The Committee of Creditors (CoC) is created and its role is explained in Section 21 of the Insolvency and Bankruptcy Code (IBC), 2016. The Corporate Insolvency Resolution Process (CIRP) can't work without the CoC. It is mostly made up of financial creditors and makes sure they have a voice as a group. In approving or rejecting resolution plans, this group has a significant role. Its goal is to protect the interests of creditors and get the most money out of the debtor's assets. Insolvency resolution is outlined in the section. But there are disagreements about things like voting rights and keeping related parties out of the race. Even so, Section 21 is still very important for keeping interests balanced and the insolvency process open.
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Section 21 of Insolvency and Bankruptcy Code, 2016
Section 21 specifically addresses the formation and functioning of the Committee of Creditors (CoC) during CIRP. This provision was notified effective from December 1, 2016, and has seen amendments, notably through the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, effective June 6, 2018, and the Insolvency and Bankruptcy Code (Amendment) Act, 2020, effective December 28, 2019.
The CoC is pivotal in decision-making during CIRP, balancing creditor interests while maximizing asset value, addressing previous inefficiencies in India’s bankruptcy regime where delays often eroded debtor assets. Section 21 outlines the following key provisions:
Forming the CoC (Section 21(1)): The Interim Resolution Professional (IRP) collects all claims against the company (corporate debtor) and assesses its financial situation. Based on this, the IRP forms a Committee of Creditors (CoC) to manage the insolvency process.
Who’s in the CoC? (Section 21(2)): The CoC includes all financial creditors (those owed money like loans or bonds). Related parties (e.g., company insiders) who are financial creditors can’t join, vote, or participate in CoC meetings unless:
They’re regulated by a financial authority, and
Their connection to the company comes only from converting debt into equity shares before the insolvency started (added in 2018).
Single Trustee for Multiple Creditors (Section 21(3)): If a group of financial creditors (like in a loan syndicate) has a single trustee or agent, each creditor is still a CoC member. Their voting power depends on how much money they’re owed, subject to other rules (sub-sections 6 and 6A).
Creditors with Dual Roles (Section 21(4)): If someone is both a financial creditor (e.g., gave a loan) and an operational creditor (e.g., supplied goods):
They join the CoC only for the financial debt, with voting power based on that amount.
For the operational debt, they’re treated as an operational creditor.
Transferred Debts (Section 21(5)): If an operational debt is sold or transferred to a financial creditor, the new owner is treated as an operational creditor for that debt.
Trustee or Agent Representation (Section 21(6)): If financial creditors share a single trustee or agent (e.g., for bonds or syndicated loans), each creditor can:
Let the trustee act for them in the CoC based on their voting share.
Represent themselves in the CoC.
Hire their own insolvency professional (not the IRP) at their own cost to represent them.
Vote on their own or with other creditors.
Special Cases for Representation (Section 21(6A)): For certain financial debts (like securities, deposits, or debts owed to a large group of creditors):
A single trustee can act for all creditors in the CoC.
If there’s a large group of creditors (beyond a specified number), the IRP asks the Adjudicating Authority to appoint an insolvency professional (not the IRP) as their authorized representative.
If a guardian, executor, or administrator represents creditors, they act as the authorized representative.
These representatives attend CoC meetings and vote based on each creditor’s voting share.
Payment for representatives: For trustees or guardians, as per the debt terms and for large creditor groups, as part of insolvency process costs.
Voting Share for Securities (Section 21(7)): The Board sets rules for calculating voting shares for financial debts issued as securities (per CIRP Regulation 25A).
Decision-Making in the CoC (Section 21(8)): CoC decisions need at least 51% of the voting share of financial creditors to pass. If there are no financial creditors, the CoC includes other persons specified by the Board, with roles defined by regulations (CIRP Regulation 16).
Access to Financial Information (Section 21(9)):The CoC can ask the resolution professional for any financial details about the company during the insolvency process.
Providing Information (Section 21(10)): The resolution professional must provide the requested financial information to the CoC within 7 days.
Learn more about Corporate Insolvency Resolution
Implications and Broader Context
Section 21 of the Insolvency and Bankruptcy Code (IBC) 2016 is there to protect people. It fits with the IBC's main goals of increasing asset value and making sure problems are solved quickly.
To prevent conflicts of interest, the section bars related parties from voting rights. It does, however, make an exception for regulated financial creditors. This exclusion has led to arguments about what a "related party" really means and how broad that term should be.
Section 21(6A) lets authorized representatives speak for large groups of creditors. This helps make the Corporate Insolvency Resolution Process (CIRP) more open to everyone. However, as part of insolvency costs, the cost of hiring such representatives may be a concern.
Consortia and syndicated loans are covered in sections (3) and (6). They make sure that the voting rights of all the lenders are shared fairly. It is important to do this when trying to solve cases with complicated financial structures.
Legal studies show that Section 21 is very important for balancing the needs of creditors and debtors. The IBC has made improvements to India's insolvency laws, but there are still arguments. Creditor rights, voting rights, and related party exclusions are still important issues that people want to talk about.
Find out What Insolvency is?
Summary
Section 21 of the IBC, 2016, is a pivotal provision for the Committee of Creditors, offering a structured framework for creditor participation during CIRP. Its detailed structure, legal interpretations, and lack of recent amendments as of May 24, 2025, underscore its role in India’s insolvency framework. Users seeking precise application should consult official sources and legal experts, especially given potential complexities in related party exclusions and voting rights.
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Section 21 of IBC FAQs
Q1. What is Section 21 of the Insolvency Act?
The term "Insolvency Act" is vague. In India, Section 21 of the IBC 2016, mandates forming a Committee of Creditors (CoC), primarily financial creditors, to make decisions during the corporate insolvency resolution process (CIRP). For other jurisdictions (e.g., UK’s Insolvency Act), please specify the context.
Q2. What is IBC Regulation 21?
Regulation 21 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, specifies that the interim resolution professional or resolution professional must circulate the minutes of the Committee of Creditors (CoC) meeting to all participants within 48 hours of the meeting.
Q3. What is Section 5(21) of the IBC?
Section 5(21) of the Insolvency and Bankruptcy Code, 2016, defines an "operational debt" as a claim related to the provision of goods, services, employment, or dues payable to the government under any law.
Q4. What is Section 22 of the IBC?
Section 22 of the IBC, 2016, allows the Committee of Creditors to appoint a resolution professional (either confirming the interim resolution professional or appointing a new one) by a 66% vote to manage the corporate insolvency resolution process.
Q5. What is Section 24 of the IBC?
Section 24 of the Insolvency and Bankruptcy Code, 2016, outlines the procedure for conducting Committee of Creditors meetings, including notice requirements, participation, and voting processes for financial creditors and authorized representatives.
