The Role Of The Committee Of Creditors Under The IBC: Commercial Wisdom And Judicial Review
Vanisha Majumdar, BBA LLB, SVKM’s Narsee Monjee Institute of Management Studies, School of Law
Introduction
The Insolvency and Bankruptcy Code, 2016 ("IBC" or "the Code") was introduced to consolidate India's disparate insolvency regime and offer a time-bound resolution to corporate insolvency. A critical feature of the Corporate Insolvency Resolution Process ("CIRP") is the Committee of Creditors ("CoC") - a collective of the financial creditors of the corporate debtor that steps in as the new commercial controller of the debtor.
Under Section 21 of the IBC, the task of constituting the CoC - a body comprising all financial creditors of the corporate debtor - falls upon the Interim Resolution Professional. Once installed, the CoC acquires plenary powers in facilitating insolvency resolution of the debtor, either by formulating a resolution plan to revive the company or by recommending that the company be liquidated. Section 28 of the Code explicitly bars the resolution professional from taking any of the actions mentioned therein, including raising interim finance, creating security interests, and related party transactions, except with the prior approval of the CoC. In its most prominent capacity, the CoC is vested with the power to approve a resolution plan by a resolution passed by at least 66% voting share of the creditors on the basis of its assessment of the viability of the plan.
The power and function of the CoC, which has been described as its "commercial wisdom", vests primarily with its ability to take decisions on the fate of the corporate debtor. The underlying logic is that the CoC consists of financial creditors who are deemed to have the commercial acumen to assess if the resolution plan for the company is viable, and the courts or tribunals do not have the financial expertise to adjudicate on the viability of the plan. This principle has been recognised by the apex court in K. Sashidhar v. Indian Overseas Bank and was further expanded in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, where the Court held that the jurisdiction of the Adjudicating Authority (NCLT) is restricted to Section 30(2) of the IBC, and of the Appellate Tribunal (NCLAT) is restricted to Section 32 read with Section 61(3) of the IBC, and therefore, they do not have the jurisdiction to entertain appeals against the commercial decisions of the CoC.
