Overview of Committee of Creditors and Insolvency Professionals Under India’s
IBC
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 a
company 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. Case
law 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 allparties 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. In
PVT 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 (Sec
60(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. AnIP 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 “majoritydecision.” 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 whoare 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 can
go to the Adjudicating Authority (NCLT) for help under Sections 60(5) or 33(1). The
IP 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 crore (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 gives 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)ibclaw.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.
