TaxTMI 
TaxTMI 
2026 (3) TMI 42
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....On Record, AOR Mr. Neeraj Kishan Kaul, Sr. Adv., Mr. Mahesh Agarwal, Adv., Mr. Manu Krishnan, Adv., Ms. Pooja Mahajan, Adv., Ms. Geetika Sharma, Adv., Mr. Savar Mahajan, Adv., Ms. Sanjivani Pattjoshi, Adv., Mr. Uday Aditya Jetly, Adv., Mr. Uday Aditya Jetley Pocha, Adv., Mr. Toshiv Goyal, Adv., Mr. Saurabh Bachhawat, Adv., Mr. Varun Tyagi, Adv., Mr. Srivatsava Reddy Beerapall, Adv., Mr. E. C. Agrawala, AOR Mr. Aman Malik, AOR. JUDGMENT PER NAGARATHNA, J. Preface: The Insolvency and Bankruptcy Code, 2016 (for short, "IBC") marks a fundamental shift in India's insolvency regime: from a court-centric model to a creditor-driven process. At its core lies the doctrine of commercial wisdom: a conscious legislative choice to vest decisive authority in the Committee of Creditors (for short, "CoC"), comprising financial creditors who bear the economic consequences of failure. 1.1 The IBC recognises that decisions on viability, valuation, and acceptable haircuts are inherently commercial, not judicial. Courts, therefore, do not substitute their assessment for that of the CoC. The adjudicating authority performs a supervisory role, ensuring statutory compliance and procedural fa....
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....sued Form-G inviting Expressions of Interest (for short, "EoIs") from prospective resolution applicants. On receipt of the EoIs, the RP issued a Request for Resolution Plan (for short, "RFRP"), Information Memorandum, and provided access to the Virtual Data Room of the Corporate Debtor to all prospective resolution applicants on 12.08.2022. After granting several extensions, the final date for submission of Resolution Plans was decided as 30.12.2022. Pursuant thereto, SEML and six other applicants including the appellants herein submitted their Resolution Plans and negotiations were held from January 2023 to February 2023. 3.2 As its 26th Meeting held on 12.04.2023 and 13.04.2023, the CoC decided to hold an inter-se bidding process amongst the applicants on 19.04.2023. A Process Note dated 13.04.2023 (for short, "Process Note") governing the said bidding process was also issued as per which all the resolution applicants were requested to submit their revised Resolution Plans by 28.04.2023. 3.3 After its 29th meeting on 06.05.2023, the CoC directed the RP to seek clarifications from the resolution applicants on their respective Resolution Plans, without any change in commercia....
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....IA Nos.3336 and 3399 of 2023. Accordingly, the plan approval application, i.e., IA No. 2794 of 2023 and the two other applications, i.e. IA No.3336 of 2023 and IA No. 3399 of 2023 were revived before the NCLT for fresh adjudication. Intervention Petition No.40 of 2024 filed by Jindal was rejected on the ground that it did not raise objections before the NCLT. 3.9 The NCLT by its order dated 13.08.2024 allowed the application filed by the RP for approval of the Resolution Plan filed by SEML and rejected IA No.3336 of 2023 and IA No.3399 of 2023. Hence, the unsuccessful resolution applicants filed appeals before the NCLAT. 3.10 However, the NCLAT by the impugned order dated 01.10.2024 dismissed the appeals preferred by the unsuccessful resolution applicants and confirmed the order dated 13.08.2024 passed by the NCLT, holding that the approval of a Resolution Plan by the CoC on the basis of its commercial wisdom cannot be interfered with. 3.11 The case of the appellants has remained the same at every round of litigation including in the present appeals. They contended that SEML had modified its Resolution Plan after the negotiation process had concluded and the commercial off....
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....tended before the NCLT that the RP and the CoC selectively permitted SEML to modify its commercial offer after the conclusion of the negotiation process on 19.04.2023. No other applicant was entitled to modify its commercial offer after the conclusion of the negotiation process. However, the RP and the CoC, under the guise of seeking clarifications by e-mail dated 08.05.2024, permitted SEML to modify its commercial offer by - (i) converting the deferred amount of Rs. 240 crores as provided under its Resolution Plan to an upfront amount; and (ii) increasing the amount towards infusion of BGs to approximately Rs. 180 crores, when in the Resolution Plan it had only offered to infuse Rs. 103.39 crores. Rejecting these contentions raised by Torrent, the NCLT held that the CoC had deliberated at length upon the feasibility and viability of the Resolution Plan(s) submitted by all resolution applicants and the NCLT could not, therefore, undertake any quantitative analysis apropos the same. It was only after such examination that the Resolution Plan(s) were put up for voting during the 31st Meeting of the CoC and the CoC voted in favour of SEML's Resolution Plan. Placing r....
