Summary: The article examines the powers of the Committee of Creditors (CoC) under Section 33(2) of the Insolvency and Bankruptcy Code, 2016 (IBC), with particular reference to the National Company Law Appellate Tribunal’s (NCLAT) decision in Sunil Surrendrakumar Kakkad vs. Sujyot Infrastructure Pvt. Ltd. It explains that while the IBC aims to revive financially distressed corporate debtors through the Corporate Insolvency Resolution Process (CIRP), liquidation remains the final statutory option where revival is not considered feasible. The article discusses the central role of the CoC, comprising financial creditors, in taking commercial decisions during CIRP and highlights the judicial recognition of the CoC’s commercial wisdom. It notes that the NCLAT interpreted the expression “any time” in Section 33(2) to mean that the CoC may decide to liquidate the corporate debtor after its constitution and before approval of a resolution plan, even before preparation of the Information Memorandum or invitation of resolution plans. The article further reviews Supreme Court and NCLAT decisions emphasising that the commercial decisions of the CoC are generally not subject to judicial review except on the limited grounds specified under Section 61(4), such as material irregularity or fraud. It also compares insolvency frameworks in the United Kingdom and Singapore, where insolvency professionals exercise significant decision-making powers. Finally, the article suggests that although judicial precedents recognise the CoC’s wide powers under Section 33(2), there is scope for introducing appropriate guidelines or a code of conduct to govern the exercise of such powers while keeping the objective of corporate revival under the IBC in view.
Insolvency and Bankruptcy Code, 2016 (“IBC”) is brought in to bail out the stressed corporate debtors and creditors from losses arising out of default by the corporate debtor and its inability to meet the demands of its creditor. It strikes balance among all the concerned stakeholders so as to revive the corporate debtor through Corporate Insolvency Resolution Process (“CIRP”) that promotes entrepreneurship; moreover it tries to satiate the demand of creditors to a great extent by maximizing the value of assets of the corporate debtors. Creditors play a very important role in running the business of the corporate debtor. It is the creditors’ corpus which remains at stake and depends upon the sound business practices of the corporate debtor. Therefore, the IBC vests with them additional rights in the assets of the corporate debtor during the CIRP. Moreover, it gives them power to look into the entire procedure of CIRP and decide the best suitable plan for them to recover their monies. Furthermore, it gives the entire decision making power in the CIRP of the corporate debtor to the creditors. Thus, creditors play an important role in the success of CIRP of corporate debtor. Additionally, the aim of the IBC is to revive the corporate debtor and liquation is given the last resort. All such decisions of revival and liquidation of corporate debtor are approved by the Committee of Creditors (“CoC”). Such decision is immune to the judicial review, except in exceptional cases, and is based upon the principle of commercial wisdom of CoC. Section 21 of the IBC requires the interim resolution professional, after collating the claims, to constitute the committee of creditors. Such CoC comprises of financial creditors of the corporate debtor. Pursuant to that, CoC plays a vital role making the business of corporate debtor as going concern and take active participation in the CIRP of the corporate debtor. Such powers of the CoC are provided to protect their interest, while keeping the business of the corporate as going concern.
Recently, National Company Law Appellate Tribunal, New Delhi (“NCLAT”) in Sunil Surrendrakumar Kakkad vs. Sujyot Infrastructure Pvt. Ltd.[1], the tribunal upheld the decision of National Company Law Tribunal, Ahmedabad wherein it allowed the decision of CoC to liquidate the assets of the corporate debtor before inviting the resolution plan to revive the business of the corporate debtor. Moreover, the NCLAT held that decision of CoC to liquidate the corporate debtor is not open to judicial review. Moreover, decision of adjudicating authority given under section 33(2) of IBC can be challenged only on the grounds provided under section 61(4) of IBC. The tribunal interpreted the word ‘any time’ given under section 33(2) of IBC and held that any times means that CoC is empowered to liquidate the corporate debtor any time after the constitution of CoC and even before the preparation of Information Memorandum but before the confirmation of the resolution plan.
The CoC is well empowered to protect their interest under section 33(2) of the IBC. It is no doubt that the purpose of IBC is that to revive the Corporate Debtor and save it from corporate death. Therefore, the commercial wisdom of the CoC in deciding whether an entity can be revived or the debtor can be restructured or the Corporate Debtor needs to be liquidated being a business decision of the CoC needs to be accorded primacy. Moreover, commercial wisdom of the CoC cannot be questioned by the adjudicating authority given its limited jurisdiction while dealing with matters relating to resolution and liquidation of the corporate debtor and cannot enter upon adjudicating into the merits of a decision taken by the CoC with requisite majority in its commercial wisdom to liquidate a corporate debtor. Furthermore, once the decision of CoC is approved by the adjudicating authority, the same is not open to judicial review when no grounds have been made out as provided under Section 61(4) of the IBC of material irregularity or fraud committed in relation to such an order.
