Important words
Committee of Creditors, the Insolvency and Bankruptcy Code, the Resolution Plan, the Corporate Insolvency Resolution Process, the Insolvency Professional, and the Financial Creditor.
Abstraction
This article looks at what the Committee of Creditors (CoC) and Insolvency Professionals (IPs) do under India’s Insolvency and Bankruptcy Code (IBC) during the Corporate Insolvency Resolution Process (CIRP). We begin by talking about what an IP is and how the IBC says that only registered, trained professionals can run accompany that is in default. The IP has important legal duties, such as keeping assets safe and making sure the debtor stays in business. Then, the CoC’s members, who are financial creditors, its power to make decisions (it must approve resolution proposals by a 66% vote), and its powers (like naming or replacing the IP) are explained.
Caselaw shows how IPs and the CoC are connected. For instance, courts have said that the Coc must use its “commercial wisdom” fairly and take into account the interests of all parties involved. The IP, on the other hand, is an impartial administrative role that is overseen by the courts.
The conclusion stresses both the IP’s duty to get the most money for the debtor and the CoC’s legal role as an IBC trustee of creditor interests.
How to Hire and What Insolvency Professionals (IPs) Do
The IBC says that an Insolvency Professional (IP) is a licensed professional, like a lawyer, CS, or CA, who is also registered with the IBBI and an Insolvency Professional Agency. The Adjudicating Authority (NCLT) chooses an IP to handle the CIRP after default is confirmed. If the application names a possible IP and there are no disciplinary actions going on, the professional becomes the interim resolution professional (IRP). If not, the IBBI suggests an IP. The IRP always acts as the debtor’s board and takes over daily management in order to keep the debtor as a going concern. Section 16 of the IBC says that the IRP can do business until the first Coc meeting.
IP’s Duties and Powers
The IBC gives the IP a broad duty to “preserve and protect the assets of the corporate debtor, including the continued business operations.” This really means that the IP needs to: Take care of and control all of the debtor’s assets: According to Section 25(2)(a), the IP quickly protects all of the debtor’s assets and documents, often by going to the debtor’s property and business documents in person. Keep the business going: The IP keeps the business running normally so that disruptions don’t destroy value (Sec 25(1)).
The CoC expects the debtor to keep doing business as usual while a resolution is being sought. Represent the business in court: The IP takes on the legal role of the corporate debtor by defending or pursuing cases on their behalf. This includes suing the debtor, filing claims, and going to court.
Publicly declare CIRP: According to Section 15, the IP must let the public know that the insolvency process has begun and ask creditors to show proof of their debt. This makes sure that all creditors know about it and can take part. Keep records and collect claims: The IP makes a verified list of creditors and their claims. A current claims registry is kept up to date to be open. The IP calls all CoC meetings, both formal and informal, with at least five days ‘notice (or less if permission is given).
The IP also makes and sends out agendas, information memoranda, and financial data to CoC members ahead of time. Make an information memorandum: After carefully looking at the company and its finances, the IP writes an information memorandum about the debtor’s business.
This paper helps people who want to apply for a resolution plan their business and understand it. Invite and evaluate resolution proposals: After getting the CoC’s approval, the IP sends out a public call for resolution plans. The IP sends all plans to the CoC at meetings after checking each one to make sure it follows Sec. 30(2). The IP makes sure that a plan is put into action if the CoC gives its approval. The IP can also help the liquidator if the debtor goes into liquidation.
Because of these duties, the IP is the main agency in charge of the insolvency process. Some people think that the IP “plays an enabling role in the framing of the resolution plan,” “brings the creditors together, makes sure the insolvent entity can continue to operate, protects its assets, and, when necessary, increases the value of assets by challenging questionable transfers,” and more. In other words, the IP needs to find a balance between the creditors’ interests and the debtor’s recovery in order to get the most value out of the situation. The courts recognize the IP’s administrative role and the judicial review process.
Inputs Swiss Ribbons. In Ltd. v. Union of India, the Supreme Court upheld the IBC scheme and made it clear that a Resolution Professional’s duties are executive in nature. The Court said that the IP must act fairly and within the law by saying that an RP “exercises administrative functions” and is still under NCLT supervision (Sec60(5)). So, even though the IP is in charge of the debtor, the Adjudicating Authority can be asked to step in if the IP doesn’t do its legal duties.
The Committee of Creditors (CoC) is made up of people and does certain things
The Committee of Creditors (CoC) is made up of all of the corporate debtor’s financial creditors. During CIRP, it has the power to make important decisions. Operational creditors’ interests are represented indirectly under the IBC and do not have their own seats in the CoC. Section 21 says that the IRP becomes the CoC after confirming claims and figuring out the debtor’s financial situation. When claims are recognized, all financial creditors (like banks, NBFCs, bondholders, etc.) automatically become members of the CoC and get voting rights based on how much debt they have. Section 29A says that people who are related to the debtor can’t vote or have any say in the CoC.