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....e, SEML had clarified on 10.05.2023 that since the BGs at Item Nos. 6 and 7 would not continue as per its proposed Resolution Plan, the corresponding margin money of Rs.76.71 crores would be returned to the Corporate Debtor on the transfer date. The NCLAT found that this clarification merely explained and reaffirmed the existing terms of the Resolution Plan and did not amount to any modification or enhancement of the offer. Accordingly, it rejected the contention that the Resolution Plan was limited to Rs. 103.39 crores, holding that SEML's commitment always extended to the full Rs. 180.05 crores. 4.8 As regards the second argument, that SEML was allowed to convert a deferred payment of Rs. 240 crores into an upfront payment under the guise of a clarification, the NCLAT, upon examining the Resolution Plan noted that it expressly provided for a deferred payment of Rs. 301.64 crores, whose net present value (for short, "NPV") was Rs. 240 crores. It observed that as per the Resolution Plan, the CoC had the option to choose the deferred payment upfront, and that Rs. 240 crores was only the discounted value of Rs. 301.64 crores. The NCLAT noted that SEML merely clarified that should ....
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.... resolution plan by 28.04.2023 incorporating only those figures of their Key Commercial Terms, as was submitted in their respective Appendices, at the end of the negotiation process on 19.04.2023. As such, at the end of the negotiation process, there was no scope - (i) for modification of the Key Commercial Terms once the negotiation process had been completed, or (ii) to insert any additional offer(s) (as a potential inducement) in the resolution plan submitted on 28.04.2023 which were not already part of the proposal submitted by such resolution applicant in Appendix I. d) Despite the above, SEML was selectively permitted to increase its commercial offer on two separate occasions leading to discrimination and material irregularity in the process in terms of Section 61(3)(1) of the IBC. e) SEML had provided payment of Rs.40 crores as a deferred payment in Appendix I submitted on 19.04.2023 at the end of the negotiation process. However, while submitting its resolution plan on 28.04.2023 after the end of the negotiation process, SEML for the first time provided the CoC with the choice of converting a deferred payment of Rs. 240 crores (as provide....
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....876 crores). Despite this, the CoC proceeded to approve SEML's plan, which raises serious doubts on the bona fides of the CoC and the RP. j) In any case, while the CoC's commercial wisdom is generally accorded primacy, it is well-settled that such commercial wisdom must be exercised strictly within the four corners of the IBC, the CIRP Regulations, and the process prescribed in the RFRP and the Process Note. Thus, notwithstanding that the commercial wisdom of the CoC is ordinarily non-justiciable, this immunity cannot extend to decisions that are patently capricious, arbitrary, and/or irrational. In the present case, the CoC's decision is demonstrably dehors the provisions of the IBC, the Rules, and in manifest breach of the governing Process Note and the RFRP. k) For the foregoing reasons, SEML's revised offer dated 10.05.2023 is non est in law, and the process, suffering from manifest irregularity, warrants judicial interference. Vantage: 5.2 Mr. Kapil Sibal, learned senior counsel appearing for Vantage advanced the following submissions before us: a) Vantage's Resolution Plan offered the highest upfront payment of Rs.2191.43 crores with no deferr....
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....e us: a) In its 29th meeting dated 06.05.2023, the CoC directed the RP to seek clarifications from the resolution applicants. Acting on specific instructions of the CoC, the RP by email dated 08.05.2023 sought clarifications from the appellants - Torrent, Vantage, Jindal as well as the respondent - SEML on their respective Resolution Plans. Clarifications having been solicited from all applicants, no case of discrimination can be made out. b) SEML's Resolution Plan provided that Rs. 240 crores would be paid by SEML to the CoC and two options were provided by SEML to the CoC to avail the said money. The first of this was that Rs. 240 crores be availed by the CoC in a deferred manner through the issuance of non-convertible debentures (for short, "NCDs") which shall bear coupon interest, meaning that interest on Rs. 240 crores shall be paid from the date of issuance of NCDs till their redemption. The second option was that the CoC could opt to take the amount as upfront cash, in which case only Rs. 240 crores would be paid to the CoC. c) SEML was, inter alia, called upon to confirm if in case of the second option, the amount of Rs. 240 crores will be paid fu....
