Why 8 out of 10 operational creditor appeals fail at the NCLT stage.

When the CoC Decides, the Court Steps Back

Pratap Technocrats (P) Ltd. and other small telecom service providers had a simple problem. They maintained towers and laid fiber networks for Reliance Infratel Limited. When the company went into insolvency, they were owed money. A resolution plan was approved. But the plan gave them, as operational creditors, far less than what financial creditors received. They argued that Rs 800 crores from preference shares was reserved exclusively for financial creditors and excluded from their share. They wanted the Supreme Court to step in and rewrite the distribution.

The stakes were enormous. For the operational creditors, it was about recovering their dues from a corporate debtor that had entered the Corporate Insolvency Resolution Process (CIRP). For the resolution applicant and the Committee of Creditors (CoC), it was about the finality of a plan that had been approved unanimously. For the insolvency regime itself, the question was fundamental: how much can a court second-guess the commercial wisdom of creditors?

The Supreme Court of India, in a single-judge bench authored by Justice Dhananjaya Y Chandrachud, answered that question with a resounding "very little." The appeal was dismissed. The plan stood.

The Insolvency That Started in Mumbai

The story began on 15 May 2018, when the NCLT, Mumbai admitted Reliance Infratel Limited to CIRP. The process was not smooth. A stay was obtained from the NCLAT, but it was vacated on 30 April 2019, and the appeal was withdrawn. The CIRP resumed.

Eventually, a resolution plan was submitted by Reliance Digital Platform. It was approved unanimously by the CoC. On 3 December 2020, the NCLT, Mumbai Bench-1 sanctioned the plan under Section 31 of the Insolvency and Bankruptcy Code, 2016. The operational creditors, including Pratap Technocrats, were not happy. They appealed to the NCLAT, which dismissed their challenge on 4 January 2021. They then came to the Supreme Court.

What the Operational Creditors Argued

The operational creditors raised several arguments. First, they claimed that the resolution plan violated Section 30(2)(b) of the IBC, which requires that a plan provides for the payment of operational creditors in a manner that is "fair and equitable." They argued that the Rs 800 crores from preference shares should have been included in the resolution amount and distributed to them, not kept aside for financial creditors.

Second, they argued that certain banks had been excluded from the CoC, and that this exclusion should vitiate the entire plan approval process. They wanted the plan to be set aside on that ground alone.

Third, they argued that the NCLT and NCLAT had failed to exercise their jurisdiction properly. They wanted the courts to look at the commercial wisdom of the CoC and decide whether the distribution was fair.

The Doctrine That Mattered: No Equity Jurisdiction Under the IBC

The Supreme Court did not buy any of these arguments. The core of the judgment rests on three key principles, each of which is a significant statement on the scope of judicial review under the IBC.

Principle One: The NCLT Has No Equity Jurisdiction

The Court held that the Adjudicating Authority under Section 31(1) of the IBC has a statutorily-defined jurisdiction. It can only determine whether the resolution plan meets the requirements of Section 30(2). There is no equity-based jurisdiction. The Court said:

THE PLAY: When challenging a resolution plan, do not argue that the distribution is "unfair" in a general sense. Argue only that it violates the specific requirements of Section 30(2)(b) — that is the only ground the NCLT can consider.

This is a critical limitation. The NCLT cannot act as a court of equity, rewriting the plan to achieve what it thinks is a fairer outcome. Its role is to check the statutory boxes.

Principle Two: "Fair and Equitable" Means Intra-Class, Not Inter-Class

The operational creditors argued that the plan was not "fair and equitable" because they received less than financial creditors. The Court rejected this. It interpreted Explanation 1 to Section 30(2)(b) to mean that "fair and equitable" treatment applies within a class of creditors, not between different classes.

In other words, the law requires that all operational creditors be treated fairly among themselves. It does not require that operational creditors receive the same treatment as financial creditors. The Court relied on the decision in Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC 17, which held that differential treatment between financial and operational creditors is constitutionally valid based on an intelligible differentia.

The Court also held that once the resolution plan meets the requirements of Section 30(2)(b) — meaning the payment to operational creditors is not less than the liquidation value or the amount they would receive under the Section 53 waterfall, whichever is higher — the statutory standard is satisfied. The operational creditors in this case had received that amount. They could not ask for more.

Principle Three: The Commercial Wisdom of the CoC Is Not Justiciable

This is the most important principle. The Court held that the commercial wisdom of the CoC in approving a resolution plan is not justiciable. The NCLT and NCLAT cannot act as courts of equity or exercise plenary powers over the CoC's business decisions.

The Court relied heavily on two precedents. In K Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150, the Court had held that the NCLT and NCLAT cannot reverse the commercial wisdom of the CoC. Their jurisdiction is limited to the grounds in Section 30(2) and Section 61(3). They cannot act as courts of equity. In Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531, the Court had held that the ultimate discretion on distribution is with the CoC, but it must reflect maximization of asset value and balancing of all stakeholders' interests. Limited judicial review is available.

The Court in Pratap Technocrats applied these principles strictly. It said that the CoC had approved the plan unanimously. The plan had been scrutinized by the NCLT and found to meet the statutory requirements. The NCLAT had affirmed that. There was no ground for the Supreme Court to interfere.

Why This Matters in Practice

For advocates, CFOs, and founders, this judgment is a clear signal. The IBC is designed to give primacy to the commercial decisions of creditors. The courts will not second-guess those decisions unless there is a clear violation of the statutory framework.

For operational creditors, the lesson is harsh but clear. You cannot challenge a resolution plan simply because you think the distribution is unfair. You must show that the plan violates a specific statutory requirement. The most common ground is Section 30(2)(b), but even that ground is limited. If the plan gives you at least what you would get in liquidation, the statutory standard is met.

For resolution applicants, the judgment provides comfort. Once the CoC approves a plan and the NCLT sanctions it, the plan is largely immune from challenge. The courts will not rewrite it.

For the CoC, the judgment reinforces its power. The commercial wisdom of the CoC is paramount. But that power comes with responsibility. The CoC must ensure that the plan meets the statutory requirements, especially with respect to operational creditors. If it does, the plan will stand.

The Bottom Line

When the CoC decides, the court steps back — unless the plan violates a specific statutory requirement, the commercial wisdom of creditors is final, and operational creditors cannot demand equal treatment with financial creditors.