IBC: Urgently need a professional ‘Code of Conduct’ for committee of creditors, says Parliamentary Panel

K.R.Srivats New Delhi | Updated on August 04, 2021

Panel also highlights that the CoCs currently have ‘significant discretion’ in accepting late and unsolicited resolution plans

The Standing Committee on Finance headed by Jayant Sinha has urged policy makers to introduce a professional ‘Code of Conduct’ for the Committee of Creditors (CoC), which is the most important decision making body of the IBC framework.

This is significant as CoCs now enjoy complete autonomy in taking commercial decisions and IBC currently specifies that the “commercial wisdom” of the CoC cannot be questioned.

As per the law, the CoC has the final authority in terms of call on commercial aspects and neither NCLT nor NCLAT do not have any authority to say anything on the CoC’s commercial judgement. The Tribunals can only see if the set procedures are followed or not, according to legal experts.

“According to the Ministry of Corporate Affairs, the ‘commercial wisdom of CoC is supreme’. In the Committee’s view, keeping in mind the experience gathered so far, there is an urgent need to have a professional code of conduct for the CoC, which will define and circumscribe their decisions, as these have large implications for the efficacy of the code,” said the standing committee in its report tabled in Lok Sabha on Tuesday.

Unsolicited resolution plans

Meanwhile, the Standing Committee has also highlighted that the CoCs currently have “significant discretion” in accepting late and unsolicited resolution plans. These unsolicited, late bids create tremendous procedural uncertainty, the Panel has said.

“As a result, genuine bidders are discouraged from bidding at the right time. The overall process is vitiated and there are significant delays leading to further value erosion. The committee believes that the IBC needs to be amended so that new post hoc bids are allowed during the resolution process. They should be sanctity in deadlines, so that value is protected in the process moves smoothly,” the Panel report said.

Abhishek Saxena, Co-founding Partner, Phoenix Legal, said that a review of the IBC performance since its inception will show that it has been affected by inconsistency in decision making across the different stakeholders and having a code of conduct would help streamline decision making by CoC, and hence mitigate delays in resolution.

Ruby Singh Ahuja, Senior Partner, Karanjawala & Co, said that an issue that has resulted in prolonged legal battle is acceptance of bids after the last date of submission. The acceptance of belated bids not only is an hindrance in speedy resolution process but also disturbs the level playing field, and in some cases the allegation of of arbitrary conduct of CoC is raised. Therefore, any guidelines regarding the conduct of CoC is likely to prove helpful in speedy resolution process and in all probability, less cases will land up in courts or tribunals, she added.

Nakul Sachdeva, Partner, L&L Partners, said: “The functions and duties of the CoC as on date have to an extent been defined by the Supreme Court in various judicial precedents; however, having specific provisions in the IBC in this regard would lead to consistency in approach and also will reduce time spent in seeking redressal from the Tribunals/Supreme Court.”

The Parliamentary Panel has also recommended that dedicated benches of NCLT solely for IBC may be created and institutional capacity of NCLT benches be enhanced accordingly.

Published on August 04, 2021

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