The Supreme Court has clarified that the commercial wisdom of the Committee of Creditors (CoC) in evaluating and approving a resolution plan is paramount and non-justiciable. Essentially, judicial review by adjudicating authorities (NCLT, NCLAT) and courts is strictly confined to the limited grounds specified in the Insolvency and Bankruptcy Code, 2016 (IBC), primarily concerning procedural compliance and legality under Sections 30(2) and 61(3) of the IBC, and does not extend to the merits of a commercial decision.
The Court held that a ‘material irregularity’ under Section 61(3)(ii) of the IBC cannot be attributed to a Resolution Professional (RP) when the RP is acting solely on the express instructions of the CoC. The process of seeking clarifications from resolution applicants to remove ambiguities in their plans, without altering the fundamental commercial terms or the net present value of the offer, does not constitute an impermissible modification of the plan but is a valid exercise within the scope of the CoC’s evaluation process.
The Court cautioned that 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. Thus, from an ex-post perspective, excessive judicial review in the CIRP carries significant economic costs that run counter to the objects of IBC.
Further, the Court explained that the IBC is premised on the recognition that delay and uncertainty are value-destructive in distressed situations. When commercial decisions taken by the CoC are subjected to expansive judicial scrutiny, resolution timelines lengthen, transaction costs rise, and the going-concern value of the Corporate Debtor erodes. The consequence therefore is not merely delay, but a tangible loss of economic value for all stakeholders.
A Two-Judge Bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan observed that an appeal to the Supreme Court under Section 62 of the IBC is permissible only on a question of law. The grounds for an appeal to the NCLAT against an approved resolution plan are strictly limited by Section 61(3) of the IBC. As far as the appellants’ primary ground regarding ‘material irregularity’ by the RP under Section 61(3)(ii) is concerned, the Bench found this ground was not made out because the RP acted strictly on the instructions of the CoC when seeking clarifications. The Bench explained that to hold that the RP’s actions, directed by the CoC, constitute a material irregularity would be to conflate the distinct statutory roles of the RP and the CoC and indirectly subject the CoC’s decisions to judicial review, contrary to the IBC’s scheme.
On the Bank Guarantee (BG) clarification, the Bench analysed the email seeking clarification and SEML’s response. It noted that SEML’s Resolution Plan, from its inception, stated that the entire margin money of Rs. 180.05 crores would be returned to the Corporate Debtor and utilized for payment to secured financial creditors. The confusion arose because SEML proposed to infuse Rs. 103.39 crores to replace margin money for BGs it intended to continue, while proposing to extinguish other BGs.
The clarification sought by the CoC was to understand the treatment of the remaining BGs (amounting to Rs. 76.61 crores) and the associated margin money. SEML clarified that this margin money would also be returned to the CoC and, to protect the issuing banks in the interim, it would provide replacement margin money until the BGs were formally cancelled. The Bench concluded this did not increase the payment to the CoC, which was Rs. 180.05 crores, and therefore was not an enhancement of the offer.
On the upfront payment clarification, the Bench examined the query regarding the ‘discounted amount of INR 240 Crore’. SEML’s plan offered the CoC a choice: either take Non-Convertible Debentures (NCDs) worth Rs. 240 crores with a 10% coupon or take a discounted amount of Rs. 240 crores upfront. The CoC’s query was whether, if the upfront option was chosen, the Rs. 240 crores would be further discounted. On this, SEML clarified that Rs. 240 crores was the discounted value (Net Present Value) of the deferred payment and would be paid upfront without any further discount. The Bench treated this as a clarification of an existing option and not a modification or conversion of a deferred payment to an upfront one.
Briefly, the Corporate Insolvency Resolution Process (CIRP) was initiated against SKS Power Generation (Chhattisgarh) Limited (Corporate Debtor). Following the invitation for Expressions of Interest (EoIs), seven applicants, including the appellants (Torrent, Vantage, Jindal) and the successful applicant (SEML), submitted Resolution Plans. The Committee of Creditors (CoC) decided to conduct an inter-se bidding process, governed by a Process Note which stipulated that the key commercial terms would be frozen at the end of the process.
After the negotiation process concluded, the CoC directed the Resolution Professional (RP) to seek clarifications from the resolution applicants. The RP sent emails seeking clarifications from all applicants, who then submitted addendums to their plans. Subsequently, the CoC, in its 31st Meeting, approved SEML’s Resolution Plan with a 100% vote share.
The appellants, being unsuccessful resolution applicants, challenged this approval. Their primary contention was that SEML was improperly allowed to modify its commercial offer after the negotiation process had concluded. They alleged that SEML, under the guise of ‘clarifications’, enlarged its commitment towards Bank Guarantees (BGs) from Rs. 103.39 crores to Rs. 180.05 crores and converted a deferred payment of Rs. 240 crores into an upfront payment, which constituted a material irregularity.
The National Company Law Tribunal (NCLT) initially remitted the plan to the CoC but, after remand from the NCLAT, ultimately approved SEML’s plan, holding that the clarifications did not amount to a modification and that it could not interfere with the CoC’s commercial wisdom. On appeal, the National Company Law Appellate Tribunal (NCLAT) upheld the NCLT’s order, finding no modification in SEML’s plan regarding the BGs or the payment terms and reiterating the primacy of the CoC’s commercial wisdom.
Appearances:
AORs S. S. Shroff, Charu Mathur, and M/s. D.S.K. Legal, along with Advocates Gauri Rasgotra, Manish Kharbanda, Priyashree Sharma Ph, Ekta Gupta, Shivansh Agarwal, Neha Maniktala, Karan Singh Duggal, Samir Malik, Shahan Ulla, Jash Shah, Varun Kalra, and Pranav Khana, for the Appellant
ASG N. Venkatraman, Senior Advocates Gopal Jain and Neeraj Kishan Kaul, AORs M/S. Cyril Amarchand Mangaldas, M/s Trilegal, E. C. Agrawala, and Aman Malik, along with Advocates Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, Vikash Kumar Jha, Ramakant Rai, Somesh Srivastava, Drishti Kaushik, Mahesh Agarwal, Manu Krishnan, Pooja Mahajan, Geetika Sharma, Savar Mahajan, Sanjivani Pattjoshi, Uday Aditya Jetley Pocha, Toshiv Goyal, Saurabh Bachhawat, Varun Tyagi, and Srivatsava Reddy Beerapall, for the Respondent
