Sanctity of process under CIRP versus maximisation of value: An opportunity for course correction

The NCLAT had a golden opportunity to declare the law on a wholesome reading of the preamble, provisions, regulations and the BLRC so that a water-tight case could be built furthering the objective of IBC.

One and a half years ago, when the Supreme Court upheld the resolution plan in the hotly contested Ultratech-Dalmia IBC battle, the author had lamented the fact that in doing so, the Court had missed an opportunity to rule on the issue of competing interests insofar as sanctity of the corporate insolvency resolution process (CIRP) and maximisation of value were concerned.

However, a recent decision by the National Company Law Appellate Tribunal (NCLAT) in the case of Kotak Investment Advisors Limited v. Mr. Krishna Chamadia & Ors, dated August 5, provides yet another chance for a course correction.

Facts before the NCLAT

The relevant facts before the NCLAT, shorn of unnecessary details, are summarised below.

Pursuant to the initiation of the CIRP in the case of Ricoh India (Corporate Debtor), the Resolution Professional (RP) invited expressions of interest (EOIs) from interested resolution applicants. After EOIs were received by the RP, in consultation with the Committee of Creditors (CoC), a process document was issued mandating the last date of submission of the resolution plan. Admittedly, two resolution applicants had filed their resolution plans within the said deadline. Both the plans were opened by the CoC, and discussions ensued within the CoC as well as with the resolution applicants.

However, post the opening of discussion upon the resolution plans, the RP curiously accepted two more resolution plans well beyond deadline contained in the process document. This was done without a fresh issuance of notice calling for EOIs.

As luck (or design) would have it, one of the resolution plans submitted belatedly well beyond the deadline was approved by the CoC as a successful plan and the RP filed a formal application with the Adjudicating Authority for approval under Section 31 of the IBC, 2016. It is at this stage that the unsuccessful resolution applicant had filed an application objecting to the approval of the resolution plan.

The Adjudicating Authority rejected the said application, relying on the Supreme Court’s celebrated decision in the case of K Sashidhar v. Indian Overseas Bank & Ors, wherein it is held that the commercial decision of the CoC for approval of resolution plan is non-justiciable, and hence, is required to be sanctioned by the Adjudicating Authority. It was also held that the most attractive plan was sanctioned for approval by the Adjudicating Authority. This order of rejection, which also resulted in approval of the belated resolution plan, was challenged before the NCLAT.

Decision of the NCLAT

The NCLAT, while setting aside the order of approval, finally held that:

  • The act of the Resolution Professional to accept the Resolution Plan after opening the other bids, which were all submitted within the deadline for submission of Resolution Plan, cannot be justified by any means and is a blatant misuse of the authority vested in the Resolution Professional.

  • If the CoC took a commercial decision to extend the timeline, it should have done so by publishing a fresh notice in Form ‘G’ under Regulation 36A of the CIRP Regulations.

  • Anapproved Resolution Plan can be challenged before the Adjudicating Authority on limited grounds referred to in Section 30(2) or the Appellate Authority on ground of material irregularity in exercise of the powers by the Resolution Professional during the CIRP period.

  • The CoC is not empowered to approve the illegalities committed in the conduct of CIRP.

  • Illegal exercise of power by the Resolution Professional in conducting CIRP cannot be treated as an exercise of power for maximization of value under commercial wisdom.


The above findings no doubt are in furtherance to the object of the IBC. However, the need of the hour was a more authoritative analysis and statement of law rather than concluding remarks and ratios without attempting a thorough deep dive into the issue. The author feels that in delivering this laudable decision, the end may have well been achieved, but the means could have been more detailed so as to iron out some of the creases that have cropped up in application of the IBC to the facts of individual cases.

The author submits that at the heart of the issue is a collision between the sanctity of process and maximisation of value. The following submissions by the author are in aid of developing the jurisprudence on this dilemma.

