Chapter II Corporate Insolvency Resolution Process
Section 21. Committee of creditors. –
(1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:
Provided that a 1[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:
2[Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 3[or completion of such transactions as may be prescribed], prior to the insolvency commencement date.]
(3) 4[Subject to sub-sections (6) and (6A), where] the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them.
(4) Where any person is a financial creditor as well as an operational creditor, –
- (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor;
- (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor.
(5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer.
(6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility 5[***] provide for a single trustee or agent to act for all financial creditors, each financial creditor may-
- (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share;
- (b) represent himself in the committee of creditors to the extent of his voting share;
- (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or
- (d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally.
6[ (6A) Where a financial debt—
- (a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors;
- (b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors;
- (c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors,
and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.
(6B) The remuneration payable to the authorised representative-
- (i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and
- (ii) under clause (b) of sub-section (6A) shall be as specified which shall be form part of the insolvency resolution process costs.]
7[(7) The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A).
(8) Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors:
Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified.]
(9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process.
(10) The resolution professional shall make available any financial information so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition.
CASE LAWS
1. It is a settled law that COC enjoys primacy in the matter of approval/rejection of resolution plan and AA should not exceed its jurisdiction rejecting or approving such plan/proposal which is commercial wisdom of COC.
2. NCLT and NCLAT have no jurisdiction and authority to analyse or evaluate the Commercial decisions of the COC.
3. COC has no absolute power to change the IRP/RP as their fancies and whims without any valid or tenable reasons.
4. All the decisions of the COC shall be taken by a vote of not less than 51% of the voting share of COC unless otherwise provided in the Code.
5. Only the members of the COC who attend the meeting through VC or directly can exercise their voting powers after considering the feasibility and viability of the plan, members who are absent their voting shares cannot be counted.
6. Decision of COC taken by the requisite majority cannot be questioned by the non-applicant respondents and no one is permitted to strangulate the CIRP by not paying its share of the expense.
7. In many cases members of COC are nominated by FC like banks without conferring them the authority to take the decision on the spot which acts as a roadblock in the time-bound process of CIRP.
8. FC’s must send those representatives who are competent to take decisions on the spot.
(Reference: NCLT Order dated 07/04/2018 in the matter of Jindal Saxena Financial Services Pvt Ltd. Vs Mayfair Capital Pvt. Ltd. Company Application No. 523 of 2018)
9. In case of a deadlock in voting share in the appointment of RP u/s 22 of the code, preference can be given to the highest percentage of the voting decisions taken by the COC.
(Reference: NCLT order dated 29.09.2018 in the matter of Nikhil Mehta & Sons & Ors Vs. AMR Infrastructure Ltd. Company Application No. 811 of 2018 in (IB) 02(PB) /2017)
1. Subs. by Act No. 26 of 2018, sec. 15 (i) (a), for the words “related party to whom a corporate debtor owes a financial debt” (w.e.f. 6-6-2018).
2. Ins. by Act No. 26 of 2018, sec. 15 (i) (b) (w.e.f. 6-6-2018).
3. Ins. by Act No. 1 of 2020, sec. 7 (w.e.f. 28-12-2019).
4. Subs. by Act No. 26 of 2018, sec. 15 (ii), for the word “Where” (w.e.f. 6-6-2018).
5. The words “or issued as securities” omitted by Act. No 26 of 2018, sec. 15 (iii) (w.e.f. 6.6.2018).
6. Ins. by Act No. 26 of 2018, sec. 15(iv) (w.e.f. 6-6-2018).
7. Subs. by Act No. 26 of 2018, sec. 15 (v) (w.e.f. 6.6.2018), before substitution, the clauses (7) & (8) as under: –
- “(7) The Board may specify the manner of determining the voting share in respect of financial debts issued as securities under sub-section (6).
- (8) All decisions of the committee of creditors shall be taken by a vote of not less than seventy – five per cent. of voting share of the financial creditors:”