The Insolvency and Bankruptcy Board of India ("IBBI") had, in November 2024, issued a discussion paper on monitoring committee under the corporate insolvency resolution process ("CIRP") highlighting the need to strengthen the regulatory framework governing monitoring committees ("MC") under the Insolvency and Bankruptcy Code ("Code"). The said discussion paper was floated by IBBI in light of the observations made by the Hon'ble Supreme Court in State Bank of India and Ors. v. The Consortium of Mr. Murari Lal Jalan and Mr. Florian Fritsch & Anr. ("Jet Case")1 that constitution of the monitoring committee upon approval of the resolution plan should be granted statutory recognition.
Pursuant thereto, on February 3, 2025, IBBI introduced the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2025 ("Amendment") whereby, inter alia, regulation 38 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") was amended to make constitution of the MC mandatory for monitoring and supervising the implementation of the resolution plan. In line with the recommendations of the Apex Court in the Jet Case, the amended regulation 38 provides that the MC may comprise of the resolution professional, or any other insolvency professional, representative of the CoC and the successful resolution applicant. In addition, the Amendment, casts an obligation on the MC to submit quarterly reports to the adjudicating authority regarding the status of implementation of the resolution plan.
However, the Amendments do not clarify whether the power of MC to monitor and supervise would also include power to initiate and/or defend legal proceedings on behalf of such corporate debtor until the board of the corporate debtor is re-constituted by the successful resolution applicant. This has resulted in divergent judicial interpretation regarding power of MC to pursue/defend proceedings on behalf of the corporate debtor.
The issue regarding power of MC to initiate and/or defend proceedings fell for consideration for the first time before the Learned National Company Law Tribunal ("NCLT"), Kolkata in CA Kannan Tiruvengadam, erstwhile Resolution Professional, Chairman of the Monitoring Committee v. Almas Global Opportunity Fund SPC ("Almas")2. The Learned Tribunal had to decide whether the chairman of the MC has locus to maintain an interlocutory application for abrogation of the approved resolution plan and thereafter initiate liquidation. The Learned Tribunal after carefully deliberating the legislative framework under section 33(3) of the Code came to the conclusion that any person, whose interests are being prejudicially affected from the breach of the resolution plan could file an application for initiation of liquidation and as such, the chairman of the monitoring committee has locus to maintain the present application, with or without a resolution to this effect being passed by the monitoring committee.
Although the Almas case, provided some clarity as to the authority or locus of the MC to initiate proceedings against a successful resolution applicant for non-implementation of the plan, it does not address a situation wherein the MC intends to initiate and/or defend proceedings on behalf of the corporate debtor, pending implementation of plan.
In this context, reliance is placed on the decision of the NCLT, New Delhi in M/s. Educomp Infrastructure School Management Limited v. M/s. Millenium Education Foundation ("Educomp"),3 wherein the issue regarding maintainability of an application under section 9 of the Code through the chairman of the MC arose. Relying on section 2(d) of the Code, the Tribunal held that MC is formed under the Code. The NCLT had also relied on the provisions of the plan which authorised the MC to manage the affairs of the corporate debtor and the minutes of the MC to hold that the MC and its chairman has authority to institute proceedings.
However, the NCLT Kolkata took a divergent view in SREI Equipment Finance Limited v. Roadwings International Private Limited ("Roadwings").4 In Roadwings, the Bench had to decide whether an application under section 7 of the Code can be filed on behalf of the corporate debtor in respect of a default in a loan advanced by it on the basis of a power of attorney ratified by the MC. After considering the roles and responsibilities of the MC as provided in the approved plan, the Learned Tribunal was of the opinion that the MC was not empowered to initiate CIRP against any third entity and therefore, it could not have delegated any authority to any person by way of a power of attorney. The aforesaid decision in the Roadwings case was challenged before the Learned National Company Law Appellate Tribunal, Principal Bench, New Delhi ("NCLAT"). After hearing the appellant/financial creditor, the NCLAT clarified that the order passed by the NCLT, Kolkata in Roadwings may not be treated as a precedent by the adjudicating authority.5 The appeal is however pending final hearing.
In yet another matter, an application was filed by an operational creditor challenging the distribution under an approved plan making the MC of the corporate debtor as a party. The matter went all the way up to the Supreme Court, however the right of MC to defend the proceedings was never questioned.6
It is stated that the MC being a statutorily recognised committee, it should be empowered to defend and/or initiate proceedings on behalf of the corporate debtor during the plan implementation period and also authorise any person as it may deem fit, in this regard. This is also in alignment with the objective of the Code, being maximisation of value of assets.
In view of the aforesaid, the Code should contain an express provision extending the powers of the MC to also manage the affairs of the company pending the reconstitution of the board of directors by the successful resolution applicant so as to avoid debate on whether the MC is empowered to initiate and/or defend proceedings or take steps as may be required to preserve the assets and/or protect the interest of the corporate debtor during the implementation of the plan. However, till then, resolution applicants should ensure that their plans confer on the MC adequate powers not limited to just implementation of the plan but also to conferring full authority to the MC to manage the affairs of the corporate debtor, albeit with checks and balances, so as to avoid operational difficulties during the implementation period.
Footnotes
1 Civil Appeal Nos. 5023-5024 of 2024
2 IA (IB) No. 1275/KB/2020
3 CP No. IB-245/ND/2022
4 CP (IB) No. 224/KB/2023
5 CA (AT) (Ins) No. 46 of 2025
6 Civil Appeal No. 676 of 2021
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