DECODING THE ELIGIBILITY OF MULTI-STATE CO-OPERATIVE SOCIETIES AS RESOLUTION APPLICANTS

1.1 The recent judgment delivered by the Hon’ble Supreme Court (“Hon’ble SC”) in Nirmal Ujjwal Credit Co-Operative Society Ltd. v. Ravi Sethia & Ors., 2026 SCC OnLine SC 556, provides significant clarity on the eligibility of Multi-State Co-operative Societies (“Society / Societies”) to participate as resolution applicants in corporate insolvency resolution processes (“CIRP”). In rendering the judgment, the Hon’ble SC examined the scope, objectives, and interplay of two distinct statutory frameworks, namely the Insolvency and Bankruptcy Code, 2016 (“IBC”) and the Multi-State Co-operative Societies Act, 2002 (“MSCS Act”), each of which operates within a separate legislative domain and pursues different policy objectives. While the IBC seeks to maximize the value of distressed assets through a broad and inclusive resolution mechanism, the MSCS Act imposes investment-related restrictions intended to safeguard members’ funds from exposure to speculative or high-risk ventures. Against this backdrop, the judgment undertakes an important examination of the legal and regulatory contours governing the participation of Societies in the CIRP framework.

1.2 The present decision examines the scope and implications of Section 64(d) of the MSCS Act, particularly in relation to the eligibility of Societies to invest or deposit their funds in institutions operating in the same line of business. The judgment further analyses the effect of such statutory restrictions on the eligibility of Societies to participate as resolution applicants within the insolvency resolution framework, especially in light of Section 30(2)(e) of the IBC, which mandates that a resolution plan must not contravene any provisions of law for the time being in force.  

1.3 The authors in the present case comment seek to discuss the highlights of this decision of the Hon’ble SC and the implications thereof. 

2.1 The Hon’ble SC considered a statutory appeal arising from the judgment of the National Company Law Appellate Tribunal, New Delhi (“NCLAT”) dated 21.08.2025, which affirmed the decision of the National Company Law Tribunal, Mumbai (“NCLT”) declaring the Appellant, i.e., Nirmal Ujjwal Credit Co-Operative Society Ltd., ineligible to submit a resolution plan in the CIRP of Morarji Textiles Ltd. (“Corporate Debtor”). The ineligibility was premised on the Appellant’s bye-laws not permitting investment in the Corporate Debtor.

2.2 The Appellant, a Society registered under the MSCS Act, amended its bye-laws on 24.09.2023 pursuant to the amendment to Section 64(d) of the MSCS Act dated 03.08.2023, which allowed such Societies to, inter alia, invest in institutions engaged in the same line of business. The amendment received approval from the Central Registrar on 24.01.2024.

2.3 Meanwhile, the CIRP of the Corporate Debtor commenced on 09.02.2024. The Resolution Professional (“RP”) invited expressions of interest, to which the Appellant submitted its expression of interest on 18.05.2024. However, on 10.02.2025, the RP declared the Appellant ineligible, holding that the proposed resolution plan contravened its bye-laws and thereby violated Section 30(2)(e) of the IBC. The NCLT, adjudicating the Appellant’s challenge, upheld this finding, holding that the Appellant was neither a subsidiary of the Corporate Debtor nor engaged in the same line of business. The NCLAT dismissed the ensuing appeal, concurring with the NCLT.

2.4 A request was made by the Appellant before the Hon’ble SC to withdraw its appeal. However, the Hon’ble SC while allowing the said request, proceeded to clarify the governing legal principles, given the issue’s wider significance.

3.1 The Hon’ble SC considered the interpretation of Section 64(d) of the MSCS Act, particularly the meaning and scope of the expression “any other institution in the same line of business”, in order to determine the eligibility of Societies to participate in the CIRP process. The Court undertook this examination in the context of Section 30(2)(e) of the IBC, which requires that a resolution plan must be compliant with the applicable provisions of law.

4.1 At the outset, the Hon’ble SC observed that Section 30(2)(e) of the IBC mandates that the RP shall examine each resolution plan to confirm that it does not contravene any of the provisions of the law for the time being in force. 

