The Indian insolvency regime places immense faith in the commercial wisdom of the lenders while deciding on the resolution of the insolvency process. Since the lenders are the biggest stakeholders in the resolution process, it is presumed that their decisions will be in the interest of the company under insolvency as well as a larger set of stakeholders. This faith has once again been reiterated in the recent judgement of the Appellate Bankruptcy Court (known as National Company Law Appellate Tribunal/NCLAT) in Vistra ITCL (India) Ltd. v. Torrent Investments Pvt. Ltd. & Ors1 (Torrent judgement).

The Torrent Judgment opens a Pandora's Box

The NCLAT observed that the committee of creditors ("CoC") has an unfettered right to undertake negotiations on a resolution plan. This means that CoC can run challenge processes multiple times and can permit multiple modifications in the resolution plans. The three main outcomes of the Torrent judgment are:

  • Resolution plans can be amended multiple times (Regulation 39(1A)(a) of CIRP Regulations has been effectively made redundant.);
  • CoC can run multiple challenge processes or negotiations;
  • H1 bidder has no vested right to get its plan approved (This was anyway the legal position before this judgement too).

Legal Provision in Issue: CIRP Regulation 39

The debate in Torrent judgement as well as Jindal Stainless Ltd. Vs. Mr. Shailendra Ajmera, RP of Mittal Corp Ltd. & Ors.2 (Mittal Judgment) focussed on a regulation that was introduced in 2021 in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Regulation 39(1A) which provided:

"39(1A) The resolution professional may, if envisaged in the request for resolution plan-

(a) allow modification of the resolution plan received under sub-regulation (1), but not more than once; or

(b) use a challenge mechanism to enable resolution applicants to improve their plans."

The Regulation's Lackadaisical Implementation Forming the Context of Torrent

Despite the introduction of this regulation, it was observed that in several instances, once the challenge process was completed, the bidders approached the CoC or the RP to offer higher bids/ change the deferred payments to upfront payments, etc. In some cases, these bids were made part of the resolution plans in clear deviation from the challenge process rules which provided that the financial offer made during the challenge process should only be incorporated in the final resolution plan.

Against this background, the Hon'ble NCLAT ruled in favour of the CoC's powers to run multiple challenge processes and allow multiple modifications in the resolution plan. It was ruled that there can be no fetter on the power of the CoC to cancel or modify any negotiation with the Resolution Applicant including a Challenge Process but it is the wisdom of the CoC to decide in that regard.

SD Partners Comment: 5 Points

The Torrent judgement misses out on many issues and interpretations of the law. The Hon'ble Supreme Court has time and again given a purposive interpretation to the provisions of the Code and they have been guided by the legislative notes, press releases, etc for determining the true intent of the provisions of the Code. However, NCLAT chose to completely ignore the background for introducing Regulation 39(1A).

1) Grossly Missing the Intent behind Regulation 39(1A)

While introducing the regulation 39(1A), the IBBI provided the following rationale:

" 21. The CoC, at many times keeps on entertaining these plans for value maximization. It, however, creates uncertainty about the process and rather places an incentive on the PRAs to offer lesser at the initial stages. If sufficient competition is not achieved in the process, such practice may even lead to less than optimum value for the corporate debtor. Invariably, the delay in the process adds to the costs leads to further destruction of the value of the CD.


31. The proposed amendment would help by allowing additional options to the CoC for resolution of a firm while under CIRP. The cap on number of extensions in RFRP would ensure that the sacrosanct timelines envisaged under the Code is practicable. Further, such an amendment would help instilling faith amongst stakeholders in the corporate insolvency resolution process and prevent potential misuse in absence of any specifications. This would also ensure that the CIRP remains timebound and value obtained is a competitive one and the maximum achievable given the market condition."3

Thus, Regulation 39(1A) was introduced to remove uncertainty from the process and to ensure that the bidders make their best offer at the beginning of the process rather than waiting for a few rounds of the challenge process to be undertaken before they finally reveal their best offer. The tribunal completely ignored this reasoning and allowed multiple rounds of the challenge process based on the commercial wisdom of the CoC Interestingly, while the Supreme Court is seized of the matter, it allowed the second challenge process to continue without prejudice to the rights of the parties.

2) Lost Opportunity to Devising Guiding Principles on Re-Run in Resolution

While the hands-off approach taken by the tribunal is commendable, the Torrent judgement could have been a great opportunity for the courts to devise certain guiding principles regarding when challenge processes may be re-run instead of giving a free pass to the CoC to act as per its whims and fancies. If the bidders are aware that the challenge process can be run multiple times, no bidder may give a serious offer in the first challenge process. The first challenge process will be used only for discovering the base price and thereafter, the serious bidders will approach the CoC for re-running the process. This is the mischief that regulation 39(1A) sought to remedy.

3) Adverse Effect on the Time-Bound Nature of the Resolution Process

We are of the view that running these multiple challenges will have an adverse effect on the time-bound nature of the CIRP resolution process. It must be remembered that with some resolution in sight, no tribunal will be inclined to liquidate the company on the expiry of 330 days. As a result, the 330 days deadline for completion of the resolution process may be breached in several cases. Therefore, the most immediate consequence of the Torrent judgement may be its adverse impact on the time-bound nature of the resolution process.

4) A Breeding Ground for Multiple Litigations

The best laws tend to fail if they are not in sync with the ground realities. The CoC is made of various financial creditors, with each member having its incentives and its relations with the potential resolution applicants. Would a banker be able to say no to the opportunity to get a higher price if the law allows multiple rounds of challenge processes? The chimera of value maximisation may now guide the CoC to keep re-running the challenge processes. That may lead to multiple litigations and a stretched-out process, which will defeat the very objectives of the resolution process.

5) Contradictions with the Mittal Judgment

There are also inherent contradictions in the position taken by NCLAT in the Torrent judgement and the Mittal judgement on which it heavily relies. For example, the Torrent judgement relies heavily on the previous judgement of NCLAT in Mittal judgement to justify its consistent stand that CoC's commercial wisdom is unfettered. However, in the same judgement, it was provided that "after adoption of Swiss Challenge Method to find out the best plan one Resolution Applicant cannot be allowed to submit a revised plan.".

Reading the Mittal judgement with the Torrent judgement will give the impression that if the challenge process is run through a Swiss challenge mechanism, the resolution applicant cannot be allowed to submit a revised resolution plan. But if it is any other challenge method, revised resolution plans can be submitted by the resolution applicants. The NCLAT did not bother to explain why the Swiss challenge process was sacrosanct when other challenge processes are not.

Result: The Torrent Judgment is a Gateway to an Infinite Loops of Negotiations.

Overall, the Torrent judgement is a lost opportunity that has pushed the resolution plan processes into infinite loops of negotiations. Once a challenge process results in good price discovery, CoC will be tempted to run another challenge process. It will be hard for the CoC to walk away from a winning streak and even harder if it is on a losing one


1 Company Appeal (AT) (Insolvency) No. 132, 133, 134 & 139 of 2023.

2 Jindal Stainless Ltd. vs. Mr. Shailendra Ajmera RP Mittal Corp Ltd. & Ors. (2023) 55 NCLAT

3 Paragraphs 21 and 31, Discussion Paper dated 27th August, 2021, Insolvency and Bankruptcy Board of India.

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