2026 (2) TMI 1285 - AT - Companies Law

Committee of Creditors' limited litigation capacity affirmed, with RP not invariably sole representative and impleadment not mandatory.

The article addresses whether a Committee of Creditors (CoC) possesses capacity to litigate under the Insolvency and Bankruptcy Code, whether only the ... Committee of Creditors as a statutory entity - juristic personality and right to litigate - functional recognition versus jurisprudential status - representation by the Resolution Professional - necessity and propriety of impleading parties - Legal Character of the COC and it’s Right to Litigate - Does the CoC possess a legal character as a juristic person? Can it sue or be sued (to be neutral, to litigate) in its name? - HELD THAT:- A HUF may be a person in terms of the definition, but it cannot litigate in its name since a suit may be laid only by the ‘karta’ or the manager of the family, who is a natural person. A trust by legal fiction may be termed as a person within this definition, but only trustees can sue and be sued and not the trust, but the trustees are natural persons. Therefore, one who is not constituted as a juristic person even though if it falls within the definition of person under Sec.3(23) of the IBC may be considered as a person wherever the definition which characterise them as such is applied, yet it may not have the right to litigate in its name. Turning to Sec.3(23)(g), for a statutory entity to be termed as a person with the right to sue or be sued in its name, it must be constituted as a corporate soul such as for instance, a Commissioner of the Municipality, whom most Municipalities Acts constitute as a corporate soul with perpetual succession and common seal. A CoC therefore, can hardly be termed as a person in that sense with right to litigate in its name. The practice of letting CoC litigate in its name which we have approved in the earlier paragraph, is not without its difficulties. This therefore, necessitates a finetuning of the practice of allowing CoC to litigate in its name to avert the difficulties that it may pose. We therefore hold: Where CoC is run by a single member, it does not matter whether CoC litigates or the lone member constituting it litigates in their names. Therefore, CoC can litigate in its name. Where a multi-member CoC decides unanimously to litigate together, then it may institute such proceedings which may include a petition or an application or an appeal in its name. Where however, a multi-member CoC is intended to be arrayed as a respondent, then it is necessary that every member of the CoC is arrayed independently as a respondent, since the one who approaches the tribunal with a grievance may not know whether the members of the CoC intend to litigate together or not. What is mentioned in (c) has its relevance only for future litigations. So far as those which are pending, any issue that may visit the tribunal is only required to be addressed as and when it arises. Who should represent the CoC - HELD THAT:- We are not in agreement with the Adjudicating Authority’s view that only RP has the authority to represent the CoC. The Code constitutes CoC and RP as entirely different entities, and have assigned them different roles and specific responsibilities. It may be that RP is required to file an application seeking the approval of the Adjudicating Authority to the resolution plan approved by the CoC, but then the RP while doing so does not act as an agent of the CoC but merely complies with what IBC directs in Sec.31 of the IBC. Whether the CoC needs to be impleaded in I.A.466 of 2025. - HELD THAT:- As has been discussed earlier a CoC is a mere collective of independent financial creditors, and despite its formation it does not purport to efface the independent identity of the members constituting it. After all every member of the CoC obtains an entry into it only after independently establishing that they are financial creditors of the corporate debtor, and that they have an independent claim for financial debt from the latter. - The distinction between a CoC and the members who constitute it is well defined and preserved under the statutory scheme of the Code, and hence anything that affects or threatens the individual right of a member of the CoC cannot be construed as a threat to all. When Glas Trust’s presence in the CoC is challenged, it is required to be tested only with reference to the nature of contractual relationship Glas Trust has established with the corporate debtor, and if it has given rise to a financial debt which the corporate debtor has defaulted in repaying. We affirm the decision of the Adjudicating Authority and hold that the CoC does not required to be impleaded in I.A.466 of 2025. Issue of Maintainability of the Appeal - The power granted to the holder thereof has authorised him to do everything for the conduct of the legal proceedings which included the authority to “swear, affirm, execute, declare and file affidavits and all papers as may be required (including notices, affidavits, motions, vakalatnamas, compromise terms, petitions, caveats, applications (including injunction applications), appeals,” besides settling