Juris Corp

Introduction In a vast economy like India, every transaction carries an anticipated or unanticipated risk that determines the existence of the company (and its guarantors!) and has the potential to lead the company (and its guarantors!) into insolvency. Our credit markets which are dominated by banks and financial institutions play a pivotal role in determining the fate of distressed companies in the not so new insolvency regime brought by the Insolvency and Bankruptcy Code, 2016 (“I&B Code”). Creditors in control has been the mantra to keep the company a going concern and the formation of the Committee of Creditors (“CoC”) serves as a mechanism to ensure fair representation in the decision-making processes. The CoC institutionalizes the of collective action in the Corporate Insolvency Resolution Process (“CIRP”) and is entrusted with the fundamental role of reviving, resurrecting, and restructuring the Corporate Debtor (“CD”). In the game of CIRP, there are various players, but it is the CoC is the umpire as well as the king maker of the game. However, in order to ensure the creditors in control do not act uncontrollably, judicial intervention has led to a wide interpretation of the decisions, powers, and ambit of commercial wisdom of the CoC. This article delves into what constitutes and what does not constitute the commercial wisdom of CoC and how! Pivotal role of the CoC The CoC is decision-making body for the CD, its composition includes those who are interested in revival of the CD and not only recovery. Thus, it comprises only financial creditors of the insolvent entity[1] and in the case where no financial creditors are present, operational creditors of the said entity[2]. The suspended board of directors of the CD are also members of the CoC albeit with no voting power[3]. CoC in its commercial wisdom holds absolute power for making decisions during the CIRP, however, with great power, comes great responsibility. CoC is entrusted with the responsibility of of ensuring that CD continues as a going concern during the CIRP. CoC must ensure that no inordinate delays occur during the CIRP and there should be no unreasonable deviation from the timeline of the CIRP. The CoC also oversees the Resolution Professional’s (“RP”) activities while ensuring that the I&B Code’s provisions are followed. If the CoC believes that the RP is not carrying out the responsibilities outlined under the I&B Code, the CoC may replace the RP[4]. To ensure transparency and guidance to the CoC, the Insolvency and Bankruptcy Board of India (“IBBI”) has time and again introduced amendments in its rules and regulations which act as guiding principles for the CoC. The amended IBBI Regulations also direct the RP to conduct a CoC meeting every 30 days, and on approval by the CoC, such meeting may be held once every quarter. Moreover, unreasonably arbitrary decisions or resolution plans approved by the CoC have been kept in check through Section 31 of the I&B Code, under which the adjudicating authority can strike down any such decision. The Wise CoC Since the inception of the I&B Code, it has been made clear that the decisions of the CoC are to be seen as paramount and are not to be subjected to the judicial review[5], unless explicitly provided by the I&B Code[6]. This ‘commercial wisdom’ of the CoC has time and again been reaffirmed through various measures and the scope of the commercial wisdom has increased by far to what was intended initially. The Hon’ble Supreme Court (“Supreme Court”) has clarified that the legislature propounded the I&B Code with an inherent assumption in place that financial creditors are well-acquainted with the position of CD and the decisions taken during the CIRP and deliberations thereon are a collective business decision and hence has been treated as non-justiciable[7]. Further, the Supreme Court has reaffirmed that the law upon the wisdom of the CoC is stricto sensu and well-settled that it is well within the CoC’s domain as to how to deal with the entire debt of the CD[8].  With a position so concrete, the scope of the CoC's wisdom has left almost nothing for adjudicating authorities to interfere with barring any contravention of the I&B Code. While the above is settled, the Courts have lately indulged in depth to see what lays out of the wide horizons of CoC’s commercial wisdom as ultimately this wisdom can revive or even liquidate a company. The Hon’ble National Company Law Appellate Tribunal (“NCLAT”) in a recent judgment held that Section 33 (2) of the I&B Code empowers the CoC to decide to initiate liquidation even before inviting Resolution Plans[9]. It is the commercial wisdom of the CoC to approve what is to be the best resolution plan. To empower the CoC even further, the NCLAT in a separate judgment held that the Adjudicating Authority with the limited powers of judicial review available to it cannot substitute its views with the commercial wisdom of the CoC, when the CoC had deliberated at length on this issue and had decided against the option of having other potential resolution applicants from joining the fray[10]. NCLAT has even gone to the extent of noting that while sanctioning the scheme of arrangement if the Court comes to a conclusion that the provisions of the statute have been complied with; and that there is no violation of any provision of law, or the proposed scheme of compromise or arrangement is not unquestionable, unconscionable or contrary to public policy, then the NCLT has no further jurisdiction to sit in appeal over the commercial wisdom of the class of person who with their eyes open have given their approval, even if, the Court is of the