Between Deference And Intervention Judicial Review And The Expanding Contours Of Commercial Wisdom Under The Insolvency And Bankruptcy Code, 2016

Introduction : One of the most important structural reforms in Indian commercial law is represented by the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as IBC). The primary purpose of Insolvency laws is to secure relief to the debtor from the harassment of creditors whose obligations they failed to fulfil, while helping the creditors to recover debts efficiently. IBC was enacted to consolidate the fragmented and complicated insolvency regime and overcome the perennial problem of debt recovery, unlike its predecessor statutes like Indian Partnership Act, 1932; the Companies Act, 1956 & 2013; the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), 2002, etc. These laws provided for the establishment of various adjudicatory authorities, such as the Board for Industrial and Financial Reconstruction (BIFR) and the Debt Recovery Tribunal (DRT), including their Appellate Tribunals. The liquidation process faces the problem of overlapping jurisdiction of the High Court and other adjudicatory authorities. To overcome this problem, the Bankruptcy Law Reforms Committee (BLRC) of 2014, recommended the enactment of a uniform and sophisticated Insolvency and Bankruptcy Code.

On the recommendation of this committee, IBC, 2016 was enacted with a special focus on reorganisation of Insolvency laws. This Code introduced a ‘creditor-in-control’ model to maximise debt recovery in a time-bound manner, promote entrepreneurship, while balancing the interests of all the stakeholders. This would eventually help in promoting ease of doing business, and facilitate economic growth and development.

This Code introduced a paradigm shift towards a creditor-driven Insolvency model. At its core, there is a doctrine of ‘Commercial Wisdom of Committee of Creditors’, which gives autonomy to the financial creditors concerning business dealings under section 30 of the Code, while limiting the judicial interference with some exceptions. This raises an important question as to the extent to which courts can review the decisions of the Committee of Creditors (CoC) without undermining their commercial wisdom?

Institutional Framework of the IBC and the Insolvency Process

IBC, 2016 aims to provide a sophisticated statute that deals with insolvency resolution of corporate persons, partnership firms and individuals for a time-bound insolvency resolution mechanism, as discussed in a recent case of Independent Sugar Corporation Ltd. Vs. Girish Sriram Juneja & Ors by the Hon’ble Supreme Court.

The Code also provides provisions for the establishment of Bankruptcy Board of India (IBBI), Adjudicating Authorities (AAs), Insolvency Professionals (IPs), Insolvency Professional Agencies (IPAs) and Information Utilities (IUs). Among these institutions, the Insolvency and Bankruptcy Board of India (IBBI) is recognised as the Insolvency Regulator.

This Code further provides provisions for adjudicatory authorities in insolvency resolution cases, National Company Law Tribunal (NCLT) for the matters related to company’s insolvency and Limited Liability Partnerships, while Debts Recovery Tribunals (DRTs) for the cases involving individuals and partnership firms the Appeals from NCLT lie to NCLAT (National Company Law Appellate Tribunal) and thereafter to the Supreme Court, in a similar fashion appeals from DRT to DRAT (Debts Recovery Appellate Tribunals) and thereafter to the SC.

The insolvency process begins upon default by the corporate debtors for at least an amount of Rs. 1,00,00,000, subject to the Central government’s notification. For corporate persons, the resolution process is conducted in two methods, one is Insolvency Resolution Process and the other is Liquidation, in the former, the financial creditor initiate the insolvency procedure after an application before NCLT, if application is accepted then a Moratorium is declared, and an Interim Resolution Professional is appointed, thereafter a Committee of Creditors comprised of financial creditors is formed and they appoint the Resolution Professional, after evaluation they submit a Resolution Plan, on approval of the plan by a majority of 66% voting shares, the plan placed before the NCLT for its approval, once the NCLT approved, the Resolution Plan can be implemented. When the first process fails, or the financial creditors decide to wind up and share the assets of the debtor among themselves, they go for the latter method, i.e., Liquidation. In this, a liquidator (resolution professional) takes control of all the assets of the corporate debtor and sells them to distribute it among stakeholders under section 53 of IBC. Thereafter, on NCLT’s order, the company gets dissolved.

Further, this framework includes Information Utilities and Insolvency Professional Agencies, which ensure transparency and regulate insolvency professionals under the supervision of the Insolvency and Bankruptcy Board of India.

Doctrine of Commercial Wisdom and its scope under the Code

The foundation of the Insolvency and Bankruptcy Code, 2016, is based on the ‘doctrine of Commercial Wisdom of the Committee of Creditors’. This doctrine was first introduced by the hon’ble Supreme Court in K Sashidhar v. Indian Overseas Bank, wherein it was emphasised that financial creditors are in the best position to make decisions regarding the Resolution Plan, as they are the primary stakeholders and have expertise on such matters. Section 30 of the Code grants power to the CoC to evaluate and approve resolution plans while balancing the interests of all the other stakeholders. The CoC is empowered with commercial wisdom, making it fit to take decisions to safeguard the interests of the stakeholders (creditors) whose decisions are generally immune from judicial challenge. In a plethora of cases, including Essar Steel India Ltd v. Satish Kumar Gupta, the apex court noted the unhindered authority of the CoC in the distribution of proceeds and shares under the resolution plan. The Supreme Court held that the adjudicating authorities, i.e. the courts, cannot interfere in the Resolution Plan, as long as the plan constitutes statutory irregularities.

