Convening and Conduct of Meetings of Committee of Creditors

The enactment of the Insolvency and Bankruptcy Code (IBC) has significantly improved corporate governance and the rule of law in India. The case of Arun Kumar Jagatramka v. Jindal Steel and Power Ltd. serves as a key illustration of this impact, particularly in the following ways:

1.Shift in Control from Promoter to Creditors:

has the ultimate authority to decide on the resolution plan, even if it means the promoters lose control. The court upheld the CoC's decision to reject the promoter's settlement offer, reinforcing the creditors' primacy.

2.Time-Bound Resolution Process:

of the IBC process, as the underlying CIRP was conducted within the IBC's timelines.

3.Role of the Committee of Creditors (CoC):

in the decision-making process. The Supreme Court's judgment clarified that the NCLT and NCLAT should generally refer to the commercial wisdom of the CoC, and the scope of judicial review is limited to ensuring that the CoC's decisionmaking process is fair and in accordance with the law.

In summary, the IBC has brought about a paradigm shift by empowering creditors, promoting transparency, and ensuring a time-bound resolution process. The Arun Kumar Jagatramka case exemplifies how the IBC has strengthened the rights of creditors and promoted a more disciplined and accountable corporate environment.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2026, Q. 6(a) (Syllabus 2022).

Section 25A of the Insolvency and Bankruptcy Code, 2016 provides that Authorized Representative (AR) shall have

•under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24, the right to participate and vote in meetings of the Committee of Creditors on behalf of the financial creditors he represents in accordance with the prior voting instructions of such financial creditors obtained through physical or electronic means;

•the duty to circulate the agenda and minutes of the Committee of Creditors meeting to the financial creditors he represents;

•the duty to not act against the interests of the financial creditors he represents and always act in accordance with their prior instructions;

(a)If the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share:

(b)if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor. (Sub-section 3)

•under sub-section (6A) of section 21, cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote. This duty is applicable notwithstanding anything to the contrary contained in sub-section (3)

It is provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of subsection

(3).

•the duty to file with the Committee of Creditors any voting instructions received by way of physical or electronic means from the financial creditors he represents;

•the duty to ensure that the appropriate voting instructions of the financial creditors he represents are correctly recorded by the Interim Resolution Professional or Resolution Professional.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6(b) (Syllabus 2022).

Section 30 (2) of the Insolvency and Bankruptcy Code, 2016 casts an obligation on the Resolution Professional to examine each resolution plan received by him to confirm that each resolution plan

(c)provides for the management of the affairs of the Corporate debtor after approval of the

resolution plan;

(d)provides for the implementation and supervision of the resolution plan;

(e)does not contravene any of the provisions of the law for the time being in force

(f)conforms to such other requirements as may be specified by the Board. Further section 30(3) provides for that he shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in sub-section (2).

Regulation 38 of CIRP Regulations provides for mandatory contents of the resolution plan which includes:

(a)the term of the plan and its implementation schedule;

(b)the management and control of the business of the corporate debtor during its term; and

(c)adequate means for supervising its implementation.

Since the resolution plan did not provide for the above, it was correctly rejected by NCLT.

The best course of action in this case will be to remove the objections and obtain the approval of Committee of Creditors (COC) again and after that resubmit to NCLT for approval.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(iv) (Syllabus 2022).

The matter is similar to the case of Vijay Kumar Jain Vs. Standard Chartered Bank & Others [(2019) decided by the Hon’ble Supreme Court.

The Judgement of the Supreme Court is as under :-

The Hon’ble Supreme Court held that the scheme of the Code makes it clear that the directors, though not members of the COC, have a right to participate in every meeting of the COC. In addition, for effective participation as vitally interested parties in discussion on resolution plans, they have the right to receive copies of the resolution plans presented to the COC. The Hon’ble Supreme Court also clarified that under Regulation 21(3)(iii) of the CIRP Regulations, the notice of the COC meeting, which is required to be given to the directors as well, must contain copies of all the documents relevant for matters to be discussed, including the resolution plans.

The Hon’ble Supreme Court considered the directors to be vitally interested on two counts:

1.Such directors are often guarantors and bound by the approved plan, which may scale down their own debts.

