Commercial wisdom and process integrity under insolvency law: opaque disclosure and irregularities justified rejection of the resolution plan.

The Adjudicating Authority under the Insolvency and Bankruptcy Code is generally confined to checking statutory compliance and process integrity, while the Committee of Creditors' commercial wisdom on feasibility, viability and valuation remains largely non-justiciable. That restraint, however, does not prevent scrutiny where tangible material shows an opaque or materially irregular resolution process. Here, incomplete disclosure, unexplained asset and liability changes, lack of audit or avoidance action, and deficiencies in the Information Memorandum were treated as undermining the reliability of the process. On that basis, rejection of the resolution plan and liquidation of the corporate debtor were sustained.

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Issues: (i) Whether the Adjudicating Authority exceeded its limited jurisdiction under section 31 of the Insolvency and Bankruptcy Code, 2016 by reappraising the commercial decision of the Committee of Creditors and rejecting the resolution plan on matters of feasibility, viability, valuation, and revival strategy. (ii) Whether, on the facts, the resolution process was vitiated by incomplete disclosure, unexplained depletion of assets and liabilities, non-initiation of audit or avoidance proceedings, and circumstances suggesting misuse of the insolvency process, justifying rejection of the plan and confirmation of liquidation.

Issue (i): Whether the Adjudicating Authority exceeded its limited jurisdiction under section 31 of the Insolvency and Bankruptcy Code, 2016 by reappraising the commercial decision of the Committee of Creditors and rejecting the resolution plan on matters of feasibility, viability, valuation, and revival strategy.

Analysis: The statutory scheme assigns primacy to the commercial wisdom of the Committee of Creditors, and the Adjudicating Authority is confined to ensuring statutory compliance, procedural fairness, and the absence of material irregularity or fraud. Decisions on viability, feasibility, haircut, and commercial attractiveness are ordinarily non-justiciable. However, that restraint does not bar scrutiny where the resolution process itself is shown, on tangible material, to be opaque, incomplete, or used as a mask for improper objectives. Judicial review remains narrow, but it is not extinguished where the integrity of the process is demonstrably called into question.

Conclusion: The Adjudicating Authority did not act in excess of jurisdiction merely by examining whether the plan rested on a trustworthy and transparent resolution process. Its scrutiny was permissible to the extent it was directed at statutory compliance and process integrity.

Issue (ii): Whether, on the facts, the resolution process was vitiated by incomplete disclosure, unexplained depletion of assets and liabilities, non-initiation of audit or avoidance proceedings, and circumstances suggesting misuse of the insolvency process, justifying rejection of the plan and confirmation of liquidation.

Analysis: The material showed a sustained fall in asset values over successive financial years, unexplained disappearance of substantial liabilities, absence of audit scrutiny, no meaningful assessment of potential preferential, undervalued or fraudulent transactions, and deficiencies in the Information Memorandum and disclosure architecture. These factors, taken together and not in isolation, were treated as undermining the transparency and reliability of the resolution process. The plan was also viewed against the backdrop of a large statutory claim and the concern that the process might be leveraged to secure an unintended advantage under the clean slate mechanism. In that setting, the CoC's approval could not be treated as insulated from scrutiny because the commercial decision was not shown to rest on complete and reliable information.

Conclusion: The resolution process was held to be defective and the rejection of the plan, along with liquidation of the corporate debtor, was sustained.

Final Conclusion: The appeals failed because the resolution plan was found to have emerged from a compromised process lacking sufficient transparency and credibility, and the liquidation order was therefore upheld.

Ratio Decidendi: While the commercial wisdom of the Committee of Creditors is ordinarily beyond judicial substitution, the Adjudicating Authority may refuse approval where tangible material shows that the insolvency resolution process is opaque, materially irregular, or used to mask misuse of the Code.

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