Kamal Ghorui
India’s Insolvency and Bankruptcy Code (IBC) has been widely credited with reshaping the country’s credit culture. Still, recent developments in large insolvency processes suggest that its foundational promise of value maximization through a predictable process may be under strain.
The intellectual foundation of the IBC emphasises that distressed assets must be resolved in a manner that maximizes value for stakeholders within a transparent, time-bound framework. This is the organizing principle around which the entire insolvency architecture has been designed. From the conduct of the Committee of Creditors (CoC) to the structuring of the Corporate Insolvency Resolution Process (CIRP), the emphasis has consistently been on achieving the highest possible economic value while ensuring procedural certainty.
Yet, as recent cases indicate, the friction between process and discretion is leading to protracted litigation, as visible in the insolvency resolution process of Jaiprakash Associates. In this case, as reports indicate, Vedanta claims that it was declared the highest bidder by the CoC with a bid value of Rs 16,726 crore, significantly higher than a competing bid of Rs 14,535 crore. In the Jaiprakash Associates case, reports suggest that after multiple rounds of competitive bidding, a clear H1 bidder emerged with a materially higher offer of Rs 16,726 crore vs a competing bid of Rs 14,535 crore.
However, if the underlying theme of the IBC challenge process is value maximization, then the outcome appears to deviate from that principle and requires closer scrutiny.
To be clear, the IBC deliberately vests significant decision-making authority in the CoC. The CoC’s commercial wisdom is central to the IBC, but it is not unbounded. It must operate within the framework of the Code and remain aligned with its primary objective, maximising value. Discretion cannot override design. This becomes particularly relevant in the context of structured auction or challenge processes. These mechanisms are introduced precisely to address concerns that initial bids may not adequately reflect the asset’s intrinsic value. They are governed by the CIRP regulations, which set out the contours for conducting such processes. When bidders are invited to participate in multiple rounds, and when evaluation criteria are clearly defined, the expectation is that the process will culminate in an outcome that reflects those criteria.
More fundamentally, participation in such bidding processes must be anchored in fairness and equal opportunity. Serious bidders expend significant financial, legal, and managerial resources to participate in insolvency auctions. They assume that the rules of the game, once set, will be applied consistently. If a bidder emerges as H1 after a transparent and competitive process and still fails to secure the asset, it risks undermining that assumption. The issue is not merely one of outcome, but of confidence in the process itself.
There is also a broader public interest dimension that cannot be ignored. Given that CoC decisions determine recoveries for public sector banks, the stakes extend beyond private commercial judgement. They directly impact public funds, raising the bar for transparency and outcome rationality. The IBC’s success over the past decade has not been limited to recovery numbers. It has also been about creating behavioral change among borrowers, creditors, and investors. A key part of that transformation has been the emergence of distressed assets as a credible investment class, attracting both domestic and global capital. But such participation is inherently sensitive to process risk.
None of this is to suggest that the CoC’s discretion should be curtailed or that commercial considerations should be second-guessed. Rather, discretion must operate within a disciplined framework, and outcomes must remain aligned with the Code’s central objective of value maximization.
The IBC’s credibility rests not only on its processes, but also on outcomes that reflect them. If structured price discovery does not reliably translate into value realisation, the system risks eroding the very confidence it was built to restore.
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