Value maximisation in insolvency demands fair creditor treatment, independent resolution professional conduct, and genuine consideration of higher offers.

In insolvency resolution, the note states that process documents and internal evaluation mechanisms cannot be used to defeat the Code's objective of value maximisation and fair stakeholder treatment. It highlights that the resolution professional must act independently and transparently, with restraint in incurring costs, proper participation of suspended board representatives where required, and lawful verification and consideration of operational creditor claims. It also states that a revised higher offer made before completion of CIRP and before final approval should not be rejected on merely technical grounds. The resolution plan, as described, was considered defective for discriminatory treatment of similarly placed unsecured financial creditors and inadequate treatment of operational creditors, requiring reconsideration of competing offers and creditor distribution.

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Issues: (i) Whether the resolution professional exceeded his powers by appointing multiple professionals, outsourcing work and incurring excessive resolution costs, and whether the directors of the suspended board were improperly excluded from committee of creditors meetings; (ii) Whether the refusal to consider the revised offer of UltraTech Cement Limited and to re-open negotiation with competing bidders was contrary to the Insolvency and Bankruptcy Code, 2016 and the objective of value maximisation; (iii) Whether the resolution plan discriminated between similarly placed unsecured financial creditors and failed to treat operational creditors fairly; and (iv) Whether the resolution professional failed to verify and consider operational creditors' claims in accordance with law.

Issue (i): Whether the resolution professional exceeded his powers by appointing multiple professionals, outsourcing work and incurring excessive resolution costs, and whether the directors of the suspended board were improperly excluded from committee of creditors meetings?

Analysis: The notice for meetings was found to be deficient, and the material on record showed that representatives of the suspended board were asked to leave while issues concerning the corporate debtor were being discussed. The Court also found that the resolution professional had engaged numerous advisers and facilitators, outsourced substantial work, and caused resolution costs to be fixed without adequate regard to reasonableness and necessity. The conduct was held to be inconsistent with the duties of independence, transparency and restraint expected under the Code and the regulations governing insolvency professionals.

Conclusion: The issue was decided against the resolution professional and in favour of the applicants.

Issue (ii): Whether the refusal to consider the revised offer of UltraTech Cement Limited and to re-open negotiation with competing bidders was contrary to the Insolvency and Bankruptcy Code, 2016 and the objective of value maximisation?

Analysis: The revised offer was made before expiry of the CIRP period and before final approval of the plan. The reasons given for rejection, namely that it was sent by e-mail, that it deviated from the process document, and that it was beyond time, were treated as insufficient and non-substantive. The Court held that process documents cannot override the Code, that the resolution professional was required to act independently in the interest of all stakeholders, and that a better offer capable of improving realisation for creditors ought to have been considered.

Conclusion: The issue was decided against the resolution professional, the committee of creditors and the successful resolution applicant, and in favour of UltraTech Cement Limited.

Issue (iii): Whether the resolution plan discriminated between similarly placed unsecured financial creditors and failed to treat operational creditors fairly?

Analysis: The plan was found to provide differing treatment to unsecured financial creditors in similar positions, including substantial haircuts for some and full or near-full treatment for others without a coherent basis. The Court also found that operational creditors were not treated uniformly and that the proposed distribution lacked a fair and equitable foundation consistent with the scheme of the Code and the regulations. The plan, as framed, was therefore viewed as requiring modification.

Conclusion: The issue was decided against the approval of the plan as framed and in favour of the objecting financial and operational creditors.

Issue (iv): Whether the resolution professional failed to verify and consider operational creditors' claims in accordance with law?

Analysis: The verification of operational creditors' claims was still incomplete, yet the plan was moved forward without adequate consideration of the claims and without meaningful participation of operational creditors through their representative where the statutory threshold was met. The Court held that the resolution professional had not adequately safeguarded the claims of operational creditors and had not ensured that the plan complied with the requirements applicable to their dues.

Conclusion: The issue was decided against the resolution professional and in favour of the operational creditors.

Final Conclusion: The impugned resolution process was held to be procedurally and substantively flawed in several material respects, and the matter was sent back for reconsideration of competing offers and creditor treatment while extending the CIRP timeline accordingly.

Ratio Decidendi: In insolvency resolution, process documents and internal evaluation matrices cannot be applied so as to defeat the Code's objective of maximising value and ensuring fair treatment of all stakeholders; the resolution professional must act independently, transparently and in compliance with the statutory safeguards governing participation, costs, creditor classification and consideration of viable higher offers.

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