How the CoC Was Made and What It Is
The IRP officially makes the CoC within 14 days of the CIRP starting. One expert says that Section 21(1) of the Code says that “The interim resolution professional shall after collation of all claims…constitute a committee of creditors.” This really means that the IRP sets up the first meeting of the CoC after all the claims have been filed, which usually happens within 7 to 10 days. The CoC can choose a new IP or confirm the IRP as the permanent Resolution Professional (RP) with a 66% vote after picking a chairperson from among the financial creditors. To make decisions, the Coc needs a supermajority, which means that at least 66% of the financial creditors ‘voting shares must agree.
The CoC’s first job at the first meeting is to confirm the IRP or choose a new RP. An IP chosen by a creditor must agree to act; by law, the CoC cannot continue without the interim professional’s permission. The NCLAT said that the CoC “cannot appoint the IRP as RP” without the person’s permission. The CoC is in charge of the whole resolution process once the RP has been checked out.
What the CoC Can Do and Is Responsible For
The CoC has a lot of power in the CIRP and can change the decision. The IBC and rules list its main jobs: Accepting professional fees and expenses: The CoC sets the pay for the IRP/RP and the entire CIRP budget, which includes fees for lawyers and accountants. In reality, the CoC has to approve any short-term funding for operational costs and pay the debtor’s estate back for the costs of the process. The IBC says that the CoC sets the fees for the RP.
Get short-term financing: The CoC may approve new loans (according to the rules) if the debtor needs cash to keep their business running during CIRP. Monitor and change RP: The CoC can check on the RP’s work at every meeting. If the Coc loses faith in the RP (for example, because of a big delay or conflict), it can vote to replace him with another registered IP.
If the members are happy with the procedure, the CoC can approve the RP’s actions. The RP can only be fired with the adjudicating authority’s permission and a 66% CoC vote. Check the plan’s viability: One of the CoC’s main jobs is to figure out if the debtor’s business can be saved and what kind of plan could help it do so. The CoC looks at the information the IP has given them, figures out what caused the problem, and sets standards for bids to be considered or evaluated. The CoC basically sets up the rules for picking a plan.
The CoC is the only group that can accept or reject a debtor’s final resolution plan. Section 30(4) says that a plan can only be approved if at least 66% of the CoC (by voting share) agrees with it. The CoC’s business sense is shown in this “majority decision.” After the RP presents one or more plans, the CoC talks about them and then approves them. If no plan is accepted, the debtor goes into liquidation.
Most importantly, the CoC needs to make decisions that take into account all of the different interests. The IBC tells the CoC to “fairly” maximize value and not do anything that is “anti-common.” One IBBI study says that the CoC “holds the life of the corporate debtor…in its hands,” as well as the fortunes of the employees and creditors. As decision-makers, financial creditors are in a position of trust and must act “with caution, reason, and fairness,” taking into account the interests of stakeholders who are not involved as well.
In other words, the CoC is a public servant who is appointed by law and is responsible for increasing the value of the community. This is sometimes called the “creditor-in-control” method. For example, the IBC changes say that the CoC must give guaranteed payments to operating creditors and dissenting minority creditors that are at least as good as what they would get if the company went bankrupt.
Making choices and using business intelligence
In fact, a lot of people respect the CoC’s “commercial wisdom.” The Supreme Court said in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta that the CoC’s business decision can’t be changed for no reason, as long as certain legal requirements are met. One study says that the CoC’s choice to “rehabilitate the corporate debtor by accepting a particular resolution plan” is protected as its business judgment.
The CoC just needs to make sure that a plan is possible and meets all legal requirements, like the waterfall scheme. In fact, the Supreme Court agreed with the Coc’s decision to adopt the ArcelorMittal plan for Essar (2020) because the CoC had done so within the law. In other words, if the process is legal, courts won’t question the CoC’s decision, even if it has to be fair.
The CoC is the most important part of the bankruptcy process because it makes the resolution plan, approves the decision for the creditors, and adds the collective decision-making of financial creditors to the law. Also, the process is safe from creditors who don’t want to pay because it is the most important one. According to a recent study, the role of the CoC “weighs heavily in Favor of financial creditors who are empowered to determine the fate of the company.” Minority creditors can’t change the majority’s plan once it has been approved by the law. Instead of treating all creditors the same, the focus is still on resolving the corporate debtor as a going concern and maximizing recoveries.
