Delhi HC Directs IBBI To Frame Code Of Conduct For Effective Functioning Of Committee Of Creditors

The Delhi High Court has directed the Insolvency and Bankruptcy Board of India to frame a code of conduct for the effective functioning of the Committees of Creditors. 

In that context, the Bench of Justice Purushaindra Kumar Kaurav said that,"The IBBI is directed to frame/finalise a code of conduct/guidelines in accordance with its stand set out in the instant case, principles mentioned hereinabove and as per other relevant considerations, within a reasonable period of time, preferably, within three months from the date of the passing of this judgment, for the effective functioning of the CoC, without diluting the sanctity of the 'commercial wisdom' of the CoC and the legislative intent of the IBC.".

Senior Counsel Sudhir Nandrajog and Senior Counsel Siddharth Yadav appeared for the petitioner, while Counsel Siddhartha Barua and Counsel Praful Jindal, along with others, appeared for the respondents.

In this case, Kunwer Sachdev, former director of Su-Kam Power Systems Limited, filed a plea concerning the company's insolvency in 2018. Alleging that Su-Kam's value was initially ₹300 crore but drastically reduced by the CoC during the CIRP, resulting in banks receiving only ₹10 crore from the company's sale, the petitioner claimed this was a clear case of CoC's misuse of power. The petitioner urged the need for mechanisms to address grievances against CoC conduct to ensure effective implementation of the Insolvency and Bankruptcy Code (IBC).

The High Court observed that the commercial wisdom of the CoC is placed on the highest pedestal, considering that even the Adjudicating Authority is not empowered to lift the veil on the merits of the decision. In furtherance of the same, it was observed that, "Considering the significant role which the CoC plays in the entire CIRP and the sanctity of the 'commercial wisdom' of the CoC which is protected by the legislative mandate from unnecessary interference, there is a compelling need for the code of conduct/guidelines for the effective working of the CoC in order to fulfil the bonafide objectives of the Code. The need for a code of conduct assumes greater importance in light of the fact that once a decision is taken by the CoC, the aggrieved party is deprived of the legal remedies, except to a limited extent. Therefore, what attains significance is that the decision-making process should itself be infused with sufficient safeguards of reasonableness, fair-play, proportionality and adherence to the principles of natural justice."

Appearances:

Petitioner: Senior Counsels Sudhir Nandrajog, Siddharth Yadav, Counsels Apoorv Agarwal, Prachi Darji, Divya Verma, Kanishka Lunia

Respondents: Counsels Siddhartha Barua, Praful Jindal, Ateev Mathur, VK Gupta, Kaushiki Kashyap, Yajur Sharma

Cause Title: Kunwer Sachdev vs IDBI Bank & Ors.

Click here to read/download the Judgment