2.The directors, being well versed in the affairs of the company, may be able to assist the COC on determining whether the resolution plan addresses the cause of default by the company (a mandatory requirement for resolution plans).

The Hon’ble Supreme Court also clarified that any concerns over breach of confidentiality may be alleviated by the resolution professional obtaining a confidentiality undertaking from the directors, which may also contain an indemnity to the resolution professional against any breach.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(a) (Syllabus 2022).

Appointment of Resolution Professional

One of the main functions of the committee of creditors (constituted by the Interim Resolution Professional under section 21 of the Code) is the appointment of the Resolution Professional.

Appointment of Interim Resolution Professional — Section 22 provides that at the first meeting of the committee of creditors which is held within seven days of its constitution, the committee of creditors by a majority vote of not less than sixty-six per cent of the voting share of the financial creditors, may either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.

[Section 22(1) and Section 22(2)]

Communication of decision — According to clause (a) of sub-section 3 of section 22, where the committee of creditors resolves to continue the interim resolution professional as resolution professional, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority. The appointment of interim resolution professional as resolution professional will be subject to a written consent from the interim resolution professional in the specified form.

Application before Adjudicating Authority — In case, if the committee of creditors resolves to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified form. [Section 22(3)(b)]

Confirmation by Insolvency and Bankruptcy Board — The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. [Section 22(4)]

If the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.

[Section 22(5)]

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(a) (Syllabus 2017).

Vijay Kumar Jain v. Standard Chartered Bank and Others

The Hon’ble Supreme Court held that the scheme of the Code makes it clear that the directors, though not members of the COC, have a right to participate in every meeting of the COC. In addition, for effective participation as vitally interested parties in discussion on resolution plans, they have the right to receive copies of the resolution plans presented to the COC. The Hon’ble Supreme Court also clarified that under Regulation 21(3) (iii) of the CIRP Regulations, the notice of the COC meeting, which is required to be given to the directors as well, must contain copies of all the documents relevant for matters to be discussed, including the resolution plans.

The Hon’ble Supreme Court considered the directors to be vitally interested on two counts:

1.Such directors are often guarantors and bound by the approved plan, which may scale down their own debts.

2.The directors, being well versed in the affairs of the company, may be able to assist the COC on determining whether the resolution plan addresses the cause of default by the company (a mandatory requirement for resolution plans).

The Hon’ble Supreme Court also clarified that any concerns over breach of confidentiality may be alleviated by the resolution professional obtaining a confidentiality undertaking from the directors, which may also contain an indemnity to the resolution professional against any breach. Thus, based on the decision by the Hon’ble Supreme Court, the director may be given copies of the resolution plan and other related documents, provided he is ready to sign the confidentiality agreement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(b) (Syllabus 2017).

As per new section 12A of the Insolvency & Bankruptcy Code, the Adjudicating Authority may allow the withdrawal of application, on making an application by the applicant with the approval of 90% voting share of the Committee of Creditors

Pursuant to regulation 30 of the IBBI (Resolution Process of Corporate Persons), 2016, such an application for withdrawal after constitution of CoC can be made by the applicant through interim resolution professional or resolution professional as the case may be.

Sub-regulation (2) provides that the application shall be made in Form FA of the Schedule-I accompanied by a bank guarantee- (a) towards estimated expenses incurred on or by the interim resolution professional for purposes of regulation 33, till the date of filing of the application under clause (a) of sub regulation (1); or (b) towards estimated expenses incurred for purposes of clauses

(aa), (ab), (c) and (d) of regulation 31, till the date of filing of the application under clause (b) of

sub-regulation (1).

Such an application shall be considered by CoC within seven days of its receipt.

Where such an application is approved by the committee with ninety percent voting share, the resolution professional shall submit such application along with the approval of the committee, to the Adjudicating Authority on behalf of the applicant, within three days of such approval. The Adjudicating Authority may, by order, approve the application submitted pursuant to which the applicant shall deposit an amount, towards the actual expenses incurred for the purposes referred to in clause (a) or clause (b) of sub-regulation (2) till the date of approval by the Adjudicating Authority, as determined bythe interim resolution professional or resolution professional, as the case may be, within three days of such approval, in the bank account of the corporate debtor, failing which the bank guarantee received under sub-regulation (2) shall be invoked, without prejudice to any other action permissible against the applicant under the Code .

