A modern economy is built on three foundational aspects comprising the freedom to enter, to operate on fair and neutral terms, and to exit a business. The first two draw most of the attention, but the third is quieter and equally important. An economy that fundamentally recognises that failure is the unavoidable companion of risk does not penalise the very risk-taking that leads to successful businesses.
If designed and enforced well, a law dealing with insolvency or closure of businesses can help firms reorganise and recover while allowing unviable ones to exit before they drag the broader economy with them. But, at the same time, an insolvency law that allows unsuccessful resolution suitors to drag the recovery of a company can starve insolvent businesses into an eventual collapse. India’s Insolvency and Bankruptcy Code (IBC) is this exact attempt to institutionalise the freedom to exit, and despite all the legal and operational challenges, has fairly delivered on its intended purpose.
A recent case reflects this perfectly well. On July 15, the Supreme Court of India dismissed Vantage Point’s review petitions, sparing a paragraph on the exercise. It said there was neither any error apparent on the record, nor did the case have any merit. Behind the dismissal order sat a resolution that took four years to become final, even though the creditors who mattered had settled the question in the summer of 2023.
The case deserves a closer analysis for various reasons. With the court giving finality to the matter, a question arises as to who and how one can account for the uncertainty, scattered managerial attention, and the wariness of the next serious bidder watching from a distance?
SKS Power Generation (Chhattisgarh) Limited was admitted into insolvency in April 2022 after it underwent severe operational challenges due to unresolved disputes and broader issues in the power sector. After a competitive process that drew seven applicants and an inter-se bidding round, the Committee of Creditors approved the plan proposed by Sarda Energy and Minerals with 100% vote by June 2023. Every creditor who carried the real financial and economic risks backed the plan. This would have ideally meant that the resolution process was complete there and then.
However, SKS’s unsuccessful resolution applicants challenged the case through various litigation before the National Company Law Tribunal (NCLT), the appellate tribunal, an appeal to the Supreme Court, and finally a review petition. The litigation was by applicants whose plans the creditors had already turned down, based on their commercial wisdom. On the facts, the court found no sweetening at all. The figures the appellants seized upon had formed part of the winning plan from the very start.
Some of the largest insolvency cases have witnessed a familiar pattern. While the methods may differ, the loser of a commercial auction reaches for procedure precisely because the commercial contest is gone. Some parties allege that there’s a departure from the process. Others rely on arguments to cast doubt on how the highest bidder emerged and does not deserve to be chosen. This pendency keeps a closed process ajar, becoming a source of leverage for such failed applicants.
In the case of SKS Power, a company that should have been steady under new ownership from 2023 itself had to instead spend years where the resolution was under a cloud. While the successful resolution applicant worked on integrating SKS Power after approval by the NCLT in August 2024, it cannot be denied that bandwidth which belonged to the revival of a distressed power asset could have gone into affidavits and appearances before the courts. Seen from a legal perspective, this is the quiet erosion that the IBC intended to prevent.
Instances like these cast a shadow on the larger insolvency ecosystem. If serious bidders watch a unanimous creditor decision get relitigated across five forums over four years, they would incorporate this risk into their offers or may also trim the value to account for a contested aftermath. Some might even prefer to stay away from the messier situations, meaning that the outcome is thinner competition and weaker recoveries, the exact reverse of what a resolution process exists to deliver.
The Supreme Court’s dismissal of the review petition thus counts for more than its length. By declining even to hear the review in open court, it signalled that the tiers of challenge are not an endless staircase, and that there is a floor and the review petition sits close to it. In doing so, the court has signalled that applicants weighing one more throw of the litigation dice should not use it as an endless exercise.
While the gates to challenge approval of a resolution plan must stay open in areas such as statutory non-compliance and real irregularity by the resolution professional, the dismissal of the review petition means that the court will not entertain endless litigation over a case that has undergone the stipulated process.
The IBC was drafted with the precise purpose of avoiding the failures of earlier insolvency regimes that were scattered under multiple statutes. Every avoidable tier of litigation is a withdrawal against that. The Supreme Court has signalled that forum hunting and endless litigation cannot gut the insolvency resolution ad infinitum. This is a strong signal for a system whose credibility rests on the certainty of its endings.
The author is the Founder and MD of InGovern Research Services.
Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.