Introduction
The complexities surrounding the approval of resolution plans by a single member Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC) present significant procedural and substantive challenges within India’s insolvency resolution framework. The National Company Law Tribunal (NCLT) Kolkata Bench has addressed these intricate legal questions, establishing important precedents that clarify the operational requirements for conducting valid Committee of Creditors meetings and the subsequent approval of resolution plans.
This comprehensive analysis examines the legal framework governing Committee of Creditors meetings under the IBC, with particular focus on the procedural requirements established under Section 24 of the Code [1]. The discussion encompasses the constitutional challenges, regulatory interpretations, and judicial precedents that define the boundaries of CoC functionality in corporate insolvency resolution processes.
Legal Framework Governing Committee of Creditors Meetings Under IBC
Section 24 of the Insolvency and Bankruptcy Code, 2016
The procedural foundation for Committee of Creditors meetings is established under Section 24 of the IBC, which provides detailed requirements for convening and conducting such meetings [1]. The section stipulates specific conditions that must be satisfied for a valid meeting to take place, including notice requirements, participation protocols, and voting procedures.
Section 24(1) states that “The members of the committee of creditors may meet in person or by such electronic means as may be specified” [1]. This provision establishes the fundamental requirement for multiple members to constitute a meeting, as the term “members” inherently implies plurality. The legislative intent behind this provision suggests that a meeting requires the participation of more than one individual, making it procedurally impossible to conduct a valid meeting with a single member.
The requirements under Section 24(2) mandate that “All meetings of the committee of creditors shall be conducted by the resolution professional” [1]. This provision places the responsibility for facilitating and managing the meeting process on the resolution professional, who must ensure compliance with all procedural requirements. The resolution professional’s role becomes particularly significant when determining whether a valid meeting can be constituted with insufficient members.
Notice Requirements and Stakeholder Participation
Section 24(3) establishes comprehensive notice requirements for CoC meetings, mandating that the resolution professional provide notice to various categories of stakeholders [1]. These include members of the committee of creditors, suspended board members or partners, and operational creditors whose aggregate dues exceed ten percent of the total debt. The notice provisions reflect the legislature’s intention to ensure broad stakeholder participation in the resolution process, even for those without voting rights.
The National Company Law Appellate Tribunal (NCLAT) has emphasized the mandatory nature of these notice requirements. In the case of Bhushan Shringapure v. B.K. Mishra, the NCLAT held that Section 24(3) is mandatory, requiring resolution professionals to serve notice to operational creditors when their aggregate dues exceed ten percent of the total debt [2]. This ruling underscores the importance of procedural compliance in maintaining the integrity of the resolution process.
Voting Procedures and Quorum Requirements
The voting mechanisms established under Section 24 create additional complexity when dealing with scenarios involving the single member Committee of Creditors under IBC. Section 24(6) provides that “Each creditor shall vote in accordance with the voting share assigned to him based on the financial debts owed to such creditor” [1]. The determination of voting shares under Section 24(7) requires the resolution professional to assign appropriate weightings based on the financial obligations owed to each creditor.
The regulatory framework under the CIRP Regulations, 2016, provides additional guidance on meeting procedures and quorum requirements. Regulation 21(3)(b) read with Regulation 25(5) establishes that no voting can take place at a meeting if even a single member of the CoC is absent[3]. This provision creates a paradoxical situation for the single member committee of creditors under IBC: the absence of the sole member would prevent any voting from occurring, while their presence would technically constitute full attendance but raise questions about the validity of a “meeting” with only one participant.
Constitutional Framework of Committee of Creditors
Composition Under Section 21 of the IBC
The fundamental structure of the Committee of Creditors is established under Section 21 of the IBC, which mandates that the committee “shall comprise all financial creditors of the corporate debtor” [4]. This provision establishes the basic principle that financial creditors form the core membership of the committee, with specific exceptions and variations provided for particular circumstances.