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(ii) (Syllabus 2017).

The moot question to be decided in proposed appeal to be filed against the Impugned Order passed by the National Company Law Tribunal, as to whether the Adjudicating Authority can discard the recommendation of the Committee of Creditors (CoC) and rather give its own directives overriding the commercial wisdom of the Committee of Creditors.

The Supreme Court passed its order in the case of K. Sashidhar v. Indian Overseas Bank & Ors. (Civil Appeal No. 10673 of 2018) wherein the SC, inter alia, has held that

•The National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal (“NCLAT”) have no jurisdiction and authority to analyse or evaluate the commercial decisions taken by the committee of creditors (“Committee of Creditors”).

•Non recording of reasons for approving or rejecting the resolution plan by the concerned financial creditors during the voting in the meeting of Committee of Creditors, would not render the final collective decision of Committee of Creditors nullity per se.

•Concededly, if the objection to the resolution plan is on account of infraction of ground(s) specified in section 30(2) and 61(3), that must be specifically and expressly raised at the relevant time. For the approval of resolution plan by the Committee of Creditors can be challenged on those grounds.

However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non-justiciable is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT). If so, non-recording of any reason for taking such commercial decision will be of no avail.

The Hon’ble National Company Law Appellate Tribunal has held that the Committee of Creditors has the discretion to approve any resolution plan and its decision to approve the same cannot be interfered with by the Adjudicating Authority or the Appellate Authority, except for in terms of Section 31(1) to examine compliance of Section 30(2) read with relevant regulations. ( Ref:Kannan Tiruvengandram Vs. M.K. Shah Exports Ltd. & Ors. in and Darshak Enterprise Pvt. Ltd. and Ors. v. Chhaparia Industries Pvt. Ltd. and Ors. E.)

Decision of Appellate Tribunal’s earlier order in case of Amit Bharana and Ors vs. Gian Chand Narang Adjudicating Authority must consider/ rely on commercial wisdom of CoC.

The Resolution for Liquidation of the corporate Debtor decision of has been passed by the committee of Creditors was with a majority of by more than the required threshold of 66%. Thus, the decision of liquidation of the corporate Debtor is a valid and in order. The legislature has not endowed the Adjudicating Authority with the jurisdiction or authority to evaluate the commercial decision of the CoC.

In the matter of vallal RCK Vs. M/s Siva industries and Holdings limited and Ors . the Hon’ble Supreme court in its judgement dated 3rd June, 2022, observed that when 90% and more of the creditors, in their wisdom after due deliberations, find that it will be in the interest of all the stake-holders to permit settlement and withdraw CIRP, the adjudicating authority or the appellate authority cannot sit in an appeal over the commercial wisdom of CoC. The interference would be warranted only when the adjudicating authority or the appellate authority find the decision of the CoC to be wholly capricious, arbitrary, and irrational and de hors the provisions of the statue or the Rules.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(d) (Syllabus 2022).

Hon’ble Apex Court in the case of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta & ors, while upholding the constitutional validity of the Code made, inter alia, important ruling with regard to the role of the Committee of Creditor in the CIR process. It had emphasized the primacy of the commercial wisdom of the committee of Creditors in the resolution process as to whether to rehabilitate the corporate debtor or not by accepting a particular resolution plan. It also states that prior to approving the resolution plan, the Committee is required to assess the “feasibility and viability” of the resolution plan, which takes into account” all the aspects of the resolution plan, including the manner of distribution of funds among various class of creditors.” In this regard, the Committee is free to negotiate with the resolution applicant by suggesting modifications in the commercial proposal on a case-to-case basis.

Further, in the case of Kalparaj Dharamshi and another vs Kotak Investment Advisors Ltd and another, the Supreme Court observed that the evaluation of proposals to keep the entity as a going concern, including decisions about the sale of business or units, restructuring of debt, etc., are required to be taken by the Committee of the Financial Creditors. The Apex Court further observed that it has been provided, that the choice of the solution to keep the entity as a going concern will be voted upon by the Committee and there are no constraints on the proposals that the resolution professional can present to the Committee. It was held that the NCLT or the NCLAT cannot interfere with the commercial wisdom of the Committee of Creditors, except within the limited scope under Sections 30 and 31 of the Code. It was further held that the commercial wisdom of the Committee has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the Code. The Court further held that there is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan.

