K. Sashidhar vs Indian Overseas Bank: Why Courts Cannot Second-Guess a CoC's Rejection

The Statutory Question

When a resolution plan for a stressed company fails to secure the approval of its Committee of Creditors (CoC), can the National Company Law Tribunal (NCLT) or the National Company Law Appellate Tribunal (NCLAT) step in, examine the dissenting lenders' reasons and revive the rejected plan? The Supreme Court answered that precise question on 5 February 2019 in K. Sashidhar vs Indian Overseas Bank & Ors., Civil Appeal No. 10673 of 2018, decided by Justice A.M. Khanwilkar. The Court held, unambiguously, that neither tribunal has been given that jurisdiction under the Insolvency and Bankruptcy Code 2016.

The dispute turned on the voting share fixed in Section 30(4) IBC. At the time the two corporate debtors in the appeals, Kamineni Steel & Power India Private Limited and Innoventive Industries, went through their resolution process in October 2017, the Code required a resolution plan to be approved by financial creditors holding at least 75 per cent of the voting share. That figure was later cut to 66 per cent with effect from 6 June 2018 by amendment. In both matters, the plans fell short of the 75 per cent mark, and the question was whether the shortfall was fatal or whether the tribunals could treat the threshold as directory and overlook it.

The appellants argued that the word structure of Section 30(4) IBC left room for the adjudicating authority to assess the plan on merits even where the 75 per cent bar was not crossed. The respondent banks, led by Indian Overseas Bank, contended that once the statutory percentage was not met, the plan stood rejected and Section 33(1) IBC left only one outcome: liquidation. The Supreme Court's judgment, running across more than 40 numbered paragraphs, settled the architecture of creditor primacy that still governs every corporate insolvency resolution process in India in 2026.

What the Court Held

The Court held that the 75 per cent voting requirement in Section 30(4) IBC (now 66 per cent) is a mandatory threshold, not a directory guideline. If a resolution plan does not attract that percentage of the financial creditors' voting share, it is deemed rejected, and the consequence that follows under Section 33(1) IBC is liquidation of the corporate debtor. There is no residual discretion in the NCLT or the NCLAT to cure the deficit.

Crucially, the Court drew a line around what the tribunals may examine at all. Under the scheme of Sections 30 to 33 IBC, the "commercial wisdom" of the CoC, expressed through the vote of individual financial creditors, is non-justiciable. At paragraph 33 of the judgment, the Court observed that the legislature "has not provided any ground to challenge the commercial wisdom of the individual financial creditors," and that this commercial wisdom has been given paramount status without any judicial intervention. At paragraph 39, the Court recorded that "neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction" to reverse that commercial wisdom. Paragraph 42 put it beyond doubt: the commercial decisions of financial creditors "are not open to any judicial review" by the tribunals.

The Court was equally firm that a dissenting financial creditor is not obliged to record reasons for rejecting a plan. Because Section 30(4) IBC fixes approval by a percentage of voting share and not by a reasoned adjudication, the Code does not require the dissenters to justify their "no" vote, and the tribunals cannot compel disclosure of those reasons or sit in appeal over them. The limited appellate grounds in Section 61(3) IBC, which deal with challenges to an approved plan, offer no route to resurrect a rejected one.

The table below sets out the statutory provisions the Court interpreted and the role each played in the judgment dated 5 February 2019.

Reasoning

"Shall" in Section 30(4) is mandatory, not directory

The appellants' core submission was that the 75 per cent requirement in Section 30(4) IBC should be read as directory, so that a plan commanding, say, 66.7 per cent or 60.5 per cent support (as in the Kamineni and Innoventive facts of October 2017) could still be sanctioned on its merits. The Court rejected this at paragraphs 21 and 26. It reasoned that the Code deliberately expresses creditor approval as a fixed arithmetical percentage of voting share, and that reading the figure down to a flexible standard would hand the tribunals a merits jurisdiction the statute never conferred. A percentage threshold is binary by design: a plan either clears it or it does not, and 74.9 per cent is a rejection just as surely as 10 per cent.

The Court tied this to the Code's compressed timeline. The corporate insolvency resolution process under Section 12 IBC was then to be completed within 180 days, extendable once by up to 90 days, a 270-day outer limit. Allowing tribunals to re-open rejected plans and weigh the quality of dissent would, the Court held, defeat the time-bound recovery the Code of 2016 was built to deliver.

Commercial wisdom of the CoC enjoys paramount status

The second strand of reasoning, developed across paragraphs 33 to 42, is the now-famous doctrine of the CoC's "commercial wisdom." The Court held that financial creditors, who have lent real money and bear the risk of the debtor's failure, are best placed to judge the viability and feasibility of a resolution plan and the haircut they are willing to accept. Because that judgement is commercial rather than legal, the Code entrusts it entirely to the creditors and shields it from second-guessing. The resolution professional's role under Section 30(2) IBC is confined to verifying that a plan meets the prescribed form and does not contravene the law; it is not a merits filter, and the tribunals inherit no wider power.

This hands-off principle has an important corollary the Court spelt out: a dissenting creditor need not record reasons. Since approval is measured only by the 75 per cent (now 66 per cent) voting share under Section 30(4) IBC, the statute asks for a vote, not a reasoned order. The tribunals therefore cannot demand reasons from dissenters or test their adequacy, a point the Court made plainly in paragraph 39 of the 5 February 2019 judgment.

