IBC | Supreme Court Cautions Against Excessive Judicial Review, Criticises Trend Of Unsuccessful Bidders Seeking To Reopen CoC Decision
The Supreme Court today criticised growing trend of unsuccessful resolution applicants converting challenging almost every commercial decision of the Committee of Creditors under the guise of procedural impropriety and turning the insolvency process into a protracted adversarial contest.“The appeals before us typify the growing strategic use of the judicial system by unsuccessful...
The Supreme Court today criticised growing trend of unsuccessful resolution applicants converting challenging almost every commercial decision of the Committee of Creditors under the guise of procedural impropriety and turning the insolvency process into a protracted adversarial contest.
“The appeals before us typify the growing strategic use of the judicial system by unsuccessful resolution applicants who seek to reopen almost every commercial decision under the guise of procedural impropriety. This converts the corporate resolution process into a protracted adversarial contest and erodes the value of the corporate debtor. Such an approach incentivises delay, rent seeking and strategic obstruction and is fundamentally inconsistent with the economic logic and statutory design of the IBC”, the Court observed.
A bench of Justice BV Nagarathna and Justice R Mahadevan cautioned against judicial review of CoC decisions beyond the narrow scope under IBC.
“The IBC represents a conscious legislative choice to prioritise speed, certainty and creditor driven decision making over exhaustive judicial scrutiny. Experience shows that unsuccessful bidders will always try to spin commercial decisions of the CoC as procedurally faulty in order to secure a second shot through litigation by filing applications or making representations. However, courts need to remain vigilant against any temptation to expand the scope of review beyond the narrow boundaries prescribed by the IBC”, the Court said.
The Court further highlighted, “Excessive review also encourages strategic litigation. Stakeholders with little to no economic interest in the corporate debtor may resort to litigation as a bargaining tool to delay implementation of the resolution plan or extract concessions, thereby converting the insolvency process into an adversarial contest. Such conduct takes the process away from its objective of value maximization.”
The Court emphasised that predictability and finality are essential to a robust insolvency regime, and judicial review beyond scope of IBC undermines both.
“Predictability and finality are thus essential to maintaining a robust insolvency regime. Judicial intervention beyond the narrow statutory confines undermines both predictability and finality. Recognising this, the IBC deliberately confines judicial review to strict statutory compliance under sections 32 and 63. Respecting these limits will preserve the economic sense of the IBC and ensure that insolvency remains a predictable, time bound and market driven process”, the court observed.
The Court made these observations while dismissing appeals filed by Torrent Power Ltd., Vantage Point Asset Management Pvt. Ltd. and Jindal Power Ltd. (unsuccessful applicants) against approval of Sarda Energy and Minerals Ltd.'s resolution plan for SKS Power Generation (Chhattisgarh) Ltd.
Finding no material irregularity under Section 61(3) of the Insolvency and Bankruptcy Code, 2016 and noting that the resolution plan has already been implemented, the Court affirmed the judgments of the NCLAT and NCLT approving the plan.
Doctrine of Commercial Wisdom
The Court held that the commercial wisdom of the CoC enjoys primacy and cannot be supplanted by judicial review by the NCLT, the NCLAT or even the Supreme Court.
“The law having been settled that the commercial wisdom of the COC enjoys primacy and cannot be supplanted by judicial review. Neither the NCLT nor the NCLAT nor even this court is empowered to substitute its assessment in place of the commercial decision arrived at by a requisite majority of the COC”, the Court observed.
The Court noted that the IBC marks a shift from a court-centric model to a creditor-driven process. At its core lies the doctrine of commercial wisdom, which vests decisive authority in the CoC, comprising financial creditors who bear the economic consequences of failure, the Court highlighted.
It observed that decisions on viability, valuation and acceptable haircuts are inherently commercial and not judicial. The adjudicating authority performs a supervisory role to ensure statutory compliance and procedural fairness, but does not second-guess economic decisions of the CoC, the Court said.
The Court stated that the appeals before it typify the growing strategic use of litigation by unsuccessful resolution applicants who seek to reopen commercial decisions.
On the issues arising in the present case, the Court rejected the appellants' contention that the Resolution Professional committed material irregularity while performing his duties. It noted that the RP acted strictly on the instructions of the CoC.
The Court noted that CoC identified ambiguities and directed the RP to seek clarifications from all resolution applicants. The Court pointed out that the RP did not take any independent or unilateral decision but communicated the CoC's queries and placed all responses before it.