They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. It was further held that the opinion expressed by the Committee after due deliberations in the meetings through voting, as per voting shares, is a collective business decision.

In view of the above, NCLT cannot reject a Resolution Plan on the basis of viability thus questioning the commercial wisdom of the Committee of Creditors as long as the Resolution Plan is within the scope of section30 and 31 of the Insolvency & Bankruptcy Code.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 4(a) (Syllabus 2017).

Section 24 of the Insolvency and Bankruptcy Code, 2016 (IBC) lays down the procedure for conducting the meetings of the Committee of Creditors (COC).

The resolution professional shall give notice of each meeting of the committee of creditors to:

a)members of committee of creditors, including the authorised representatives referred to in sub sections (6) and (6A) of section 21 and sub-section (5),

b)members of the suspended Board of Directors or the partners of the corporate persons, as the case may be,

c)operational creditors or their representatives if the amount of their aggregate dues is not less than ten percent of the debt [Section 24(3)].

The directors, partners and one representative of operational creditors, as referred to in sub-section

(3), may attend the meetings of committee of creditors, but shall not have any right to vote in such

meetings. The absence of any such director, partner or representative of operational creditors, as the case may be, shall not invalidate proceedings of such meeting.

Section 21of the Code states that the committee of creditors shall comprise all financial creditors of the corporate debtor. It is provided that a financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(a) (Syllabus 2017).

In the matter of Small Industries Development Bank of India vs. Tirupati Jute Industries Limited [CP (IB) 508/KB/18 and connected matters], the Adjudicating Authority(AA) noted that the resolution plan, which has been submitted for its approval, was subject to extinguishment of all claims (except criminal proceedings) against the Corporate Debtor, exemption of all taxes/dues by the Government/ local authorities, and closure of all proceedings pending against the Corporate Debtor relating to such dues.

The Adjudicating Authority rejected the plan and ordered for liquidation. It observed that such a plan should not have been approved by the CoC, as it was not consistent with the provisions of section 30(2)(e) of the Insolvency & Bankruptcy Code. The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan does not contravene any of the provisions of the law for the time being in force.

AA also observed that the Resolution Professional did not give correct advice when he submitted the plan for approval of CoC and therefore, it would not be proper to appoint him as the Liquidator.

Thus, resolution plan approved by COC and submitted to AA is not fair/just hence its tenability / justifiability is questionable and liable to be rejected.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(c) (Syllabus 2022).

Section 24(3) of the Insolvency & Bankruptcy Code provides that the resolution professional shall give notice of each meeting of the committee of creditors to-

(a)members of committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6A) of section 21 and sub-section (5);

(b)members of the suspended Board of Directors or the partners of the corporate persons, as the case may be;

(c)operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt.

In Consolidated Engineering Company & Another vs. Golden Jubilee Hotels Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 501 of 2018] , the NCLAT held that the AA has rightly held that 10 percent of total debt for the purpose of representation in the committee of creditors is to be calculated on the basis of the claim as collated and noticed by the RP. It cannot be based on the amount claimed by all the operational creditors until it is verified and compared. If the claim of operational creditors on verification is found to be less than 10 percent, the operational creditors have no right to claim representation in the meeting of the committee of creditors.

However, taking into consideration facts and circumstances of the case, NCLAT allowed the representative of operational creditor only to watch proceedings of the CoC as agreed by the learned counsel for the RP.

So, claims of operational creditors are to be verified by resolution professional and if it is less than 10%, they [operational creditors] will not be given representation in meeting.

Operational Creditors are not legally entitled to attend and vote at CoC if there are two or more than two unrelated Financial Creditors in the Corporate Debtor. They can only watch proceedings if the amount of their aggregated dues is not less than 10% of the debt of the Corporate Debtor.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6(d) (Syllabus 2022).

