Accountability of the COC: Formulating a Standard Code of Conduct

[By Shraiya Jain & Palak Jhalani]

The authors are students at the Institute of Law, Nirma University


. . CoC as a transient assorted body, consisting of financial creditors is deemed to be the apex body to decide on the matters pertaining to the course of CIRP. Although the RP acts as a key managerial and administrative authority over the business affairs of the CD, however, in reality, it is the CoC who decide on the matters of core functioning of the Corporate Debtor. The CoC is not only entrusted with all the critical decision-making powers in the CIRP under the Code but is also responsible for the conduct of the CD’s business and assessing its viability to determine a way the distress could be resolved.[i]

In its legislative guide on insolvency law, UNCITRAL noted that the expansion of committee authority promotes greater accountability in the insolvency system. It states that the CoC should legitimately exercise its authority and not abuse it.[ii] A process for the removal or replacement of any representative or member of the CoC in cases of negligence, incompetence, conflict of interest, or fraud was also advised by the guide for the states to adopt.

Many nations have a thorough set of rules to keep an eye on and control the behaviour of different insolvency regime participants. For instance, in UK, to streamline the conduct of insolvency personnel, there is a delegated ‘Statement of Insolvency Practice 15 (SIP)’, which outlines basic set of guidelines for practitioners to follow. It serves as a beacon for the stakeholders and restores their confidence in the dispute settlement procedure.[iii]

While the IBBI has proposed a set of guidelines to regulate the conduct of the CoC, the article envisages the need for such a code. In the latter part of the article, the authors have critically evaluated the proposed set of IBBI guidelines, highlighting the major impediments to successful application of the same.

 Need for a code of conduct

The burden of revival of the company falls upon the CoC based on the role that it performs. To exercise such an exclusive function, it enjoys an upper hand in determining a way to resolve the distress through the application of commercial wisdom in the financial matters of the CD. Such commercial wisdom of the CoC is always prioritized by the judicial authorities as well to uphold the creditor-in-control regime provided under the Code. However, exercising such great power comes with great responsibilities.

 Despite a circular issued by the IBBI to elect competent and authorized personnel by the creditors,[iv] numerous questions have been raised against the conduct of CoC. In some cases, the members of the CoC are neither adequately empowered to take decisions on their own nor acquainted with their role. This causes delay and allows depletion of value,[v] which itself goes against the code’s objectives, i.e., timely resolution and maximization of value. In other instances, the tribunals have observed missteps by the CoC such as undertaking adjudication beyond their powers and violating the laws and procedures. [vi]

 Discussions & Deliberations

 IBBI propounded the necessity for the institutional financial creditors to take necessary steps  ensuring their respective representatives   to act in an efficient and timely manner while discharging their functions. .[vii] The urgency of a professional code of conduct for the CoC, which regulates their decisions due to their importance in the efficacy of the code, has also been reflected in the 32nd report of the Standing committee on finance to the Parliament.[viii]

  . Identifying unregulated work environment of CoC, a discussion paper[ix] followed by a proposed  set of guidelines were introduced by IBBI. Again, in the year 2022, the committee recommended IBBI to come up with a standard code of conduct for CoC, for which it proposed to amend Section 196[x] of the Code as required.       . The Committee also examined the possibility of the MCA consulting with relevant financial sector authorities like SEBI and RBI to develop a suitable enforcement mechanism for the code of conduct.[xi]

 The Draft Guidelines and its Objections

Regardless of explicitly mentioned provisions under the Code directing CoC to work in an efficient manner, the proposed set of code of conduct acts as an icing on the cake. It provides for disclosures, maintaining objectivity in the decision making process, cooperation with other insolvency professionals, neutrality, ensure timeliness, etc. in addition to the basic principles of transparency and accountability in their manner of functioning.

The creditor-in-control regime provided by the Code also vests certain duties of public trust and care with such creditors constituting members of the CoC. The implementation of a code of conduct for regulation of CoC imposes challenges to these duties.

