Committee of Creditors (CoC) under IBC 2016, Concerns, Impact and Consequences

Context: There have been growing concerns related to the Committee of Creditors (CoC )’s unchecked discretion, lack of transparency, and procedural opacity in key decision-making.

What is the Committee of Creditors (CoC) under IBC 2016?

• The Committee of Creditors (CoC) is a central decision-making body under the Insolvency and Bankruptcy Code, 2016.
• It consists primarily of financial creditors and is empowered to:
  • Approve or reject resolution plans.
  • Decide on liquidation.
  • Appoint or replace the Resolution Professional.
• Its decisions require a 66% majority vote and are considered binding on all stakeholders.
• Courts have upheld the “commercial wisdom” of the CoC as non-justiciable in most cases, giving it wide autonomy.

Growing Concerns About the CoC

• Unchecked Discretion: Courts generally do not interfere with CoC’s decisions, assuming they are well-informed and rational.
  • However, decisions are often taken without transparency or recorded reasoning.
• Opaque Decision-Making: No legal requirement exists for the CoC to disclose how or why decisions are made.
  • Resolution plans are accepted/rejected without justification, leading to uncertainty.
• Regulatory Loophole: The 2020 removal of Regulation 39(3) eliminated the mandate to record reasons for resolution decisions, weakening transparency safeguards.
• Instances of Misconduct: Cases like Kalyani Transco v. Bhushan Power & Steel Ltd (2025) highlight abuse of power or procedural irregularities by the CoC.

Impact and Consequences

• Loss of Trust in IBC: Without visible reasoning, even fair decisions seem arbitrary, undermining confidence in the insolvency process.
• Suboptimal Economic Outcomes: Low recovery rates or premature liquidation might reflect poor judgment, but without records, stakeholders can’t assess the basis of decisions.
• Erosion of Fairness and Legitimacy: The absence of basic transparency mechanisms makes the process appear unjust to operational creditors and bidders.
• Unaccountable Power Use: Creditor supremacy is accepted, but without procedural checks, it risks being perceived as unfair dominance.

Best Practices from Other Jurisdictions

• United Kingdom – Structured Disclosures:
  • SIP 3.2 (Statement of Insolvency Practice 3.2): Requires clear disclosures in Company Voluntary Arrangements (CVAs) – financials, plan details, and creditor impact.
  • SIP 16 (Statement of Insolvency Practice 16): Governs pre-packaged sales in administrations. Disclosures include valuation, marketing efforts, and buyer details.
• Singapore: The Insolvency, Restructuring and Dissolution Act (IRDA) integrates judicial oversight with creditor autonomy, ensuring fairness and accountability.
• Global Administrative Norms: In most democracies, decisions impacting rights must be transparent and reasoned, setting a benchmark for IBC reforms.

Way Forward for the IBC Framework

• Reinstate Disclosure Requirements: Bring back a provision like Regulation 39(3) requiring CoC to briefly record reasons for key decisions (e.g., plan rejection, liquidation).
• Digital Record-Keeping: Mandate digitally signed, time-stamped minutes of CoC meetings, accessible to adjudicating authorities if required.
• Balance Autonomy with Accountability: Do not dilute creditor primacy, but ensure procedural discipline to enhance fairness.
• Preserve IBC’s Institutional Legitimacy: Transparency is essential for sustaining the Code’s efficiency, credibility, and investor confidence.

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