Beyond Commercial Wisdom: The Supreme Court’s Third Phase of Insolvency Law

The Insolvency and Bankruptcy Code, 2016 is approaching its tenth year. In that period the Supreme Court has done more than interpret the statute. Case by case, it has determined not only how the Code is to be read but what the insolvency regime is to become.

The earliest decisions settled whether the Code would survive constitutional challenge. Swiss Ribbons Pvt. Ltd. v. Union of India, 2019 INSC 95, and K. Sashidhar v. Indian Overseas Bank, 2019 INSC 148, did that work and marked out the respective roles of creditors, tribunals and courts.

A second line of authority then established the commercial premise of the Code. Through Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, 2019 INSC 1256, and Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd., 2021 INSC 468, the Court affirmed the commercial wisdom of the committee of creditors, confined the scope of judicial review, and treated an approved plan as final.

A third set of decisions, handed down through 2025, points in a different direction. The questions they raise are no longer confined to who may be admitted or how the voting shares fall. They concern whether the process was followed, whether the claimant is entitled to invoke it, and whether the resolution will hold. Three concerns recur: compliance, the legitimacy of the claim, and the effectiveness of the outcome.

The clearest statement of the first concern is Independent Sugar Corporation Ltd. v. Girish Sriram Juneja, 2025 INSC 124, decided on 29 January 2025. The question was narrow, and not new. Where a resolution plan proposes a combination, must the Competition Commission of India approve it before the committee of creditors votes, or may that approval be obtained at a later stage? The proviso to Section 31(4) of the Code is explicit: the resolution applicant “shall obtain the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors.” For years the National Company Law Appellate Tribunal had read “prior” as directory rather than mandatory, so that the resolution process would not be delayed pending the regulator’s decision.

The majority of Roy and Dhulia JJ rejected that construction. Where the language of a provision is clear, it must be given effect, and the language here was clear (para 55):

“The language of the proviso to Section 31(4) of the IBC appears to be clear with no ambiguity and in those situations, all words finding place in the provision must be given their due meaning.”

The word “prior” had therefore to be given its ordinary meaning. A plan approved by the committee without the Commission’s clearance was invalid, and the appellate tribunal had erred in upholding it. Justice Bhatti dissented, preferring the earlier, efficiency-oriented view that approval before the adjudicating authority would suffice.

The significance of the ruling extends beyond competition law, and lies in its premise. A resolution professional is bound to ensure that a plan placed before the committee does not contravene any law for the time being in force. The commencement of insolvency does not suspend the operation of other statutes. As resolution proceedings increasingly intersect with securities regulation, foreign-investment control, environmental clearance and sectoral licensing, the principle is that the time-bound character of the process cannot excuse non-compliance with the law. Review petitions against the judgment have since been filed.

The second concern relates to the claimant rather than the plan. In Mansi Brar Fernandes v. Shubha Sharma, 2025 INSC 1110, decided on 12 September 2025, the Court had to distinguish genuine homebuyers, who may proceed against a defaulting developer as financial creditors under Sections 5(8)(f) and 7, from investors whose object was the recovery of their investment together with an assured return.

On the facts the distinction was readily drawn. The allottee had paid ₹35 lakh towards four flats under a memorandum that permitted the developer to repurchase the units, with an assured return of about ₹1 crore. Possession was never the object. Looking to the substance of the arrangement rather than its form, the Court held that “the MoU was in substance a buyback contract, not an agreement to sell flats.” On that footing she was a speculative investor and could not invoke Section 7.

The Court then stated the boundary in terms that extend well beyond the real estate sector (para 15.2):

“RERA remains the primary forum for redressal of homebuyers’ grievances; the IBC is a forum of last resort, intended to secure revival and completion of viable projects, not to serve as a debt recovery mechanism.”

The Court also set out indicative factors to guide the inquiry, among them the terms of the contract, the number of units acquired, the presence of assured-return or buy-back clauses, and any arrangement substituting for possession. The significance of the decision lies not in the outcome for an individual allottee, but in the proposition that satisfaction of the statutory definition no longer concludes the inquiry at admission. A claimant who answers that definition on paper may nonetheless be denied admission where the substance of the bargain discloses an invocation of the Code for a purpose foreign to its object. That inquiry into legitimacy is not confined to any one sector.

The third concern is the most practical. A resolution that cannot be implemented, or that may be unsettled years after its approval, secures little for creditors. Two decisions from 2025 address the problem from opposite directions.

The first arises from the Bhushan Power and Steel litigation, which has an unusually protracted procedural history. In May 2025 a two-judge Bench set aside JSW Steel’s approved plan and directed liquidation of the company. That judgment was recalled in July, and on 26 September 2025 a three-judge Bench delivered its final decision in Kalyani Transco v. Bhushan Power and Steel Ltd., 2025 INSC 1165. It upheld the plan and foreclosed belated attempts to reopen it. Once a plan stands approved by the committee and the adjudicating authority under Section 31, the Court held (Para 169), “permitting any claims to be reopened which were not a part of the RfRP or Resolution Plan … will be doing violence to the provisions of IBC.”

The Bench also gave practical effect to the clean-slate principle. Section 32A opens with a non obstante clause. It provides that the corporate debtor’s liability for an offence committed before the commencement of the process shall cease once a plan is approved that introduces management neither drawn from nor connected to the erstwhile promoters, and it protects the debtor’s property covered by that plan from attachment in respect of those past offences. Construed in accordance with its terms, the provision permits the successful resolution applicant to take over the assets required for the revival of the business. Liability does not cease; it continues against the individuals responsible for the affairs of the corporate debtor. The clean slate enures to the corporate debtor, not to its erstwhile promoters, and the Court was critical of the obstructive litigation those promoters had pursued.

If Kalyani Transco secures the clean exit of the corporate debtor, Piramal Capital and Housing Finance Ltd. v. 63 Moons Technologies Ltd., 2025 INSC 421, decided on 1 April 2025, identifies the accountability that survives the resolution. Arising from the DHFL resolution, the Court drew a distinction between two categories of recovery. An avoidance application under Sections 43, 45 or 50 is directed at a specific impugned transaction. An application under Section 66 for fraudulent or wrongful trading is different in kind, fixing personal liability on those who knowingly carried on the business of the corporate debtor to defraud creditors. Such applications, the Court held (Para 61), “could not be termed as ‘Avoidance Applications’ used for the Applications filed under Sections 43, 45 and 50,” since the two fall under different chapters of the Code and serve different ends. On the commercial question the Court adhered to the established position, deferring to the commercial wisdom of the committee in the valuation and assignment of the recoveries.

None of this displaces the commercial logic established in Essar Steel and the decisions that followed it. Commercial wisdom continues to govern valuation and the choice of plan, as Piramal confirms. What has changed is the set of conditions now attached to that logic. A plan must obtain the regulatory approvals the statute requires before it is put to the vote. A petitioner must seek the relief the Code provides, and not merely an expedited recovery. The protections the statute confers, finality and the clean slate, must be given practical effect, while responsibility for fraud attaches to the persons answerable rather than to the rehabilitated company.

Taken together, the 2025 decisions indicate that the coming decade of insolvency law will turn less on thresholds and voting percentages than on the conduct of the parties and the integrity of the process. Whether this trend ultimately crystallises into settled doctrine remains to be seen; the Bhushan litigation, which the Court revisited on more than one occasion, counsels against premature certainty. The direction is nonetheless apparent. The first decade of the Code was devoted to establishing the regime. The task of the next is to preserve its credibility.

Premtosh K Mishra is an Advocate practicing before Delhi High Court.