  • Conflict with the commercial wisdom of CoC

The Apex court highlighted the limited role of the Adjudicating Authority (AA) in approving a resolution plan after it was approved by the CoC, thus, favoring their authority concerning financial decisions over and above anything else.[xii] Such was the case in another landmark judgment whereby the commercial wisdom of the CoC was upheld.[xiii]  Given the fact that CoC has supremacy over commercial wisdom, it would be contradictory in nature if due to a formal and cautious decision-making approach such commercial wisdom is questioned before the AA. The practical consequences of subjecting it to judicial review would only result in increased challenges to the resolution plan by different stakeholders.

  • Inconsistency in regulation

As stakeholders from different backgrounds constitute CoC, they are regulated by their respective authorities. A different code of conduct for each of them would be tantamount to discrimination concerning discharging their functions. However, prescribing a set of guidelines applicable to all types of stakeholders irrespective of their nature would result in conflict between these different regulatory authorities and thus, inconsistency in regulation would prevail affecting the entire credit culture of the entity.

  • Increased litigation

Moreover, one of the objectives of the Code is the timely resolution of insolvency proceedings for realizing the maximum value of the assets. Judicial scrutiny at various stages of decision-making by the CoC, particularly in the event of non-compliance with the code of conduct would not only challenge the approval of an effective resolution plan but would also increase the number of litigations. Consequently, it will lead to delay and uncertainty, thus, serving as an impediment to the smooth functioning of the resolution process.


To maximize the value of the assets of the CD, section 12[xiv] of the Code encourages the prompt resolution of cases. The Sick Industrial Companies Act of 1985 had some flaws, so the act was passed to resolve them. The CIRP procedure, however, becomes less favorable as a result of ineffective representatives, wilful delays by the CoC, and careless behavior on the part of the financial creditors.

The proposed code of conduct will not invade the CoC’s supremacy because it will continue to be effective even after the guidelines are introduced. The code will only improve the procedure’s efficiency and restore stakeholders’ faith in the CIRP. However, the code of conduct does not offer a permanent solution to the problems with the current insolvency process. To further streamline the insolvency process, additional reforms will be required, including a successful strategy to reduce non-performing assets, an increase in the number of NCLT benches to handle the caseload, effective data management, the timely disposition of cases, and other procedural or infrastructure changes.

[i] Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors., (2018) SCC OnLine SC 1733.

[ii] Shruti S Kekre&Akshay Shrivastava, Autonomy to Accountability: Code of Conduct Setting Standards of Transparency, The Indian Review of Corporate and Commercial Laws (IRCCL), (Nov. 21, 2022, 06:35 PM),

[iii] Id.

[iv] Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of India, (May, 2022), available at

[v] Jindal Saxena Financial Services Pvt. Ltd. v. Mayfair Capital Pvt. Ltd., (2018) SCC OnLine NCLT 32332; SBJ Exports & Mfg. Pvt. Ltd. v. BCC Fuba India Ltd., (2018) SCC OnLine NCLT 32340.

[vi] VarrsanaIspat Ltd. v. Varrsana Employee Welfare Association &Ors., (2022) SCC OnLine NCLAT 34; See also STCI Finance Ltd. through Subash Chandra Modi v. Parinee Developers Private Limited, (2021) SCC OnLine NCLT 3181.

[vii]Report of the Insolvency Law Committee, Ministry of Corporate Affairs, Government of India, (February, 2020), available at

[viii] 32nd Report of the Standing Committee on Finance (2020-2021), Implementation of Insolvency and Bankruptcy Code- Pitfalls and Solutions, Ministry of Corporate Affairs, (August, 2021), available at

[ix] Insolvency and Bankruptcy Board of India, Discussion Paper, (27th August, 2021),

[x]The Insolvency and Bankruptcy Code, 2016, § 196, No. 31, Acts of Parliament, 2016 (India).

[xi] Supra note 4.

[xii] Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta &Ors., (2020) 8 SCC 531.

[xiii] Swiss Ribbons v. Union of India, (2019) 4 SCC 17.

[xiv] The Insolvency and Bankruptcy Code, 2016, § 12, No. 31, Acts of Parliament, 2016 (India).


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