The Court held that such conduct is not material irregularity under Section 61(3). “When the RP acts on the instructions of the COC, such conduct cannot by any stretch of imagination be characterised as material irregularity within the meaning of Section 61(3)(2). To hold otherwise would be to conflate the statutorily distinct roles of the RP and the COC and to indirectly subject decisions of the COC to judicial review contrary to the scheme of the IBC”, the Court held.
The unsuccessful resolution applicants contended that after conclusion of the inter-se bidding process on April 19, 2023, Sarda Energy was selectively permitted to modify its commercial offer through clarifications.
They argued that Sarda had initially offered to infuse only ₹103.39 crore towards margin money for certain bank guarantees but later, under the guise of a clarification, enhanced this to approximately ₹180 crore.
They further contended that Sarda converted a deferred payment of ₹240 crore into an upfront payment after the commercial offers stood frozen amounting to an impermissible post-bid enhancement of the financial offer.
Torrent further argued that the Process Note dated April 13, 2023 did not permit any modification of key commercial terms after the negotiation process concluded on April 19, 2023. Vantage asserted that its own plan offered a higher upfront amount and therefore achieved better value maximisation. Jindal contended that its offer was higher when equity upside was considered and that the CoC could not shield its decision under the doctrine of commercial wisdom.
Examining the proposal and the clarifications, the Court found that Sarda's clarification merely explained how and when the margin money would be released and ensured that issuing banks would not be left unsecured pending cancellation of those guarantees. The total payment to the CoC remained ₹180.05 crore before and after the clarification. Therefore, there was no enhancement of the offer, the Court said.
The Court held that Sarda had not converted a deferred payment into an enhanced upfront offer. Instead, it had always provided the CoC with an option - either take ₹301.64 crore over time or take its present value of ₹240 crore upfront. The clarification did not alter the financial terms of the plan, the Court said.
It further held that the appeals did not fit within any of the statutory grounds for interference and no question of law arose in the appeals. The Court also observed that the resolution plan has been approved by the NCLT and NCLAT and has since been implemented, leaving no scope for intervention.
Headnote
Insolvency and Bankruptcy Code, 2016; Sections 30(2), 31, 61(3), and 62 — Doctrine of Commercial Wisdom — Scope of Judicial Review — The Supreme Court reaffirmed that the commercial wisdom of the Committee of Creditors (CoC) is paramount and non-justiciable - The Adjudicating Authority (NCLT) and Appellate Authority (NCLAT) have limited jurisdiction to interfere with the CoC's decision, restricted strictly to ensuring compliance with statutory requirements under Section 30(2) and identifying material irregularities under Section 61(3) – Held that courts cannot act as courts of equity or substitute their commercial assessment for that of the CoC, which comprises financial creditors who bear the economic consequences of the corporate debtor's failure.
Insolvency and Bankruptcy Code, 2016; Section 61(3)(ii) — Material Irregularity — Seeking clarifications from resolution applicants by the Resolution Professional (RP) under the specific instructions of the CoC does not constitute "material irregularity." - The RP acts as a communicator for the CoC's queries to ensure a comprehensive evaluation of the feasibility and viability of resolution plans - Such conduct does not amount to an independent or unilateral modification of the process by the RP.
Insolvency and Bankruptcy Code, 2016 — Resolution Plan — Modification vs. Clarification — Clarifications that reaffirm existing terms of a Resolution Plan— such as confirming the treatment of Bank Guarantees or the Net Present Value (NPV) of deferred payments—do not amount to an unauthorized enhancement or modification of a commercial offer after the conclusion of negotiations.
Economic Policy and Legislative Intent — Excessive Judicial Review — Supreme Court cautioned against the strategic use of litigation by unsuccessful resolution applicants to delay the Corporate Insolvency Resolution Process (CIRP). Excessive judicial scrutiny beyond narrow statutory boundaries leads to value destruction, erodes the going-concern status of the Corporate Debtor, and discourages future bidders by introducing legal uncertainty - The IBC prioritizes speed, finality, and predictability to ensure efficient resource allocation in the economy. [Relied on Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, (2020) 8 SCC 531; Kalyani Transco vs. Bhushan Power & Steel Ltd., 2025 SCC OnLine SC 2093; Swiss Ribbons Private Ltd. vs. Union of India, (2019) 4 SCC 17; Pratap Technocrats Private Ltd. vs. Monitoring Committee of Reliance Infratel Limited, (2021) 10 SCC 623; Paras 7-14]
Case no. – C.A. No. 11746-11747/2024
Case Title – Torrent Power Limited v. Ashish Arjunkumar Rathi
Citation : 2026 LiveLaw (SC) 207