The Delhi High Court has mandated that the Insolvency and Bankruptcy Board of India (IBBI) formulate a code of conduct or set of guidelines to enhance the efficiency of Committees of Creditors (CoC) within a span of three months.

Justice Purushaindra Kumar Kaurav emphasized the pivotal role of the Committees of Creditors (CoC) within the Corporate Insolvency Resolution Process (CIRP). Recognizing the importance of preserving the "commercial wisdom" of the CoC, safeguarded by legislative mandate against unwarranted intervention, there arises a pressing necessity for the formulation of a code of conduct or guidelines to ensure their efficient functioning.

During the hearing of a plea filed by Kunwer Sachdev, former director of Su-Kam Power Systems Limited, Justice Kaurav issued the directive. The petitioner alleged that Su-Kam, which entered the Corporate Insolvency Resolution Process (CIRP) in 2018, was undervalued by the Committee of Creditors (CoC), resulting in minimal returns for the banks from the company's sale. This, the petitioner argued, exemplified a misuse of power or a failure to exercise power by the CoC, causing significant prejudice.

In response, the petitioner urged for mechanisms to address grievances against the CoC's conduct to ensure effective implementation of the Insolvency and Bankruptcy Code (IBC). Justice Kaurav emphasized the CoC's pivotal role in CIRP, likening its commercial wisdom to a driver's GPS navigation in a journey, suggesting it guides the process.

The Bench underscored the heightened significance of a code of conduct, particularly considering that decisions made by the Committee of Creditors (CoC) leave aggrieved parties with limited legal recourse once finalized.

 Therefore, “the decision-making process should itself be infused with sufficient safeguards of reasonableness, fair-play, proportionality and adherence to the principles of natural justice,” the Court held.

Accordingly, the Bench directed the Insolvency and Bankruptcy Board of India (IBBI) to formulate guidelines governing the operations of Committees of Creditors (CoCs). It emphasized that the code of conduct should not aim to challenge the fairness of CoC decisions and must adhere to the overarching framework of the Insolvency and Bankruptcy Code (IBC).