A. Insolvency & Bankruptcy Code, 2016
# Section 18. Duties of interim resolution professional. -
The interim resolution professional shall perform the following duties, namely: -
(c) constitute a committee of creditors;
# Section 21. Committee of creditors. -
(1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:
(6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or agent to act for all financial creditors, each financial creditor may-
(a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share;
(b) represent himself in the committee of creditors to the extent of his voting share;
(c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally.
(6A) Where a financial debt—
(a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors;
(c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors, and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.
(6B) The remuneration payable to the authorised representative-
(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and
(ii) under clause (b) of sub-section (6A) shall be as specified which shall be form part of the insolvency resolution process costs.
# Section 24. Meeting of committee of creditors. -
3(a) members of committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6A) of section 21 and sub-section (5);
(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors:
Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor.
# Section 25A. Rights and duties of authorised representative of financial creditors. –
(1) The authorised representative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions of such creditors obtained through physical or electronic means.
(2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents.
(3) The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions:
Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share:
Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such creditor.
(3A) Notwithstanding anything to the contrary contained in sub-section (3), the authorised representative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent. of the voting share of the financial creditors he represents, who have cast their vote:
Provided that for a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote in accordance with the provisions of sub-section (3).
(4) The authorised representative shall file with the committee of creditors any instructions received by way of physical or electronic means, from the financial creditor he represents, for voting in accordance therewith, to ensure that the appropriate voting instructions of the financial creditor he represents is correctly recorded by the interim resolution professional or resolution professional, as the case may be.
Explanation.- For the purposes of this section, the “electronic means” shall be such as may be specified.
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B. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
# Regulation 2. Definitions.
(1) In these Regulations, unless the context otherwise requires-
(aa) “class of creditors” means a class with at least ten financial creditors under clause (b) of sub-section (6A) of section 21 and the expression, “creditors in a class” shall be construed accordingly.
(d) “committee” means a committee of creditors established under section 21;
(l) “participant” means a person entitled to attend a meeting of the committee under section 24 or any other person authorised by the committee to attend the meeting;
# Regulation 4A. Choice of authorised representative
(1) On an examination of books of account and other relevant records of the corporate debtor, the interim resolution professional shall ascertain class(s) of creditors, if any.
(2) For representation of creditors in a class ascertained under sub-regulation (1) in the committee, the interim resolution professional shall identify three insolvency professionals who are-
(a) not his relatives or related parties;
(aa) having their addresses, as registered with the Board, in the State or Union Territory, as the case may be, which has the highest number of creditors in the class as per their addresses in the records of the corporate debtor:
Provided that where such State or Union Territory does not have adequate number of insolvency professionals, the insolvency professionals having addresses in a nearby State or Union Territory, as the case may be, shall be considered;”.
(3) The interim resolution professional shall obtain the consent of each insolvency professional identified under sub-regulation (2) to act as the authorised representative of creditors in the class in Form AB of the Schedule.
# Regulation 16A. Authorised representative.
(1) The interim resolution professional shall select the insolvency professional, who is the choice of the highest number of financial creditors in the class in Form CA received under sub-regulation (1) of regulation 12, to act as the authorised representative of the creditors of the respective class:
Provided that the choice for an insolvency professional to act as authorised representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered.
(2) The interim resolution professional shall apply to the Adjudicating Authority for appointment of the authorised representatives selected under sub-regulation (1) within two days of the verification of claims received under sub-regulation (1) of regulation 12.
(3) Any delay in appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee.
(4) The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the Adjudicating Authority.
(5) The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is updated.
(6) The interim resolution professional or the resolution professional, as the case may be, shall provide electronic means of communication between the authorised representative and the creditors in the class.
(7) The voting share of a creditor in a class shall be in proportion to the financial debt which includes an interest at the rate of eight per cent per annum unless a different rate has been agreed to between the parties.
(8) The authorised representative of creditors in a class shall be entitled to receive fee for every meeting of the committee attended by him in the following manner, namely: -
Number of creditors in the class | Fee per meeting of the committee (Rs.) |
10-100 | 15,000 |
101-1000 | 20,000 |
More than 1000 | 25,000 |
(9) The authorised representative shall circulate the agenda to creditors in a class, and may seek their preliminary views on any item in the agenda to enable him to effectively participate in the meeting of the committee:
Provided that creditors shall have a time window of at least twelve hours to submit their preliminary views, and the said window opens at least twenty-four hours after the authorised representative seeks preliminary views:
Provided further that such preliminary views shall not be considered as voting instructions by the creditors.
