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In a significant and far-reaching pronouncement, the Hon’ble Supreme Court of India has rendered a watershed judgment under the aegis of the Insolvency and Bankruptcy Code, 2016 (“IBC”), which is poised to operate as a binding judicial precedent in the regime of corporate insolvency resolution processes.
In the matter of Kalyani Transco v. Bhushan Power & Steel Ltd., the Apex Court exercised its plenary jurisdiction to implement literal interpretation of statute and accordingly, set aside the Resolution Plan submitted by JSW Steel, which had earlier received approvals from both the Hon’ble National Company Law Tribunal (NCLT) and the Hon’ble National Company Law Appellate Tribunal (NCLAT), and direct for initiation of liquidation proceedings against Corporate Debtor.
The Hon’ble Court, while delivering its landmark verdict, found the resolution process adopted by the Committee of Creditors (CoC) and the Resolution Professional to be tainted with procedural irregularities, non-compliance with the mandatory provisions of the IBC, and a blatant abuse of the process of law at every stage of the Corporate Insolvency Resolution Proceedings (CIRP). The judicial scrutiny extended by the Supreme Court in this matter exposes critical lapses, reinforces the sanctity of statutory compliance under the IBC regime, and sets forth a cautionary framework for all stakeholders involved in the resolution process including Resolution Professionals, CoC, Adjudicating Authorities, as well as Appellate Authority.
This judgment is not merely corrective but also reformative, providing much-needed jurisprudential clarity on the scope and limits of discretion vested in the CoC and the contours of judicial oversight under the IBC. The key issues deliberated by the Hon’ble Supreme Court in the instant case are highlighted as follows.
- Strict adherence to the timeline stipulated under Section 12 of the IBC:
The Hon’ble Supreme Court has firmly reiterated that one of the primary objectives underlying the enactment of the IBC is the completion of the CIRP process within a strict timeframe. This legislative intent is expressly codified under Section 12 of the IBC, which stipulates a mandatory limit of 330 days for the conclusion of the CIRP, inclusive of any extensions granted and the time consumed in legal proceedings. The Supreme Court reiterated that the said provision is of a mandatory nature and does not permit indefinite or repeated extensions, so as to avoid any protracted or dilatory insolvency proceedings.
The Hon’ble Supreme Court further cautioned that where the CIRP cannot be completed within the statutory timeframe, and if further delay threatens to frustrate the objectives of the Code, then the Corporate Debtor ought to be directed towards liquidation. The Code thus mandates a swift, structured, and outcome-oriented insolvency framework, wherein delay is treated as anathema to the resolution process.
- Mandatory requirement under Section 29 A of IBC
The Apex Court has categorically held that there exists a statutory obligation upon the Resolution Applicant to make full and proper disclosure regarding their eligibility under Section 29A of the IBC. This obligation is not merely procedural but goes to the root of the insolvency resolution process, as ineligible applicants are barred from participating in the CIRP process.
In terms of Section 30(1) of the IBC read with Regulation 39(1) of the CIRP Regulations, 2016, it is mandatory for every Resolution Applicant to submit, along with the Resolution Plan, an affidavit affirming compliance and eligibility under Section 29A. Thereafter, Section 30(2) casts a legal obligation upon the Resolution Professional (RP) to verify the eligibility of the Resolution Applicant and ensure that the Resolution Plan is in compliance with the provisions of the IBC and other applicable laws before it is placed before the CoC for consideration. Furthermore, under Regulation 39(4) of the CIRP Regulations, when the approved Resolution Plan is submitted before the Adjudicating Authority, the Resolution Professional is duty-bound to file a compliance certificate confirming that the plan satisfies all requirements under the Code and the CIRP Regulations.
The Apex Court has emphasized that the question of eligibility or ineligibility under Section 29A being foundational in nature, it is incumbent upon the Resolution Professional to exercise independent scrutiny and verification of the affidavit filed by the Resolution Applicant. Failure on the part of the Resolution Professional to discharge this critical function may result in ineligible persons gaining entry into the CIRP, thereby compromising the integrity, transparency, and legality of the entire resolution process.
- Resolution Plan must be unconditional and enforceable post its approval:
The Apex Court has unequivocally held that once a Resolution Plan is approved by the Adjudicating Authority, such a plan must be unconditional, legally binding, and capable of immediate enforcement. The Resolution Plan, upon approval by the NCLT, acquires the force of law and binds all stakeholders, including the corporate debtor, creditors, and the Successful Resolution Applicant.
It is held that any Resolution Plan that remains contingent upon future events such as receipt of statutory approvals, changes in law, or prospective exemptions ought to be treated as inherently defective. It was further clarified that permitting such conditional plans would undermine the certainty and finality envisaged under the IBC, and potentially derail the objective of time-bound insolvency resolution.
The Court held that although the IBC does not explicitly codify the mechanism for implementation of an approved Resolution Plan, neither the Adjudicating Authority nor Appellate Tribunal should extend excessive leeway to the Successful Resolution Applicant for implementation of approved Resolution Plan. The Court emphasized that allowing resolution applicants to act in disregard of the approved Plan would amount to frustrating the legislative intent of the IBC, which is predicated on speed, finality, and revival of the corporate debtor. Thus, strict adherence to the implementation timeline and obligations under the Plan is imperative to uphold the integrity and sanctity of the insolvency process.
