Delhi High Court Directs IBBI to Formulate Code of Conduct for Committees of Creditors

LI Network

Published on: February 20, 2024 at 15:59 IST

The Delhi High Court has instructed the Insolvency and Bankruptcy Board of India (IBBI) to develop a code of conduct for the effective operation of Committees of Creditors (CoC).

Justice Purushaindra Kumar Kaurav’s bench emphasized the need for IBBI to create or finalize a code of conduct or guidelines within three months to ensure the efficient functioning of the CoC.

The Court underscored the importance of maintaining the “commercial wisdom” of the CoC while adhering to the legislative intent of the Insolvency and Bankruptcy Code (IBC).

The case originated from a plea filed by Kunwer Sachdev, the former director of Su-Kam Power Systems Limited, regarding the company’s insolvency in 2018. Sachdev alleged misuse of power by the CoC during the Corporate Insolvency Resolution Process (CIRP), resulting in a substantial reduction in Su-Kam’s value and subsequent concerns about the sale proceeds.

Senior Counsels Sudhir Nandrajog and Siddharth Yadav represented the petitioner, while Counsels Siddhartha Barua and Praful Jindal, among others, appeared for the respondents.

The High Court recognized the CoC’s pivotal role in the CIRP and the protection afforded to its “commercial wisdom” from unnecessary interference.

Acknowledging the limited legal remedies available to aggrieved parties after a CoC decision, the court stressed the necessity of infusing the decision-making process with safeguards of reasonableness, fair-play, proportionality, and adherence to the principles of natural justice.

The directive aims to establish a framework for addressing grievances against CoC conduct and ensuring the legitimate objectives of the IBC.

Case Title: Kunwer Sachdev vs IDBI Bank & Ors.

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