Limits of Judicial Review of CoC Decisions Under the IBC

The Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC) holds a unique position in the Indian insolvency architecture. Its decisions on the viability of a resolution plan, the selection of a resolution applicant, and the terms of distribution are taken in the exercise of what courts have called its "commercial wisdom." This doctrine holds that the CoC, as the body of creditors with the highest economic stake in the outcome, is best placed to evaluate the commercial desirability of any resolution plan. Courts have accordingly construed the scope of judicial review of CoC decisions narrowly. But that scope is not zero, and understanding where the line falls between permissible judicial scrutiny and impermissible second-guessing is essential for every participant in a CIRP.

The Commercial Wisdom Doctrine: Origin and Development

Legislative Intent and the Swiss Ribbons Judgment

The Supreme Court first articulated the deference due to CoC decisions in Swiss Ribbons Pvt. Ltd. v. Union of India [(2019) 4 SCC 17], which upheld the constitutional validity of the IBC. The Court noted that the IBC is an economic legislation that must be given a purposive construction aligned with its objectives: maximisation of the value of the corporate debtor's assets, promoting entrepreneurship, and balancing the interests of all stakeholders. The Court recognised that the CoC, which comprises financial creditors, is best placed to assess the financial health of the corporate debtor and the viability of any proposed resolution plan.

The Essar Steel Correction

The NCLAT in its Essar Steel decision attempted to equalise recoveries across all creditor classes, modifying the resolution plan to ensure parity between financial and operational creditors. The Supreme Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta [(2020) 8 SCC 531] reversed this approach. The Court held that it is the CoC's prerogative to decide the quantum of payment to different creditors in a resolution plan, provided the minimum required under Section 30(2) is satisfied. The NCLAT had exceeded its jurisdiction by rewriting the plan. From Essar Steel onward, the commercial wisdom doctrine carried considerably more legal weight.

Recent Reinforcement (2024 to 2026)

In a series of judgments delivered between 2024 and 2026, the Supreme Court has repeatedly affirmed that CoC decisions cannot be second-guessed by courts exercising review jurisdiction. In SKS Power Generation (Chhattisgarh) Ltd., the Court dismissed a challenge to a CoC resolution plan approved with 100 percent voting share, holding that if the CoC in its commercial wisdom has approved a plan and the plan meets the minimum statutory requirements, courts have no basis to interfere with the economic terms of the distribution. The Court in a 2026 ruling (reported in SCC Online) confirmed that judicial review is confined strictly to Sections 30(2) and 61(3) of the IBC.

The Scope of Permissible Judicial Review Under the IBC

Section 30(2): The Checklist

Section 30(2) of the IBC sets out the conditions a resolution plan must satisfy before the CoC approves it. The RP must confirm that the plan provides for payment of insolvency resolution process costs in priority, payment to operational creditors of at least the amount they would receive in liquidation under Section 53, payment to dissenting financial creditors of at least their liquidation value, and management of the affairs of the corporate debtor during the term of the plan. The NCLT, on approval of the plan by the CoC with the requisite 66 percent voting share, checks compliance with these criteria under Section 31. This is the outer boundary of the NCLT's review.

Section 61(3): Appeal Grounds Before NCLAT

Appeals against NCLT orders approving resolution plans lie before the NCLAT under Section 61(3) of the IBC. The statute limits the grounds of appeal to whether the resolution plan as approved contravenes the provisions of any law for the time being in force, or whether the plan has been approved by the required majority. Courts cannot go behind these grounds to examine whether the CoC made a wise economic choice. If the plan is compliant and the majority threshold is met, the commercial wisdom of the CoC is final.

Does Commercial Wisdom Protect a CoC Decision That Violates the Law?

