The government has given significant additional powers to the committee of creditors (CoC), the primary decision-making body once bankruptcy proceedings are initiated. The Insolvency and Bankruptcy Board of India (IBBI) via a recent notification has made it mandatory for the CoC to constitute a “monitoring committee” (MC) to oversee the implementation of a resolution plan, according to official sources.
The regulator is also likely to soon prescribe an “oversight committee” (OC) which would keep an eye on the CoC to ensure that its members follow the guidelines notified by the IBBI. The proposed OCs would likely be empowered to hold CoC members accountable for lapses, mismanagement, or any decision that may harm the resolution process, the sources said.
The move to make formation of MC mandatory is primarily aimed at ensuring that resolution applicants adhere to the terms of the plan approved by the National Company Law Tribunal (NCLT), and pay the computed dues to the creditors on time.
The changes won’t require any immediate amendment to the Insolvency and Bankruptcy Code (IBC), which has proven to be time-consuming.
The sources said the MCs would supervise the execution of the resolution plans, ensure statutory compliance by stakeholders, and facilitate smooth transfer of assets and control to the successful resolution applicant.
Although the earlier corporate insolvency resolution process (CIRP) regulations permitted for the CoC to constitute an MC to supervise the implementation of any resolution plan, if needed, it was not mandatory for execution of resolution plans.
The monitoring committee will now be expected to submit quarterly progress reports to the Adjudicating Authority (AA) and the IBBI regarding the implementation status of a resolution plan. It will seek appropriate directions from the AA (NCLT) in cases where implementation is not in accordance with the terms and conditions of the resolution plan.
“By overseeing implementation, tracking compliance, and addressing deviations proactively, the monitoring committee can enhance transparency, accountability, and execution, safeguarding creditor interests under the IBC framework,” said Kalpit Khandelwal, partner, Aekom Legal.
In August 2024, the IBBI had issued guidelines to be followed by the CoC, aiming to facilitate timely resolution and maximise the value of the corporate debtor’s assets.
The constitution of the OC, however, doesn’t require any formal notification. The ministry of corporate affairs (MCA) and the department of financial services (DFS) are likely to deliberate on its constitution and functions in the coming weeks.
Both the committees are essentially aimed at ensuring better governance, timely resolution, preventing value erosion of assets, improving recoveries, and enhancing transparency in the conclusion of the resolution process, the sources said.
On the OC, the Supreme Court, in November, had suggested that the government should explore the possibilities of better “enforcement of the standards and practices enumerated in the (CoC) guidelines through an independent mechanism under the auspices of an oversight committee instead of making them self-regulatory”. “This will enable the guidelines to achieve some level of practical and operational relevance and also prevent any significant lapse in decision making on the part of the CoC,” it had said.
Abhirup Dasgupta, partner, HSA Advocates, noted that there is no specific law regulating the effective and fair discharge of creditors’ duties and obligations in a CIRP. “This is where the oversight committee may have a role to play, by keeping a check on the creditors,” he added.
Prateek Kumar, partner, Khaitan & Co, said the SC’s recommendation is aimed at monitoring errant decisions of the CoC by the oversight committee. “On receipt of a complaint against a decision by the CoC, there could be an independent investigation undertaken and suggestions be made to the CoC to implement,” he added.
Piyush Agrawal, partner, AQUILAW, said that an oversight committee would introduce checks and balances, and make CoC decision-making more accountable, transparent. “However, it is to be seen how the oversight committee and commercial wisdom of the CoC can be balanced,” Agrawal added.