The New IBC Reality Check
For years, the finality of resolution plans under the IBC was considered sacrosanct. Once the NCLT approved a plan, stakeholders exhaled – or so they thought. The Supreme Court's verdict in MCC PTA India vs. JSW Steel has shaken that assumption to its core.
In practice after practice, we are now seeing creditor hesitations re-emerge. Lenders ask: "If even post-approval plans can be undone years later, what's the point of the CIRP?" It's a fair question, and one that legal counsel need to start answering, not just theoretically but transactionally.
What Just Happened in the JSW-Bhushan Steel Case?
In brief, the apex court found that:
- The Resolution Professional (RP) had failed to perform statutory duties under IBC.
- The Committee of Creditors (CoC) had failed to apply commercial wisdom prudently.
- JSW, the successful resolution applicant, wilfully defaulted on compliance post-approval for two years.
- Despite CoC backing and NCLAT clearance, the SC ruled the entire process vitiated.
This was not a technicality. The Court called it a "complete failure of statutory machinery."
A Silent Truth: These Red Flags Often Show Early
In many CIRPs, we've seen red flags at resolution stage — over-leveraged applicants, vague payment timelines, unresolved contingent liabilities. But the practical dilemma is:
Should the CoC reject an "imperfect" plan if it's the only one on the table?
Lenders under regulatory pressure to resolve NPAs often lean toward pragmatism and post-facto regrets.
Commercial Wisdom doesn't equal Absolute Immunity
This case reiterates something lawyers have long whispered in advisory rooms: Commercial wisdom is not judicial impunity.
The court signalled that when commercial wisdom appears unreasoned, contradictory, or blind to statutory violations, it can be reviewed. This opens the door for more judicial scrutiny of CoC decisions, and a major shift in the IBC landscape.
Strategic Implication: You're Never Fully "Done"
For insolvency professionals, resolution applicants, and advising lawyers, this means a hard reset on how we define closure.
Even after NCLT approval, post-resolution compliance now needs active legal tracking.
We've seen mandates where clients assumed compliance ends with payment. This particularly happened again and again with new resolution applicants. In reality:
- Environmental and labour liabilities emerge post-plan.
- Tax litigation continues.
- Operational creditors allege suppression.
What Can Legal Counsel Do Differently Now?
1. Tighten Resolution Plan Drafting
Ensure payment schedules, compliance timelines, and contingent risk disclosures are airtight.
2. Conduct Independent Applicant Scrutiny
Track history of compliance in other insolvency deals, not just balance sheets.
3. CoC Minutes Must Show Reasoned Decision-Making
Vague or formulaic approval notes will come under judicial glare.
4. Mandate Post-Approval Legal Monitoring
Embed legal tracking into the 12–24 month post-plan phase. Set alerts for missed timelines.
The New Mandate: Layered Legal Strategy
Lawyers advising in the insolvency space can no longer afford to treat NCLT approval as the finish line. Today, the value lies in structuring mandates that look beyond resolution and beyond blind faith in CoC immunity. When even the Supreme Court is willing to unroll a stitched deal four years later, we're in a new era of living resolutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
