Committee Of Creditors Continues To Exist Till Resolution Plan Is Implemented Or Liquidation Order Is Passed : Supreme Court

In the JSW Steel matter, the Supreme Court held that the Committee of Creditors (CoC) under the Insolvency and Bankruptcy Code, 2016 (IBC) does not become functus officio merely upon the approval of a resolution plan by the Adjudicating Authority. The Court held that the CoC continues to have a role until the resolution plan is fully implemented or an order of liquidation is passed.

A Bench comprising Chief Justice of India BR Gavai, Justice K Vinod Chandran and Justice NV Anjarai observed that accepting the contention that the CoC ceases to exist after finalisation of the resolution plan would lead to an “anomalous situation” where creditors would be left “high and dry” if the resolution plan fails to take off for any reason.

“It may lead to a situation wherein though the Resolution Plan is approved by the Adjudicating Authority, however it is not implemented for 'a' reason or 'b' reason thereby leaving the creditors high and dry. If the contention is accepted, the creditors would not be in a position to take any steps that are found necessary for realizing its dues from the Corporate Debtor,” the Court observed.

Relying on the Explanation to Clause 2 of Regulation 18 of the IBBI (CIRP) Regulations, the Bench noted that the provision expressly empowers the CoC to hold meetings till either the resolution plan is approved under Section 31(1) of the IBC or an order for liquidation is passed under Section 33. The CoC, it clarified, is entitled to decide all matters except those that do not affect the resolution plan submitted before the Adjudicating Authority.

Highlighting the CoC's continuing interest in the process, the Court observed:

“The CoC has a vital interest in the Resolution Plan and that such an interest would continue till the Resolution Plan is actually implemented. It is only after the implementation of the Resolution Plan that payment can be made to the creditors, of their dues, in accordance with the Resolution Plan, which has been approved by the Adjudicating Authority.”

Accordingly, the Court concluded that the CoC continues to exist till the resolution plan is implemented or liquidation is ordered. “Such cannot be the intention of the legislature which has enacted the law with the dual purpose of making the Corporate Debtor an ongoing concern and realizing the dues of the Corporate Debtor,” the judgment authored by CJI Gavai underlined.

The argument against the CoC was raised by the erstwhile promoters of Bhushan Power and Steel Ltd, who contended that teh CoC cannot contest the matter, as it has become functus officio after the NCLT approved the resolution plan. Solicitor General of India Tushar Mehta, for the CoC, refuted this submission, saying that it continues to operate until the Plan is fully implemented or any challenge to its approval attains finality. He submitted that Sections 21, 23, and 28 of the IBC, read with Regulation 38 of the IBBI (CIRP) Regulations, support the continued existence of the CoC and the authority of the Monitoring Committee.

Accepting the Solicitor General's argument, the Court said :"We are therefore of the view that in view of Explanation to clause 2 of Regulation 18 of the IBBI (CIRP) 67 Regulations, the CoC continues to exist till the Resolution Plan is implemented or an order of liquidation is passed under Section 33 of the IBC"