Section 21(2) contains important provisos that exclude related parties from participation in committee meetings. The provision states that “a related party to whom a corporate debtor owes a financial debt shall not have any right of representation, participation or voting in a meeting of the committee of creditors” [4]. These exclusions can potentially reduce the effective membership of the committee, sometimes resulting in scenarios where only one eligible financial creditor remains.
The regulatory framework addresses situations where no financial creditors exist or where all financial creditors are related parties. In such circumstances, Regulation 16 of the CIRP Regulations provides for the constitution of an alternative committee comprising the eighteen largest operational creditors, along with representatives of workmen and employees [4]. This provision ensures that a functional committee can be established even in the absence of eligible financial creditors.
Special Provisions for Single Member Committee of Creditors Under IBC
The legal framework recognizes that certain corporate debtors may have limited creditor bases, potentially resulting in single-creditor scenarios. Section 21(6) addresses situations involving consortium arrangements or syndicated facilities where a single trustee or agent acts for multiple financial creditors [4]. In such cases, each financial creditor may authorize the trustee to act on their behalf, effectively consolidating multiple creditor interests into a single representative.
However, the NCLAT has clarified that there is no provision in the IBC for constituting a Committee of Creditors with a single operational creditor [5]. This ruling establishes an important limitation on committee formation, indicating that certain minimum thresholds must be met for a valid committee to function effectively.
Procedural Challenges in Single Member Committee Scenarios
Meeting Validity and Legal Interpretation
The core legal challenge in single member committee of creditors under IBC scenarios relates to the fundamental nature of a “meeting” under the IBC framework. The term “meeting” traditionally implies a gathering of multiple individuals for discussion and decision-making purposes. When applied to a single-member committee, this concept becomes legally and practically problematic.
The procedural requirements under Section 24 assume the presence of multiple participants. The provision for notice to various stakeholders, the establishment of voting procedures, and the requirement for resolution professional oversight all suggest a multi-party environment. The application of these provisions to a single member committee of creditors under IBC creates interpretative challenges that require careful judicial consideration.
Courts have generally recognized that the legislative framework contemplates meaningful participation by multiple stakeholders in the resolution process. The NCLT Kolkata Bench’s analysis of meeting requirements reflects this understanding, emphasizing that the procedural safeguards embedded in Section 24 are designed to facilitate genuine deliberation and decision-making among multiple parties.
Information Memorandum and Transparency Requirements
The role of information memoranda in the resolution process becomes particularly significant in single-member committee scenarios. The resolution professional’s obligation to provide comprehensive information to potential resolution applicants and committee members serves important transparency and due diligence functions. However, when dealing with a single committee member, questions arise about the scope and application of these information-sharing requirements.
The NCLT Kolkata Bench has clarified that resolution professionals are not obligated to provide information memoranda to applicants who are neither CoC members nor prospective resolution applicants [6]. This ruling establishes important boundaries around information access, ensuring that confidential corporate information is protected while maintaining transparency for legitimate stakeholders.
Resolution Plan Approval Mechanisms
Section 30 Requirements for Resolution Plan Submission
The submission and approval of resolution plans under Section 30 of the IBC involves a complex process that requires careful coordination between resolution applicants, the resolution professional, and the Committee of Creditors [7]. Section 30(1) establishes the basic framework for plan submission, requiring resolution applicants to provide comprehensive documentation and confirmations of eligibility under Section 29A.
Section 30(2) sets forth detailed requirements that resolution plans must satisfy, including provisions for payment of insolvency resolution process costs, treatment of operational creditors, and compliance with applicable laws and regulations [7]. These requirements serve as mandatory criteria that must be met before a resolution plan can be considered for approval by the Committee of Creditors.
The voting threshold for resolution plan approval has evolved through legislative amendments. Initially set at seventy-five percent, the requirement was reduced to sixty-six percent of the voting share of financial creditors through the 2018 amendments [7]. This change was intended to facilitate faster decision-making while maintaining meaningful creditor control over the resolution process.
Section 31 Approval by Adjudicating Authority
Following approval by the Committee of Creditors, resolution plans must receive final approval from the Adjudicating Authority under Section 31 of the IBC [8]. This provision establishes a two-stage approval process that provides additional safeguards and oversight over the resolution process.
