Lenders with vested interest shouldn't be in CoC: NCLT

Last Updated: Mon, Apr 15, 2019 17:06 hrs
National Company Law Tribunal (NCLT) (Image Courtesy: NCLT)

New Delhi: In a decision likely to have major impact on insolvency proceedings, the Chennai bench of the National Company Law Tribunal (NCLT) has said that any lender with vested interest in, or having relations with, a corporate debtor should not be part of the Committee of Creditors (CoC) in a resolution process.

According to media reports, on an application moved by the Asset Reconstruction Company (India) Ltd (Arcil) in a case relating to a corporate debtor, Anandram Developers, the tribunal said that the decisions of the CoC must remain independent.

A CoC is a group of persons representing a company's creditors in a bankruptcy proceeding. As such, a creditors' committee has broad rights and responsibilities, including devising a reorganisation plan for bankrupt companies or deciding whether they should be liquidated. The creditors' committee is usually further divided between secured and unsecured creditors.

The bench noted that as the CoC's decisions will impact the debtor's survival or liquidation, as well as the debt realisation of all the creditors, the institution of CoC needs to be completely independent and free from any kind of influence, either of the promoters or their close relatives who may have stakes.

The decision will have a significant and far-reaching impact on other cases in the insolvency process as it sets a benchmark for the lenders to become a part of the CoC. It is also likely to bring in transparency in the resolution process.

The tribunal held that the second respondent, Anandcine Services, is a "related party", which would have no right of representation, participation or voting in CoC meetings. The first respondent in the case was the Insolvency Resolution Professional (IRP).