How CoC and IP Work Together
The CoC and IP work together. The IP reports to the CoC, which makes big decisions. For instance, the IP can’t run the operation on their own; the CoC has to approve any actions that involve raising money, spending a lot of money, or inviting resolution applications. The CoC, on the other hand, depends on the IP for factual information and administrative tasks. The CoC is in charge of the IP and decides how much it should charge. If there are disagreements between the IP and any creditors, they Cango to the Adjudicating Authority (NCLT) for help under Sections 60(5) or 33(1). Thip acts as the CEO during the bankruptcy process, but only with the approval of the Coc board.
The appointment process is a good example of this. The IRP nominates the CoC, and the first meeting usually confirms the nomination. If CoC members are not happy with the IP later, they can vote to change it. This makes it clear that the IP needs to act on its own and in a professional way, but the CoC’s trust in the IP is what keeps it alive.
Conversely, parties, including operational creditors, may challenge the CoC’s decisions in the NCLT if the CoC fails to act in good faith, but solely on particular grounds, such as fraud or legal infractions. The Supreme Court has repeatedly warned that courts cannot overrule the CoC’s commercial sense, which has made the limits of each position even clearer.
Legal Cases and Examples
The Supreme Court ruled in the 2019 case of Swiss Ribbons v. Union of India that the IBC’s plan, which includes the IP’s appointment and the CoC’s primacy, is constitutional. The Court made it clear that an RP’s duties are administrative and are checked under Section 60(5). It also made it clear again that the goal is resurrection, not liquidation, and that the debtor benefits from the settlement process.
In the case of ArcelorMittal v. Satish Kumar Gupta (2018), the Supreme Court said that a resolution professional must fairly look at all possible plans and give his or her opinions to the CoC. It stressed that the IP needed to be honest with creditors and fair and objective when showing plan comparisons to the CoC.
The Supreme Court gave the CoC’s authority its final form in the 2020 case of Committee of Creditors of Essar Steel v. Satish Kumar Gupta. It said that the CoC’s “commercial wisdom” is unassailable as long as the plan meets the law’s requirements, such as being fair to minority creditors. The Court made an important decision: “All creditors cannot be treated equally.” Even a financial creditor who didn’t agree with the CoC’s decision had to accept it.
This case shows that the CoC has the final say on a resolution strategy. In the case of Dharmendra Kumar v. IBBI (2018, NCLAT), the NCLAT said that the Adjudicating Authority had to ask the IBBI for an IRP name if an operational creditor had not given one. The CoC was formed with a strong focus on procedural justice. This shows how even the IP’s first appointment is checked.
Hypothetical illustration: Let’s say a debtor owes Rs. 100 crores (banks A: Rs. 60 cr, B: Rs. 30 cr, and C: Rs. 10 cr). The IRP calls a CoC meeting. A and B together have 90%, so they can pass any motion because A has 60% and B has 30%. If either A or A+B votes in Favor of a proposition, they can approve it if it needs 66%. If only A disagrees, the proposal falls apart. This shows how the 66% barrier works.
To sum up
In conclusion, the Insolvency and Bankruptcy Code give the Committee of Creditors and the Insolvency Professional different but related jobs to do during a corporate resolution. The IP is responsible for a number of technical, administrative, and fiduciary tasks, including keeping assets safe, keeping operations running, preparing information, and running meetings. On the other hand, the Committee of Creditors is made up of all the financial creditors and is in charge of the intellectual property, approves all major actions (especially the resolution plan) with a super-majority, and acts as the trustee of the common asset pool.
The IP and CoC’s main goals are to get the most money for the debtor and fairly pay off all of the creditors. Established legal principles state that the IP must do his job under the IBC framework fairly, and the CoC must use its business skills to benefit both creditors and debtors. This synergy is what makes India’s bankruptcy system work.
References
• Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), Sections 21, 25, 30 (as available on official MCA/IBBI websites).
• Sahil Arora, “Analysis on Role and Responsibilities of Insolvency Professionals in the CIRP”, IBC Law Blog (2019) claw. blog.
• iPleaders, “Committee of Creditors – Roles, Responsibilities & Functions” (blog post) blog.ipleaders.inblog.ipleaders.in.
• Sudhaker Shukla & Kokila Jayaram, “Promoting common good amidst anti- common behaviour: Role of Committee of Creditors”, 10 IBBI Journal 191 (2018) ibbi.gov.in.
• Corporate Dhir & Dhir (Aug. 2024), “The Curious Case of Collective Wisdom of Committee of Creditors”, Lexologylexology.com.
• L. Viswanathan & C.A.M. Disputes Team, “Swiss Ribbons v. Union of India – Foundation for Modern Bankruptcy Law”, India Corporate Law Blog (Cyril Amarchand Mangaldas, Feb. 2019) corporate.cyrilamarchandblogs.com.
