Author: Ashwarya Sharma, Advocate, Co-Founder & Legal Head, RB LawCorp
Published on: 23/06/2026
Introduction: Ten Years After IBC, Who Decides the Fate of Distressed Companies?
A decade ago, India fundamentally altered the philosophy of insolvency law. The Insolvency and Bankruptcy Code, 2016 replaced a regime characterised by endless delays and court-centric revival mechanisms with a creditor-driven framework founded on a simple premise:
Those who bear the economic consequences of insolvency should decide the future of the enterprise.
At the heart of this framework lies the doctrine of commercial wisdom of the Committee of Creditors (CoC).
Over the years, the Supreme Court has consistently maintained that courts and tribunals are not intended to substitute their own views for those of financial creditors. Judicial review under the IBC remains deliberately narrow.
In Torrent Power Ltd. v. Ashish Arjunkumar Rathi & Ors. (MANU/SC/0202/2026), the Supreme Court has once again reaffirmed this principle. More significantly, the Court has issued a strong caution against the growing tendency of unsuccessful resolution applicants to use litigation strategically in an attempt to reopen commercial decisions already taken by the CoC.
The judgment is not merely another reiteration of Essar Steel. It is a broader defence of predictability, finality, and market-driven insolvency resolution.
Background of the Dispute
The Corporate Insolvency Resolution Process (CIRP) was initiated against SKS Power Generation (Chhattisgarh) Ltd. pursuant to an application filed by Bank of Baroda under Section 7 of the IBC.
After the CIRP process was completed, the Committee of Creditors approved the Resolution Plan submitted by Sarda Energy and Minerals Limited (SEML).
Torrent Power Limited, whose own plan had been rejected unanimously by the CoC, challenged the approval of SEML’s plan before the NCLT, then before the NCLAT, and eventually before the Supreme Court.
The principal grievance was that SEML had allegedly been permitted to improve its offer after the conclusion of negotiations, amounting to discrimination and material irregularity.
What Did the NCLT Hold?
The NCLT rejected Torrent’s challenge.
Relying upon the Supreme Court’s landmark judgment in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, the Tribunal reiterated that its jurisdiction is extremely limited.
The role of the Adjudicating Authority is confined to examining whether:
- the Corporate Debtor is kept as a going concern;
- value maximisation has been achieved; and
- interests of all stakeholders have been protected.
Once these requirements are satisfied, the Tribunal cannot sit in appeal over the commercial decision of the CoC.
Finding no infirmity, the NCLT approved SEML’s resolution plan.
NCLAT Also Declined Interference
The Appellate Tribunal found as a matter of fact that no impermissible modification of SEML’s bid had taken place.
More importantly, it held that an appeal under Section 61(3) of the IBC is maintainable only on limited grounds, such as material irregularity committed by the Resolution Professional.
Since no such irregularity existed, the appeal was dismissed.
Supreme Court Examines the Scope of Section 61(3)
The Supreme Court began by analysing the narrow statutory framework governing appeals under Section 61(3).
The Court observed that the only ground remotely relied upon by Torrent was “material irregularity” by the Resolution Professional.
However, the facts revealed that the Resolution Professional had merely acted on the instructions of the CoC.
Clarifications had been sought from all resolution applicants uniformly pursuant to directions issued by the Committee of Creditors.
Therefore, the RP had exercised no independent discretion and no material irregularity could possibly be attributed to him.
The Court drew a sharp distinction between the functions of the RP and the CoC and held that permitting such challenges would indirectly subject the commercial decisions of creditors to judicial review, contrary to the architecture of the IBC.
Concurrent Findings of NCLT and NCLAT Deserve Respect
The Supreme Court further observed that both the NCLT and NCLAT had concurrently arrived at the same conclusions.
Interference with concurrent findings is permissible only when such findings are:
- contrary to mandatory statutory provisions;
- based on irrelevant considerations;
- arbitrary; or
- perverse.
No such circumstances existed.
Accordingly, the Court found no reason to interfere.