Adjudicating Authority’s role vis-à-vis procedural decision making by CoC

It is pertinent to note that in the earlier regime, courts and tribunals were burdened with both the legal aspects as well as the commercial aspects of a compromise, arrangement or even insolvency. More often than not, these fora did not have the business or financial expertise, information or bandwidth to decide on such matters. Hence, it was felt that the legislature and the courts must control the process of resolution, but not be burdened to make business decisions.

It is with an objective to cure the above position that the Bankruptcy Law Committee Report (BLRC) recommended constitution of an adjudicator that focus on ensuring that all parties adhere to the process of the Code. For assessing the viability of business decisions and commercial considerations, the task was recommended to be delegated to the RP and the CoC.

It is in this context that Section 31 of IBC requires satisfaction of the Adjudicating Authority that the resolution plan as approved is in compliance with Section 30(2) of the Code and that the process carried out for the approval of the resolution plan is in compliance with the provisions of the Code. Hence, the Adjudicating Authority cannot examine the commercial and technical decisions of the CoC such as the evaluation of resolution plans. The same falls within the domain of the CoC. What the Adjudicating Authority/NCLAT can examine is the standard of fairness followed and applied in the whole process.

In none of the decisions relied upon by the RP/CoC was the issue of sanctity of process involved. Those decisions are binding precedents on the issue of “commercial wisdom” of the CoC, not whether the CoC has the power to go beyond the strict process envisaged under the IBC.

The above submission is further fortified by reading of Section 61(3)(ii), which provides material irregularity as one of the grounds of appeal.

Can sanctity of process be crucified at the altar of maximisation of value?

Firstly, if one reads the preamble to the IBC, it states that, prima facie, the objective of the IBC is resolution, in a time-bound manner, for maximization of assets. The author humbly submits that while quoting and enlisting the objectives from the preamble, the Adjudicating Authority as well as NCLAT has unfortunately missed the most important objective of all - time-bound manner! It can be noticed that time-bound resolution figures higher in the order when compared to maximization of value. Hence, the approach followed by the Adjudicating Authority & the RP, it is most humbly submitted, is based on an inherently faulty premise.

Secondly, the author believes that the RP & CoC has erroneously placed the objective of maximization of value of assets on a higher pedestal when in fact the same is intrinsically intertwined with the sanctity of process and the objective of a speedy resolution. The BLRC has itself acknowledged that IBC should ensure a time-bound process to better preserve economic value. Hence, "speed is of the essence" - it is economically proven that liquidation value tends to go down with time as many assets suffer from a high economic rate of depreciation.

If the resolution applicants are provided with an opportunity to wait out and offer revised/initial bids after the process period has lapsed, the same will result in submission of deflated bids initially. This will hinder better price discovery and will prove counter-productive to the whole idea of value maximization!

The above submission gains credence from the observation of Justice Rohinton Nariman in the landmark decision of ArcelorMittal India Private Limited v. Satish Kumar Gupta, wherein the Supreme Court, in context of model timelines under Regulation 40A, held that “it is of utmost importance for all authorities concerned to follow …model timeline as closely as possible”


There is a school of thought that the resolution process is not a bidding war or a forum for hostile takeover. The sanctity of the process has to be preserved, may be at the cost of improved bids. This conflict between maximization of value and sanctity of process needs to be balanced by the Supreme Court in the near future.

The NCLAT had a golden opportunity to declare the law on a wholesome reading of the preamble, provisions, regulations and the BLRC so that a water-tight case could be built furthering the objective of IBC. In the humble opinion of the author, NCLAT did reach the destination but didn’t complete the journey. In the interest of justice and with an ardent hope to contribute towards the development of law on the subject, the author hopes that when the opportunity presents itself, the Supreme Court will grab it with both hands and settle some of the aforementioned issues.

The author is a graduate of Campus Law Centre, Faculty of Law, University of Delhi and a Fellow Chartered Accountant. He currently practices law in the courts of Delhi. He can be reached at . He tweets at @ideepakjoshi

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