The doctrine is not without limits. The Supreme Court has consistently held that if a CoC decision violates an existing statutory provision or a binding legal obligation, the commercial wisdom defence does not apply. A resolution plan cannot, for example, approve a transaction that is otherwise prohibited by the Companies Act, 2013, or a scheme that defrauds a class of creditors in violation of Section 30(2). The distinction is between economic choices (protected by commercial wisdom) and legal violations (subject to full judicial review).

Practical Implications for Creditors and Resolution Applicants

What Options Does a Dissenting Financial Creditor Have?

A financial creditor who votes against a resolution plan that is approved by the 66 percent majority has very limited avenues of challenge. The creditor may claim that the plan violates Section 30(2)(b)(ii), which requires dissenting financial creditors to receive at least their liquidation value. Beyond this, the commercial wisdom doctrine forecloses any attack on the economic terms of the plan, however unfavourable they may seem to the minority creditor.

What Protection Do Operational Creditors Have Under Section 30(2)?

Operational creditors are not CoC members and cannot vote on resolution plans. Their protection is in Section 30(2)(b)(i): the plan must provide them at least the amount they would receive in liquidation under Section 53. Where this minimum is not met, an operational creditor can challenge the NCLT approval order on this specific ground. The fact that the CoC found the lower payment commercially wise is irrelevant if the statutory minimum is breached.

For Resolution Applicants

Resolution applicants benefit considerably from the commercial wisdom doctrine. Once a resolution plan is approved by the requisite majority of the CoC, a challenge to its commercial terms by dissenting creditors or third parties faces an extremely high bar. The applicant can be reasonably confident that the approved plan will survive judicial scrutiny provided it complies with the Section 30(2) checklist.

The Outer Limits: What Courts Will Still Review

Despite the strong deference shown to CoC decisions, Indian courts retain power to review on the following grounds: first, whether the resolution plan complies with Section 30(2); second, whether the CIRP was conducted in violation of the principles of natural justice; third, whether the CoC's vote was vitiated by fraud, collusion, or undisclosed conflicts of interest; fourth, whether the approval order violates a statutory prohibition; and fifth, whether the plan, if implemented, would contravene any law in force. These grounds are narrow but real. Practitioners should structure challenges around these precise heads rather than attempting a broad attack on the CoC's commercial judgment.

Frequently Asked Questions

Can a court override the CoC's decision to accept a particular resolution plan?

A court cannot override the CoC's commercial judgment on which plan to accept, provided the approved plan complies with Section 30(2) and the 66 percent voting threshold is met. Judicial review does not extend to the quality of the CoC's commercial decision.

What is the minimum payment to operational creditors under a resolution plan?

Under Section 30(2)(b)(i), operational creditors must receive at least the amount they would receive under the Section 53 liquidation waterfall. This is often called the "liquidation value floor." Nil payment to operational creditors is permissible if the liquidation value would also be nil, a position confirmed by several NCLAT rulings.

Can a resolution plan be challenged on the ground that the CoC was influenced by the resolution applicant?

In principle, yes. If a CoC member had an undisclosed conflict of interest or voted under improper pressure or inducement, the approval may be challenged. However, the evidentiary bar is high and courts are reluctant to impute bad faith to a duly constituted CoC unless there is clear material showing collusion or procedural irregularity.

What happens if a resolution plan is approved but later found to violate a law?

Under Section 31(1), an approved plan is binding on all stakeholders. However, an approved plan that violates a provision of applicable law is not insulated by the commercial wisdom doctrine. A challenge on this ground remains open before the NCLAT under Section 61(3). In practice, any such challenge must be brought promptly as delays may be treated as acquiescence.

Does the commercial wisdom doctrine apply to CoC decisions during CIRP, not just plan approval?

Yes. The doctrine extends to a range of CoC decisions during CIRP, including decisions to extend the CIRP period, to replace the RP, and to set the terms of the invitation for resolution plans. Courts have consistently declined to interfere with these process decisions unless there is a clear statutory violation or breach of natural justice.

What voting threshold does the CoC need to approve a resolution plan?

