IBC represents legislative choice to privilege speed over exhaustive judicial scrutiny: Supreme Court judgment

The Insolvency and Bankruptcy Code (IBC) represented a conscious legislative choice to privilege speed, certainty, and creditor-driven decision-making over “exhaustive” judicial scrutiny, the Supreme Court said.

“Experience shows that unsuccessful bidders will always try to spin commercial decisions of the Committee of Creditors (CoC) as procedurally faulty in order to secure a second shot through litigation… However, courts need to remain vigilant against any temptation to expand the scope of review beyond the narrow boundaries prescribed by the IBC,” a Bench of Justices B.V. Nagarathna and R. Mahadevan wrote in a recent judgment.

The judgment was based on appeals filed against a National Company Law Appellate Tribunal (NCLAT) order in a matter pertaining to the approval of a resolution plan submitted by a firm.

“The IBC represents a conscious legislative choice to privilege speed, certainty and creditor-driven decision-making over exhaustive judicial scrutiny,” Justice Nagarathna observed.

The court reiterated the settled law that the commercial wisdom of the CoC enjoyed primacy and could not be supplanted by judicial review.

“Neither the National Company Law Tribunal nor the NCLAT nor even this court is empowered to substitute its assessment in place of the commercial decision arrived at by a requisite majority of the CoC,” Justice Nagarathna observed.

The court said the very premise of the IBC was to prevent delay and uncertainty. Excessive review also encouraged strategic litigation.

“When commercial decisions taken by the CoC are subjected to expansive judicial scrutiny, resolution timelines lengthen, transaction costs rise and the going concern value of the corporate debtor erodes. The consequence, therefore, is not merely delay, but a tangible loss of economic value for all stakeholders,” the court said.

The court noted that the law must secure three interdependent economic freedoms, including entry into the market, continuation of business operations under conditions of competitive neutrality, and exit from the market.

An efficient insolvency resolution system preserved viable firms through timely reorganisation while ensuring swift liquidation and exit of non-viable businesses, the court said.