How the Committee of Creditors Works in an Insolvency Proceeding

Byadvprashantnair

Articles — IBC & Insolvency

The Committee of Creditors (CoC) is the nerve centre of every Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code 2016. It is the body that approves or rejects resolution plans, decides whether to liquidate the corporate debtor, extends the resolution period, and exercises collective commercial wisdom on behalf of financial creditors. Courts have consistently held that the CoC’s commercial decisions are not subject to judicial re-examination on merits. Understanding how the Committee of Creditors IBC India composition voting rights and governance work is therefore essential for any financial creditor, resolution professional, or resolution applicant participating in the insolvency process.

Composition of the Committee of Creditors: Section 21

Section 21 of the Insolvency and Bankruptcy Code 2016 governs the composition of the CoC. The fundamental rule is:

The CoC comprises only financial creditors.

Operational creditors — suppliers, contractors, employees, government bodies — do not sit on the CoC. This reflects the Code’s design philosophy: financial creditors, by virtue of their risk-taking through financial debt disbursements, are better positioned to assess the commercial viability of resolution plans and take informed decisions about the corporate debtor’s future.

Special Classes of Financial Creditors

  • Financial creditors with related-party claims (Section 21(2)): A financial creditor who is a related party of the corporate debtor — as defined under Section 5(24A) — is excluded from the CoC and has no voting rights. “Related party” includes promoters, directors, holding companies, subsidiaries, and key managerial personnel.
  • Homebuyers (Section 21(6A)): Following the Insolvency and Bankruptcy Code (Amendment) Act 2018 and the Supreme Court’s validation in Pioneer Urban Land and Infrastructure Ltd vs Union of India (2019) SCC OnLine SC 1005, homebuyers who qualify as financial creditors are represented through an authorised representative elected by them. This representative votes in the CoC based on the collective decision of the majority of homebuyers they represent.
  • Debenture holders / security trustees (Section 21(6)): Where financial creditors have assigned or transferred their debt to a third party or are represented through a security trustee, they participate through an authorised representative.

Voting Shares

Voting shares in the CoC are proportional to the financial debt owed to each financial creditor (including interest as of the insolvency commencement date). Each creditor’s voting share is determined based on verified claims. Where a creditor’s claim is admitted only in part, the voting share is proportional to the admitted portion.

CoC Meetings and Decision-Making: Section 24

Section 24 governs the conduct of CoC meetings:

  • The Resolution Professional (or IRP) convenes meetings of the CoC
  • At least one meeting per week during the CIRP (though practice may vary)
  • Quorum requirements and attendance rules are prescribed under IBBI regulations
  • Members may participate via video conference or other electronic means
  • Meetings can be requisitioned by creditors holding a minimum voting share

Most CoC decisions require a 66% majority by voting share value (Section 28(3)).

However, specific decisions under Section 28 require a higher 75% majority by voting share. These include:

  • Raising interim finance beyond a threshold
  • Creating security interests on the corporate debtor’s assets
  • Undertaking related-party transactions
  • Amending the constitutional documents of the corporate debtor
  • Changing the registered office of the corporate debtor

Key Powers of the CoC

1. Approving the Resolution Plan (Section 30(4))

The CoC votes to approve a resolution plan by a minimum 66% majority. This is the CoC’s central function. The RP places all received plans before the CoC, which may negotiate terms with resolution applicants before voting.

2. Replacing the IRP/RP (Section 22)

At its first meeting, the CoC may replace the IRP with a resolution professional of its choice by a 66% vote. Similarly, during the CIRP, the CoC may replace the RP for cause.

3. Deciding to Liquidate Voluntarily (Section 33(2))

If the CoC concludes that the corporate debtor cannot be resolved commercially — even before the CIRP period expires — it may pass a 66% majority resolution recommending liquidation. The NCLT, upon receiving such a recommendation, passes a liquidation order under Section 33(2).

4. Extending the CIRP Period (Section 12)

If the CoC requires additional time, it may seek a one-time 90-day extension of the CIRP beyond the initial 180-day period, subject to a 75% majority resolution and NCLT approval. The absolute outer limit of 330 days under Section 12(3) cannot be extended further.

5. Approving CIRP Costs (Section 28)

The CoC approves the appointment of professionals and incurring of CIRP costs. CIRP costs are paid as the first priority in any distribution — whether through a resolution plan or liquidation.

The Commercial Wisdom Doctrine: Scope and Limits

The doctrine of commercial wisdom of the CoC is one of the most significant principles in Indian insolvency jurisprudence. Two Supreme Court decisions define its scope:

K. Sashidhar vs Indian Overseas Bank (2019) 12 SCC 150

Decided on 5 February 2019, this case established the foundational principle: the NCLT and NCLAT have no jurisdiction to analyse or evaluate the commercial decisions of the CoC — including the decision to approve or reject a resolution plan. The legislature consciously vested commercial decision-making in the CoC because financial creditors are best equipped to assess viability. Tribunals can only verify statutory compliance under Section 30(2).

Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta (2019) 2 SCC 1

Decided on 15 November 2019, this landmark judgment refined and extended the commercial wisdom doctrine:

  1. CoC has broad discretion in allocating amounts under a resolution plan — including differentiating between classes of creditors — as long as the statutory minimums under Section 30(2) are met.
  2. NCLT cannot substitute its commercial judgment for the CoC’s, and its role under Section 31 is to check compliance with legal requirements, not re-examine the plan’s wisdom.
  3. Operational creditors need not be paid the same percentage as financial creditors, provided they receive at least the liquidation value floor.
  4. The 330-day outer limit under the 2019 amendment is mandatory — including litigation periods — to prevent the CIRP from becoming an indefinite affair.

Limits on the Commercial Wisdom Doctrine

While the CoC’s commercial decisions are largely immune from judicial review on merits, the courts retain supervisory jurisdiction to ensure:

  • The CoC has not acted fraudulently or in bad faith
  • The resolution plan complies with Section 30(2) requirements
  • The process has followed mandatory procedural requirements
  • Fundamental fairness has been observed

The doctrine does not give the CoC unlimited power — it operates within the statutory framework, and NCLT oversight of legal compliance is preserved.

CoC in Practice: Practical Considerations

For financial creditors participating in a CoC, the following practical points matter:

  • Attend all meetings or appoint proxies: Failure to attend reduces the voting quorum and may impair your ability to influence decisions.
  • File verified claims promptly: Voting shares are based on admitted claims; late claims may not be admitted before the plan is voted upon.
  • Review the Information Memorandum carefully: The RP’s Information Memorandum is the foundation for evaluating resolution plans.
  • Understand liquidation value: The CoC must know the liquidation value (prepared by a registered valuer) before voting on a plan — it is the floor for operational creditor recovery and the benchmark for dissenting financial creditors.
  • Maintain confidentiality: CoC members are bound by confidentiality obligations regarding information accessed during CIRP.

Key Takeaways

  • The Committee of Creditors IBC India is composed exclusively of financial creditors, with voting shares proportional to verified financial debt; related-party creditors are excluded from voting under Section 21(2).
  • Most decisions require a 66% majority; specific decisions under Section 28 require 75%; resolution plan approval requires 66% under Section 30(4).
  • The commercial wisdom of the CoC — including the decision to approve or reject resolution plans — is non-justiciable before the NCLT and NCLAT, which can only verify compliance with Section 30(2) requirements.

This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.

META TITLE: Committee of Creditors IBC: Composition, Powers and Voting

META DESCRIPTION: How the Committee of Creditors works under the Insolvency and Bankruptcy Code 2016 — composition, Section 21 voting rights, CoC powers, and the.

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