Commercial Wisdom of the CoC Remains Paramount
Having rejected the allegations regarding procedural irregularity, the Court noted that the challenge was, in substance, directed against the commercial decision of the CoC itself.
The Court reiterated the settled position:
Neither the NCLT, nor the NCLAT, nor even the Supreme Court can substitute its commercial assessment for that of the Committee of Creditors.
The doctrine of commercial wisdom has now attained finality and continues to remain non-justiciable except to the limited extent provided by the statute.
Supreme Court Warns Against Strategic Litigation by Losing Bidders
Perhaps the most important part of the judgment lies in the Court’s broader institutional observations.
The Court noted that unsuccessful resolution applicants increasingly attempt to convert commercial disappointments into allegations of procedural impropriety.
Such litigation, according to the Court:
- delays implementation of resolution plans;
- destroys enterprise value;
- increases transaction costs;
- encourages rent-seeking;
- and undermines the economic foundations of the IBC.
The insolvency process cannot be permitted to become an endless adversarial contest between disappointed bidders.
The Economic Rationale Behind Judicial Restraint
The Court emphasised that excessive judicial intervention produces harmful consequences both ex post and ex ante.
From an ex post perspective, prolonged litigation erodes the going concern value of distressed companies and reduces recoveries.
From an ex ante perspective, uncertainty discourages future bidders and compels them to discount their bids to account for litigation risks.
This weakens competition and adversely affects creditors.
Strategic litigation by parties with little economic stake in the corporate debtor ultimately frustrates the objective of value maximisation.
Therefore, judicial restraint is not merely a matter of legal doctrine—it is an economic necessity.
Predictability and Finality Are Central to the IBC
The Supreme Court observed that efficient markets require three essential freedoms:
- freedom to enter;
- freedom to continue business operations; and
- freedom to exit.
Historically, India’s legal framework lacked an efficient mechanism for exit.
The IBC corrected this imbalance by introducing predictability and time-bound resolution.
Predictability allows market participants to make rational decisions, while finality prevents strategic delays and facilitates productive redeployment of capital.
Expanding judicial review beyond the statutory framework threatens both these objectives.
For this reason, the IBC deliberately confines judicial intervention to the narrow grounds provided under Sections 30(2) and 61(3).
Why This Judgment Matters
The decision in Torrent Power Ltd. v. Ashish Arjunkumar Rathi carries significance far beyond the immediate dispute.
It reinforces several foundational principles:
- Commercial wisdom of the CoC remains supreme.
- Judicial review under the IBC is intentionally limited.
- Material irregularity cannot be stretched to challenge commercial decisions.
- Concurrent findings of NCLT and NCLAT deserve deference.
- Strategic litigation by unsuccessful bidders undermines insolvency resolution.
- Predictability and finality are indispensable to value maximisation.
The judgment sends a strong message that insolvency law cannot become hostage to endless litigation by disappointed stakeholders.
Conclusion
Ten years after the enactment of the Insolvency and Bankruptcy Code, the Supreme Court has once again reaffirmed the central philosophy upon which the Code rests:
Insolvency resolution is a market-driven process, not a judicial auction.
The Committee of Creditors exists precisely because those who bear the economic risk are best positioned to make commercial decisions.
By cautioning against strategic litigation and emphasising the importance of predictability and finality, the Supreme Court has strengthened the institutional foundations of the IBC.
As the Code enters its second decade, the challenge will no longer be preserving the doctrine of commercial wisdom—the Supreme Court has repeatedly done so.
The real challenge will be ensuring that litigants do not continue to disguise commercial disappointment as legal impropriety and thereby undermine the efficiency that the IBC was enacted to achieve.
📎 Attached PDF for detailed reading 👉
📎 Full Published Version: https://www.taxmann.com/research/ibc/top-story/105010000000028547/sc-reaffirms-coc%E2%80%99s-commercial-wisdom-warns-against-strategic-litigation-by-unsuccessful-resolution-applicants-opinion
(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)
