primarily involved credit, finance, and agro-based activities.
Supreme Court’s Intervention
On October 24, 2025, the Supreme Court bench took note of the legal and institutional complexities and sought clarity from the Central Registrar of Cooperative Societies. The bench observed:
“We want to know from the Central Registrar whether the societies like the appellant before us are, in any manner, barred from submitting a resolution plan under the provisions of the Insolvency and Bankruptcy Code, 2016, for a corporate entity.”
The Court directed the appellant to amend the cause title to implead the Central Registrar as respondent no. 4, ensuring that the Registrar’s view is recorded before the matter proceeds further.
Additionally, while the Court allowed the NCLAT to continue with its proceedings related to the resolution plan’s approval, it ordered that no final order be passed until the Supreme Court completes its adjudication. The case will next be heard on October 28, 2025.
NCLAT’s Rationale and Findings
The NCLAT judgment, which is now under scrutiny, had upheld the Resolution Professional’s decision to disqualify the cooperative society. The tribunal reasoned that the society’s bye-laws restricted its operations and investments to its approved areas of activity, and any attempt to participate in a corporate insolvency process without prior approval from the Central Registrar would be invalid.
It also noted that any amendment to the bye-laws, allowing broader investment, had not been ratified under Section 11 of the Multi-State Cooperative Societies Act. Therefore, eligibility had to exist at the time of submission of the resolution plan and could not be retrospectively corrected through later amendments.
The Cooperative Society’s Arguments
Represented by Senior Advocate Rajiv Sakhdhar, the appellant cooperative argued that the NCLAT had taken an unduly restrictive view of the law. The society contended that its textile business arm, Nirmal Textiles, operated in a similar line of business as Morarjee Textiles Ltd., making it eligible to submit a resolution plan.
The cooperative further asserted that it had submitted the highest resolution plan worth ₹170 crore, far exceeding the next best offer of ₹156 crore, and that rejecting it on technical grounds would go against the spirit of maximizing asset value under the IBC framework.
Respondents’ Stand
The successful resolution applicant, Shriniwas Spintex Industries Pvt. Ltd., represented by Senior Advocate Krishna Venugopal, opposed the cooperative’s plea, arguing that the statutory framework governing cooperatives explicitly limits their capacity to engage in non-core business activities.
Senior Advocate Navin Pahwa, appearing for the Resolution Professional, supported the NCLAT’s interpretation, emphasizing that the legislative intent behind the Multi-State Cooperative Societies Act is to ensure that cooperative funds are used strictly within their approved operational domains. Allowing cooperatives to act as resolution applicants, he argued, could expose members’ funds to undue commercial risk.
Key Legal Question Before the Supreme Court
The Supreme Court’s examination revolves around a fundamental legal question:
“Are multi-state cooperative societies legally barred from submitting resolution plans for corporate entities under the IBC, 2016?”
This issue lies at the intersection of two distinct regulatory regimes:
- The Insolvency and Bankruptcy Code, 2016, which promotes the revival of distressed companies by inviting resolution plans from eligible applicants; and
- The Multi-State Cooperative Societies Act, 2002, which regulates the internal governance, investment capacity, and operational scope of multi-state cooperatives.
The answer will determine whether cooperative institutions—which often have vast resources and member bases—can play a meaningful role in corporate insolvency resolution processes.
Broader Implications
If the Supreme Court holds that cooperatives are eligible to submit resolution plans, it could significantly expand the pool of potential resolution applicants, improving competition and value realization under IBC proceedings.
Conversely, if the Court upholds the NCLAT’s restrictive interpretation, cooperative societies may remain confined to their legislatively approved business sectors, limiting their participation in broader commercial restructuring efforts.
Experts also note that this ruling could influence future amendments to the IBC or the Multi-State Cooperative Societies Act, ensuring consistency between financial regulation and insolvency frameworks.
Pending Directions and Next Hearing
The Supreme Court has instructed the Central Registrar of Cooperative Societies to file its response before the next hearing on October 28, 2025. Until then, the NCLAT may proceed with the resolution process but is barred from issuing any final orders.
The case, Civil Appeal No. 11193/2025, titled Nirmal Ujjwal Credit Co-operative Society Ltd. v. Ravi Sethia & Ors., remains one of the most closely watched corporate law matters of 2025, given its potential to shape the scope of participatory rights under India’s insolvency regime.
Conclusion
The Supreme Court’s forthcoming judgment in this case will likely serve as a landmark precedent defining the eligibility of cooperative institutions under the Insolvency and Bankruptcy Code.
By seeking the Central Registrar’s clarification, the Court has shown its commitment to harmonizing overlapping legal frameworks and ensuring that cooperative societies’ participation in insolvency resolution is guided by both economic practicality and statutory compliance.
Whether the ruling expands opportunities for cooperatives or upholds existing restrictions, the decision will be pivotal for India’s evolving insolvency jurisprudence and the future role of cooperative institutions in corporate recovery mechanisms.
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