TORRENT POWER LTD VS ASHISH ARJUNKUMAR RATHI  & ORS: CASE SUMMARY

The Supreme Court  in Torrent Power Ltd. Vs. Ashish Arjunkumar Rathi & Ors (Civil Appeal No. 11746-11747 of 2024)  reiterated that IBC leaves no scope for judicial intervention to commercial decision taken by Committee of Creditors.  Supreme Court further observed that  predictability and finality are  essential to maintaining a robust insolvency regime. Judicial intervention  beyond the narrow statutory confines undermines both predictability and finality.

BRIEF FACTS

CIRP was initiated in respect of SKS Power Generation (Chhattisgarh) Ltd by order dated 29.04.2022 passed by NCLT. During the CIRP, seven resolution applicants including Torrent Power Ltd. submitted their Resolution Plans. CoC in its 26^th meeting decided for inter se bidding. The CoC in its 31^st Meeting approved the Resolution Plan of Sarda Energy and Minerals Limited (SEML).

IA  2794/2023 was filed by the Resolution Professional before the NCLT for approval of the Resolution Plan. Objections were filed by Torrent and Vantage vide IA 3336/2023 and IA 3399/2023 respectively. The NCLT remitted the Resolution Plan back to CoC  for reconsideration. The CoC in its 34^th Meeting held on 19.10.2023 again approved the resolution plan of SEML. In between, Torrent and Vantage had filed appeals before NCLAT wherein their applications were revived before the NCLT.

NCLT vide order dated 13.08.2024 again allowed the application for approval of resolution plan and rejected IA 3336/2023 and IA 3399/2023. Unsuccessful Resolution Applicant filed appeals before the NCLAT, which were dismissed. Finally appeals were filed before the Hon’ble Supreme Court.

FINDINGS OF THE SUPREME COURT

The Supreme Court observed that the case the appellants was that the modifications were made in the Resolution Plan by SEML after completion of the negotiation process. This was firstly, by allegedly enlarging its commitment towards Bank Guarantees of the Corporate Debtor from Rs.103.39 crores to Rs.180.05 crores, and secondly, by purportedly converting a deferred payment offer of Rs.240 crores into an upfront payment offer. According to the appellants, these changes were introduced by SEML under the guise of “clarifications” through post-bid communications between the RP/CoC and SEML, in breach of the Process Note governing the negotiation process, thus resulting in discrimination and material irregularity in the resolution process warranting interference by this Court under Section 63 of the Act.

The Supreme Court noted  that an appeal before the Supreme Court is only maintainable on question of law, which was absent in this matter. Further, there is concurrent findings of the both the Tribunals below. The appeal could be dismissed on these grounds alone.

However, the Supreme Court also considered the merits. The Supreme Court noted that the resolution plan, from its inception, contemplated that the entire margin money of Rs.180.05 crores lying with the issuing banks would ultimately flow to the CoC for payment to secured financial creditors. Rs. 103.39 crores did not represent the “extent of SEML’s offer” in relation to BGs. Rather, it represented the incremental funding requirement arising from SEML’s decision to continue certain BGs. Continuing a guarantee necessarily requires substitution of collateral; discontinuing it does not. The Plan therefore required fresh infusion only for those guarantees which were to be continued. The remaining guarantees, aggregating to Rs.76.61 crores, stood on a different footing. SEML proposed extinguishment of liabilities underlying these guarantees. Once the liabilities were extinguished, the guarantees would inevitably be cancelled, and the margin money backing them would be released. The payment to the CoC was Rs.180.49 crores before clarification and remained Rs.180.49 crores even after the clarification.

On the second issue the Supreme Court noted that  SEML proposed to issue NCDs at a face value of Rs.240 crores with a coupon rate of 10%. However, it also gave the CoC the option to either – (i) take the NCDs, i.e., Rs.240 crores with 10% coupon (which comes to a total of Rs.301.64 crores over three years); or (ii) take Rs.240 crores upfront. It was the CoC’s choice to either take a higher value later or take its present value upfront. Hence, it is obvious that there was no change made to SEML’s Resolution Plan through its clarification

The Supreme Court concluded that neither of the issues raised by the appellants establishes any modification of the Resolution Plan or any material irregularity in the conduct of the RP, the challenge stands stripped of its factual foundation.

The Supreme Court relying on  K. Sashidhar vs. Indian Overseas Bank, (2019) 12 SCC 150; Kalyani Transco vs. Bhushan Power & Steel Ltd., 2025 SCC OnLine SC 2093; Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, (2020) 8 SCC 531; Pratap Technocrats Private Ltd. vs. Monitoring Committee of Reliance Infratel Limited, (2021) 10 SCC 623  reiterated that IBC does not leave any scope of judicial intervention to commercial decision taken by CoC.

The Supreme Court observed that from an ex post perspective, excessive judicial review in the CIRP carries significant economic costs that run counter to the objects of IBC. From an ex ante perspective also, the expectation of expansive judicial review distorts incentives for future bidders. Future resolution applicants may price legal uncertainty into their bids, either by discounting their offers or by refraining from participation in the CIRP altogether. From an institutional design point of view, the law must secure three interdependent economic freedoms viz. entry into the market, continuation of business operations under conditions of competitive neutrality, and exit from the market. While easy entry and operation enable risk-taking and value creation, exit performs a critical function too by ensuring that failure, an inevitable byproduct of risk taking, is resolved efficiently rather than postponed indefinitely.

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