pleadings and giving evidence. The objection of the respondent is that inasmuch as the power is a special power granted to the power holder, and inasmuch as neither CoC’s resolution nor the power of attorney have not specifically authorised the power holder to take out an application for impleading on behalf of the CoC and file this appeal, the institution of this very appeal is rendered incompetent. Without engaging ourselves in an exercise to micro scan the objection raised for evaluating its merit, we merely state that prima facie the extent of power granted appears broad based, but in view of the decision taken in this appeal, we find no need to deal with it in greater detail. Issues: (i) Whether the appeal is properly instituted; (ii) Whether the Committee of Creditors (CoC) has a legal character or juristic personality to litigate in its name under the Insolvency and Bankruptcy Code; (iii) If CoC has such legal character, whether only the Resolution Professional (RP) can represent the CoC in proceedings; (iv) Whether the CoC must be impleaded in a proceeding challenging membership of a particular financial creditor of the CoC.Issue (i): Whether the appeal is properly instituted.Analysis: The procedural objection regarding verification by a special power of attorney holder and the scope of authority conferred was raised but, given other determinations in the appeal, detailed adjudication of the maintainability point was not necessary; the prima facie power appeared broad.Conclusion: The question of proper institution of the appeal is not decided finally as it is rendered largely academic by other findings.Issue (ii): Whether the CoC has a legal character or juristic personality to litigate in its name under the Insolvency and Bankruptcy Code.Analysis: The CoC is a statutory construct comprising financial creditors and lacks corporate attributes of perpetual succession or registration; it differs from companies, partnerships, societies or trusts. Section 3(23) includes various entities within the definition of 'person' by statutory fiction, but entities so included do not uniformly possess independent capacity to sue in their own name; practice under the Code shows CoCs have litigated historically. A functional and pragmatic approach recognises limited authority for a CoC to litigate within the framework of the Code to secure effective operation of the insolvency regime, subject to safeguards where multi-member composition raises representation issues.Conclusion: The CoC is not a juristic person in the classic sense but, for purposes of proceedings arising under the Code and in furtherance of its statutory functions, a CoC may litigate in its name subject to conditions described in this judgment.Issue (iii): Whether only the Resolution Professional can represent the CoC in proceedings.Analysis: The Code assigns distinct roles to the CoC and the RP; filing of applications by the RP under specific sections is a statutory obligation distinct from representation of the CoC as a decision-making collective. Recognising CoC's limited capacity to litigate does not automatically convert RP into the sole representative for every proceeding involving CoC's interests.Conclusion: The RP is not the exclusive representative of the CoC for all proceedings; the CoC may be represented in proceedings where it is properly entitled to litigate under the Code.Issue (iv): Whether the CoC must be impleaded in a proceeding challenging membership of a particular financial creditor.Analysis: A challenge to the membership of a particular financial creditor concerns the individual contractual relationship and rights of that creditor and does not, by necessary implication, affect the collective or identical rights of all CoC members. The necessity or propriety of impleading the CoC depends on whether the decision sought will directly affect the collective rights or functions of the CoC as a whole; where it does not, impleadment is not required.Conclusion: The CoC is neither a necessary nor a proper party to proceedings solely directed at the removal of a particular financial creditor from the CoC; impleadment is not required.Final Conclusion: The CoC is permitted a limited capacity to litigate in its name for purposes of the Insolvency and Bankruptcy Code subject to safeguards regarding single-member, unanimous multi-member, and multi-member respondent situations; the RP is not the sole representative in all matters; however, the CoC need not be impleaded in proceedings targeting the membership of an individual financial creditor. Pursuant to these conclusions, the impugned order dismissing the application to implead the CoC is affirmed and the appeal is dismissed.Ratio Decidendi: For purposes of proceedings under the Insolvency and Bankruptcy Code, a Committee of Creditors, though not a classic juristic person, may litigate in its name when necessary for the effective functioning of the Code, subject to conditions that address single-member CoCs, unanimous multi-member decisions, and the requirement to array all individual members where a multi-member CoC is made a respondent; challenges to individual membership do not mandate impleadment of the CoC.