The Insolvency and Bankruptcy Code, 2016 has provided the Committee of Creditors (CoC) with exclusive access to negotiations along with the ultimate authority to deal and finalise the business and commercial decisions. Thereby the Committee of creditors is also ended with the mammoth responsibility of evaluating resolution plans and thereafter voting and approving the best resolution plan. Commercial Wisdom of the CoC has been held to be sacrosanct by various judicial precedents.

In the case of 'Kalparaj Dharamshi and another vs. Kotak Investment Advisors Ltd. And mother, the Apex Court observed that the evaluation of proposals to keep the entity as a going concern, including decisions about the sale of business or units, restructuring of debt etc., are required to be taken by the Committee of the Financial Creditors. The Apex Court further observed that it has been provided, that the choice of the resolution to keep the entity as a going concern will be voted upon by the Committee and there are no constraints on the proposals that the resolution professional can present to the Committee. It was held that the NCLT or the NCLAT cannot interfere with the commercial wisdom of the Committee of Creditors, except within the limited scope under section 30 and 31 of the Code.

It was further held that the commercial wisdom of the Committee has been given paramount status without any judicial intervention for ensuring completion of the stated processes within the timelines prescribed by the Code. The court further held that there is an intrinsic assumption that the financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan.

In another notable judgement, the Hon’ble Supreme court in the matter of K. Sashidhar vs. Indian Overseas Bank curtailed the jurisdiction of the NCLT by observing that the NCLT has no jurisdiction and authority to analyse or evaluate the commercial decision of the Committee of Creditors and to enquire into the justness of the rejection of the resolution plan by the dissenting financial creditors. The Hon’ble Supreme Court in M.K. Rajagopalan vs. Dr. Periasamy Palani Gounder had disregarded the technicality of noncompliance of non-publication of Form G and instead assigned primacy to the commercial wisdom of the CoC. Hence, based on the above, NCLT or NCLAT do not have a right to interfere with the decision of CoC.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(c) (Syllabus 2017).

(a)Section 5(7) of Insolvency and Bankruptcy Code, 2016 (IBC) defines a financial creditor inter-alia as any person to whom financial debt is owed. According to Explanation to Section 5(8)(f), any amount raised from an allottees/depositors under a real estate project shall be deemed to be an amount having the commercial effect of borrowing. Section 7 of IBC provides that a financial creditor either by himself or jointly with other financial creditors may file an application for initiating Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor before the Adjudicating Authority, when a default has occurred. Hence, the allottees/depositors can invoke the provisions of Insolvency and Bankruptcy Code, 2016 for initiating CIRP against ABC Construction Ltd.

(b)In the given case, an application for initiation of CIRP against ABC Construction Ltd shall be filed jointly by not less than one hundred of such allottees/depositors under the same real estate project or not allottees/depositors less than ten per cent of the total number of such allottees/depositors under the same real estate project, whichever is less. Hence 100 or more allottees/depositors can jointly file an application for CIRP against ABC Construction Ltd.

(c)According to Section 21 (6A) of the Insolvency and Bankruptcy Code, 2016, where a financial debt is owed to a class of creditors, the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all the financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorized representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors.

Hence for this purpose the interim resolution professional would first get the name of the authorized representative selected from the allottees/depositors. The authorized representative shall attend the meetings of Committee of Creditors and vote on behalf of each allottees to the extent of his voting share. Hence, only the authorized representative as appointed through this process can attend the Committee of Creditors meeting to represent the interest of the allottees/depositors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 6A(ii) (Old syllabus).

Corporate Restructuring is an inorganic business strategy where one or more aspects of a business are redesigned to improve commercial efficiency, manage competition effectively, drive faster pace of growth, ensure effective utilization of resources, and fulfilment of stakeholders' expectations.

Debt restructuring involves a reduction of debt and an extension of payment tenure or change in terms and conditions. Debt restructuring is more commonly used as a financial tool than compared to equity restructuring. As such in Corporate Insolvency Resolution Process the Committee of Creditors primarily consists of financial creditors.

Section 30(4) of Insolvency and Bankruptcy Code, 2016 envisages approval of the Resolution Plan by the Committee of Creditors before final approval by the Adjudicating Authority i.e., National Company Law Tribunal in terms of Section 33 of the Code.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(d) (Syllabus 2017).