view that better scheme could have been framed[11]. In fact, a Resolution Plan approved by CoC is binding on CoC and it cannot review its own decision or pray for a review of its opinion[12]. Vice CoC v. Wise CoC I&B Code[13] lays the grounds for challenging the approval of the resolution plan; (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the CD have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. The Supreme Court recently held that while the commercial wisdom of the CoC in approving a resolution plan may not be justiciable under judicial review, the adjudicating authority must examine any shortcomings in the resolution plan in terms of the parameters specified in Section 30 (2) of the I&B Code, and upon such shortcoming in the resolution plan, it may send the resolution plan back to the CoC for reconsideration after satisfying the parameters so laid down[14]. Further, the Supreme Court in the case of M.K. Rajagopalan v. Dr. Periasamy Palani Gounder & Anr.[15], restricted the CoC from overstepping their commercial wisdom, and observed that CoC should not be “over-expanded to brush aside a significant shortcoming in the decision making of CoC when it had not duly taken note of the operation of any provision of law for the time being in force.” The plan stood in contravention of Section 88 of the Indian Trusts Act, 1882, The wisdom of the CoC was questioned with respect to multiple aspects of the CIRP (such as the ineligibility of the resolution applicant, as well as the failure to place the resolution plan before the CoC), SC held that the status of the CoC would not be a sufficient reason to ignore such shortcomings. In furtherance to this, it has been reiterated time and again that even though the commercial wisdom of the CoC is paramount the Adjudication Authority cannot act as a mute spectator to endorse and put its seal of approval on whatever decision the CoC takes in the name of exercising its "commercial wisdom"[16]. This principle of judicial scrutiny over the CoC's wisdom was further highlighted by the Hon’ble Madras High Court[17] wherein it was held that the adjudicating authority could reject a CoC approved resolution plan if there is incomplete information, lack of transparency, failure to ensure operational creditors receive at least the liquidation value, or inequitable treatment of operational creditors per Section 30(2) of the I&B Code. Thus, while the CoC's commercial wisdom is respected, it must comply with legal and procedural requirements to ensure fairness. Acts such as cancellation of lease deeds during CIRP do not fall within the ambit of commercial wisdom of CoC[18]. CoC unchained by I&B Code - chained by Judicial Intervention? The independence that the CoC possesses must have checks and balances placed to ensure that the provisions of the I&B Code are adhered to. It is the responsibility of the CoC to ensure that the resolution is aimed at restructuring the CD within the framework of the I&B Code. By upholding principles of balanced representation, informed decision-making, and stakeholder engagement, creditors’ committees can play a crucial role in facilitating the resolution of distressed assets while safeguarding the interests of creditors and promoting the overarching objectives of the insolvency framework.   Authors: Jinal Shah Principal Associate, Juris Corp Email: [email protected] Palak Nenwani Senior Associate, Juris Corp Email: [email protected] Ronit Chopra Associate, Juris Corp Email: [email protected]   Disclaimer:  This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein. [1]  Section 21(2), I&B Code 2016. [2] Section 21(8), I&B Code 2016. [3] Section 24(3), I&B Code 2016. [4] Section 27, I&B Code 2016. [5] Ramkrishna Forgings Limited v. Ravindra Loonkar & Anr., Civil Appeal No.1527 OF 2022, Supreme Court. [6] Kalpraj Dharamshi & Anr. v. Kotak Investment Advisors Ltd.& Anr., (2021) 10 SCC 401, Supreme Court. [7] K Sashidhar v. Indian Overseas Bank, Civil Appeal No.10673 of 2018, Supreme Court; Valla RCK v. Siva Industries & Holdings Ltd, (2022) 9 SCC 803, Supreme Court. [8] Pratap Technocrats Private Limited v. Monitoring Committee of Reliance Infratel Limited & Anr., 2021 SCC OnLine SC 661, Supreme Court. [9]  Sunil Surendra Kumar Kakkad Vs. Sujyot Infrastructure Pvt. Ltd., 2024 SCC OnLine NCLAT 1316, National Company Law Appellate Tribunal, Principal Bench, New Delhi. [10] Jatinder Pal Singh Hanjra Vs. Vivek Raheja and Ors., 2024 SCC OnLine NCLAT 224, National Company Law Appellate Tribunal, Principal Bench, New Delhi. [11] Marathon Nextgen Townships Pvt. Ltd. and Anr. Vs. Regional Director, Western Region, Ministry of Corporate Affairs, 2024 SCC OnLine NCLAT 1670, National Company Law Appellate Tribunal, Principal Bench, New Delhi. [12] Nivaya Resources Pvt. Ltd. v. Asset Reconstruction Company (India) Ltd. and Anr., 2022 SCC OnLine NCLAT 390, National Company Law Appellate Tribunal, Principal Bench, New Delhi. [13] Section 61(3) of the I&B Code. [14] Greater Noida Industrial Development Authority v. Prabhjit Singh Soni and Anr, (2024) 6 SCC 767, Supreme Court. [15] M.K. Rajagopalan v Dr. Periasamy Palani Gounder & Anr., (2024) 1 SCC 42, Supreme Court. [16] Shankar Mukherjee and Ors. Vs. Ravi Sethia, Resolution Professional of Suasth Healthcare Foundation and Ors., 2023 SCC OnLine NCLT 1209, National Company Law Tribunal, Kolkata Bench. [17] The National Sewing Thread Co. Ltd. v. The superintending Engineer, TANGEDCO and Ors., 2024 SCC OnLine Mad 2330, High Court of Madras. [18] UCO Bank v. M/s. GIT Textiles Manufacturing Limited, I.A. (IB) No. 849/KB/2023 in C.P. (IB) No. 600 of 2019, National Company Law Tribunal, Kolkata Bench.