Similarly, in Committee of Creditors of Essar Steel India Ltd v Satish Kumar Gupta, court reiterated that the judiciary need not oversee the financial matters and its power is limited to statutory failure. Thus, the Apex Court categorically makes it clear that the role of the adjudicating authority is very limited and cannot extend it to the re-evaluation of the resolution plan. Therefore, this doctrine emphasises that the ultimate power related to the insolvency process lies in the hands of Creditors; however, it is not absolute, as there is scope for limited judicial review to ensure compliance with the Code.

Judicial Review: Expanding Contours of Judicial Intervention

It is indisputable that IBC gives primacy to CoC, through the doctrine of commercial wisdom. Judicial oversight has gradually shaped a nuanced scope of interference. This contour emphasises a swift shift from absolute deference to a calibrated supervisory role of adjudicating authorities. Section 30(2) and 31 of the IBC limit the role of Courts to take any decision except one related to procedural irregularity.

The court in a catena of its judgments, including Essar Steel India Ltd. V Satish Kumar Gupta and Vallal RCK v. M/S Siva Industries, has propounded for minimal judicial interference by the NCLAT, NCLT and other adjudicatory authorities in the IBC framework. Thus, However, over time, the Apex Court has expanded the contours of Judicial interference, as in MK Rajgopalachari v. Dr Periasamy Gounder, if CoC decisions violate any of the existing laws, including the natural justice principle, the doctrine of commercial wisdom cannot act as a shield from judicial interference. However, in a recent case of Torrent Power Ltd. v. Ashish Arjun kumar Rathi and Ors, SC dismissed the appeal filed by the appellant under section 61 (3) and 62 IBC, holding that the appellant has failed to establish any of the five grounds to invoke the power of courts to intervene, as there is no ‘material irregularity’ and resolution plan is not in contravention to any existing law. Thus, the court refrained from excessive judicial oversight. It further emphasised that the commercial wisdom cannot be sidelined and judicial review is limited to statutory compliance.

In cases like Kalpraj Dharamshi v. Kotak Investment Advisors Ltd The Supreme Court further clarified the scope of judicial review, holding that while the merits of commercial decisions are non-justiciable, the procedure may be scrutinised, thus procedural irregularity is subject to judicial intervention. This shows a calibrated approach while differentiating between the decision-making and procedural fairness.

These cases indicate that while courts refrain from direct interference with commercial viability, feasibility, or quantitative distribution, over the period of there is a gradual noticeable shift of the adjudicatory authorities from extreme deference to interference to an extent which does not undermine the creditor’s faith in commercial wisdom and establish procedural fairness, statutory compliance, and absence of arbitrariness.

Suggestions and Way Forward

It is worth saying that IBC, 2016 is one of the best available options for commercial insolvency matters; although it is not a perfect statute per se, as certain structural jurisdictional and interpretative gaps remain. A forward-looking strategy is the need of the hour to balance the creditors’ autonomy and judicial interference to make the Resolution Plan more transparent.

One of the major concerns is the transparency in decisions by CoC. To overcome this, there is a need to introduce reasoned decisions with justifications without compromising confidentiality. This makes the CoC more accountable towards its stakeholders.

Further, there needs to be an unambiguous explanation regarding the scope of Judicial Review. Section 30 (2) and 31 IBC defined the scope of judicial oversight; however, ambiguity still persists in some exceptional cases. If the legislature may issue some clarificatory guidelines pertaining to the precise contours of judicial review, this would enhance the predictability of the cases.

The Code emphasises the time-bound resolution, though delays due to prolonged litigation remain a major concern. A strict time-bound approach would make it immune to procedural irregularity, as highlighted in K. Sashidhar v. Indian Overseas Bank.

Lastly, as the doctrine of Commercial Wisdom is still evolving, the Courts have given divergent interpretations, which further creates ambiguity. Therefore, there is a need for consistent judicial standards to harmonise conflicting views to ensure doctrinal clarity.

If these suggestions are implemented properly, the success rate of resolution through IBC will also increase, while restoring the trust of stakeholders.

Conclusion

Insolvency and Bankruptcy Code, 2016, is one of the efficient statutes in commercial jurisprudence; it’s worth saying that this Code is fulfilling its very purpose of providing efficient and speedy relief to the commercial entities in case of default. It is evident from the Economic Survey Report 2025-26, which shows that the recovery rate has increased by approximately 30% than the pre-IBC period. The foundation of this Code is based on the doctrine of Commercial Wisdom, which restricts the Courts and other adjudicatory authorities from intervening in the Committee of Creditors' decisions, which have expertise in financial matters. However, over time, there is a gradual noticeable shift of the adjudicatory authorities from extreme deference to interference in the form of judicial review to the extent of preventing and ensuring the procedural integrity and fairness of the stakeholders.

The Supreme Court is also of the view that excessive judicial oversight would undermine efficiency and delay resolution, whereas total non-interference further creates risks of arbitrariness and eventually defeats the very objective of this Code. This further reflects a shift from adjudicatory to supervisory jurisdiction. Therefore, the success of this code depends on a better calibrated, balanced approach, where adjudicatory authorities act as guardians of procedural regularity and integrity without undermining the jurisdiction of the Committee of Creditors in financial decision-making. 

Author: Anuradha in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney