All NotesCorporate LawInsolvency and Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016

Commercial Wisdom of CoC: Limits of NCLT and NCLAT Review

Every plan dispute raises the same question: is the tribunal being asked to check legality or to second-guess a commercial decision? The Supreme Court has drawn the line firmly in favour of the committee. The 2026 Amendment adds procedure around that line: reasons for approval, a chance to cure defects and a thirty-day limit for the NCLT. The four questions below each test where the line falls.

1. The Law in Brief

  • Committee. Approves a plan by 66 per cent after considering feasibility and viability, and after 2026 records reasons for its approval (section 30(4))
  • NCLT. Approves the plan if satisfied that it meets section 30(2); after 2026, it may give notice to the committee to rectify defects before rejecting, and must decide within thirty days (section 31(1), (2) and (2A))
  • NCLAT. Hears appeals against approval only on the grounds in section 61(3)
  • Principle. The commercial wisdom of the committee is non-justiciable (K. Sashidhar, 2019; Essar Steel, 2019)

What the NCLT examines

Figure 1: What the NCLT examines

2. Can the NCLT Reject a Plan below Liquidation Value?

Facts

The committee of AB Ltd approves, by 80 per cent and with recorded reasons, a plan offering ₹300 crore, though the liquidation value is ₹340 crore. The committee's reasons are that the business employs 2,000 workers, that liquidation would take years and that the assets would fetch less in a distress sale. The NCLT rejects the plan because it is below liquidation value. Decide the appeal.

  • Issue. Whether the NCLT may reject a plan because its value is below the liquidation value.
  • Law. In Maharashtra Seamless v Padmanabhan Venkatesh (2020), the Supreme Court held that there is no requirement that a plan must at least equal the liquidation value, and the tribunal could not require the applicant to raise its offer. K. Sashidhar and Essar Steel (2019) hold that the committee's commercial decision is not reviewable on merits; the NCLT examines only compliance with section 30(2)
  • Application. The plan was approved by the required majority with reasons, as section 30(4) now requires. Its value relative to liquidation value is a commercial matter. No non-compliance with section 30(2) is alleged, provided the statutory minimums are met.
  • Conclusion. The NCLT erred, and the appeal should be allowed, subject to the plan meeting the minimum payments to operational and dissenting financial creditors.

3. Can a Losing Bidder Challenge the CoC's Choice?

Facts

Two plans are submitted for CD Ltd. Plan X offers ₹500 crore, mostly paid over seven years; Plan Y offers ₹460 crore, mostly upfront. The committee approves Plan Y by 72 per cent. The applicant behind Plan X appeals to the NCLAT, arguing that its higher offer should have been preferred, and the NCLAT directs the committee to approve Plan X. Decide.

  • Issue. Whether a tribunal may substitute its own choice between competing plans for that of the committee.
  • Law. In Kalparaj Dharamshi v Kotak Investment Advisors (2021), the Supreme Court held that the NCLAT erred in overturning the committee's choice of one plan over another on its own assessment. The choice between bidders, including the weight given to upfront payment and feasibility, is commercial wisdom. Appeals lie only on the grounds in section 61(3)
  • Application. The committee preferred certainty of upfront payment over a higher but deferred offer. Plan X's applicant identifies no ground under section 61(3), such as illegality or material irregularity by the resolution professional.
  • Conclusion. The NCLAT's direction should be set aside and the committee's approval of Plan Y restored, subject to the NCLT's examination under section 31.

Grounds of appeal under section 61(3)

Figure 2: Grounds of appeal under section 61(3)

4. What Does the NCLT Do with a Defective Plan?

Facts

The committee of EF Ltd approves a plan by 68 per cent. The NCLT finds that the plan has no provision for its implementation and supervision, and that it pays operational creditors ₹5 crore less than their statutory minimum. The resolution applicant urges the NCLT to approve the plan with a direction to pay the shortfall. Advise the NCLT, which received the plan on 1 September 2026.

  • Issue. What the NCLT should do with a plan approved by the committee that does not comply with section 30(2)
  • Law. Section 31(1) permits approval only of a plan that meets section 30(2), which requires, among other things, the minimum for operational creditors and provision for implementation and supervision. The 2026 proviso to section 31(2) allows the NCLT, before rejecting a plan, to give notice to the committee to rectify defects, and section 31(2A) requires an order within thirty days. Jaypee Kensington (2021) held that a deficient plan should be sent back to the committee rather than modified by the tribunal.
  • Application. Both defects are statutory and curable. The NCLT cannot itself rewrite the payment terms.
  • Conclusion. The NCLT should give the committee notice to rectify both defects and pass its order within thirty days of 1 September 2026, recording reasons for any delay. If the defects are cured, it should approve; if not, it should reject the plan.

5. On What Grounds Can a Dissenting Creditor Appeal?

Facts

GH Bank voted against a plan for JK Ltd and received exactly its statutory minimum. It appeals to the NCLAT, arguing that the plan undervalues JK Ltd's brand, that the successful applicant's projections are unrealistic, and that another bidder was unfairly excluded because its documents were filed one hour after the deadline. Decide.

  • Issue. Which of GH Bank's grounds fall within section 61(3)
  • Law. Section 61(3) permits an appeal against approval of a plan only where the plan contravenes the law, there has been material irregularity by the resolution professional, operational creditors' debts are not provided for as required, process costs are not provided for in priority, or the plan does not meet the IBBI's criteria. In Pratap Technocrats (2021), the Supreme Court held that the tribunals have no residual equity jurisdiction to interfere with a compliant plan.
  • Application. Valuation of the brand and the realism of projections are commercial matters. The exclusion of a late bidder could be a material irregularity only if the resolution professional acted contrary to the process approved by the committee; enforcing a published deadline is not an irregularity. GH Bank received its statutory minimum.
  • Conclusion. The appeal should be dismissed. The NCLAT must decide it within three months under section 61(6), inserted in 2026.

⚠ Exam trap

The tribunals check legality, not commerce. No minimum value rule (Maharashtra Seamless, 2020). The choice between bids is the committee's (Kalparaj Dharamshi, 2021). No equity jurisdiction (Pratap Technocrats, 2021). Appeals only on section 61(3) grounds. After 2026: the committee records reasons (s. 30(4)); the NCLT may give notice to rectify defects and must decide within thirty days (s. 31(2), (2A)); the NCLAT decides appeals within three months (s. 61(6)).

6. Frequently Asked Questions

Does the committee's duty to record reasons make its decision reviewable on merits?

No. Reasons show that the committee considered the relevant factors; they do not open its commercial judgment to merits review.

Can the NCLT modify a plan?

No. It may approve, reject or, after 2026, give notice to rectify; modification is for the committee (Jaypee Kensington, 2021).

Must dissenting creditors give reasons for voting against?

No (K. Sashidhar, 2019).

7. Related Topics

  • Topic 28: Commercial Wisdom of the CoC. Judicial deference.
  • Topic 73: Appeals. Sections 61 and 62.
  • Topic 118: Effect of Approved Resolution Plan. Clean slate and extinguished claims.