- Judicial Scrutiny of Commercial Wisdom of CoC:
The Hon’ble Supreme Court has clearly held that the CoC, while exercising its commercial wisdom under the IBC, is required to act within the framework of statutory obligations and with due diligence. The CoC must ensure that its decision is based on the commercial interest of reviving the Corporate Debtor and achieving the objective of value maximization of its assets/value. It is also obligated to strictly adhere to the timeline of 330 days prescribed under Section 12 of the Code for the completion of the CIRP. Additionally, the CoC must verify that the Resolution Applicant is eligible in terms of the statutory requirements and that the resolution plan is feasible, viable, and contains proper provisions for its implementation. It must also ensure that the Resolution Applicant has the capacity to implement the plan within a time-bound manner. The Court held that if such mandatory requirements are not complied with and the CoC nonetheless approves such a resolution plan, it cannot be said that the CoC has rightly exercised its commercial wisdom. In such cases, the decision of the CoC is open to judicial scrutiny.
- Scope of the word “Any Person Aggrieved” as provided under Section 61 of IBC:
The Hon’ble Supreme Court, while interpreting the expression “any person aggrieved” under Section 61 of the IBC, has held that the said expression is not to be construed in a restrictive manner so as to include only those parties who were directly before the Adjudicating Authority, i.e., the NCLT or NCLAT. Rather, once the CIRP is triggered, the proceedings assume the character of proceedings in rem, thereby extending their impact to a broader class of stakeholders beyond the individual applicant or the corporate debtor.
In this context, the Hon’ble Court has elucidated that the CIRP proceedings are inherently collective in nature, encompassing all financial and operational creditors, as well as former directors and officers of the corporate debtor. Therefore, the phrase “any person aggrieved” includes all those individuals or entities who have sustained a direct legal injury, or whose rights or interests have been materially prejudiced by the order under challenge.
Additionally, the Apex Court underscored the significance of Section 61(3) of the IBC, which delineates the specific and narrow grounds on which an appeal can be preferred before the NCLAT against an order of the NCLT approving a resolution plan. In this regard, the Court reaffirmed that an appeal under this provision shall lie only upon showing that the resolution plan sanctioned by the NCLT is either in contravention of the provisions of the IBC or its allied regulations, or that the process of approval has not adhered to the due procedure established under law.
- Powers of Adjudicating Authority of Judicial Review over the decision of Statutory Authority under PMLA:
The Apex Court has unequivocally held that NCLT and NCLAT are constituted under Sections 408 and 410 of the Companies Act, 2013, and derive their powers under the provisions of IBC. Pertinently, NCLT exercises powers under Sections 31 and 60 of the IBC, whereas the NCLAT is confined to the appellate jurisdiction conferred under Section 61 of the IBC. It has been categorically held that neither the NCLT nor the NCLAT is vested with the jurisdiction to exercise the power of judicial review over administrative or executive actions undertaken by the Government or any Statutory Authority, especially in matters falling within the ambit of public law. The adjudicatory authority under the IBC is not competent to examine or adjudicate upon decisions taken under distinct statutory regimes such as the Prevention of Money Laundering Act, 2002 (PMLA), which are governed by their own institutional mechanisms and judicial hierarchies.
Further, it has been reaffirmed that a Corporate Debtor cannot circumvent the statutory framework and approach the NCLT to challenge action of statutory authority, which fall outside the purview of the IBC, particularly those entrenched in the domain of public law. Any such grievance must be agitated before the appropriate constitutional forum vested with the power of judicial review, and not before the NCLT or NCLAT, which lack such jurisdiction by design and legislative intent.
Conclusion:
The present ruling of the Hon’ble Supreme Court has decisively reinforced the foundational principles of IBC, by upholding procedural discipline, statutory compliance, and institutional accountability in the conduct of the CIRP process. The judgment sends a clear message that procedural irregularities, non-compliance with mandatory legal provisions, and abuse of process whether by Resolution Applicants, Resolution Professionals, or the CoC will not be condoned under the guise of commercial wisdom or judicial deference.
This authoritative pronouncement has highlighted the key legal positions including the non-negotiable timeline for CIRP under Section 12, the mandatory verification eligibility of under Section 29A, the requirement for unconditional and compliant Resolution Plans, and the limited jurisdiction of NCLT and NCLAT in matters falling outside the scope of the IBC. It has also reaffirmed that the expression “any person aggrieved” under Section 61 must be interpreted in a purposive and inclusive manner.
This Judgment not only rectifies the flawed approval of the Resolution Plan in the case at hand but also sets binding parameters for all future insolvency proceedings. It affirms that while commercial wisdom of the CoC enjoys primacy, such discretion must be exercised within the boundaries of legality, reasonableness, and due process. As such, this verdict stands as a critical precedent ensuring that the objectives of the IBC are fulfilled through transparent, time-bound, and lawful resolution processes that preserve both the letter and spirit of the IBC.
Authored by Mr. Jyoti Kumar Chaudhary, Senior Partner and Mr. Jatin Chadda, Associate