Committee of Creditors under IBC: Constitution and Voting

The committee of creditors is the decision maker of the corporate insolvency process. It decides who runs the process, whether the company is rescued and by whom, how the money is shared and, if no rescue is possible, whether the company is liquidated. The Code gives this role to financial creditors because they are best placed to assess whether a business is viable. This note explains how the committee is constituted, how it votes, what it decides and the duties it owes.

1. Why Financial Creditors Decide

The Bankruptcy Law Reforms Committee reasoned that financial creditors are able to assess the viability of a business and to restructure its debts, and that they are willing to take decisions on its future, while operational creditors are generally not. The Supreme Court accepted this reasoning in Swiss Ribbons (2019), upholding the exclusion of operational creditors from voting as a valid classification under Article 14 (Topic 3).

2. Constitution, Section 21

Figure 1: Who sits on the committee and who attends

• Section 21(1) and (2). After collating all claims and determining the financial position of the corporate debtor, the interim resolution professional constitutes a committee of creditors comprising all financial creditors of the corporate debtor.
• Related parties. A financial creditor that is a related party of the corporate debtor has no right of representation, participation or voting in a meeting of the committee, except a regulated financial creditor that became a related party only by converting debt into equity (Topic 26)
• Dual creditors, section 21(4). A person who is both a financial and an operational creditor is a member of the committee only to the extent of the financial debt, with voting share in proportion to it.
• Consortiums and assignees. Each member of a consortium or joint lending arrangement is a separate member with voting share according to its own debt (section 21(3)), an assignee of financial debt takes the assignor's place (section 5(7)), and an operational debt assigned to a financial creditor remains operational to that extent (section 21(5))
• Classes. Creditors holding securities or deposits through a trustee, and classes of ten or more financial creditors such as homebuyers, vote through a trustee or authorised representative (section 21(6A); Topic 27)
• No financial creditors. Where the corporate debtor has no financial creditors, or all are related parties, the committee consists of the eighteen largest operational creditors by value, one representative of workmen and one representative of employees (Regulation 16)
• Reconstitution. If claims are admitted or revised later, the committee is reconstituted to reflect the new voting shares.

3. Voting

• Voting share, section 5(28). The share of voting rights of a single financial creditor, based on the proportion of the financial debt owed to it to the total financial debt.
• Electronic voting. Members may vote at the meeting or electronically within the time allowed under the regulations, and decisions are recorded in the minutes.
• Default rule, section 21(8). All decisions of the committee are taken by a vote of not less than 51 per cent of the voting share of the financial creditors, unless the Code provides otherwise; the threshold was 75 per cent until the 2018 amendment.

Figure 2: Voting thresholds

4. Meetings, Section 24

• Conduct. Meetings are conducted by the resolution professional, who gives notice to members and other participants.
• Participants without vote. Members of the suspended board of directors or partners, and operational creditors or their representative if their aggregate dues are at least ten per cent of the debt, may attend but cannot vote (section 24(3))
• Representation. Each financial creditor may be represented by its authorised person, and the authorised representative of a class votes for the class (section 24(5) and (6))
• First meeting. Held within seven days of the constitution of the committee, when it decides whether to confirm or replace the interim resolution professional (section 22; Topic 24)

5. Actions Needing Approval, Section 28

The resolution professional cannot take certain significant actions without the prior approval of the committee by a vote of at least 66 per cent. These include raising interim finance above the limit set by the committee, creating security interests, changing the capital structure, recording changes in ownership, undertaking related party transactions, amending constitutional documents, changing management or auditors, and transferring rights or obligations under material contracts. Actions taken without approval are void.

Figure 3: Examples of actions needing prior approval

6. Duties of the Committee

• Commercial wisdom. The committee's decisions on the viability and feasibility of a plan are generally not open to judicial review (K. Sashidhar, 2019; Essar Steel, 2019; Topic 28)
• Fairness to all stakeholders. In Committee of Creditors of Essar Steel v Satish Kumar Gupta (2019), the Supreme Court held that the committee must take into account the going concern status of the debtor, maximisation of value and the interests of all stakeholders, including operational creditors, and that similarly situated creditors must be treated fairly, though differences between secured and unsecured creditors may be reflected.
• No delegation of core role. The committee cannot leave the selection of a plan to the resolution professional or the NCLT; it must itself decide by the required vote.
• 2026 changes. The 2026 Amendment gives the committee the role of supervising liquidation (section 21(11)), lets it replace the liquidator by 66 per cent, and empowers the IBBI to specify standards of conduct and timelines for committees of creditors.

7. Frequently Asked Questions

Does an operational creditor ever vote in the committee of creditors?

Only where the corporate debtor has no financial creditors, or none that are unrelated, in which case the committee is formed of the largest operational creditors and representatives of workmen and employees. Otherwise operational creditors may attend without a vote if their dues are at least ten per cent of the debt.

What vote is needed to approve a resolution plan?

At least 66 per cent of the voting share of the financial creditors, under section 30(4). The threshold was 75 per cent until the 2018 amendment.

Can the resolution professional sell a major asset without the committee's approval?

Not where the action falls within section 28, such as transferring rights under material contracts or creating security interests. Those require prior approval by 66 per cent of the committee.

8. Related Topics

• Topic 26: Related Party Creditors and the CoC. The exclusion in detail.
• Topic 27: Creditors in a Class. Authorised representatives.
• Topic 28: Commercial Wisdom of the CoC. Judicial deference.