• Shivani Shenoy, Yashwardhan Rajawat

End of the Road for CIRP: An Impasse at the COC

[Shivani Shenoy and Yashwardhan Rajawat are students at Symbiosis Law School, Pune.]

In this article, the authors analyse the predicaments in the formation of a Committee of Creditors (CoC) in two instances- i) when there is only one creditor which has successfully submitted a claim and ii) when no committee of creditors can be formed. The authors relate these two scenarios to the results of the insolvency proceedings, finding patterns and highlighting contradistinctions.


Section 21 of the Insolvency and Bankruptcy Code, 2016 (IBC) states that a CoC would be constituted after the collation of all claims received by the interim resolution professional (IRP) against the corporate debtor. It adds that all financial creditors would be members of the CoC, provided that such a financial creditor is not a related party.

Regulation 16 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) throws light upon a situation where the corporate debtor has no financial debt or where all the financial creditors are related parties of the corporate debtor. The regulation states that in the aforementioned circumstance, eighteen largest operational creditors by value would form the CoC along with one representative elected by all workmen and one representative elected by all the employees. Where the number of operational creditors of the corporate debtor is less than eighteen, all the operational creditors would form the CoC.

The dynamics of zeros and ones

If, as on the last date to receive claims, the IRP receives only one claim or, of the multitude of claims submitted against the corporate debtor, only one is valid, then only such creditor who submitted the successful claim will form the CoC.

An interesting precedent was set in the order of the National Company Law Tribunal (NCLT), in the matter of Arun Kumar Jain v Upadan Commodities Private Limited (C.P. (I.B.) No. 320/KB/2017), wherein the tribunal ordered that an uncooperative corporate debtor be liquidated after the CoC, constituting of a singular operational creditor, refused to extend the time to complete the corporate insolvency resolution process (CIRP), upon expiry of 180 days from the time of admission of the petition. The act of the operational creditor (as the only member of the CoC) in refusing to extend the time for completion of the CIRP and the omission of the corporate debtor in supplying necessary information to the IRP to create an information memorandum led the tribunal to draw an inference that both parties did not wish for a resolution plan to revive the company but rather wish to liquidate the corporate debtor. This is in line with the mandate of Section 33 of the IBC, which requires the adjudicating authority to pass an order requiring the corporate debtor to be liquidated if the adjudicating authority does not receive a resolution plan before the expiry of the maximum period of time permitted for the CIRP or the completion of the CIRP itself.

The ability of a creditor to influence the end result of the CIRP is made out prominently in this case. The IRP was able to contact the corporate debtor only at a very later part of the 180-day period. The decision of the CoC to not extend time for CIRP led the NCLT to pronounce an order for liquidation. However, had the CoC exercised its discretion to extend the CIRP by a period of time extending up to 90 days, it is probable that an information memorandum could have been prepared to invite resolution plans and - by a stretch of imagination - chosen as an efficient one to manage the corporate debtor.

The idea of constituting a CoC with one creditor (in spite of such creditor being the petitioner) seems to be a rather recent one considering that, in National Gas Agencies v Janata Chemicals Private Limited (C.P. No. 33/I&B/NCLT/MAH/2017), where the only claim submitted against the corporate debtor was that of the operational creditor, no CoC was formed by the IRP, and the NCLT discharged the IRP once the corporate debtor undertook to make payments to the operational creditor in a settlement.

However, if the IRP receives no claims whatsoever against the corporate debtor, by financial or operational creditors, no CoC can be formed. The NCLT, in the case of M/s HGS India Limited v M/s Geo API Solutions Private Limited (C.P. (IB)-1632/9/(MB)/NCLT/2017), held that in circumstances where on the last day of receipt of claims, no viable claims were received against the corporate debtor and where a CoC could not be formed as on the date of commencement of the insolvency proceedings, if the corporate debtor was willing to settle the disputed amount and the creditor agreed to such settlement, the petition of insolvency may be disposed off as settled.


Where a CoC is made up of a singular creditor, the fate of the corporate debtor absolutely lies in its hands. Resolution plans, if submitted by third parties may be dismissed as unviable by the CoC through a 100% vote, hoping to initiate liquidation. Interestingly, a sole operational creditor cannot submit its resolution plan successfully since the proviso to Section 30(5) of the IBC prohibits resolution applicants from voting on their own resolution plans, therefore creating an impasse. Financial creditors who choose to submit resolution applications however, may cast their vote in deciding the viability of their own resolution plan. What remains to be seen is whether they retain their right to do so in a scenario where they are the sole creditors of the CoC. Either way, 180 days after admission of the petition, or 270 days upon extension, the NCLT becomes empowered to pass an order for liquidation (Editor Note: Please refer to the Insolvency and Bankruptcy Code (Amendment) Act, 2019, which extends the timeline to 330 days).

While the CIRP framework runs the risk of vesting great powers in the hands of a singular creditor, in many circumstances, it remains the only remedy available to a creditor in making recoveries against a corporate debtor which is not only uncooperative, but also absent, and whose management is absconding. For instance, in Arun Kumar Jain v M/s Upadan Commodities Private Limited, much to the relief of the creditor, an order of liquidation was passed against the corporate debtor whose registered office and management could neither be located or contacted for approximately 180 days from the date of admission of petition.

It would hence be advisable for the IRPs to keep the NCLT abreast - at the earliest possible opportunity - in case of non-formation of CoC and in cases where a single creditor forms the CoC, so that the NCLT can monitor the process closely and ensure that the timelines are being adhered to. In cases where no CoC could be formed, the NCLT can direct the IRP to extend the time limit to submit claims or proactively contact known creditors in case of the former and encourage resolution applicants to submit their resolution. Further, the NCLT may attempt to facilitate a settlement between the creditor and the corporate debtor before being restrained to pass an order for liquidation.


Recent case laws support the view that where a CoC is absent, or where it is made up of a single creditor and no third party resolution applicant has submitted a viable resolution plan, the result can only turn out in one of two ways- settlement or an ipso facto automatic liquidation. In Swiss Ribbons Private Limited and Another v Union of India (2019 SCC Online SC 73), the Supreme Court of India has held that the primary focus of IBC is to ensure revival and continuation of the corporate debtor by protecting it from a corporate death by liquidation. Settlement, the better of the two evils, has increasingly been achieved by creditors to bring debtors to their knees by using IBC as a tool. The gun of liquidation is to the head of the debtor, which is forced to arrive at a settlement with the creditor (in terms that are favorable to the creditor), lest the CIRP period would lapse without a resolution plan and the NCLT would pass an order of liquidation against it.

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©2018 by The Indian Review of Corporate and Commercial Laws.