There was a major steel manufacturing company called 'Tough Steel Industries Limited' ('Tough Steel' or 'the Company'). For many years, Tough Steel was a leading name in the steel industry, known for producing high-quali

CS Professional · Insolvency - Law and Practice · PYQS · June 2025
There was a major steel manufacturing company called 'Tough Steel Industries Limited' ('Tough Steel' or 'the Company'). For many years, Tough Steel was a leading name in the steel industry, known for producing high-quality steel that was used in critical infrastructure projects worldwide. However, over time, Tough Steel found itself in serious financial trouble due to a mix of rising production costs, market volatility, and mismanagement. As a result, the company defaulted on its massive debt obligations, putting its future at risk. Faced with growing debt and no way to repay it, Tough Steel was forced into the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC). A Resolution Professional (RP) was appointed to manage the proceedings and oversee the search for a solution. Several potential buyers came forward with offers to resolve the insolvency, but one stood out: Steel Global, an international steel conglomerate, which presented an offer that could clear all of Tough Steel's debts and inject fresh capital to restore the company. The Committee of Creditors (CoC), which included both financial and operational creditors, had to approve the resolution plan. However, a key issue emerged: who should have the final say in approving the resolution plan? Was it the financial creditors, who had the largest share of Tough Steel's debts, or should operational creditors, who provided goods and services to the company, have a more significant influence ? In the light of the above case study inputs and referring to the decisions of applicable case laws with reasons and the provisions of Insolvency and Bankruptcy Code 2016 (IBC, 2016) and the Regulations made thereunder, answer the following questions : How does the role of the Resolution Professional (RP) in the Tough Steel case demonstrate the balance between independence and stakeholder influence in recommending a resolution plan, and what legal challenges could arise if their recommendation is contested by creditors with differing interests?

Answer & Explanation:

In the Essar Steel case, the Resolution Professional (RP) was tasked with reviewing the various bids and recommending the best resolution plan for the company. The Supreme Court in Essar Steel emphasized the importance of the RP's independence, as the RP's role is to act impartially and prioritize the interests of all creditors, without being influenced by any single group. In the Tough Steel case, if the RP's recommendation of the best resolution plan, such as that from Steel Global, were contested by creditors—whether financial or operational—legal challenges could arise. For example, operational creditors could argue that the RP's recommendation does not adequately address their interests, as they often have different priorities compared to financial creditors. As was evident in Essar Steel, the Supreme Court ruled that the RP's recommendations should be given significant weight, but it also clarified that the final decision rests with the Committee of Creditors (CoC), which represents the collective interests of the majority creditors. If the RP's recommendation is contested by a minority of creditors, legal challenges may center around whether the RP acted fairly and in accordance with the principles of the IBC. In Essar Steel, the Court reinforced that the CoC had the ultimate authority, and that the RP's role is advisory in nature, meant to support, not dictate, the decision of the creditors.

Topics: Resolution Professional's Role

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