Written By: Apoorv Agarwal, Abhiraj Das
INTRODUCTION
Once the Corporate Insolvency Resolution Process (CIRP) is initiated against a corporate debtor, the decision-making authority shifts decisively to the Committee of Creditors (CoC). Under the Insolvency and Bankruptcy Code (IBC), the CoC exercises significant control over the resolution process, from approving resolution plans to shaping key restructuring decisions. Given this
central role, the CoC’s impartiality and ability to balance the interests of the debtor with those of all stakeholders are critical to the IBC’s effectiveness.
Yet, concerns have persisted about whether CoC decisions always align with the Code’s primary objectives—revival of distressed entities and maximisation of stakeholder value. In of Kunwer Sachdev v. IDBI Bank & Ors,[1] the petitioner alleged mismanagement and abuse of CoC powers, leading to erosion of asset value and escalating CIRP costs. The Hon’ble Delhi High Court, recognising the CoC’s fiduciary responsibility, stressed that its decisions must be guided by principles of reasonableness, fairness, proportionality, and natural justice. It also directed the Insolvency and Bankruptcy Board of India (IBBI) to frame guidelines to improve CoC functioning. Responding to this direction, the IBBI recently issued its CoC guidelines, aimed at enhancing accountability and transparency in CIRP.
Unlike the Code of Conduct applicable to Insolvency Professionals, these guidelines have not been framed under any Regulation or Rule. However, Regulation 17(1A) of the CIRP Regulations, 2021 provides that CoC members are bound by the Code and must act in compliance with guidelines issued by the Board.
ANALYSIS OF THE 2024 GUIDELINES ISSUED BY THE IBBI FOLLOWING THE
ORDER OF THE HIGH COURT
The guidelines emphasise objectivity and integrity in CoC decision-making, urging members to act in the “letter and spirit” of the IBC. However, they stop short of prescribing any enforceable mechanism to ensure compliance. While encouraging self-regulation is laudable, in practice it risks leaving powerful institutional creditors free to prioritise their own recoveries over collective interests—reducing the IBC to a recovery tool, rather than a framework for
revival. The disclosure of actual or potential conflicts of interest has been mandated, but
no framework is provided for managing conflicts once identified. Equally concerning is the absence of requirements for formal training, certification, or continuing professional development for CoC representatives, who are tasked with taking complex commercial decisions with far-reaching consequences.
The guidelines encourage timely decision-making to avoid value erosion, yet contain no penalties for delay caused by non-cooperation or deliberate stalling. Procedural delays continue to plague CIRP, often arising from competing creditor interests or disputes over claims. Similarly, while the guidelines underscore confidentiality, they provide no enforcement measures—an omission that is troubling given the potential misuse of insider information in competitive insolvency proceedings.
Further, although CoC members are required to participate actively by monitoring Insolvency Professionals and making informed decisions on claims and resolution plans, there is no explicit safeguard ensuring adherence to principles of natural justice. Decisions on continuing or replacing Resolution Professionals also remain outside the scope of the guidelines, despite repeated recommendations of the Standing Committee on Finance[2] that such decisions should be subject to greater transparency.
2024 GUIDELINES VIS-À-VIS THE DRAFT GUIDELINES OF 2021
It is notable that the IBBI had released a Discussion Paper in 2021[3] seeking comments on a draft Code of Conduct for the CoC, but the draft was never finalised. The 2024 guidelines strongly resemble the 2021 draft but omit several important provisions.
The 2021 draft expressly prohibited the CoC from adopting illegal or improper means to achieve its objectives. It forbade CoC members from acquiring, directly or indirectly, assets of the debtor without disclosure, and required members to avoid bias, coercion, undue influence, or conflict of interest in their decisionmaking. It also provided that CoC members must not influence the committee’s work to secure undue advantage for themselves or related parties. Strikingly, these critical safeguards are absent from the 2024 guidelines, raising concerns about whether they adequately address the very issues that prompted their introduction.
CONCLUSION
Within India’s insolvency regime, the CoC is the protagonist of the CIRP. The Hon’ble Supreme Court, in Jaypee Kingston Boulevard Apartments Welfare Association & Ors. v. NBCC (India) Ltd.[4],. affirmed that “even during the resolution process, major decisions as regards management and finances of the corporate debtor are in the control of the Committee of Creditors.” Multiple committees and expert bodies have consistently recommended the adoption of a binding Code of Conduct for the CoC to ensure transparency, accountability, and fairness.
While the newly issued guidelines are a step in the right direction, they fall well short of creating a credible framework. Without enforceable mechanisms, clear conflict-management provisions, training requirements, and penalties for misconduct or delay, the guidelines will not provide the procedural certainty and fairness that CIRP demands. Unless strengthened, they risk leaving the CoC with unrestrained discretion, undermining the IBC’s objectives of revival and value maximisation.
2024 DHC 1042, W.P.(C) 10599/2021 2
Associate, ASV Legal LLP
[1]2024 DHC 1042, W.P.(C) 10599/2021
[2]32nd Report, Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions, Standing Committee of Finance, 2020-21.
[3]Discussion Paper, IBBI, 27th August 2021. https://ibbi.gov.in/Discussionpaper-CIRP-27Aug2021.pdf
[4] (2022) 1 SCC 401.