Introduction Housing Finance Companies (“HFCs”) play an essential role in the Indian financial ecosystem by providing loans to individuals and businesses for purchasing, constructing, or renovating residential properties.

 1. INTRODUCTION Securitization is gaining momentum in India and is developing and enhancing the financial markets.

Over the last few years, the Indian Government has been taking measures towards environmental sustainability along with economic growth. As enumerated in Article 48-A of the Indian Constitution, preservation of the environment is enshrined in the Indian Constitution itself.  The Finance Minister while tabling the Union Budget 2023-24 specified green growth as one of the seven priorities of the Government of India and while specifying the same, the aim of achieving net-zero carbon emission by 2070 was highlighted. Over the last year, the Indian Government has introduced significant regulatory updates in the green bonds space. Whether it be the introduction of the Sovereign Green Bonds Framework or the amendment by the Securities and Exchange Board of India (“SEBI”) to the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021[1] which widened the definition of green bonds and stressed on green washing, the regulatory framework for green bond financing has seen a considerable development.

Pre-packaged insolvency resolution process ("PPIRP”) was introduced by amending the Insolvency and Bankruptcy Code (“Code”) in April 2021[1]. This currently applies to Micro Small Medium Enterprises (“MSMEs”). This was enacted to provide ‘PPIRP’ as an alternative to Corporate Insolvency Resolution Process (“CIRP”) to mitigate the financial distress caused by the Covid-19 pandemic to MSMEs.

Trade finance is the financing of international trade flows. It exists to mitigate, or reduce, the risks involved in an international trade transaction. There are primarily two players in a trade transaction:

Sustainability Linked Derivatives (“SLDs”) are emerging as a powerful new instrument in the toolkit of financiers globally in the context of the growth of use of Environmental Social and Governance (“ESG”) factors in the financial world. For an orderly evolution, a suitable regulatory framework suited for this type of derivative contract is a must. SLDs require robust standardisation with respect to Key Performance Indicators (“KPIs”) and ESG linked metrics in order to ensure the success of such derivative contracts.

Continuous growth of a robust secondary market and creation of additional avenues for raising liquidity have been the key requirements of the Indian loan market. To achieve this, the Reserve Bank of India (“RBI”) has rolled out the Master Directions - RBI (Transfer of Loan Exposures) Directions, 2021[1] (“Master Directions”) on 24th September 2021.

Background SOFR is a risk-free reference rate (“RFR”) selected as the rate for usage in certain United States Dollar (“USD”) derivatives and other financial contracts, by the Alternative Reference Rates Committee (“ARRC”) of the Federal Reserve Bank of New York (“NY Fed”) in the year 2017. It is the preferred alternative to USD LIBOR.

The Hon’ble High Court of Delhi, placing reliance on a catena of judgments, has reiterated that the main attribute of an arbitration agreement is consensus ad idem to refer the disputes to arbitration. In the matter of “Sapna Gupta v. Ajay Kumar Gupta & Ors[1].”, it has been held that in case the same is missing, it is not an arbitration agreement, as defined under Section 7 of the Arbitration and Conciliation Act, 1996 (“Act”) and in the absence thereof, petition under Section 9 of the Act seeking interim measures, is not maintainable. 

The Reserve Bank of India (“RBI”) on 24th September 2021, issued the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 (“Master Directions”). These Master Directions repeal the existing RBI guidelines on securitisation of standard assets. The Master Directions apply to the following entities:

Technology has been an enabling factor in resuming businesses and closing transactions during the pandemic era while parties involved in such transactions are sitting miles apart from each other. In order to be in arms with the rise of digitization, the Indian Government has introduced and amended legislations to bring in electronic records and electronic execution within its purview.

In a recent order dated 24th March 2021, the Competition Commission of India (“CCI”) has taken suo-motu cognizance of the updated privacy policy and terms of services of WhatsApp which were rolled out by WhatsApp on 4th January 2021 (“Updated Policy”).[1] It directed the Director General to investigate the anti-competitive issues in relation to the Updated Policy. Earlier, the users had to give their consent to WhatsApp to share their personalized data with other Facebook companies. This has been changed by the Updated Policy, which makes it mandatory for users to give consent to such sharing to continue using WhatsApp.