4.2 This applicable law here would be Section 64(d) of the MSCS Act which prescribes that Societies may invest or deposit in the shares, securities, or assets of either a subsidiary institution or any other institution in the same line of business as that of the Societies’. The Hon’ble SC noted that while the MSCS Act does not define the expression “same line of business”, the Joint Parliamentary Committee (“JPC”) has examined Section 64(d) of the MSCS Act. The JPC has, inter alia noted that the said phrase was intended to address the concerns qua improper and unsafe investments by the Societies, by undertaking the following:

1. curbing the exploitation of the open-ended nature of the earlier provision, which permitted investment in "any other institution"; 
2. ensuring that the investments made to the institutions are limited and fall within the line of business as reflected in the bye-laws of the Societies;
3. preventing diversion of funds into unrelated or risky investments and safeguarding the members’ funds; and
4. retaining the autonomy of Societies’ in deciding their line of business, by empowering them to frame or amend its bye-laws democratically.

4.3 The Hon’ble SC noted that every Society must frame its bye‑laws in conformity with the MSCS Act and the rules made thereunder, particularly Section 10(2), which mandates inclusion of an object clause. The MSCS Act under Section 11 further empowers Societies to amend their bye‑laws, including their objects, in accordance with the prescribed procedure.

4.4 To interpret the phrase in question, the Hon’ble SC further drew illustrative guidance from the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2021. Thereunder, the determination of whether two entities are in the same line of business is assessed on the basis of their principal or predominant economic activities, including classification under the National Industrial Classification Code. This denotes that the expression "same line of business" refers to a substantive sameness or close nexus in core business activities, and not a remote or incidental connection. 

4.5 The Hon’ble SC, in view of the above, held that the expression "any other institution in the same line of business" under Section 64(d) of the MSCS Act is not to be construed in an expansive manner. The determination of eligibility under Section 64(d) must involve an examination of the objects and functions contained in the bye-laws of the Societies’ and a comparison thereof with the business activities of the target institution, so as to ascertain whether there exists a predominant or substantial sameness between the two. The Court also clarified that the revenue earned or profit/loss incurred has no relevance in determining the standard of the same line of business.

5.1 The Hon’ble SC concluded that Section 64(d) of the MSCS Act operates as a restrictive standard, permitting the Societies to invest or deposit its funds in two distinct categories of institutions: (a) a subsidiary institution; and (b) any other institution in the same line of business. Societies may only invest in a corporate debtor if there exists substantial or predominant, or closely related sameness in business activities, as dictated by its bye-laws.

5.2 Whilst the Hon’ble SC permitted the Appellant to withdraw the appeal, and the CIRP of the Corporate Debtor was directed to continue under the IBC, it made certain observations solely for the sake of application of the aforesaid law to the factual context. The Court, inter alia, noted that a holistic reading of the Appellant’s bye‑laws indicates that its principal line of business is that of a financial and member-oriented co‑operative, with only limited involvement in agro‑based processing activities. It cannot be said that the Appellant is engaged in industrial manufacturing activities. The Court further noted that although both the Appellant and the Corporate Debtor may broadly fall within the textile sector, the actual nature of their respective activities is different. While, the Appellant is involved in agro-product processing, the Corporate Debtor is involved in synthetic or semi-synthetic fiber manufacturing. Accordingly, the threshold of Section 64(d) of the MSCS Act is not satisfied in the present case.

6.1 The Hon’ble SC clarified that the bye‑laws of the Societies, particularly the object clause determines whether an investment in a corporate debtor falls within the “same line of business” under Section 64(d) of the MSCS Act. Considerations such as revenue, profit, or loss are irrelevant to this assessment, thereby excluding reliance on a Society’s actual operations as opposed to its stated objects. Accordingly, Societies intending to participate in a CIRP must ensure that their object clause is suitably aligned with the business of the target entity, and not merely rely on broad investment provisions.

6.2 This decision is a welcome development from the perspective of resolution professionals, as it provides much‑needed clarity in assessing the eligibility of Societies seeking to participate as prospective resolution applicants in a corporate debtor’s CIRP. By delineating a clear standard for such determination, the judgment aids decision‑making on the admission of such applicants. Importantly, it ensures that Societies seeking to become resolution applicants do not dilute the statutory requirements of the MSCS Act and the IBC.