In kalpraj dharamshi successful vs. kotak investment advisors limited [2], the Hon’ble Supreme Court (“SC”) grappled with issue of difference of opinion between CoC and adjudicating authority with respect to the approval of resolution plan. The SC held that the wisdom of CoC cannot be interfered with in accordance with the grounds delineated in sections 30 and 61 of the IBC, while holding that CoC is the best judge of the feasibility of a resolution plan by virtue of its commercial wisdom. In M.K. Rajagopalan vs dr. Periasamy palani gounder[3], the SC held that CoC decision can be looked into if it contravene the provision of any law for the time being in force. The SC also held that the status of the CoC would not be a sufficient reason to ignore such shortcomings. In K. Shashidhar & Committee of Creditors of Essar Steel India Ltd.[4], the SC emphasized the commercial wisdom of the CoC and it non-justiciable. In January this year, in ACRE – 81 Trust v. Pawan Kumar Goyal [5], the NCLAT emphasized that the CoC had the jurisdiction to decide on liquidation at any time before the confirmation of the resolution plan and termed the decisions of adjudicating authority, wherein it required to comply with all the necessary steps related to resolution, as erroneous and deviating from the provision of section 33(2) of the IBC.
The decision of liquidation under section 33(2) can be challenged only in accordance with the grounds provided under section 61(4) of the IBC. It states that decision of liquidation can be challenged if there is material irregularity or fraud with respect to the order of liquidation. Additionally, adjudicating authority is empowered under section 65(2) of IBC to impose fine upon the person initiating the voluntarily liquidation with an intent to defraud any person. Thus, the power of CoC in its commercial wisdom is vast and is exercised by the majority of votes in the committee’s meeting. It is because the creditors well know the status of corporate debtor and competent to take decisions with their expertise. In Sunil S. Kakkad vs Atrium Infocomm Pvt Ltd & Anr [6], the NCLAT allowed the decision to liquidate the corporate debtor before requiring the publication of Form-G. The SC reaffirmed the decision of Sunil S. Kakkad v. Atrium Infocom (P) Ltd.[7] passed by the tribunal. It is manifest that IBC provides for the initiation of liquidation process even before the approval of resolution plan and can skip the procedures and tribunal cannot merely on that ground can impose fine upon the person under section 65(2) of IBC.
In United Kingdom, the formal insolvency process known as administration. The administrator is tasked with administration process and empowered to sell-off the assets of corporate debtor to pay-off its one or more creditors. They are required to act in the best interest of the creditors. However, the creditors are allowed to form the committee but their role remains limited to assisting the administrator only. Moreover, to keep check on power of administrator and to prevent the abuse of power by the administrator, the decision of administrator can be challenged by the creditors in the court. In Singapore, the insolvency process is known judicial management and judicial manager act as resolution professional and is empowered to exercise commercial wisdom like that of CoC.
By analyzing the judicial precedents and the code, the CoC is well empowered to take decision in its commercial decision to liquidate the corporate debtor under section 33(2) of the IBC. The NCLAT and SC have emphasized upon the commercial wisdom of the committee of creditors. Moreover, IBC also gives precedence to financial creditors over operational creditors. The intent of legislature is quite apparent in respect of liquidation of corporate debtor provided under section 33(2) and well construed in the recent of NCLAT in Surrendrakumar Kakkad vs. Sujyot Infrastructure Pvt. Ltd, wherein it interpreted it in manner provided in the legislation and allowing the CoC to liquidate the corporate debtor before the approval of resolution plan. This decision is subjected to section 61(4) of the IBC and adjudicating authority can impose fine under section 65 if such decision founds to be materially irregular and given with intent to defraud any person. However, decision of CoC needs to be taken with extra caution while keeping the intent of the IBC i.e. to revive the corporate debtor. However, there is limited judicial review of the decision of CoC, yet there needs to be a proper regulation or guidelines on the code of conduct of the CoC while taking decision respect of CIRP of corporate debtor. Such unfettered power without any guidelines or regulation with CoC does not sound good and align with the intent of the IBC i.e. keeping the business of the corporate as going concern while nurturing entrepreneurship in the country.
Notes:
[1] Company Appeal (AT) (Insolvency) No. 1423 of 2024
[2] Civil Appeal Nos.2943-2944 of 2020.
[3] Civil Appeal Nos. 1682-1683 of 2022.
[4] AIR ONLINE 2019 SC 1494.
[5] 2024 SCC OnLine NCLAT 90.
[6] Company Appeal (AT) (Insolvency) No. 194 of 2020.
[7] 2021 SCC OnLine SC 723.
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