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....180 crores to secured financial creditors, consistent with the Resolution Plan. SEML: 6.1 The learned counsel appearing for SEML advanced the following submissions before us: a) The appellants are unsuccessful resolution applicants, whose resolution plans were unanimously rejected by 100% of the CoC. As such, they have no vested right to claim that their plans should have been accepted by the CoC. b) Further, the appellants voluntarily took back their Earnest Money Deposit after being informed by the RP of the approval of SEML's Resolution Plan. This shows that the appellants only want to take a chance through litigation, without having any skin in the game. c) The present appeals by Torrent must be tested strictly with reference to Section 61(3) of the IBC, which limits the scope of challenge to an approved resolution plan before the NCLAT on the grounds only of - (a) non-compliance with Section 30(2) of the IBC; or (b) material irregularity in the process by the RP. d) Admittedly, no grounds for non-compliance with Section 30(2) of the IBC have been made out or even pleaded in the present appeal. As regards "material....
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....peal before the NCLAT, let alone before the Supreme Court. In this regard, reliance is placed on the judgment in Kalparaj Dharamshi vs. Kotak Investment Advisors Ltd., (2021) 10 SCC 401, wherein it was held that if the actions of the RP in inviting EOIs after the last date have the seal of approval of the CoC, then the decision of the CoC cannot be interfered with. e) The legislature has consciously kept any factual determination or adjudication on matters pertaining to commercial decision- making by the CoC outside the scope of Sections 61(3) and 62 of the IBC. f) In any case, the NCLT and the NCLAT have both given concurrent findings that there has been no "material irregularity" in the process. It is trite law that the Supreme Court would not ordinarily interfere in cases where there are concurrent findings by the NCLT and the NCLAT vide Essar Steel India Limited. Therefore, the question of "material irregularity" cannot be raised afresh now. g) The RFRP in clause 4.1.8 clearly provided that "Subject to such final Resolution Plan of the Resolution Applicant being a Compliant Resolution Plan, the CoC may vote on one or more of the Resolution Plan to app....
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....s been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board." 8. A perusal of the material placed on record in the present case would reveal that the appeal before the NCLAT does not fit into any of the aforesaid criteria. The only semblance of a ground invoked by the appellants is that of "material irregularity" in the exercise of powers by the RP under Section 61(3)(ii) of the IBC. However, in our view, this ground is also not made out in the present case. It is an admitted fact that in the present case, the RP has acted strictly on the instructions of the CoC. During the evaluation of the Resolution Plans submitted by the resolution applicants, the CoC identified certain ambiguities and directed the RP to seek clarific....
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....T and non-application of Section 62 of the IBC, we nonetheless proceed to examine the contentions advanced on their merits. 9.1 As already noted above, the two main grounds of attack against the approval of the Resolution Plan pertain to the alleged modification of the commercial offer by SEML by (i) increasing the amount towards infusion in the BGs to approximately Rs. 180.05 crores, when in the Resolution Plan, SEML had offered to infuse only Rs. 103.39 crores; and (ii) converting the deferred amount of Rs. 240 crores to an upfront amount. We will proceed to test both the arguments. A. Increase in amount towards infusion in BGs: 10. In order to consider this argument, we need to turn to the email dated 08.05.2023, which was sent by the RP to SEML. The entire email is extracted below for immediate reference: "Dear Resolution Applicant, This is with reference to the Resolution Plan submitted by you on April 28, 2023 ("Resolution Plan") in the corporate insolvency resolution process of SKS Power Generation (Chhattisgarh) Limited. While the Resolution Plan is being reviewed and evaluated by the Resolution Professional ("RP") and the Commit....
