BLOGS

 

1.

COMMERCIAL WISDOM OF THE COMMITTEE OF CREDITORS (CoC)

---

1. Introduction

The primary objective behind the enactment of the Insolvency and Bankruptcy Code, 2016 (IBC) was to ensure that a corporate debtor continues as a going concern, while providing a framework for efficient management to take over and settle creditors’ dues in a time-bound manner. In practice, however, challenges have emerged, particularly with respect to the functioning of the Committee of Creditors (CoC). This has led to significant litigation before the National Company Law Tribunal (NCLT), the National Company Law Appellate Tribunal (NCLAT), and the Supreme Court of India. Despite these challenges, Indian courts have consistently upheld the primacy of the commercial wisdom of the CoC, recognizing it as the cornerstone of the resolution process. This article examines the evolution of this principle through judicial pronouncements, recent statutory amendments, and explores the way forward up to 2025.

2. Statutory Framework under the IBC (As Amended till 2025)

• Voting Threshold: Section 30(4) of the IBC mandates that a resolution plan requires approval of not less than 66% of the voting share of financial creditors in the CoC.

• Approval by Adjudicating Authority: Section 31 provides that once a resolution plan is approved by the CoC, the NCLT shall approve it, subject to compliance with Section 30(2). Judicial review is confined to ensuring statutory compliance and cannot extend to questioning commercial decisions of the CoC.

• Operational Creditors: Following amendments, operational creditors must receive at least the amount they would be entitled to under liquidation or the amount receivable by financial creditors in the same class, whichever is higher.

• Recent Developments (2021–2025):

  • The Insolvency and Bankruptcy Code (Amendment) Act, 2021 emphasized time-bound resolution, treatment of government dues, and streamlined pre-packaged insolvency for MSMEs.

  • The IBBI has since introduced multiple regulations (2022–2024) to strengthen timelines, reduce delays in information sharing, and enhance transparency in CoC decision-making.

  • In 2023, the MCA proposed a Code of Conduct for CoC members, aimed at curbing arbitrary decisions and ensuring accountability, which remains under consideration in 2025.

  • Discussions are ongoing on expanding the pre-pack insolvency framework to larger corporates.

3. Judicial Endorsement of CoC’s Commercial Wisdom

(a) K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150
The Supreme Court held that neither the NCLT nor the NCLAT has any authority to trespass upon the commercial decision of the CoC. Judicial review is limited to ensuring compliance with Section 30(2).

(b) Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531
The Supreme Court reiterated that the commercial wisdom of the CoC is non-justiciable, except on limited grounds such as violation of the law. The Court also emphasized equitable treatment of creditors in line with Section 30(2)(b).

(c) Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (2020) 11 SCC 467
The Court clarified that feasibility and viability of a resolution plan fall squarely within the CoC’s commercial domain and cannot be re-examined by adjudicating authorities.

(d) Kalpraj Dharamshi v. Kotak Investment Advisors Ltd. (2021) 10 SCC 401
The Supreme Court stressed that courts must refrain from substituting their wisdom for that of the CoC in commercial matters, unless material irregularities undermine the process.

(e) Ghanashyam Mishra and Sons v. Edelweiss Asset Reconstruction Co. (2021) 9 SCC 657
The Court held that once a resolution plan is approved, all claims not forming part of the plan stand extinguished, including statutory dues of government authorities.

(f) Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022) 8 SCC 352
The Supreme Court distinguished between discretionary and mandatory admission of insolvency applications under Section 7, clarifying that the Adjudicating Authority may consider overall circumstances, not just existence of default.

(g) Recent Judicial Trends (2023–2025)

• The Supreme Court and NCLAT have reaffirmed that judicial intervention is confined to statutory compliance and not commercial wisdom.

• In multiple 2023–2024 rulings, courts emphasized that large haircuts and differential treatment of creditors may raise fairness concerns but remain within CoC’s prerogative, unless violative of law.

• In 2024, the Delhi High Court stressed that CoC’s discretion must align with the objectives of value maximization and fairness, anticipating possible codification of a CoC Code of Conduct.

4. Issues and Concerns

• Excessive Deference: Absolute deference to the CoC risks arbitrary decision-making.

