NCLAT Clarifies: CoC’s Commercial Wisdom Not Fettered by Regulation 39(1A); Challenge Mechanism Optional, Not Compulsory

Introduction

In Sagar Stone Industries v. Sajjan Kumar Dokania & Ors.​[i], the National Company Law Appellate Tribunal, Principal Bench, New Delhi (‘NCLAT’) addressed an issue regarding the permissibility of challenging the resolution plan approved by the Committee of Creditors (‘CoC’) under the framework of Insolvency and Bankruptcy Code, 2016 (‘IBC’), particularly concerning reg. 39(1A) of the CIRP Regulations, 2016 (‘CIRP Regulation’). The NCLAT deliberated on the issue of whether the rejection of the Sagar Stone Industries’ (‘Appellant’) resolution plan without a formal written communication vitiated the CoC’s approval process and whether the revision of the resolution plan multiple times violated reg. 39(1A) of the CIRP Regulation.

Facts

• The Corporate Insolvency Resolution Process (‘CIRP’) of M/s Jabalpur MSW Pvt. Ltd. (‘Corporate Debtor’) involved resolution plans of various applicants, including one submitted by the Appellant.

• The CoC approved the resolution plan of the successful resolution applicant (‘SRA’) with a 100% vote share after considering the resolution plans submitted by the resolution applicants.

• The Appellant subsequently filed two applications seeking rejection of the approved resolution plan and to initiate an enquiry against the resolution professional (‘RP’), both of which were dismissed by the NCLT, thereby this appeal by the Appellant.

• The Appellant had argued that no formal notification was provided regarding the rejection of its resolution plan or the approval of the SRA’s plan. It was further contended that the CoC violated the reg. 39(1A) of the CIRP Regulation by revising the resolution plan more than once, and the CoC did not resort to the challenge mechanism, which is a mandatory process to ensure fairness.

• The Respondent had contended that the Appellant was informed about the decision regarding the rejection of its resolution plan telephonically, and that the Appellant had also congratulated the SRA through email.

Held

• The NCLAT upheld the NCLT’s decision and dismissed both the appeals filed by the Appellant.

• The NCLAT observed that the lack of any written communication does not have any effect on the resolution plan passed by the CoC and concluded that the commercial wisdom of the CoC in approving a resolution plan is paramount and cannot be interfered with at the instance of any resolution applicant.

• The NCLAT observed that reg. 39(1A) of the CIRP Regulation, which applies to the RP, does not bind the authority of the CoC to revise the resolution plans or negotiate with resolution applicants more than once.

• The NCLAT further clarified that the challenge mechanism cannot invalidate the approval of a resolution plan by the CoC; rather, it is just a mechanism to maximise value.

Our Analysis

This decision reaffirms the broad latitude and discretion granted to the CoC under the IBC and clarifies that neither reg. 39(1A) nor any procedural expectation can dilute the supremacy of creditor-driven decision-making. The ruling also strengthens the proposition that procedural tools, such as the challenge mechanism, are means to an end, not ends in themselves, and that judicial intervention is limited to enforcing compliance with statutory mandates, not second-guessing business decisions.

The ruling is consistent with the Supreme Court’s established jurisprudence that the commercial wisdom of the CoC is sacrosanct and non-justiciable, as first articulated in K. Sashidhar v. Indian Overseas Bank[ii] and later reiterated in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta[iii]. These decisions of the Supreme Court highlighted that the CoC alone is vested with the authority to evaluate the feasibility and viability of resolution plans, and such determinations are immune from judicial review, barring violations of the statutory process.

Further, the Tribunal’s interpretation of reg. 39(1A) aligns with the Supreme Court’s recent decision in Vizag Minerals & Logistics Pvt. Ltd. v. Ravi Shankar Devarakonda[iv], wherein the Supreme Court agreed with the decision of the NCLAT[v], which held that both plan modification and challenge mechanisms are enabling provisions and can be used cumulatively by the CoC. The Supreme Court specifically held as follows:

“We are in agreement with the findings recorded by the National Company Law Appellate Tribunal at Chennai on interpretation of Regulation 39(1A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The word ‘or’ in the said sub-regulation should be read as ‘in addition to’ and not ‘to the exclusion of’. This means that the resolution professional may, if envisaged in the request of the resolution plan, can allow under the said sub-regulation, modification of the resolution plan received, albeit only once. However, this will not have any effect on and bar recourse to the challenge mechanism when adopted by the Committee of Creditors to enable resolution applicants to improve/better their plans.”

This interpretation ensures that procedural flexibility is preserved, and creditor recoveries are not curtailed by mechanical readings of regulatory text. Thus, the Tribunal’s decision in the present case observes that reg. 39(1A) does not constrain the CoC’s ability to seek multiple revisions of resolution plans and is in perfect alignment with the Supreme Court’s decision. Rather, the restriction is placed only on the RP, who may permit only one modification by a resolution applicant under their own authority. The NCLAT’s reiteration of this distinction in the present case serves to reinforce the CoC’s autonomy as the commercial decision-maker in CIRP. This distinction is not only legally sound but essential to ensure that the creditors’ collective wisdom is not undermined by overly formalistic interpretations of regulatory language.

Further, the Tribunal’s classification of the challenge mechanism as a facilitative tool rather than a mandatory obligation is both pragmatic and legally correct. While such mechanisms can undoubtedly enhance transparency and competitiveness, mandating their use in all resolution processes would be counterproductive and risk delaying the insolvency timeline. The discretion to adopt such a mechanism must rest with the CoC, which is best equipped to assess its utility in each case. Therefore, the NCLAT has rightly preserved the balance between procedural fairness and commercial expediency by upholding the CoC’s discretion in this regard.

End Notes

[i] 2025 SCC OnLine NCLAT 629.

[ii] (2019) 12 SCC 150.

[iii] (2020) 8 SCC 531.

[iv] CIVIL APPEAL NO. OF 2023 (@ Diary No. 27746 of 2023).

[v] 2023 SCC OnLine NCLAT 287.

Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.