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....and the existing margin money securing such Relevant BGs is utilised to adjust against the invoked amount, will the Resolution Applicant still pay the difference between INR 103.39 Crores and such utilised margin money on the Transfer Date to make payments as envisaged under the Resolution Plan? (iv) Please clarify the treatment of the Exclusive Marin Money (as defined in the RFRP) proposed under the Resolution Plan which is required to be provided as per clause 3.4(x)(A) & (C) of the RFRP? (v) Whether the release of the margin money is being sought before arranging for infusion of the fresh margin money for the Relevant BGs? Please clarify that the replacement of the bank guarantees will be undertaken in a manner which does not leave the issuing bank's exposure unsecured for any moment prior to, on or after the Transfer Date for the following categories of BG: i. BGs of INR 103.39 Crores - defined as Relevant BGs ii. BGs of INR 76.61 Crores (with specific mention of exclusive margin) (vi) There seems to be an error in calculation of Annexure 3 viz aggregate of PGCIL/ SECL/ Rajasthan PPA is INR 103.83 Cr. Please clarify. 2. ....
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.... pay costs incurred during the monitoring period as and when they fall due during the monitoring period. Please clarify that this is subject to Clause 6.2. 7. 8. In Clause 6.4.9, all dues relating to employees are sought to be extinguished. Gratuity of continuing employees which may fall due after takeover, but relate to prior period, cannot be extinguished. Please clarify that gratuity and other similar obligations that fall after the Insolvency commencement date shall not be extinguished. 9. We note that Clause 7.3.2 stipulates that the RP shall inform of expiring licenses to the Resolution Applicant on transfer date. Please clarify that such responsibility will be that of the Monitoring Committee, of which the Resolution Applicant will be a part. 10. In Clause 9.2.6, please clarify that the Monitoring Committee will be bound to take actions on a reasonable efforts basis, as provided in Clause 9.2.1. 11. Clause 12.3 states that if any court sets aside or unilaterally modifies the plan resulting into an increased financial outlay, the amounts paid till then shall be returned to the Resolution Applicant. Please clarify that, if the adjudicating a....
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....ght to be returned to the Corporate Debtor for further payment to the Secured Financial Creditors as per the Resolution Plan. However, to provide assurance to the issuing banks, we clarify that all BGs listed in Annexure 3 will be secured by 100% Margin Money at all times. Therefore, pending the cancellation, expiry, release of BGs listed in point 6 and 7 of Annexure 3, we will be providing replacement Margin Money to the issuing banks on the Transfer Date. If any of the BGs listed in point 6 and 7 of Annexure 3 are invoked prior to the Transfer Date then the equivalent Margin Money of such invoked BGs shall be paid by the Resolution Applicant which shall be utilised to make payment to the Secured Financial Creditors or in the manner as decided by the CoC, on the Transfer Date. In case any of the BGs listed in point 6 and 7 of Annexure 3 are live or uninvoked as on the Transfer Date, the Resolution Applicant shall provide replacement margin money to the issuing banks on the Transfer Date which shall be utilised for replacement/ renewal/securing of the Remaining BGs and the relevant Margin Money shall be returned by the issuing banks to Corporate Debtor wh....
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.... bank, the Margin Money Replacement Amount corresponding to such encashment shall be utilised for making payment to the Secured Financial Creditors or to creditors as decided by the CoC on the Transfer Date." (underlining by us) 10.3 Clause 6.3.13 refers to Annexure 3, which contains the details of BGs from Serial Nos. 1 to 7. Annexure 3 is extracted below: "ANNEXURE 3: BANK GUARANTEES (as on 28 FEBRUARY, 2023) S.No. Name of the Beneficiary Amounts (in crores) Remarks 1 Power Grid Corporation of India Limited 37.50 A claim has been filed by PGCIL for this amount which has been duly admitted by the RP. 2 South Eastern Coal fields Limited 36.33 This was provided under the Coal Supply Agreement. 3 Ajmer Vidyut Vitran Nigam Limited (Rajasthan PPA) 8.14 Issued to Rajasthan Discom 4 Jaipur Vidyut Vitran Nigam Limited (Rajasthan PPA) 12.08 Issued to Rajasthan Discom 5 Jodhpur Vidyut Vitran Nigam Limited (Rajasthan PPA) 9.78 Issued to Rajasthan Discom 6 Excise Department 69.77 7 Customs 6.89 TOTAL 180.05 10.4 What emerges from th....