• Operational Creditors’ Position: Despite amendments, operational creditors continue to be relatively disadvantaged compared to financial creditors.

• Haircuts and Value Erosion: Large haircuts in several cases up to 2024 have raised concerns about whether CoC decisions maximize value.

• Transparency: The opaque nature of deliberations within the CoC remains a concern, highlighting the need for regulatory oversight.

5. Need for Reform

• Code of Conduct for CoC: A binding framework under IBBI regulations (expected by 2025) is necessary to ensure accountability and transparency.

• Enhanced but Limited Judicial Review: Judicial intervention could be slightly widened to check for fairness and proportionality while respecting commercial wisdom.

• Operational Creditors’ Rights: Further strengthening of operational creditors’ rights is essential to balance interests.

• Expansion of Pre-Pack Framework: Extending pre-packaged insolvency beyond MSMEs remains under policy discussion to expedite corporate resolutions.

6. Conclusion

The principle of respecting the commercial wisdom of the CoC remains fundamental to the IBC framework. Judicial pronouncements up to 2025 consistently reinforce creditor primacy, ensuring that those most invested in recovery retain decision-making powers. However, new debates around excessive haircuts, the treatment of government dues, and a proposed CoC Code of Conduct reflect an evolving balance between autonomy and accountability. Structured reforms, alongside strict timelines and transparent decision-making, will consolidate India’s insolvency ecosystem and align it further with global best practices.

References

1. K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150.

2. CoC of Essar Steel v. Satish Kumar Gupta, (2020) 8 SCC 531.

3. Maharashtra Seamless v. Padmanabhan Venkatesh, (2020) 11 SCC 467.

4. Kalpraj Dharamshi v. Kotak Investment Advisors, (2021) 10 SCC 401.

5. Ghanashyam Mishra v. Edelweiss ARC, (2021) 9 SCC 657.

6. Vidarbha Industries Power Ltd. v. Axis Bank Ltd., (2022) 8 SCC 352.

7. Insolvency and Bankruptcy Code (Amendment) Act, 2021 and subsequent IBBI Notifications (2022–2024).

8. MCA Consultation Paper on Code of Conduct for CoC (2023–2024).

9. Delhi High Court observation on CoC discretion (2024).

2. Recalibrating Cross-Border Insolvency in India: A Critical Analysis of Global Norms, Domestic Readiness, and Legal Imperatives

Abstract

Insolvency regimes globally are undergoing a profound transformation due to increased economic interdependence, complex transnational corporate structures, and the rising volume of cross-border defaults. While the Insolvency and Bankruptcy Code, 2016 (IBC), represents a transformative leap for domestic insolvency resolution in India, its present inability to address cross-border insolvency in a comprehensive and legislatively cohesive manner is a material deficiency in India's legal and economic architecture. This article explores the doctrinal evolution of cross-border insolvency, critically evaluates the UNCITRAL Model Law as the global standard, examines the Indian framework (statutory and jurisprudential), and recommends a multi-dimensional reform path that combines legislative adoption with treaty-building, judicial capacity enhancement, and regulatory convergence. India's ambition to be a global investment and insolvency jurisdiction hinges on the maturity of its legal responses to cross-border distress, which is no longer the exception but the norm.

1. Introduction: The Globalization-Insolvency Conundrum

The convergence of capital markets, liberalization of investment regimes, and global expansion of corporate footprints have rendered the boundaries of domestic insolvency law increasingly porous. Insolvency of entities like Lehman Brothers, Nortel Networks, and Jet Airways revealed that the existing national insolvency regimes—designed for domestic disputes—are ill-equipped to manage the intricate web of multinational asset locations, creditor claims, and overlapping jurisdictions.

Cross-border insolvency represents the legal, institutional, and operational challenge of resolving insolvencies where the debtor, its assets, creditors, or proceedings span multiple legal regimes. The Indian context—marked by exponential growth in outbound investments and increasing foreign portfolio and direct investments—makes cross-border insolvency a matter of both legal urgency and strategic significance.

