in the early years of Insolvency and Bankruptcy Code (IBC), the Supreme Court in the Essar judgment had upheld the indisputable nature of the commercial knowledge of the CoC. The top court had also confirmed that the tribunal had no right to question the wisdom of the CoC, including on the disgruntled creditors in another case. In addition, there are several other orders giving the upper hand to financial creditors.
Lenders are also accepting bids after the deadline, citing price maximisation, they have also accepted bids close to the liquidation price, prompting parliamentary panels to question their actions.
NS National Company Law Tribunal (NCLT) has also questioned the conduct of the CoC in the two cases. In the Videocon case, the NCLT cast doubts on the real-time use of the secrecy clause, when it learned that the bid by Vedanta’s Twin Star was close to the confidential liquidation price assigned by the lenders.
“The business knowledge of the CoC is similar to the basic structure of the IBC process. Any deviation there can have wide-ranging consequences. However, to address the growing concerns about indiscretion in the decision-making of the CoC, a professional for the CoC is now The need for a code of conduct has been felt, as suggested by the Standing Committee on Finance, and penal provisions for acts of misconduct, if any,” said Hari Hara Mishra, director, UV ARC.
Recently this week, the NCLT Chennai Bench quashed the CoC’s motion to withdraw insolvency proceedings against Sivasankaran for a one-time settlement against Siva Industries. “NCLT observed that without receiving a single penny from the promoter of the corporate debtor, the CoC has voted in favor of withdrawing the insolvency proceedings and gave the impression that it is not a settlement but a business-restructuring plan. Therefore, the NCLT was of the view that the powers of the Adjudicating Authority cannot be limited on the ground that the ‘commercial knowledge’ of the CoC shall prevail over any other provisions of the IBC. Nirav Shah, Partner, DSK Legal.
Shah said that though the undisputed commercial decision of the CoC is not getting diluted, this argument cannot be said to be applicable to the one-time settlement proposal, which is required to be considered by the tribunal before giving its approval. A senior advocate appearing for the creditors said there is no doubt on the rights of the creditors, but there is a need for a code of conduct for financial creditors.
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