Section 31(1) requires the Adjudicating Authority to satisfy itself that the approved resolution plan meets all requirements specified under Section 30(2) [8]. The Authority must also ensure that the plan contains provisions for effective implementation before granting final approval. Once approved, the resolution plan becomes binding on all stakeholders, including the corporate debtor, employees, creditors, and guarantors.
The Adjudicating Authority’s review power under Section 31(2) allows for rejection of resolution plans that do not conform to statutory requirements [8]. However, courts have clarified that this power cannot be used to substitute the commercial judgment of the Committee of Creditors with that of the judicial authority. The review is limited to ensuring compliance with legal requirements rather than assessing the commercial viability of proposed plans.
Stakeholder Rights and Participation
Operational Creditor Participation Rights
While operational creditors do not possess voting rights in Committee of Creditors meetings, the IBC framework provides specific participation rights that recognize their legitimate interests in the resolution process. Section 24(3)(c) mandates notice to operational creditors when their aggregate dues exceed ten percent of the total debt [1]. This provision ensures that significant operational creditors maintain visibility into the resolution process even without decision-making authority.
Section 24(4) permits operational creditors to attend CoC meetings as observers, though without voting rights [1]. This participation mechanism allows operational creditors to stay informed about resolution developments and to contribute information that may be relevant to the committee’s deliberations. The absence of operational creditors from meetings does not invalidate the proceedings, recognizing the primacy of financial creditors in the decision-making process.
The Supreme Court of India has emphasized the importance of fair and equitable treatment for operational creditors within the resolution framework. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta, the Court established that resolution plans must provide for adequate treatment of operational creditors, ensuring that their interests are not unfairly prejudiced by the resolution process [9].
Employee and Workmen Representation
The IBC framework recognizes the unique position of employees and workmen as stakeholders in the corporate insolvency resolution process. In cases where no financial creditors exist, or where alternative committee structures are required, employee representatives may be included in the Committee of Creditors with full voting rights [4].
Regulation 16 of the CIRP Regulations provides for the inclusion of one representative elected by workmen and one representative elected by employees in alternative committee structures [4]. These representatives possess voting rights proportionate to the debts owed to their respective constituencies, ensuring meaningful participation in the resolution process.
The protection of employee interests extends beyond committee participation to encompass specific provisions within resolution plans. Section 30(2) requires resolution plans to address employee-related obligations, ensuring that workforce interests are adequately considered in the resolution framework.
Confidentiality and Information Access
Pre-Approval Confidentiality Requirements
The confidentiality of resolution plans during the evaluation and approval process serves important commercial and strategic purposes. Resolution applicants invest significant resources in developing comprehensive plans, and premature disclosure could undermine competitive dynamics and reduce the quality of submitted proposals.
The NCLT Kolkata Bench has clarified that resolution plans maintain confidential status until approval by the Adjudicating Authority [6]. This ruling recognizes the legitimate commercial interests of resolution applicants while ensuring that approved plans become transparent and accessible to all stakeholders following final approval.
The balance between confidentiality and transparency reflects broader policy considerations within the IBC framework. The legislature has sought to encourage robust participation by resolution applicants while maintaining appropriate oversight and stakeholder protection mechanisms.
Post-Approval Transparency
Following approval by the Adjudicating Authority under Section 31, resolution plans lose their confidential status and become part of the public record [6]. This transparency serves important accountability functions, allowing stakeholders to understand the terms and conditions that will govern the corporate debtor’s future operations.
The transition from confidentiality to transparency marks a critical juncture in the resolution process. Approved plans become binding on all stakeholders, and their public availability ensures that implementation can be monitored and enforced by relevant parties.
Workers’ Union Standing and Debt Assignment
Limitation of Workers’ Union Authority
The legal standing of workers’ unions to challenge certain aspects of the insolvency resolution process has been subject to judicial clarification. The NCLT Kolkata Bench has determined that workers’ unions lack locus standi to question the assignment of debt by banking institutions [6]. This ruling establishes important boundaries around the types of challenges that different stakeholder categories may pursue.
