Resolution Professional’s Actions Based On CoC’s Instructions Cannot Be Termed 'Material Irregularity' U/S 61(3)(ii) IBC: Supreme Court

The Court was hearing civil appeals filed under Section 62 of the IBC by unsuccessful resolution applicants challenging the approval of a resolution plan by the National Company Law Tribunal and its affirmation by the National Company Law Appellate Tribunal in the corporate insolvency resolution process.

A Bench of Justice B.V. Nagarathna and Justice R Mahadevan, while reiterating the primacy of the doctrine of commercial wisdom under the IBC, observed: “Where the RP acts on the instructions of the CoC, such conduct cannot, by any stretch of imagination, be characterised as a “material irregularity” within the meaning of Section 61(3)(ii). To hold otherwise would be to conflate the statutorily distinct roles of the RP and the CoC and to indirectly subject decisions of the CoC to judicial review, contrary to the scheme of the IBC”.

Background

The corporate insolvency resolution process was initiated on an application filed under Section 7 of the IBC and admitted by the NCLT. The Interim Resolution Professional was appointed and later confirmed as the Resolution Professional by the CoC.

Pursuant to the issuance of Form-G and the Request for Resolution Plan, several prospective resolution applicants, including the appellants and the successful resolution applicant, submitted their resolution plans.

An inter-se bidding process was conducted and, following negotiations, the CoC put the plans to a vote. The resolution plan of Sarda Energy and Minerals Limited (SEML) was approved with 100% vote share.

The RP thereafter filed an application before the NCLT under Section 30(6) seeking approval of the plan. Interlocutory applications were filed by certain unsuccessful resolution applicants alleging irregularities in the process, including alleged post-bid modifications by SEML.

The NCLT ultimately approved the resolution plan, and the NCLAT affirmed the approval, holding that there was no material irregularity and that the CoC’s commercial wisdom was non-justiciable.

Aggrieved, the unsuccessful resolution applicants approached the Supreme Court.

Court’s Observation

At the outset, the Supreme Court examined the limited scope of appellate interference under Sections 61 and 62 of the IBC. It noted that an appeal before the NCLAT against approval of a resolution plan lies only on specific grounds enumerated in Section 61(3), including “material irregularity in exercise of the powers by the resolution professional.”

The Court observed that in the present case, the RP had acted strictly on the instructions of the CoC. During the evaluation of the resolution plans, the CoC identified certain ambiguities and directed the RP to seek clarifications from all resolution applicants. The RP merely communicated those queries and placed the responses before the CoC for consideration

In this context, the Court held that where the RP acts on the instructions of the CoC, such conduct cannot, by any stretch of imagination, be characterised as a ‘material irregularity’ within the meaning of Section 61(3)(ii) of the Insolvency and Bankruptcy Code, 2016.

The Court further noted that the findings of the NCLT and NCLAT were concurrent. It reiterated that when two adjudicating authorities under a special statute have taken a concurrent view, interference by the Supreme Court would be warranted only if such findings were ex facie arbitrary, perverse, or in ignorance of mandatory statutory provisions

The appellants contended that the successful resolution applicant had materially altered its financial proposal after the conclusion of the bidding process. It was argued that SEML had enhanced its offer in relation to the replacement of bank guarantees and had also converted a deferred payment component into an upfront payment, thereby improving its bid post facto and gaining an unfair advantage. According to the appellants, permitting such changes amounted to a material irregularity in the conduct of the CIRP and vitiated the approval of the resolution plan.

Dealing with the allegation regarding bank guarantees, the Court examined the contents of the resolution plan and the subsequent communications placed on record. It found that the plan, from its inception, envisaged the return of the entire margin money to the Committee of Creditors and that the communication relied upon by the appellants merely clarified the manner in which certain guarantees would be treated.

The Court concluded that there was no enhancement of the financial offer and no post-submission modification of the plan in this regard.

With respect to the deferred payment component, the appellants had argued that SEML had effectively converted a staggered payment structure into an upfront payment, thereby altering the commercial terms of its proposal. The Court, however, noted that the plan had always provided the CoC with an option: either to receive the discounted present value upfront or to accept a higher aggregate sum payable over time with interest.

The clarification in question, the Court held, did not change the commercial structure of the offer but merely removed ambiguity regarding discounting. Consequently, it found that there was no impermissible modification of the resolution plan and no material irregularity attributable to the Resolution Professional.

Having found no modification of the plan and no material irregularity by the RP, the Court emphasised that what remained was essentially a challenge to the commercial decision of the CoC. Reiterating settled jurisprudence, it held that the commercial wisdom of the CoC cannot be interfered with by the NCLT, NCLAT, or the Supreme Court except within the narrow confines of statutory grounds

The Court also took note of the fact that the resolution plan had already been implemented and payments made in terms thereof.

Conclusion

Holding that no ground under Section 61(3) was made out and that no substantial question of law arose under Section 62, the Supreme Court dismissed the appeals and upheld the approval of the resolution plan.

Cause Title: Torrent Power Limited v. Ashish Arjunkumar Rathi & Ors. (Neutral Citation: 2026 INSC 206)

Appearances

Appellant: Advocates Gauri Rasgotra, Manish Kharbanda, Charu Mathur (AOR), Priyashree Sharma, Ekta Gupta, Shivansh Agarwal, Neha Maniktala, Karan Singh Duggal, S. S. Shroff (AOR), D.S.K. Legal (AOR), Samir Malik, Shahan Ulla, Jash Shah, Varun Kalra, Pranav Khanna & Others.

Respondents: N. Venkatraman (ASG), Senior Advocates Gopal Jain and Neeraj Kishan Kaul, with Advocates Madhav Kanoria, Srideepa Bhattacharyya, Neha Shivhare, Vikash Kumar Jha, Ramakant Rai, Cyril Amarchand Mangaldas (AOR), Trilegal Advocates On Record (AOR) and Others.

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