Supreme Court Rebukes Litigation by Losing Bidders in Insolvency Cases, Reaffirms Primacy of CoC’s Commercial Wisdom Under IBC
Supreme Court Rebukes Litigation by Losing Bidders in Insolvency Cases, Reaffirms Primacy of CoC’s Commercial Wisdom Under IBC
Introduction
The Supreme Court of India has cautioned against expanding judicial review over commercial decisions taken by the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC), criticising the growing practice of unsuccessful resolution applicants challenging almost every decision of the CoC through litigation. A Bench comprising Justices B.V. Nagarathna and R. Mahadevan made these observations while dismissing appeals filed by Torrent Power Limited, Vantage Point Asset Management Pvt. Ltd. and Jindal Power Limited challenged approval of the resolution plan submitted by Sarda Energy and Minerals Ltd. for SKS Power Generation (Chhattisgarh) Ltd. The Court emphasised that judicial interference must remain limited to the narrow statutory grounds provided under the IBC, particularly under Section 61(3).
Factual Background
The dispute arose from the corporate insolvency resolution process (CIRP) of SKS Power Generation (Chhattisgarh) Ltd., during which multiple resolution applicants submitted bids to acquire the corporate debtor. After evaluation of the resolution plans, the Committee of Creditors approved the resolution plan submitted by Sarda Energy and Minerals Ltd. The plan was subsequently approved by the National Company Law Tribunal (NCLT) and affirmed by the National Company Law Appellate Tribunal (NCLAT). Unsuccessful bidders, including Torrent Power, Vantage Point Asset Management and Jindal Power, challenged the approval of the resolution plan alleging procedural irregularities during the bidding process.
Procedural Background
The unsuccessful resolution applicants filed appeals challenging the approval of Sarda Energy’s resolution plan, alleging material irregularities in the conduct of the resolution professional and the evaluation process followed by the CoC. Both the NCLT and the NCLAT rejected these challenges and upheld the approval of the resolution plan. Aggrieved by these decisions, the appellants approached the Supreme Court.
Issues
1. Whether the conduct of the Resolution Professional in seeking clarifications from resolution applicants amounted to material irregularity under Section 61(3) of the Insolvency and Bankruptcy Code.
2. Whether the CoC had permitted impermissible post-bid modification of Sarda Energy’s resolution plan.
3. Whether courts could interfere with the commercial wisdom of the CoC in approving a resolution plan.
Contentions of the Parties
The unsuccessful resolution applicants argued that after the conclusion of the inter-se bidding process on April 19, 2023, Sarda Energy had been selectively permitted to modify its financial offer through clarifications. They contended that Sarda had initially proposed to infuse approximately ₹103.39 crore as margin money for certain bank guarantees but subsequently enhanced the amount to around ₹180 crore under the guise of clarification. The appellants further argued that Sarda had converted a deferred payment of ₹240 crore into an upfront payment after the commercial offers had been finalised, which allegedly amounted to an impermissible post-bid enhancement of its financial proposal.
Torrent Power also contended that the applicable process note did not allow modification of key commercial terms after completion of negotiations. Vantage Point asserted that its own proposal provided higher upfront value and therefore better satisfied the objective of value maximisation. Jindal Power argued that when potential equity upside was considered, its proposal offered superior financial value and that the CoC could not shield its decision from scrutiny merely by invoking the doctrine of commercial wisdom.
The respondents contended that the Resolution Professional had merely acted upon instructions issued by the CoC and had sought clarifications from all resolution applicants to remove ambiguities. They argued that the clarifications provided by Sarda Energy did not alter the substance of the financial proposal but only explained the structure and timing of payments.
Reasoning and Analysis
The Supreme Court reaffirmed that the Insolvency and Bankruptcy Code represents a deliberate legislative shift from a court-centric insolvency regime to a creditor-driven process. The Court emphasised that the doctrine of commercial wisdom places decisive authority in the hands of the Committee of Creditors, which comprises financial creditors who bear the economic consequences of the resolution process.
The Court observed that decisions relating to viability of the corporate debtor, acceptable haircuts and evaluation of competing resolution plans are inherently commercial in nature and cannot be substituted by judicial assessment. Courts and tribunals under the IBC exercise only a limited supervisory role to ensure compliance with statutory requirements and procedural fairness. Examining the facts of the case, the Court found that the Resolution Professional had not taken any unilateral decisions but had merely conveyed queries raised by the CoC and placed the responses received from resolution applicants before it. Such conduct, the Court held, cannot be characterised as a material irregularity under Section 61(3) of the IBC.
The Court also rejected the allegation that Sarda Energy had enhanced its financial offer after completion of the bidding process. It observed that the clarification provided by the successful resolution applicant only explained the mechanism and timing for release of margin money in respect of bank guarantees and did not alter the total financial commitment to the CoC.
Similarly, the Court found that the option offered by Sarda Energy regarding deferred payment or present value payment existed in the original proposal itself and had not been modified subsequently. The Bench further criticised the increasing tendency of unsuccessful bidders to challenge almost every commercial decision taken by the CoC by framing disputes as procedural irregularities. It warned that such litigation transforms the insolvency resolution process into a prolonged adversarial contest and undermines the core objectives of the IBC, including speed, certainty and value maximisation. The Court stressed that predictability and finality are essential for a robust insolvency framework and that excessive judicial review would undermine the economic logic underlying the IBC.
Decision
The Supreme Court dismissed the appeals filed by the unsuccessful resolution applicants and upheld the approval of Sarda Energy and Minerals Ltd.’s resolution plan for SKS Power Generation (Chhattisgarh) Ltd. The Court held that no material irregularity under Section 61(3) of the Insolvency and Bankruptcy Code had been established and noted that the resolution plan had already been implemented. Accordingly, it affirmed the judgments of the NCLT and the NCLAT.
