Corp Legex

Does Commercial Wisdom Encroach on Judicial Wisdom?

Does Commercial Wisdom Encroach on Judicial Wisdom?

This Article has been authored by Suman Kumar Jha (Founding & Managing Partner), Afnaan Siddiqui (Co-Founder & Partner), Visakha Raghuram (Associate) and Akshita Varshney at Corp Legex.


The Insolvency and Bankruptcy Code, 2016 (IBC) was enacted with the objective of providing a time-bound insolvency resolution mechanism to a financially stressed company and saving it from liquidation. For the said purpose, the committee of creditors (CoC) comprising financial creditors is at the forefront of the administration of the corporate debtor. In India, under IBC, the commercial decisions made by the CoC are generally protected from judicial scrutiny to ensure that the business viability and creditor interests are balanced without any undue interference from the courts.

However, the ambit of this ‘commercial wisdom’ of the CoC has always been a topic of discussion, particularly in the context of judicial interference exercised by courts over the decision-making power of the CoC.

Judicial Stance on Commercial Wisdom v. Judicial Wisdom

The stance of the judiciary on the question of the primacy of commercial wisdom over judicial wisdom has been fairly consistent, with the courts siding with the commercial wisdom of the CoCs over judicial wisdom. However, the judicial wisdom of the courts has been given due importance too. One of the first rulings on this aspect is the decision of the Supreme Court in K. Sashidhar v. Indian Overseas Bank. The Court gave paramount importance to the CoC and acknowledged its crucial role in the administration of the CIRP within the prescribed time frame. It respected the contribution of the legislature in drafting the IBC which, purposely and consciously, did not endow the NCLT with any power to challenge the decision of the CoC taken in its commercial wisdom.

However, the Court also clarified that the commercial wisdom of the CoC is subject to certain limitations imposed under section 32 read with section 61(3) of the IBC. Thus, it was emphasized where there was no element of common prudence or basic ‘commercial wisdom’ on part of the CoC, the NCLT could invoke its judicial wisdom.

The primacy of commercial wisdom over judicial wisdom was again reiterated in the landmark case of Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta that, under normal circumstances, the judicial wisdom of the courts cannot encroach upon the commercial wisdom of the CoC. It is upon the CoC to decide the feasibility and viability of a resolution plan after considering all aspects of the plan. However, where the commercial decision of the COC violates the basic counters of the IBC, the NCLT would be justified in using its judicial wisdom and rejecting the decision of the CoC for approval or rejection of a resolution plan.

However, this does not mean that commercial wisdom always encroaches on judicial wisdom. The Courts have recognized that under normal circumstances, judicial wisdom should not interfere with the commercial decisions made by the CoC.


Thus, commercial wisdom is given significant weight in business-related decisions under the Insolvency and Bankruptcy Code (IBC) in India, it does not inherently encroach upon judicial wisdom. The courts have established that commercial decisions made by the Committee of Creditors (CoC) are generally protected from judicial scrutiny, except within the limited scope provided by law. This ensures that while commercial expertise is respected, it does not improperly influence judicial decisions, maintaining a balance between commercial interests and legal principles.


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