A resolution plan requires approval by not less than 66 percent of the voting share of the financial creditors on the Committee of Creditors, as prescribed under Section 30(4) of the IBC. Once this threshold is met and the plan satisfies the requirements of Section 30(2), the plan proceeds to the National Company Law Tribunal for approval under Section 31, and the commercial wisdom doctrine shields the plan's economic terms from further judicial scrutiny.

Can a resolution applicant whose plan was rejected by the CoC challenge that rejection in court?

Courts have generally been reluctant to entertain a challenge by a rejected resolution applicant, since the decision to prefer one plan over another falls squarely within the CoC's commercial wisdom and a rejected applicant has no vested right to have its plan approved. A challenge is more likely to succeed only where the applicant can show the evaluation process itself was conducted in violation of the published request for resolution plans or breached natural justice.

Can the CoC decide to recommend liquidation instead of approving any resolution plan?

Yes. Where the CoC, in its commercial wisdom, forms the view that no viable resolution plan is available or that the corporate debtor is better served by liquidation, it can pass a resolution to that effect with the requisite majority under Section 33 of the IBC. This decision, like the decision to approve a plan, is treated as falling within the CoC's commercial judgment and attracts the same limited scope of judicial review.

What is the outer time limit for completing a CIRP, and can it be extended?

Section 12 of the IBC sets an outer limit of 330 days for completing the corporate insolvency resolution process, including time spent in litigation. The Supreme Court in the Essar Steel judgment held that this limit operates as a strong default rather than an absolute bar, and the National Company Law Appellate Tribunal can permit an extension beyond 330 days in exceptional circumstances, particularly where the delay is attributable to the adjudicating authority or appellate process itself rather than to the parties.

Can a single dissenting financial creditor block approval of a resolution plan?

No. Once the resolution plan secures the 66 percent voting threshold required under Section 30(4), it is approved notwithstanding the objection of a minority creditor, who is entitled only to receive the liquidation value protection guaranteed under Section 30(2)(b)(ii). A single dissenting creditor cannot veto an otherwise compliant plan simply by withholding its vote.

What happens if the resolution professional certifies a plan that does not actually meet the Section 30(2) requirements?

The National Company Law Tribunal is required to independently verify compliance with Section 30(2) before approving a plan under Section 31, and an incorrect certification by the resolution professional does not bind the Tribunal's own assessment. If nonconformity with Section 30(2) surfaces after approval, an aggrieved party can raise it as a ground of appeal under Section 61(3) before the National Company Law Appellate Tribunal, since compliance with Section 30(2) sits outside the commercial wisdom protection altogether.

Does the commercial wisdom doctrine limit judicial review of the resolution professional's own decisions, or only the CoC's?

The doctrine as developed by the Supreme Court is specifically concerned with the CoC's commercial decisions, since the CoC represents the body of creditors with the principal economic stake in the outcome. Decisions of the resolution professional, who administers the process rather than deciding on the plan's commercial merits, remain subject to closer scrutiny by the CoC itself and, in appropriate cases, by the National Company Law Tribunal under Section 60(5) of the IBC.

Can the promoter of the corporate debtor challenge a resolution plan approved by the CoC?

A promoter of the corporate debtor has very limited standing to challenge the commercial terms of an approved resolution plan, since control of the company vests in the resolution professional during CIRP and the promoter is not a creditor with a vote on the CoC. A promoter may still raise a challenge grounded in non-compliance with the mandatory requirements of Section 30(2) or a violation of natural justice that specifically affected the promoter's own limited statutory rights during the process.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, and represents parties in domestic and international commercial arbitrations seated in India and abroad, including enforcement and challenge proceedings before the Bombay High Court.

Related reading: IBC vs SARFAESI: Which Route Delivers Faster Asset Realisation.

See also: NCLT Jurisdiction to Adjudicate Claims of Dissenting CoC Members.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.