Insolvency: Do committees of creditors need oversight?

The IBC record reveals a need to ensure resolutions that are both more equitable and faster

- S. VEENA IYER & ROHIT PRASAD

India's ministry of corporate affairs (MCA) is considering the establishment of an oversight body to monitor the functioning of Committees of Creditors (CoC) under the Insolvency and Bankruptcy Code (IBC). This follows a code of conduct for CoC operations implemented in August 2024, prompted by the Delhi high court's call for improved accountability.

The CoC, which steers the corporate debtor through the insolvency process, mainly comprises financial creditors (FCs)—primarily commercial banks—that hold the majority of claims. Operational creditors (OCs) are included only if their claims account for at least 10% of the total, a rarity. The latter typically play a limited role in negotiations. FCs hold considerable power and are assumed to possess the commercial acumen to make key decisions such as selecting resolution applicants, allocating proceeds, working out ways to maximize the corporate debtor's value and deciding between resolution and liquidation.

However, this assumption of commercial wisdom has been challenged. The Jet Airways case illustrates the issue. Once a leading airline with assets worth ₹15,000 crore, Jet was sent into liquidation in November 2024—five years after entering insolvency.

The CoC-selected Jalan-Kalrock Consortium failed to implement the approved resolution plan. Delays, partly due to exceptions granted by the National Company Law Appellate Tribunal, eroded its asset value until the Supreme Court intervened, ordering liquidation. The episode highlighted the risks of self-regulation and need for structural reform.