Insolvency resolution eligibility criteria must have a rational nexus to recovery objectives and cannot be arbitrary or disproportionate.

Section 60(5)(c) of the Insolvency and Bankruptcy Code was treated as conferring jurisdiction to entertain challenges arising out of insolvency resolution proceedings, though the power was described as supervisory and to be used sparingly in extraordinary situations. Applying that standard, the Tribunal found the eligibility condition in the invitation for expression of interest requiring a minimum tangible net worth of Rs. 400 crores to be arbitrary and unreasonable because it was disproportionate to the debt profile, lacked rational correlation with viable resolution, and excluded major industry participants. The impugned criterion was interfered with and the resolution professional and committee of creditors were directed to revisit and republish revised eligibility criteria.

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Issues: (i) Whether the Tribunal had jurisdiction under the Insolvency and Bankruptcy Code, 2016 to examine the challenge to the eligibility criteria fixed in the invitation for expression of interest; (ii) Whether the eligibility criterion of minimum tangible net worth of Rs. 400 crores for category-A prospective resolution applicants was arbitrary and unreasonable and therefore liable to be interfered with.

Issue (i): Whether the Tribunal had jurisdiction under the Insolvency and Bankruptcy Code, 2016 to examine the challenge to the eligibility criteria fixed in the invitation for expression of interest?

Analysis: The Tribunal held that section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 conferred jurisdiction to entertain questions of law or fact arising out of or in relation to insolvency resolution proceedings. It nevertheless emphasised that such jurisdiction is supervisory and must be exercised sparingly, only where an extraordinary situation is shown.

Conclusion: The Tribunal held that it had jurisdiction to consider the application.

Issue (ii): Whether the eligibility criterion of minimum tangible net worth of Rs. 400 crores for category-A prospective resolution applicants was arbitrary and unreasonable and therefore liable to be interfered with?

Analysis: The Tribunal examined the eligibility conditions in the expression of interest notice in the light of the object of corporate insolvency resolution, the nature of the corporate debtor's business, and the comparative material placed before it. It found that the net-worth threshold was disproportionate to the debt level, excluded major tea-industry players, and did not reflect a rational correlation with the objective of obtaining viable resolution plans. The Tribunal also found that the insistence on such a high threshold, without adequately tailoring the criteria to the debtor's industry profile, was arbitrary and unreasonable.

Conclusion: The Tribunal held that the minimum net-worth criterion of Rs. 400 crores was arbitrary, unreasonable, and unsustainable, and directed reconsideration and fresh publication of revised eligibility criteria.

Final Conclusion: The challenge succeeded to the extent that the impugned eligibility norm was interfered with and the resolution professional and committee of creditors were directed to revisit and republish the eligibility criteria in accordance with law.

Ratio Decidendi: In insolvency resolution proceedings, eligibility criteria for prospective resolution applicants must bear a rational nexus to the object of resolution and cannot be maintained if they are shown to be arbitrary, unreasonable, and disproportionate to the circumstances of the corporate debtor.

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