The Supreme Court has reaffirmed that the commercial wisdom of the Committee of Creditors under the Insolvency and Bankruptcy Code, 2016 is beyond judicial scrutiny, reinforcing the creditor-driven, market-responsive architecture of India’s insolvency regime. This judgment closes the door on strategic litigation by unsuccessful resolution applicants seeking to overturn approved plans on perceived commercial unfairness.
Background & Facts
The Dispute
The dispute arose from the Corporate Insolvency Resolution Process (CIRP) of SKS Power Generation (Chhattisgarh) Limited. Seven resolution applicants, including Torrent Power Limited, Vantage Point Asset Management, and Jindal Power, submitted resolution plans. After an inter-se bidding process governed by a Process Note and Request for Resolution Plan (RFRP), the Committee of Creditors (CoC) approved the plan of Sarda Energy and Minerals Limited (SEML) with 100% voting share.
Procedural History
- April 2022: CIRP initiated against SKS Power after admission under Section 7 of the IBC.
- July 2022: RP issued Form-G inviting Expressions of Interest (EoIs).
- April 2023: CoC conducted inter-se bidding; commercial terms frozen as per Process Note.
- May 2023: RP issued clarifications to all applicants, including SEML, on ambiguities in their plans.
- May 2023: SEML submitted clarifications regarding bank guarantees and deferred payment structure.
- June 2023: RP filed application before NCLT for approval of SEML’s plan.
- October 2023: NCLT remanded the plan to CoC after Torrent’s application alleging discrimination.
- October 2023: CoC reaffirmed approval of SEML’s plan.
- May 2024: NCLAT set aside NCLT’s remand order, holding no procedural irregularity.
- August 2024: NCLT approved SEML’s plan.
- October 2024: NCLAT dismissed appeals by unsuccessful applicants.
- 2026: Supreme Court dismissed final appeals.
Relief Sought
The appellants sought to set aside SEML’s approved resolution plan, alleging material irregularity and discrimination in permitting SEML to enhance its commercial offer post-negotiation. They requested fresh consideration of their own bids, claiming superior value and compliance.
The Legal Issue
The central question was whether the Committee of Creditors’ approval of a resolution plan, following clarifications that did not alter the commercial terms, constitutes a material irregularity under Section 61(3)(ii) of the IBC, and whether such commercial decisions are subject to judicial review on grounds of perceived unfairness or lower bid value.
Arguments Presented
For the Appellant/Petitioner
Torrent, Vantage, and Jindal contended that SEML modified its commercial offer after the negotiation process concluded on 19.04.2023, violating the Process Note and RFRP. They alleged two material changes: (1) increasing the bank guarantee (BG) infusion from Rs.103.39 crores to Rs.180.05 crores, and (2) converting a deferred payment of Rs.240 crores into an upfront payment. They argued this constituted discrimination, breached procedural fairness, and violated Section 61(3)(ii). Vantage further claimed its bid of Rs.2,191 crores was superior and that the CoC’s rejection of a financial investor over a strategic operator was commercially irrational.
For the Respondent/State
The RP, SEML, and CoC countered that the clarifications sought from SEML were identical to those issued to all applicants, eliminating any claim of discrimination. They explained that the Rs.180.05 crore BG commitment was always part of SEML’s plan; the clarification merely confirmed the treatment of BGs listed in Annexure 3. Regarding the Rs.240 crore payment, they clarified it was the net present value (NPV) of a deferred payment of Rs.301.64 crores, and the option to pay upfront did not alter the offer’s value. They emphasized that commercial wisdom of the CoC is non-justiciable, citing K. Sashidhar v. Indian Overseas Bank and Essar Steel India Limited, and that appeals under Section 62 require a question of law, which was absent here.
The Court's Analysis
The Court began by noting that appeals under Section 62 of the IBC are restricted to questions of law arising from NCLAT orders. It then examined whether any of the five grounds under Section 61(3) were satisfied. The appellants relied solely on Section 61(3)(ii) - material irregularity by the RP. The Court held that the RP acted strictly on the CoC’s instructions in issuing clarifications to all applicants. Since the RP did not act unilaterally, no material irregularity could be attributed to him.
"Where the RP acts on the instructions of the CoC, such conduct cannot, by any stretch of imagination, be characterised as a 'material irregularity' within the meaning of Section 61(3)(ii)."
The Court then analyzed the two alleged modifications. On the BG issue, it found that SEML’s Resolution Plan from inception contemplated the return of Rs.180.05 crores in margin money to the CoC. The Rs.103.39 crore figure was not an offer limit but the incremental infusion required to replace only five of seven BGs. The clarification merely confirmed that the remaining Rs.76.61 crores in margin money would also be returned - consistent with the original plan.
On the deferred payment issue, the Court held that SEML’s offer was always structured as a choice: either receive Rs.301.64 crores over three years (with interest) or receive Rs.240 crores upfront - the NPV of the deferred amount. The clarification merely dispelled ambiguity about whether the upfront option involved further discounting. No enhancement occurred.
The Court then reaffirmed the doctrine of commercial wisdom as established in K. Sashidhar, Essar Steel India Limited, and Kalyani Transco. Judicial review under the IBC is confined to statutory compliance under Section 30(2) and Section 61(3). Courts cannot substitute their commercial judgment for that of the CoC, even if another bidder offers more. The CoC’s decision to prioritize feasibility, operational continuity, or risk assessment over bid value is insulated from review.
"The legislature purposefully did not include a means to challenge the commercial wisdom exercised by the CoC. This makes a challenge to the same non-justiciable."
The Court condemned the strategic use of litigation by unsuccessful applicants, noting that such tactics erode value, delay resolution, and deter participation. It emphasized that finality and predictability are central to the IBC’s economic design.
The Verdict
The appellants lost. The Supreme Court held that the commercial wisdom of the Committee of Creditors is non-justiciable and that clarifications issued to all applicants, which did not alter the substance of the resolution plan, do not constitute material irregularity. The approved resolution plan was affirmed, and all appeals were dismissed.
What This Means For Similar Cases
Commercial Wisdom Is Absolute Within Statutory Bounds
- Practitioners must now argue that any challenge to a resolution plan must be grounded in Section 30(2) or Section 61(3), not perceived commercial unfairness.
- Courts will not entertain arguments based on bid value superiority, even if the successful applicant’s offer is lower.
- Financial investors cannot be discriminated against on grounds of being non-strategic - eligibility criteria in the RFRP govern participation.
Clarifications Are Permissible, Not Modifications
- RP may seek clarifications from all applicants on ambiguities without triggering procedural violation.
- Any clarification that merely explains, confirms, or removes ambiguity - without introducing new terms - is lawful.
- Practitioners must meticulously compare the original plan with the clarification to prove actual alteration, not perceived enhancement.
Strategic Litigation Will Be Discouraged
- Courts will not permit unsuccessful applicants to use litigation as a bargaining tool or delay tactic.
- Applications under Section 61(3) must be filed promptly; post-implementation challenges face high thresholds.
- Practitioners should advise clients that once a plan is approved and implemented, judicial intervention is virtually impossible absent statutory breach.