The limitation on workers’ union standing reflects the structured approach to stakeholder participation under the IBC. While workers and employees possess specific rights and protections within the framework, these rights are channeled through designated mechanisms rather than through general litigation authority.
This judicial interpretation serves to maintain the efficiency and predictability of the resolution process by limiting the scope of potential challenges that could delay or complicate proceedings. The ruling recognizes that debt assignment transactions between financial institutions are primarily commercial matters that fall outside the direct interest sphere of employee representatives.
Debt Assignment and Committee Composition
The assignment or transfer of debt during the insolvency resolution process can significantly impact Committee of Creditors composition and voting dynamics. Section 21(5) addresses situations where operational creditors assign debt to financial creditors, providing that such assignees are considered operational creditors to the extent of the assignment [4].
Regulation 28 of the CIRP Regulations requires both parties to debt assignment transactions to provide detailed information to the resolution professional, including the terms of assignment and the identity of assignees [4]. The resolution professional must notify all participants and the Adjudicating Authority of any resultant changes in committee composition within two days of such changes.
These provisions ensure transparency in debt assignment transactions while maintaining the integrity of the committee structure. The regulatory framework prevents manipulation of voting dynamics through strategic debt transfers while accommodating legitimate commercial transactions.
Judicial Precedents and Interpretative Guidelines
Supreme Court Guidance on Commercial Wisdom
The Supreme Court of India has consistently emphasized the primacy of commercial wisdom exercised by Committees of Creditors in making resolution-related decisions. In K. Sashidhar v. Indian Overseas Bank, the Court held that no provision empowers the resolution professional, NCLT, or NCLAT to reverse the commercial decisions of the CoC [9].
This principle establishes important boundaries around judicial intervention in the resolution process. Courts are empowered to ensure compliance with procedural and substantive legal requirements but cannot substitute their judgment for that of creditors regarding the commercial viability or attractiveness of particular resolution proposals.
The commercial wisdom doctrine recognizes that creditors possess the strongest incentives to maximize recovery and make sound business decisions regarding distressed corporate debtors. This approach aligns with international best practices in insolvency law, which typically vest primary decision-making authority in creditor bodies.
NCLAT Interpretations on Committee Functionality
The National Company Law Appellate Tribunal has provided significant guidance on various aspects of Committee of Creditors functionality and decision-making processes. In Saravana Global Holdings Ltd. v. Bafna Pharmaceuticals Ltd., the NCLAT clarified that companies qualifying as Micro, Small and Medium Enterprises (MSMEs) are not required to follow all procedural requirements under the CIRP [9].
This ruling recognizes the unique circumstances and resource constraints that may affect smaller corporate debtors, providing flexibility in procedural compliance while maintaining core substantive protections. The NCLAT’s approach reflects a practical understanding of the diverse range of corporate debtors that may be subject to insolvency proceedings.
The tribunal has also addressed questions regarding the role of the Committee of Creditors following liquidation orders. In Punjab National Bank v. Kiran Shah, the NCLAT held that the Committee of Creditors has no role to play after liquidation and cannot move applications for removal of liquidators [9].
Regulatory Compliance and Implementation
IBBI Regulatory Framework
The Insolvency and Bankruptcy Board of India (IBBI) has issued comprehensive regulations that provide detailed operational guidance for conducting Committee of Creditors meetings and managing the resolution process. These regulations address practical aspects of meeting conduct, voting procedures, and stakeholder communication that are essential for effective implementation of the statutory framework.
The CIRP Regulations, 2016, establish specific requirements for meeting notices, agenda circulation, and minute preparation that ensure transparency and accountability in committee proceedings. Regulation 21 provides detailed guidance on notice periods, with standard requirements of five days that can be reduced to twenty-four hours in urgent circumstances [3].