2. Definitional Contours and Conceptual Foundations

Cross-border insolvency may be defined as the condition arising when:

• An insolvent debtor has assets in more than one country;
• Creditors are located across jurisdictions;
• Multiple proceedings are initiated in different countries; or
• There is a need for foreign judicial cooperation for resolution.

While the subject engages traditional principles of private international law, comity of nations, and sovereignty, it also invokes questions of creditor protection, value maximization, and legal predictability.

3. Legal Doctrines: Between Territorial Absolutism and Global Cooperation

3.1 Territorialism: Legal Isolationism

Territorialism postulates that each state exercises exclusive jurisdiction over insolvency proceedings within its territory, applying its laws to local assets and creditors. While it protects domestic priorities, it often results in:

• Duplication of proceedings,
• Forum shopping,
• Inconsistent creditor treatment, and
• Sub-optimal value realization.

3.2 Universalism: Legal Cosmopolitanism

This approach envisions a single, centralized proceeding in the debtor’s "home" jurisdiction (determined by COMI—Centre of Main Interests), with global recognition. However, it is practically constrained by:

• Differing national priorities,
• Lack of uniform enforcement mechanisms,
• Public policy divergences.

3.3 Modified Universalism: Pragmatic Harmonization

Modified universalism underpins the UNCITRAL Model Law on Cross-Border Insolvency, 1997, balancing centralization of proceedings with local safeguards. It seeks inter-jurisdictional cooperation without abdicating national legal discretion.

4. The UNCITRAL Model Law: Blueprint for Global Best Practices

4.1 Adoption and Scope

The Model Law is designed to be adopted into domestic law and:

• Recognizes foreign insolvency proceedings (main and non-main),
• Permits access to foreign representatives,
• Provides for automatic or discretionary relief,
• Mandates cooperation and coordination among courts and insolvency administrators.

As of 2025, over 55 jurisdictions including the US, UK, Singapore, Japan, Canada, and Australia have adopted the Model Law.

4.2 Key Provisions

• Articles 15–17: Procedure for recognition of foreign proceedings.
• Article 20: Automatic stay on recognition of a foreign main proceeding.
• Articles 25–27: Judicial cooperation and coordination mandates.
• Article 6: Public policy exception to preserve national sovereignty.

The Model Law provides a skeletal framework, enabling national customization, which has been crucial to its global acceptability.

5. India's Cross-Border Insolvency Regime: Present and Deficient

5.1 Sections 234 and 235 of the IBC

• Section 234: Permits bilateral agreements with foreign states for reciprocal enforcement of insolvency proceedings.
• Section 235: Allows the NCLT to issue letters of request to foreign courts for evidence or action.

However, these provisions are:

• Unnotified as of 2025,
• Dependent on bilateral treaties, none of which exist currently,
• Procedurally ambiguous, lacking implementation protocols.

Thus, India currently operates in a state of judicial and legislative vacuum in respect to cross-border insolvency.

6. The Jet Airways Case: Judicial Innovation in a Legislative Void

In 2019, Jet Airways (India) Ltd., undergoing CIRP in India, was simultaneously declared bankrupt in the Netherlands. The Dutch court appointed a bankruptcy trustee and initiated proceedings, leading to:

• Competing claims over the airline’s assets in Europe,
• A request by the Dutch trustee for recognition in India.

6.1 NCLT vs NCLAT Approach

• NCLT: Denied recognition due to lack of enabling legislation.
• NCLAT: Allowed a cross-border protocol under which Indian and Dutch resolution professionals coordinated under judicial supervision.

6.2 Legal Implications

• Showed the judiciary’s adaptive capacity,
• Highlighted the limitations of ad hoc arrangements,
• Reinforced the need for a formal legislative framework.

7. The Draft Cross-Border Framework: India’s Unfinished Legal Business

Following recommendations from the Insolvency Law Committee (2018), the MCA released a draft Part Z to the IBC in 2019, largely adopting the UNCITRAL Model Law with tailored modifications.

7.1 Key Features

• Recognition of foreign main and non-main proceedings based on COMI.
• Automatic moratorium for recognized main proceedings.
• Direct access for foreign representatives.
• Public policy clause for safeguarding sovereignty and legal integrity.
• Power to exclude financial service providers via notification.

