Supreme Court to Rule on Multi-State Societies in IBC Cases

Supreme Court to Decide If Multi-State Cooperative Societies Can Submit Resolution Plans Under IBC

Case raises questions on eligibility of cooperatives in corporate insolvency process

Verdict could reshape participation of cooperatives in India’s insolvency framework

By Our Legal Reporter

New Delhi: October 25, 2025: The Supreme Court of India has agreed to examine a critical question under the Insolvency and Bankruptcy Code (IBC), 2016: whether multi-state cooperative societies are eligible to submit resolution plans for companies undergoing insolvency proceedings.

The issue has far-reaching implications for India’s financial and cooperative sectors. If the Court allows such participation, it could open the door for thousands of cooperative societies across the country to play a direct role in rescuing distressed companies. On the other hand, if the Court rules against it, cooperatives will remain outside the ambit of corporate resolution processes, limiting their role to creditors or stakeholders.

Background of the Case

The matter reached the Supreme Court after conflicting interpretations by the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT).

A multi-state cooperative society had sought to submit a resolution plan for a corporate debtor under insolvency.
The Resolution Professional (RP) and the Committee of Creditors (CoC) questioned whether such a society qualifies as a “person” under Section 5(25) of the IBC, which defines who can be a resolution applicant.
The NCLT initially rejected the cooperative’s eligibility, citing that the IBC primarily envisages companies, LLPs, and individuals—not cooperative societies—as resolution applicants.
On appeal, the NCLAT upheld this view, stating that cooperative societies are governed by their own statutes (such as the Multi-State Cooperative Societies Act, 2002) and cannot be equated with companies under the Companies Act, 2013.

The cooperative society then approached the Supreme Court, arguing that the IBC’s definition of “person” is broad enough to include cooperative societies.

The Legal Question

The Supreme Court will now decide:

Can a multi-state cooperative society be treated as a “person” under Section 3(23) of the IBC?
If yes, does it have the right to submit a resolution plan under Section 5(25)?

The outcome will determine whether cooperatives can actively participate in corporate rescue efforts or remain excluded.

Arguments in the Case

Cooperative Society’s Stand

The IBC defines “person” broadly, including companies, LLPs, individuals, and “any other entity established under a statute.”
Since multi-state cooperative societies are established under the Multi-State Cooperative Societies Act, 2002, they should fall within this definition.
Excluding them would go against the spirit of the IBC, which aims to maximize value and allow diverse participation in resolution processes.

Respondents’ Stand (RP and Creditors)

Cooperative societies are not companies and do not have the same governance and accountability structures.
Allowing them to submit resolution plans could create regulatory conflicts between the IBC and cooperative laws.
The legislature did not explicitly include cooperatives in the IBC framework, which suggests they were intentionally excluded.

Supreme Court’s Intervention

The Supreme Court, while admitting the case, noted that the issue is of national importance. A Bench led by Justice Sanjiv Khanna and Justice Dipankar Datta observed that the interpretation of “person” under the IBC must be clarified to avoid uncertainty in future insolvency proceedings.

The Court has sought responses from the Union Government, the Insolvency and Bankruptcy Board of India (IBBI), and other stakeholders before delivering its verdict.

Why This Case Matters

The ruling will have wide-ranging consequences:

For Cooperative Societies:
- India has over 1,500 multi-state cooperative societies and thousands of state-level cooperatives.
- If allowed, they could become active bidders in insolvency cases, expanding competition and potentially improving recovery rates.
For Insolvency Framework:
- The IBC was designed to bring in diverse resolution applicants.
- Including cooperatives could align with the Code’s objective of maximizing value for creditors.
For Creditors and Debtors:
- Creditors may benefit from more bidders and better resolution plans.
- Debtors may find new lifelines through cooperative participation.
For Legal Clarity:
- The decision will settle a long-standing ambiguity and prevent conflicting rulings by NCLTs and NCLAT.

Expert Opinions

Legal experts are divided on the issue:

Supportive View: Some argue that excluding cooperatives is artificial and restrictive, especially since they are statutory entities with legal personality.
Cautious View: Others warn that cooperatives often lack the corporate governance standards required for complex insolvency processes, which could undermine creditor confidence.

According to a commentary in Legally Present, the Court’s interpretation will likely hinge on whether the phrase “any other entity established under a statute” in Section 3(23) of the IBC can be stretched to include cooperatives.

Broader Implications

The case also ties into the government’s broader push to strengthen the cooperative sector. In recent years, the Union Government has emphasized the role of cooperatives in economic development, even creating a separate Ministry of Cooperation in 2021.

If the Supreme Court allows cooperatives to participate in IBC resolution plans, it could mark a new era of integration between cooperative law and corporate insolvency law.

However, if the Court rules against it, the legislature may need to consider amending the IBC to explicitly include or exclude cooperatives, to avoid future disputes.

Possible Outcomes

Inclusion of Cooperatives:
- The Court may hold that cooperatives are covered under the IBC definition of “person.”
- This would allow them to submit resolution plans, subject to CoC approval.
Exclusion of Cooperatives:
- The Court may affirm the NCLAT’s view that cooperatives are not eligible.
- This would maintain the status quo but limit competition in insolvency cases.
Conditional Inclusion:
- The Court may allow cooperatives but impose safeguards, such as compliance with governance norms or regulatory oversight.

Conclusion

The Supreme Court’s decision on whether multi-state cooperative societies can submit resolution plans under the IBC will be a watershed moment in India’s insolvency law.

It will determine not only the role of cooperatives in corporate rescue but also the scope of inclusivity under the IBC framework. For creditors, debtors, and policymakers, the ruling will provide much-needed clarity on how India balances cooperative principles with corporate insolvency mechanisms.

As the hearings progress, all eyes are on the Supreme Court to deliver a judgment that could reshape the future of both the cooperative movement and the insolvency ecosystem in India.