The regulatory framework also addresses electronic voting mechanisms and alternative participation methods that accommodate the practical needs of geographically dispersed creditors. These provisions have become particularly important in the context of technological advances and the need for efficient resolution processes.
Enforcement and Compliance Monitoring
The enforcement of Committee of Creditors decisions and resolution plan implementation involves multiple layers of oversight and monitoring. The resolution professional bears primary responsibility for ensuring compliance with committee decisions and regulatory requirements during the resolution process.
Following approval of resolution plans, monitoring committees may be established to oversee implementation and ensure adherence to plan terms. These committees serve important accountability functions, providing mechanisms for addressing implementation challenges and ensuring that approved plans achieve their intended objectives.
The Adjudicating Authority retains jurisdiction to address implementation failures and enforcement issues that may arise following plan approval. This oversight function ensures that the resolution process achieves its fundamental objectives of corporate revival and creditor protection.
Conclusion
The procedural requirements established under Section 24 of the IBC, combined with the constitutional provisions of Section 21, create a framework that generally presupposes multi-member committees capable of genuine deliberation and decision-making. However, the functioning of a Single Member Committee of Creditors under IBC, while not explicitly prohibited, raises significant questions about the validity and effectiveness of the resolution process.
The procedural requirements established under Section 24 of the IBC, combined with the constitutional provisions of Section 21, create a framework that generally presupposes multi-member committees capable of genuine deliberation and decision-making. In this context, the role and legality of a single member committee of creditors under IBC, while not explicitly prohibited, raise significant questions about the validity and effectiveness of the resolution process.
The judicial interpretations and regulatory guidance examined in this analysis demonstrate the evolving nature of insolvency law jurisprudence in India. Courts and tribunals have consistently emphasized the importance of procedural compliance while recognizing the need for practical flexibility in addressing diverse corporate distress scenarios.
The protection of stakeholder interests, maintenance of procedural integrity, and facilitation of effective corporate rescue remain the central objectives of the IBC framework. Future developments in this area of law will likely continue to balance these objectives while addressing the practical challenges that arise in complex insolvency scenarios.
The comprehensive legal framework established under the IBC, supported by detailed regulations and evolving judicial precedents, provides a robust foundation for addressing corporate distress in India. The continued refinement of this framework through legislative amendments, regulatory updates, and judicial interpretation ensures its effectiveness in promoting economic recovery and stakeholder protection.
References
[1] Insolvency and Bankruptcy Code, 2016, Section 24. Available at: https://ca2013.com/section-24-meeting-committee-creditors/
[2] National Company Law Appellate Tribunal. Bhushan Shringapure v. B.K. Mishra, April 20, 2023. Available at: https://www.argus-p.com/updates/updates/it-is-mandatory-on-the-part-of-resolution-professional-to-issue-notice-of-coc-meetings-to-all-operational-creditors-in-terms-of-section-243c-of-the-ibc/
[3] Tax Guru. “Meeting of Committee of Creditors under IBC,” April 1, 2021. Available at: https://taxguru.in/corporate-law/meeting-committee-creditors-ibc.html
[4] Insolvency and Bankruptcy Code, 2016, Section 21. Available at: https://ibclaw.in/section-21-committee-of-creditors/
[5] SCC Blog. “Corporate Debtor cannot constitute Committee of Creditors with a single Operational Creditor under IBC: NCLAT,” July 10, 2023. Available at: https://www.scconline.com/blog/post/2023/07/08/corporate-debtor-cannot-constitute-committee-of-creditors-with-a-single-operational-creditor-under-ibc-nclat/
[6] Ibid
[7] Insolvency and Bankruptcy Code, 2016, Section 30. Available at: https://ibclaw.in/section-30-submission-of-resolution-plan/
[8] Insolvency and Bankruptcy Code, 2016, Section 31. Available at: https://ibclaw.in/section-31-approval-of-resolution-plan/
[9] IBC Laws. “Constitution of Committee of Creditors (CoC) under Section 21.” Available at: https://ibclaw.in/constitution-of-committee-of-creditors-under-section-21-of-ibc/?print=print