# Regulation 16B. Committee with only creditors in a class.
Where the corporate debtor has only creditors in a class and no other financial creditor eligible to join the committee, the committee shall consist of only the authorised representative(s).
# Regulation 21. Contents of the notice for meeting.
(2) The notice of the meeting shall provide that a participant may attend and vote in the meeting either in person or through an authorised representative:
Provided that such participant shall inform the resolution professional, in advance of the meeting, of the identity of the authorised representative who will attend and vote at the meeting on its behalf.
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C. GOI Notification dated 27th February, 2019
MINISTRY OF CORPORATE AFFAIRS
NOTIFICATION
New Delhi, the 27th February, 2019
S.O. 1091 (E).—In exercise of the powers conferred by sub-section (1) of section 7 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby notifies following persons who may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority, on behalf of the financial creditor: -
(i) a guardian;
(ii) an executor or administrator of an estate of a financial creditor;
(iii) a trustee (including a debenture trustee); and
(v) a person duly authorised by the Board of Directors of a Company.
[F. No. 30/25/2018-Insolvency Section]
GYANESHWAR KUMAR SINGH, Jt. Secy.
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D. Case Law;
i). SCI (15.12.2017) in Macquarie Bank Limited Vs Shilpi Cable Technologies Ltd. [Civil Appeal No. 15135 of 2017] held that;
# 33. . . .It is clear, therefore, that both the expression “authorized to act” and “position in relation to the operational creditor” go to show that an authorized agent or a lawyer acting on behalf of his client is included within the aforesaid expression.
# 36. . . . Also, we must not forget that Section 30 of the Advocates Act deals with the fundamental right under Article 19(1)(g) of the Constitution to practice one’s profession. Therefore, a conjoint reading of Section 30 of the Advocates Act and Sections 8 and 9 of the Code together with the Adjudicatory Authority Rules and Forms thereunder would yield the result that a notice sent on behalf of an operational creditor by a lawyer would be in order.
ii). NCLAT (20.09.2017) in Palogix Infrastructure Private Limited Appellant Vs. ICICI Bank Limited [CP (Company Appeal) (AT) (InsoL) No. 30, 37 & 54 of 2017] held that;
# 9. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the 'I&B Code' and the 'Adjudicating Authority Rules' recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf (Enclose Authorisation)".
# 15. Section 179 of Companies Act, 2013 empowers the Board of Directors to do all such acts that a company is authorised to do. A company being a juristic person is capable of initiating and defending legal proceedings and, therefore, the Board of Directors is empowered to exercise such rights on behalf of the Company or may duly empower 'Authorised Representative' to do so on its behalf.
# 21. According to the 'Corporate Debtor' the 'Authorization' in the case of a company would mean a specific authorization by the Board of Directors of the company by passing a resolution. The reliance has been placed on the Hon'ble Supreme Court's decision in "State Bank of Travancore vs. Kingston Computers India Fyi. Ltd. (2011) 11 SCC 524".
# 31. As per Section 7 of the 'I&B Code' an application for initiation of 'Corporate Insolvency Resolution Process' requires to be filed by 'Financial Creditor' itself. The form and manner in which an application under section 7 of the 'I&B Code' is to be filed by a 'Financial Creditor' is provided in 'Form-1' of the Adjudicating Authority Rules. Upon perusal of the Adjudicating Authority Rules and Form-1, it may be duly noted that the 'I&B Code' and the Adjudicating Authority Rules recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative". Entry 5 & 6 (Part I) of Form No.1 mandates the 'Financial Creditor' to submit "name and address of the person authorised to submit application on its behalf. The authorization letter is to be enclosed. The signature block of the aforementioned Form 1 also provides for the authorised person's detail is to be inserted and also includes inter alia the position of the authorised person in relation to the 'Financial Creditor'. Thus, it is clear that only an "authorised person" as distinct from "Power of Attorney Holder" can make an application under section 7 and required to state his position in relation to "Financial Creditor".
