The Insolvency and Bankruptcy Code, 2016 (IBC) marked a watershed in India’s approach to insolvency framework — aimed at time-bound restructuring, creditor control and financial discipline.

At its core lies the Committee of Creditors (CoC) deciding the fate of the corporate debtor.

Unfettered discretion

“Commercial wisdom” is a term now etched into legal folklore. Yet, as the dust settles on eight years of insolvency jurisprudence, a troubling pattern emerges: in the absence of any statutory obligation to record reasons or disclose deliberations, commercial discretion has, over time, been exercised into silence, leaving the CoC’s actions beyond review, and at times, also beyond reason. The CoC increasingly wields its “commercial wisdom” as both sword and shield. It is now time to ask whether discretion without accountability is a feature of the framework — or a congenital flaw that undermines the very legitimacy of the resolution process.

The non-justiciable nature of the CoC’s commercial decisions is now well established. Courts have consistently affirmed that they will not sit in appeal over matters of business judgment. Yet this deference is not absolute - it is conditioned on process, not outcome.

In The Karad Urban Cooperative Bank Ltd v. Swwapnil Bhingardevay (2020), the Supreme Court held that where all material aspects have been placed before the CoC and it has taken an informed decision, the Adjudicating Authority must refrain from intervention.

This affirms a key principle: judicial restraint operates on the presumption of procedural integrity. The CoC’s decisions may be immune from substantive review, but they are expected to be self-explanatory and not arbitrary. Yet in practice, plans have been discarded without explanation, minority creditors excluded from deliberation, and resolution applicants left in uncertainty.

The resulting opacity erodes confidence in the process. In Kalyani Transco v. Bhushan Power & Steel Ltd (2025), the Supreme Court found that the CoC had “played foul” and failed to exercise its commercial wisdom in the creditors’ interest.

Suboptimal outcomes

Suboptimal outcomes — low recoveries or high liquidation rates — do not, by themselves, prove arbitrariness. But they do raise a deeper concern: the process offers no insight into why certain decisions were made.

Without even minimal deliberative disclosure, one cannot tell whether a plan failed due to valuation disputes, promoter conduct or indecision. In such a vacuum, even well-intentioned decisions appear unexplained.

This opacity undermines the ability to assess process fidelity and mounts a silent risk to legitimacy. The case for reform, therefore, lies not in diluting creditor primacy, but in anchoring it to procedural discipline.

Courts have rightly held that they cannot substitute their judgment for the commercial wisdom of the CoC. But what remains unregulated is the manner in which that discretion is exercised, and whether it reflects informed deliberation. Discretion must come with procedural accountability, especially where public interest and stakeholder rights are involved.

It is difficult to justify, even constitutionally, a system where any body, however important, can make final decisions that affect rights and outcomes, yet remain answerable to no one.

Until 2020, Regulation 39(3) of the CIRP Regulations required the CoC to record its deliberations on the feasibility and viability of each resolution plan. This safeguard was removed by the IBBI (CIRP) (Fourth Amendment) Regulations, 2020.

As a result, there is now no statutory obligation for the CoC to record reasons or explain its decisions. In a process that determines economic destinies, such opacity is difficult to defend. Reinstating even minimal duty of disclosure would not undermine creditor autonomy; it would reinforce legitimacy. The demand is not for too much — only that the CoC be held to a basic standard of accountability, one that shows it has factored in all relevant considerations.

A simple reform, such as requiring the CoC to record reasons when rejecting a resolution plan or opting for liquidation, would act as a modest check on unrecorded discretion without disrupting creditor control. Reasoned decision-making and commercial autonomy in decision-making are not mutually exclusive or destructive. Even a brief note could show that discretion was exercised fairly.

This “Sunlight Mandate” would not open the door to judicial review of commercial outcomes. It would simply ensure that the discretion vested in the CoC is both exercised and made visible through transparent process. The test is not correctness, but adherence to Wednesbury reasonableness. The Adjudicating Authority would remain bound by the CoC’s business judgments, but not blind to whether those judgments were reached in good faith.

Comparative experience shows that reasoned decision-making and commercial autonomy are not mutually exclusive or destructive. In the UK, while insolvency practitioners and creditors control Company Voluntary Arrangements (CVAs) and pre-pack administrations, they are subject to strict disclosure norms. Under Statement of Insolvency Practice 3.2 (SIP 3.2), insolvency professionals must clearly explain the process and its implications to all stakeholders. For pre-packs, SIP 16 requires administrators to circulate a detailed disclosure statement within seven days, justifying the transaction.

Similarly, Singapore’s IRDA permits creditor-led schemes of arrangement, subject to judicial oversight to ensure procedural fairness. Administrative law principles further reinforce the expectation that decisions affecting rights must be taken with transparency and fairness. Commercial outcomes may remain protected, but the road to those outcomes must be visible.

A single, minimal reform would help rebalance the IBC without disturbing its core structure: require the CoC internally to record brief reasons for important decisions. These records need not be disclosed to all stakeholders, but must be maintained. To avoid tampering when a challenge arises, they should be generated as electronic records, digitally signed and time-stamped.

In the event of a challenge, such records may be placed before a judicial forum to verify procedural soundness. This would not constrain what the CoC may decide: only, that its discretion be exercised with minimal procedural discipline.

Conclusion

The IBC remains one of India’s most consequential economic reforms, promising predictability, efficiency, and credit discipline. But discretion, when exercised without transparency, erodes legitimacy. Let the CoC decide. But let it also explain. In transparency lies institutional legitimacy. And that is the one currency no adjudicatory framework can afford to lose.

The writer is a former Judicial Member of the National Company Law Tribunal

Published on June 18, 2025