7.2 Comparative Strengths

• Unilateral recognition even in the absence of treaties,
• Court-to-court cooperation provisions,
• Discretionary relief consistent with Indian jurisprudence.

7.3 Present Status

The framework remains pending parliamentary enactment, leaving India out of step with similarly placed jurisdictions like Singapore, South Africa, and the UAE.

8. Comparative Jurisdictions: Lessons in Legal Convergence

India’s non-adoption places it at a competitive disadvantage in cross-border claim enforcement and coordination.

9. Implementation Challenges: From Law to Practice

9.1 Institutional Capacity

• NCLTs and NCLAT need capacity building to handle international legal principles.
• SOPs for cooperation with foreign courts and professionals are absent.

9.2 Regulatory Coordination

• Need for harmonization between IBC and FEMA, SEBI, RBI, and ED rules.
• Cross-border flows, especially in financial distress, are heavily regulated.

9.3 Creditor Concerns

• Domestic creditors may perceive cross-border protocols as favoring foreign entities.
• Mechanisms for class voting, creditor ranking, and asset tracing must be clarified.

9.4 Enforcement Gaps

• India’s enforcement of foreign judgments relies on Section 13 CPC, which may be insufficient for insolvency-specific orders.

10. Strategic Justifications for Reform

10.1 Investment Climate

A credible cross-border regime enhances confidence for:

• Foreign bondholders and lenders,
• Multinational suppliers and service providers.

10.2 Value Preservation

Coordinated proceedings reduce duplicative litigation, asset dissipation, and inconsistent rulings.

10.3 Legal Sovereignty

By adopting the Model Law with appropriate exceptions, India retains sovereignty while engaging with global norms.

10.4 Institutional Credibility

Demonstrates India’s maturity in legal infrastructure, crucial for WTO, FTA, and G20 engagements.

11. Recommendations: Toward a Coherent Cross-Border Insolvency Ecosystem

1. Legislative Enactment: Introduce and pass the Draft Part Z in Parliament with stakeholder consultation.
2. Protocol Development: Create model court-to-court cooperation protocols and inter-jurisdictional SOPs.
3. Capacity Building: Launch certification programs for judges, insolvency professionals, and regulators.
4. Treaty Framework: Use Section 234 to develop treaties with strategic jurisdictions—UK, Singapore, UAE.
5. Data Infrastructure: Link insolvency data with global platforms like INSOL and UNCITRAL Judicial Networks.
6. Public Policy Clarification: Define ‘public policy’ in the context of cross-border recognition to avoid discretionary misuse.

12. Conclusion: India at the Crossroads of Global Insolvency Reform

India’s insolvency ecosystem has matured impressively in the last decade, but its inability to handle cross-border insolvency in a codified, rule-based manner poses a threat to that progress. The legal and commercial realities of transnational insolvencies demand that India adopt an advanced cross-border insolvency framework in line with global standards. The UNCITRAL Model Law, adapted to Indian needs, offers a pragmatic and tested model. Enacting this reform is not only a legal necessity—it is a strategic imperative.

As India seeks to become a hub for international finance, arbitration, and restructuring, its legal infrastructure must reflect its ambitions. Cross-border insolvency is no longer a peripheral issue—it is a central feature of global commerce. The time for legislative and institutional action is now.

References

1. UNCITRAL Model Law on Cross-Border Insolvency, 1997
2. Insolvency and Bankruptcy Code, 2016 (India)
3. Report of the Insolvency Law Committee, Ministry of Corporate Affairs (2018)
4. Draft Part Z, Cross-Border Insolvency Framework (2019), MCA
5. Jet Airways (India) Ltd. v. State Bank of India, NCLAT, 2019
6. World Bank, Principles for Effective Insolvency and Creditor/Debtor Regimes (2016)
7. IMF Working Paper (2020): “Cross-Border Resolution Regimes: Comparative Analysis”
8. UNCITRAL Legislative Guide on Insolvency Law, 2021
9. INSOL International: Judicial Guidelines for Cross-Border Insolvency Cooperation
10. Singh, A. (2022). “Territorialism vs. Universalism in Cross-Border Insolvency.” NLIU Law Review, 8(1)