At first instance the Resolution Plan is approved by the Committee of Creditors with a Voting share of not less than sixty six percent as per Section 30 (4) of the Insolvency & Bankruptcy Code, 2016 (IBC). After approval, the Resolution Applicant shall make an Application to the Adjudicating Authority in terms of Section 30 (6) of IBC.

According to Section 31 of the IBC, If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under section 30(4) meets the requirements as referred to in section 30(2), it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.

However, the Adjudicating Authority shall, before passing an order for approval of resolution plan, satisfy that the resolution plan has provisions for its effective implementation.

Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements, it may, by an order, reject the resolution plan.

***

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 6A(iii) (Syllabus 2017).

(i)As per first proviso to Section 21 (2) of the Insolvency and Bankruptcy Code, 2016 (IBC) no related party to the Corporate Debtor, even it is a financial creditor, has any right of participation, representation or voting at the meeting of Committee of Creditors.

(ii)However second proviso to Section 21 (2) clarifies that the restriction does not apply in case a financial creditor is governed by a financial sector regulator is not considered as a related party solely on account of conversion or substitution of debt into equity or instruments convertible in to equity shares or completion of such transactions as may be prior to the Insolvency commencement date. Clarification is inserted pursuant to amendment to IBC in 2018.

(iii)Financial Sector Regulator is defined as per Section 3 (18) of IBC that refers to Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDA), Pension Fund Regulatory Authority (PFRA) and such other bodies as may be notified.

(iv)In the given case, the shares were allotted to Laxmi Bank Ltd was on account of conversion of debt into equity and being a Bank regulated by RBI, Laxmi Bank Ltd is not considered as a related party.

(v)Thus the objection raised by ICID bank is not tenable.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(b) (Syllabus 2017).

Regulation 16 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations deals with the situation where the Corporate Debtor (CD) has either no financial debt or all financial creditors are related parties of CD.

The committee formed shall consist of members as under –

(a)eighteen largest operational creditors by value:

Provided that if the number of operational creditors is less than eighteen, the committee shall include all such operational creditors;

(b)one representative elected by all workmen other than those

(c)one representative elected by all employees

A member of the committee formed under this Regulation shall have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt.

A committee formed and its members shall have the same rights, powers, duties and obligations as a committee comprising financial creditors and its members, as the case may be.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(ii) (Syllabus 2017).

Prior to the amendment made in 2018 in the Insolvency and Bankruptcy Code, 2016, there was no provision for withdrawal of Corporate Insolvency Resolution Process (CIRP) once the Adjudicating Authority admits the application. Section 12A of the Code has been inserted as per Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 enabling the Adjudicating Authority to permit withdrawal if consented by ninety per cent voting share of Committee of Creditors. Procedure is to be followed in terms of Regulation 30A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Thereafter, the Corporate Debtor makes an application in Form FA to Resolution Professional and a Bank Guarantee for consideration by Committee of Creditors within 7 days and subsequently to Tribunal for approval.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(d) (Old syllabus).

Operational Creditors : An operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. They are suppliers of goods or services to any company or operational debtor.

Financial Creditors : Financial creditor is any person to whom a financial debt is owned and includes a person to whom such debt has been legally assigned or transferred to.

According to the provisions of the Insolvency and Bankruptcy Code, 2016, Y Ltd. will be classified as financial as well as operational creditor in relation to X Ltd., a corporate debtor.

Thus, according to section 21(4) of the Code, Y Ltd. shall be included in the committee of creditors and shall have a voting share proportionate to the extent of financial debts owed to such creditor. In the instant case, to the extent of Rs.100 lakh, Y Ltd. being a financial creditor.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(d) (Syllabus 2017).

Section 33(2) of the Insolvency and Bankruptcy Code, 2016 provides that where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order.

In the instant question the approval of the resolution to liquidate PQR Ltd. by the creditors having sixty-five percent of the voting share is not sufficient. The decision of the committee of creditors should be approved by not less than sixty-six percent of the voting share. Hence, the liquidation of PQR Ltd. cannot be ordered.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6(b) (Syllabus 2017).