The appellate grounds are exhaustive and point only at approved plans

The third reasoning step is structural. Section 61(3) IBC lists specific grounds on which an appeal may be filed against a resolution plan approved under Section 31 IBC, such as contravention of law, material irregularity, or non-provision of statutory dues. The Court held that these grounds presuppose an approved plan; there is no symmetric provision empowering the NCLAT to review a rejected plan or to direct the CoC to approve one. Read with Section 32 IBC, which routes appeals against liquidation orders through the same narrow channel, the statutory scheme of 2016 leaves the dissent of financial creditors outside the appellate net altogether. The absence of a reviewing power, the Court stressed, is a deliberate legislative choice, not a gap for the courts to fill.

Practical Takeaways

The K. Sashidhar judgment of 5 February 2019 reshaped expectations for every participant in a corporate insolvency. Its logic has been reinforced by later decisions through 2019 to 2024 and remains the governing law in 2026.

For promoters and corporate borrowers:

• A plan that fails the 66 per cent CoC threshold under Section 30(4) IBC cannot be salvaged at the NCLT; the only statutory outcome is liquidation under Section 33(1) IBC. Build consensus with financial creditors before the vote, not after.
• There is no appeal to the NCLAT on the ground that dissenting lenders were "unreasonable." Since the 5 February 2019 ruling, the tribunals will not weigh the merits of a rejection.
• Promoters barred by Section 29A IBC cannot expect the tribunals to relax creditor decisions in their favour. If liquidation looms, model the downside early; our debt-consolidation calculator and foreclosure calculator help quantify what an orderly exit or prepayment would cost against a forced sale.

For lenders and financial creditors:

• A dissenting financial creditor's "no" vote is final and needs no recorded reasons, per paragraphs 33 and 39 of the judgment. Your voting-share arithmetic is decisive.
• The 66 per cent threshold (reduced from 75 per cent on 6 June 2018) is the single most important number in any CoC meeting. Confirm each creditor's voting share before the ballot.
• Because the tribunals cannot revive a rejected plan, lenders should treat each vote as irreversible and price their recovery expectations accordingly against the collateral they hold.

For operational creditors and smaller claimants:

• Operational creditors do not sit on the CoC's voting roll and cannot influence the 66 per cent calculation under Section 30(4) IBC. Their protection lies in the minimum entitlement the plan must provide, not in persuading the tribunal to override a vote.
• If a company you supply to enters insolvency, assume the 270-day Section 12 IBC clock is running and file your claim promptly.

For resolution applicants and investors:

• A resolution applicant whose plan is rejected has no appeal on the merits of the vote; the investment thesis must survive the CoC, not the courtroom.
• Investors should read the 66 per cent threshold as a market-clearing test. A plan that cannot command two-thirds of the lending pool is, in law, no plan at all.
• Those assessing distressed-asset returns can stress-test cash flows using our personal loan EMI calculator as a quick proxy for servicing costs on acquisition debt.

The contrast between what the tribunals may and may not do is summarised below.

For borrowers watching a SARFAESI recovery run parallel to an insolvency, the glossary entries on the SARFAESI Act and the Debts Recovery Tribunal explain how the two recovery tracks interact with the IBC timeline.

FAQ

Can the NCLT approve a resolution plan the CoC has rejected?

No. The Supreme Court held in K. Sashidhar on 5 February 2019 that the NCLT can act only on a plan that has already cleared the Section 30(4) IBC threshold, now 66 per cent of the financial creditors' voting share. A plan that fails that vote is deemed rejected, and the only consequence is liquidation under Section 33(1) IBC. The tribunal has no power to revive or sanction a rejected plan on its own view of the merits.

What is the CoC's "commercial wisdom"?

Commercial wisdom is the collective business judgement of the financial creditors on whether a resolution plan is viable and what recovery or haircut they will accept. At paragraphs 33 and 42 of the 5 February 2019 judgment, the Supreme Court held this judgement enjoys paramount status and is not open to judicial review by the NCLT or NCLAT, because the creditors bear the financial risk and are best placed to assess it.

Do dissenting creditors have to give reasons for voting no?

No. Because approval under Section 30(4) IBC is measured only by a voting percentage, originally 75 per cent and 66 per cent since 6 June 2018, the Code requires a vote, not a reasoned order. The Supreme Court held in paragraph 39 that dissenting financial creditors are not obliged to record reasons, and the tribunals cannot compel them to or examine the adequacy of their reasoning.

What was the voting threshold in the K. Sashidhar case?

At the relevant time, October 2017, Section 30(4) IBC required 75 per cent of the financial creditors' voting share to approve a resolution plan. The plans before the Court in Civil Appeal No. 10673 of 2018 fell short of that figure. The threshold was later reduced to 66 per cent with effect from 6 June 2018, and 66 per cent remains the governing figure in 2026.

What happens if no resolution plan is approved?

Section 33(1) IBC makes liquidation mandatory once the resolution process ends without an approved plan, including where a plan fails to reach the 66 per cent threshold. The Supreme Court confirmed on 5 February 2019 that this is not a discretionary call: the adjudicating authority must pass a liquidation order, and the corporate debtor's assets are then sold to repay creditors in the Section 53 IBC waterfall.

Can a rejected resolution applicant appeal to the NCLAT?

The appellate grounds in Section 61(3) IBC apply to challenges against an approved plan, not a rejected one. The Supreme Court held that there is no statutory power for the NCLAT to review the rejection of a plan or the commercial wisdom behind it. A resolution applicant therefore has no merits appeal where the CoC has voted the plan down below 66 per cent.

Does K. Sashidhar still apply in 2026?

Yes. The doctrine that the CoC's commercial wisdom is non-justiciable, laid down on 5 February 2019, has been repeatedly affirmed by the Supreme Court in subsequent IBC matters through 2019 to 2024. The only change since the judgment is the voting threshold, which moved from 75 per cent to 66 per cent on 6 June 2018. The core holding, that tribunals cannot second-guess a CoC's rejection, remains good law.