JAL’s Missing Auction: Process Finality v/s Value in IBC

[Suhani is a student at National Law School of India University.]

On 4 May 2026, the National Company Law Appellate Tribunal (NCLAT) dismissed Vedanta’s challenge to Adani Enterprises’ INR 14,535 crore resolution plan for Jaiprakash Associates Limited (JAL). Vedanta’s revised bid was reportedly valued at approximately INR 17,926 crore which is INR 3,000 crore higher than the approved plan. This margin is greater than the total resolution value itself in most cases under the Insolvency and Bankruptcy Code 2016 (IBC). However, it was overlooked due to the procedural threshold in the bidding process. The Bench of Chairperson Ashok Bhushan and Technical Member Barun Mitra upheld the Committee of Creditors’ (CoC) decision, finding that its approval of Adani’s plan with a 93.81% voting share fell within its “commercial wisdom” and that no material irregularity had been committed. Adani has since filed a caveat in the Supreme Court, anticipating Vedanta’s appeal.

This article does not argue that the NCLAT got the law wrong. On the existing jurisprudence — particularly Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Swiss Ribbons Private Limited v. Union of India — the tribunal was right to defer to the CoC’s commercial judgment. The question posed by this article is a broader one: Was the bid process constructed in such a manner that it would necessarily produce the best possible result for the creditors? Or does the case of JAL show that there is a fundamental design flaw in the IBC resolution framework?

The INR 3,000-Crore Question

JAL, with exposure across cement, real estate, power, and infrastructure (including the Buddh International Circuit), was admitted into corporate insolvency resolution process (CIRP) in June 2024 on a petition by ICICI Bank, with admitted claims exceeding INR 57,000 crore. Six resolution applicants participated, with Adani Enterprises and Vedanta emerging as the leading contenders. After independent evaluation, Adani scored higher on upfront recovery and overall financial value, and the CoC approved its plan in November 2025.

The controversy centres on what happened next. After the challenge process had concluded, Vedanta submitted an addendum on 8 November 2025, reportedly raising its offer to INR 16,070 crore. The CoC refused to consider it, citing the Process Note’s prohibition on post-process modifications. The CoC characterised Vedanta’s submission as a “modification” rather than a “clarification,” and argued that Vedanta had revised its bid only after learning that its upfront offer was lower than Adani’s. The NCLAT agreed, holding that the CoC’s refusal to entertain the addendum fell within the protected zone of commercial wisdom under Sections 30(2) and 61(3) of the IBC.

The doctrinal result is clean. However, the economic outcome is much more difficult to justify: the creditors of the company with INR 57,000 crore worth of proven debts got INR 3,000 crore less than what a willing buyer would have paid for the business because the bidding process did not allow it.

A Designed Feature, Not a Bug: The US Stalking Horse Model

The scenario that JAL presents of a higher bid arriving after an initial selection is not novel in insolvency law. The United States’ Chapter 11 framework has addressed it for decades through the stalking horse mechanism in Section 363 sales. Under this model, a debtor negotiates a binding initial bid (the “stalking horse”) that sets a floor price. The bidding process is an open one, and the competing bidders are specifically asked to make overbids. When there is a better offer, the debtor conducts a court-monitored auction. The stalking horse bidder participates in this bidding process but runs the risk of losing to a better offer. The stalking horse is rewarded with a breakup fee (1-3%) for setting the floor price.

The design logic is straightforward: the breakup fee compensates the first-mover for its due diligence investment while allowing the estate to capture the surplus from competitive bidding. Had JAL’s Process Note included such a mechanism, the CoC could have considered Vedanta’s higher offer while compensating Adani approximately INR 290 crore (at 2%) for its first-mover investment. The net gain to creditors would have been substantial.

India’s own insolvency ecosystem is not unaware of such mechanisms. The IBBI’s Discussion Paper of 27 August 2021 on the Swiss Challenge method acknowledged that there is no express prohibition on its adoption during CIRP, and noted that the CoC in Ruchi Soya had successfully used a Swiss Challenge to maximise asset value. The Discussion Paper further observed that Regulation 39 of the CIRP regulations is silent on the exact method for selecting the best resolution plan, leaving room for CoCs to adopt competitive bidding formats. Yet the JAL CoC chose a single-round sealed-bid structure with no topping mechanism and the NCLAT held that this choice was un-reviewable.

The Design Critique: Two Structural Problems

First is the conflation of deference standards. The doctrine of “commercial wisdom,” which was laid down in Essar Steel, gives courts a criterion for knowing when to desist. This is a deference rule aimed at judicial review of the decision of the CoC. However, in JAL, the deference rule has been extended beyond that. There is a meaningful distinction between deferring to the CoC’s choice among competing plans (where the CoC is assessing feasibility, viability, and commercial terms with superior informational access) and deferring to its choice of process architecture (where the question is whether the rules are designed to surface the best possible plan in the first place). This being the case, the single-round sealed bid auction by its very nature yields less price discovery compared to a multi-round auction. This is not a question of business acumen, but rather that of auction design, an area where the CoC does not hold any special advantage over the tribunal or the regulator.

Second is the rational under-bidding problem. In a sealed-bid format where bidders cannot observe competing offers and post-challenge revisions are barred, rational bidders will typically bid below their true maximum willingness to pay. This is not a failure of bidder behaviour; it is the predictable consequence of information asymmetry in single-round auctions, well documented in auction theory literature. The US stalking horse model solves this by making the floor bid public and inviting overbids, thereby converting the informational disadvantage into competitive pressure. The JAL Process Note’s sealed-bid-with-no-revision structure guaranteed some value leakage by design. At INR 57,000 crore in admitted claims, even a modest percentage of leakage translates into thousands of crores foregone by creditors.

The “clarification versus modification” distinction made by the NCLAT also serves to highlight the issue at hand. There is no statutory basis for this distinction – it is a creation of the Process Note itself. The determination whether a submission that has been modified qualifies as a “permissible clarification” or an “impermissible modification” is bound to be arbitrary in nature. A proper topping bid process framework would resolve this ambiguity completely.

A Modest Proposal

The reform need not be sweeping. IBBI could amend Regulation 39 of the CIRP regulations to require that, for CIRPs with admitted claims above a specified threshold (say, INR 5,000 crore), the request for resolution plans must include either a Swiss Challenge round or a structured topping-bid mechanism with minimum bid increments and breakup fee provisions. Below this threshold, full CoC discretion would continue unchanged. This preserves speed for smaller cases — where timeline concerns rightly dominate — while ensuring that marquee insolvencies, where the stakes run into tens of thousands of crores, are resolved through processes designed to maximise creditor recovery.

Such an amendment would be consistent with the IBC’s own stated objective of value maximisation and with IBBI’s own 2021 recognition that the Swiss Challenge method is a legitimate tool within CIRP. It would also align Indian practice with international best practice, where the US Section 363 framework has demonstrated that process finality and competitive bidding are not mutually exclusive — they can coexist through well-designed auction rules.

Conclusion

With Adani’s caveat in the Supreme Court and Vedanta’s appeal likely imminent, the apex court will have an opportunity to consider whether “commercial wisdom” extends to process design choices that demonstrably reduce creditor recovery. Even if the Court — rightly — declines to disturb the CoC’s decision on the existing facts, a judicial observation flagging the value-maximisation gap would signal to IBBI that the bidding architecture needs attention. The IBC was designed to be an evolving framework. Seven years in, the JAL case suggests that the evolution must now reach the auction room.