MONITORING COMMITTEE FOR CORPORATE INSOLVENCY RESOLUTION PROCESS CASES

[Mr. M. GOVINDARAJAN]

In a Corporate Insolvency Resolution Process (‘CIRP’ for short) the Resolution Professional has to obtain resolution plans from the Resolution Applicants, consider the same and put up before the Committee of Creditors for approval.  If the resolution plan is approved by 66% of the members of the Committee of Creditors (‘CoC’ for short)  the Resolution Professional shall file an application before the Adjudicating Authority for the approval of the resolution plan.  Once the plan is approved by the Adjudicating Authority the same will be binding on the corporate debtor, creditors and other stake holders. 

Once the resolution plan is approved the CIRP ends and the corporate debtor is relieved from this cause.  The resolution applicant is to implement the resolution plan and accordingly he has to pay to all the creditors as mentioned by him in the resolution plan. 

Regulation 38 (2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that a resolution plan shall provide-

• The term of the plan and its implementation;
•  the management and control of the business of the corporate debtor during its term; and
• adequate means for supervising its implementation.

Regulation 38(4) and (5) have been inserted vide Notification No. IBBI/2023-24/GN/REG113, dated 15.02.2024.  The newly inserted Regulation 38(10) provides that the committee of creditors may consider the requirement of a monitoring committee for the implementation of the resolution plan.  Regulation 38(5) provides that if the committee of creditors considers that a monitoring committee for the implementation of the resolution plan is required, it may, while approving the resolution plan, decide to constitute the same with the resolution professional or propose another insolvency professional, or any other person as its members.  The proviso to Regulation 38(5) provides that if the resolution professional is proposed to be part of the monitoring committee, the monthly fee payable to him shall not exceed the monthly fee received by him during the corporate insolvency resolution process.

There is no provision in the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) for the constitution of the Monitoring Committee by the Adjudicating Authority.  The Supreme Court in STATE BANK OF INDIA & ORS VERSUS THE CONSORTIUM OF MR. MURARI LAL JALAN AND MR. FLORIAN FRITSCH & ANR - 2024 (11) TMI 410 - SUPREME COURT (LB)  stressed for the need for statutory recognition of monitoring committees and made several key recommendations regarding their constitution and functioning.  The Supreme Court, in para 181 of its order, suggested the Code shall statutorily provide for the constitution of a Monitoring Committee, once the plan has been approved, for a smooth handover of the Corporate Debtor to the Successful Resolution Applicant. Presently, such a provision is absent in the Code and it is the Adjudicating Authority that orders for the constitution of a Monitoring Committee to ensure smooth implementation of the Plan. The CoC must be empowered to constitute the Monitoring Committee which may, by default, include the Resolution Professional and also include other nominees from the CoC and the Resolution Applicant respectively. Such a Monitoring Committee would be entrusted with the powers of monitoring and supervising the resolution plan till the expiry of the term of the Resolution Plan. The Committee shall also be required to ensure all statutory compliances during the implementation of the

plan along with updating the Adjudicating Authorities, Financial and other Creditors about the status of implementation of the Resolution Plan, on a quarterly basis.

In view of the judgment of Supreme Court in the above said case, the Insolvency and Bankruptcy Board of India (‘Board’ for short) proposed to strengthen the regulatory framework governing monitoring committees under the Code.  Since the CoC with commercial wisdom and is the primary decision-making body during CIRP, the proposed framework empowers the CoC to take the final decision on the constitution, composition, and functioning period of the monitoring committee, as part of the resolution plan. The CoC is vested with commercial wisdom and is the primary decision-making body during CIRP, the proposed framework empowers the CoC to take the final decision on the constitution, composition, and functioning period of the monitoring committee, as part of the resolution plan.   The CoC shall retain the flexibility to decide for constitution of monitoring committee with lesser period if the resolution plan provides for substantial implementation during such tenure with recorded reasons.

In view of the above the Board proposed to amend the regulations.  It proposed to substitute the existing Regulation 38(4) and (5) by a new Regulation 38(4).  The newly substituted Regulation 38(4) provides that-

• the resolution plan shall provide for constitution of a monitoring committee having such tenure, composition and functions as specified in this sub-regulation.
•  The monitoring committee shall function till the completion of implementation of the resolution plan.
• the committee may, for reasons to be recorded in writing, decide for lesser tenure for the monitoring committee if the resolution plan provides for substantial implementation during such tenure.

The monitoring committee shall consist of the following members-

• the resolution professional or another insolvency professional proposed by the committee who shall act as the chairperson of the monitoring committee;
• nominee(s) of the committee of creditors; and
• nominee(s) of the successful resolution applicant equal to the number of nominee(s) of the committee of creditors.

The plan may also enable exclusion of an existing member or inclusion of any other person in the monitoring committee, as considered appropriate by the monitoring committee.

The monitoring committee shall monitor and supervise-

• implementation of the resolution plan;
• distribution of resolution proceeds in accordance with the resolution plan;
• transfer of assets and control of the corporate debtor to the successful resolution applicant in accordance with the terms and conditions of the resolution plan; and
• compliance of all statutory requirements during implementation of the resolution plan by the successful resolution applicant or any other person in control of the corporate debtor, as the case may be.

The monitoring committee, through its chairperson, shall submit quarterly reports to the Adjudicating Authority and the Board regarding the status of implementation of resolution plan in the format, as may be notified by the Board by a circular.  The monitoring committee shall seek appropriate directions from the Adjudicating Authority, where implementation is not in accordance with the terms and conditions of the resolution plan.

The successful resolution applicant shall bear the expenses of the monitoring committee.  The monthly fee payable to the insolvency professional, acting as the chairperson of the monitoring committee shall not exceed the monthly fee received by resolution professional during the corporate insolvency resolution process.

The Board’s proposal in regard to the constitution of the monitoring committee by the Adjudicating Authority and the method of functioning of the monitoring committee will bring a new focus for proper implementation of resolution plan within the time and to the satisfaction of all the stakeholders.