2026 (2) TMI 1285 - AT - Companies Law

Committee of Creditors limited right to litigate in Code matters; Resolution Professional not the exclusive representative.

The article addresses whether a Committee of Creditors (CoC) may sue or be sued under the Insolvency and Bankruptcy Code, concluding that the CoC lacks ... 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/juristic personality to litigate in its name under the Insolvency and Bankruptcy Code; (iii) If CoC has the right to litigate, whether only the Resolution Professional must represent it; (iv) Whether the CoC must be impleaded in a proceeding seeking removal of a particular financial creditor from the CoC.Issue (i): Whether the appeal is properly instituted.Analysis: The verification and power of attorney objections were raised but, given the Tribunal's decision on impleading and substantive issues, detailed examination of the verification objection was not required; the scope of the power granted prima facie appeared broad.Conclusion: The maintainability objection is rendered largely superfluous by other conclusions and is not decided as a determinative bar to the appeal.Issue (ii): Whether the CoC has a legal character/juristic personality to litigate in its name under the Code.Analysis: The CoC is not a corporate entity with perpetual succession, common seal, or independent corporate personality; it is a statutory collective of independent financial creditors formed under the Code. Jurisprudential categories such as company, partnership, trust or society do not neatly fit the CoC. However, practical functioning under the Code has evolved to permit the CoC to appear in litigation and the statutory role of the CoC in the insolvency process supports limited recognition of its litigative capacity within the Code's framework. The analysis distinguishes between full juristic personality and a functional, limited authorization to litigate in matters arising under the Code.Conclusion: The CoC does not possess full juristic personality in the classical sense but, for the purposes of issues arising under the Insolvency and Bankruptcy Code, it is permitted a limited right to litigate in its name subject to the safeguards and conditions set out by the Tribunal.Issue (iii): Whether, if CoC can litigate, only the Resolution Professional may represent it.Analysis: The Code assigns distinct roles to the CoC and the Resolution Professional; statutory provisions that require the RP to perform certain functions do not render the RP the exclusive representative of the CoC in all proceedings. The functional role of the RP in filing applications under specific Code provisions does not convert the RP into the sole litigious representative of the CoC.Conclusion: The scheme of the Code does not mandate that only the Resolution Professional represent the CoC; the CoC may be represented or may litigate subject to the conditions identified by the Tribunal.Issue (iv): Whether the CoC needs to be impleaded in proceedings seeking removal of a particular financial creditor from the CoC.Analysis: A proceeding challenging the entitlement of a specific financial creditor relates to the individual contractual and factual rights of that creditor. The CoC is a collective of independent creditors whose membership rights derive from individual contracts with the corporate debtor. A removal challenge to one member does not necessarily affect the identical or collective rights of all members, and inclusion of the CoC as a party is not necessary or proper where the dispute concerns only the status of a particular creditor.Conclusion: The CoC is neither a necessary nor a proper party to proceedings directed solely at the removal of a particular financial creditor; impleading the CoC in such proceedings is not required.Final Conclusion: The appeal lacks merit and is dismissed; the impugned order of the Adjudicating Authority refusing impleading of the CoC in the specific removal application is affirmed.Ratio Decidendi: For purposes of the Insolvency and Bankruptcy Code, a Committee of Creditors, though not a classical juristic person, is accorded a limited right to litigate in its name in matters arising under the Code subject to conditions (single-member CoC, unanimous multi-member CoC, and the requirement to array individual members when a multi-member CoC is made a respondent), and the Resolution Professional is not the exclusive representative of the CoC for all litigative purposes.