Why was the Cabinet Mission plan rejected by the Muslim League and Congress?

Both Options, 1 and 2

Initially all the major parties accepted this plan. But the agreement was short-lived because it was based on mutually opposed interpretations of the plan. The League wanted the grouping to be compulsory, with Sections B and C developing into strong entities with the right to secede from the Union in the future. The Congress wanted that provinces be given the right to join a group. It was not satisfied with the Mission’s clarification that grouping would be compulsory at first, but provinces would have the right to opt-out after the constitution had been finalised and new elections held in accordance with it.

Ultimately, therefore, neither the League nor the Congress agreed to the Cabinet Mission’s proposal. This was a most crucial juncture, because after this partition became more or less inevitable, with most of the Congress leaders agreeing to it, seeing it as tragic but unavoidable.