# 33. Therefore, we hold that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.
# 38. This apart, if an officer, such as senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a proceeding for 'Corporate Insolvency Resolution Process' against the person who have taken loan, in such case the 'Corporate Debtor' cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate 'Corporate Insolvency Resolution Process', in spite of default of debt.
# 39. If a plea is taken by the authorised officer that he was authorised to sanction loan and had done so, the application under section 7 cannot be rejected on the ground that no separate specific authorization letter has been issued by the 'Financial Creditor' in favour of such officer designate.
# 40. In view of reasons as recorded above, while we hold that a 'Power of Attorney Holder' is not empowered to file application under section 7 of the 'I&B Code', we further hold that an authorised person has power to do so.
iii). NCLAT (19.04.2021) in Tek Travels Private Limited Vs. Altius Travels Private Limited [Company Appeal (AT) (Insolvency) No. 172 of 2020] held that;
# 13. Further, in case of Rajendra Narottamdas Sheth v Smt Heenaben Rajendra Kumar Sheth Company Appeal (AT) (insolvency) No 621 of 2020 this Appellate Tribunal has held that;
"we do not find any substance in the argument that as such general power of attorney was executed before coming into force of insolvency and bankruptcy code hence, the said chief manager did not have Authority. In our view, it is general power of attorney and not confined to any particular Act or Acts. We do not find any defect on this account with the application under section 7 of IBC."
(Emphasis supplied, verbatim copy)
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E. Now the question arises;
“ Whether a bank, being a juristic person, can appoint it’s employee as “Authorized Representative” to attend the meeting of CoC.
Here observations of NCLAT (20.09.2017) in Palogix Infrastructure Private Limited Appellant Vs. ICICI Bank Limited [CP (Company Appeal) (AT) (InsoL) No. 30, 37 & 54 of 2017] are quite significant.
# 33. Therefore, we hold that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.
# 38. This apart, if an officer, such as senior Manager of a Bank has been authorised to grant loan, for recovery of loan or to initiate a proceeding for 'Corporate Insolvency Resolution Process' against the person who have taken loan, in such case the 'Corporate Debtor' cannot plead that the officer has power to sanction loan, but such officer has no power to recover the loan amount or to initiate 'Corporate Insolvency Resolution Process', in spite of default of debt.
# 39. If a plea is taken by the authorised officer that he was authorised to sanction loan and had done so, the application under section 7 cannot be rejected on the ground that no separate specific authorization letter has been issued by the 'Financial Creditor' in favour of such officer designate.
# 40. In view of reasons as recorded above, while we hold that a 'Power of Attorney Holder' is not empowered to file application under section 7 of the 'I&B Code', we further hold that an authorised person has power to do so.
Thus an officer of the bank (FC) such as senior Manager of a Bank authorised to grant loan, for recovery of loan or to initiate a proceeding for 'Corporate Insolvency Resolution Process' against the person who have taken loan, is a natural authorized person/representative, for others appointment of authorized person/representative has to be done as per the GOI notification dated 27.02.2019 (supra above).
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F. Excerpts from the Blog; Fraudulent Transactions in IBC - A case study
3, Lack of professionalism in the working of the CoC. In the instant case, despite RP expressing reservations, CoC went ahead in passing resolution for payment of fees of the lender's legal counsel as IRPC. CoC further decided that if the Board does not allow this arrangement, then the fee amount will be recovered on a pro rata basis from the upfront cash recovery amount to be paid to lenders.
Most of the financial creditors in CoC are banks. Banks being impersonal legal entities (juristic persons), usually appoint their employees as their authorised representative in CoC, who are not professionals and do not understand the insolvency ecosystem. Here the provisions of the Code are of quite significance.
# Section 24(5) Subject to sub-sections (6), (6A) and (6B) of section 21, any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of creditors:
Provided that the fees payable to such insolvency professionals representing any individual creditor will be borne by such creditor.
The main import of the Section 24(5) of the code is that a financial creditor can attend the meeting of CoC, through a representative who has to be an insolvency professional other than IRP/RP.
The appointment of IP’s as authorised representatives of the banks in CoC will definitely improve the working of the CoC & inculcate professionalism in the decisions of the CoC. Secondly IP's being regulated by the Board & IPA’s, their misconduct can be examined by the Board & IPA’s. It is suggested that the Board may make suitable provisions in the regulations and issue a circular on this aspect.
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
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