Judicial Overreach and Commercial Wisdom: A Continuing Challenge in IBC from Kamineni to DHFL

The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted with a clear legislative intent, to shift insolvency resolution from the courtroom to the boardroom, where commercial decisions are left to creditors and legal adjudication is limited to procedural compliance and questions of illegality or fraud. However, right from the earliest days of its implementation beginning with the controversial order in Kamineni Steel, the promise of a swift and commercially driven resolution framework has been repeatedly tested by judicial overreach. The tendency of adjudicating authorities to substitute the commercial wisdom of creditors with their own notions of fairness or equity has disrupted not only the timelines envisioned under the Code but also the delicate balance between judicial supervision and commercial negotiation. This judicial overreach has led to a fractured and unpredictable insolvency landscape. The recent Supreme Court judgment in the DHFL-Piramal case is not merely a legal milestone; it is a stark reminder that this saga of overreach, which began with Kamineni, continues to shadow the implementation of the IBC. While the Apex Court has time and again reiterated that the commercial wisdom of the Committee of Creditors (CoC) is sacrosanct and beyond judicial review, the persistent need for such reaffirmation underscores a deeper structural issue and lack of judicial discipline and inconsistent adherence to legislative boundaries.

This alert traces the evolution of this problem, culminating in the DHFL ruling, and makes a compelling case for restoring the balance originally envisioned by the Bankruptcy Law Reforms Committee: where the courts uphold process, not policy; legality, not commercial terms.

Read the detailed alert here