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.... margin money backing those guarantees. Accordingly, on 10.05.2023, SEML clarified that the margin money of Rs. 76.61 crores relating to the BGs at Serial Nos. 6 and 7 was also to be returned to the CoC and paid to the secured financial creditors, exactly as provided in the Resolution Plan. At the same time, SEML clarified that until those BGs were cancelled, expired, or released, the issuing banks would continue to have live obligations under the guarantees. To ensure that the issuing banks were not left unsecured during this period, SEML stated that it would provide replacement margin money so that all BGs would remain backed by 100% margin money at all times. What is relevant is that in any event, upon the release of the BGs, the underlying margin money, i.e. Rs. 76.61 crores was to be passed on to the CoC together with Rs. 103.39 crores. All that the clarification did was address the issuing banks' interim exposure pending formal return of these BGs. This did not result in any increase in payment to the CoC. The payment to the CoC was Rs. 180.49 crores before clarification and remained Rs. 180.49 crores even after the clarification. 10.8 Therefore, we do not find any force i....
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..... If CoC exercises the option to obtain the value upfront, then the RA will pay INR 240 Crores upfront i.e. the principal amount of NCDs." 11.1 What transpired as extracted above is simple: SEML proposed to issue NCDs at a face value of Rs. 240 crores with a coupon rate of 10%. However, it also gave the CoC the option to either - (i) take the NCDs, i.e. Rs. 240 crores with 10% coupon (which comes to a total of Rs. 301.64 crores over three years); or (ii) take Rs. 240 crores upfront. 11.2 The RP specifically sought SEML's response in relation to clause 6.3.2.(b) of its Resolution Plan, "...which stated that Resolution Applicant will pay a "discounted amount of Rs. 240 Cr" to the CoC, in case CoC wishes to obtain the deferred portion of Rs. 240 Cr upfront. Please clarify whether Resolution Applicant is offering a value lower than Rs. 240 Cr (i.e. Rs. 240 Cr discounted to a lower value), if the option to obtain the value upfront is exercised." Thus, the question to SEML was, whether, it would provide a further discount on Rs. 240 crores in the event of the CoC choosing the upfront payment option. 11.3 On 10.05.2023, SEML clarified that Rs. 240 crores is in f....
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.... The Board referred to is established under Section 188 of the I&B Code. The powers and functions of the Board have been delineated in Section 196 of the I&B Code. None of the specified functions of the Board, directly or indirectly, pertain to regulating the manner in which the financial creditors ought to or ought not to exercise their commercial wisdom during the voting on the resolution plan under Section 30(4) of the I&B Code. The subjective satisfaction of the financial creditors at the time of voting is bound to be a mixed baggage of variety of factors. To wit, the feasibility and viability of the proposed resolution plan and including their perceptions about the general capability of the resolution applicant to translate the projected plan into a reality. The resolution applicant may have given projections backed by normative data but still in the opinion of the dissenting financial creditors, it would not be free from being speculative. These aspects are completely within the domain of the financial creditors who are called upon to vote on the resolution plan under Section 30(4) of the I&B Code. xxx 58. Indubitably, the inquiry in such an appeal would ....
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....ly pass the resolution plan, as under: "73. ...Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximise the value of its assets; and that the interests of all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a given set of facts, that the aforesaid parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons given by the Committee of Creditors while approving a resolution plan may thus be looked at by the Adjudicating Authority only from this point of view, and once it is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal." (Underlining by us) 12.4 We also note the observati....
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.... this Court. 13.2 In view of the foregoing, we do not find any merit in the appeals. With the above observations, these appeals are dismissed. Therefore, the Impugned Judgment dated 01.10.2024 passed by the NCLAT is affirmed. 14. Before parting, we wish to add a few words of caution. The IBC represents a conscious legislative choice to privilege speed, certainty, and creditor-driven decision-making over exhaustive judicial scrutiny. Experience shows that unsuccessful bidders will always try to spin commercial decisions of the CoC as procedurally faulty in order to secure a second shot through litigation by filing applications or making representations. However, courts need to remain vigilant against any temptation to expand the scope of review beyond the narrow boundaries prescribed by the IBC. 14.1 From an ex post perspective, excessive judicial review in the CIRP carries significant economic costs that run counter to the objects of IBC. The IBC is premised on the recognition that delay and uncertainty are value-destructive in distressed situations. When commercial decisions taken by the CoC are subjected to expansive judicial scrutiny, resolution timelines lengthen, tran....
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....ramework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. ... 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's asse....