Change in the Constitution of CoC will not affect its prior decision

BACKGROUND

in the matter of DBS Bank vs. Rakesh Kumar Jain, CA (AT) (Ins) No. 540/2021 an issue cropped up before the Hon’ble NCLAT that whether a change in the composition of the Committee of Creditors (CoC) of the Corporate Debtor will affect its previous decision and the same will be binding on the newly included members of CoC.

FACTUAL MATRIX

An operational Creditor initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and thereafter, the COC was constituted by the Resolution Professional (RP) comprising the Operational Creditor as the sole member.
In the first COC meeting held on 27.09.2019, the Operational Creditor approved the fees and expenses of the RP at Rupees 1 lakhs per month. Subsequently, the COC was reconstituted on 12.10.2019 with the DBS Bank (Appellant) as the Sole Financial Creditor. Thereafter, the DBS Bank participated in all COC Meetings and passed a resolution to liquidate the corporate debtor in the fourth COC meeting dated 10.02.2020.
It was contended on behalf of the DBS Bank that the fees of RP were approved by the Operational Creditor who was no longer a member of COC and DBS Bank never ratified the remuneration and expenses of the RP in the reconstituted COC. It was further contended that in any case, the fees of the RP will be paid in priority from the liquidation proceeds as per Section 53 of the IBC and therefore, DBS Bank is not required to pay the amount to the Resolution Professional.

ISSUE BEFORE HON’BLE NCLAT, NEW DELHI FOR CONSIDERATION

Whether the change in the composition of the Committee of Creditors (CoC) of the Corporate Debtor will affect its previous decision and the same will be binding on the newly included members of the CoC?

DECISION GIVEN BY THE HON’BLE NCLAT, NEW DELHI

The Hon’ble NCLAT Delhi held that the sole ‘Financial Creditor’ of the reconstituted CoC and having participated in all the Meetings and also admittedly having passed the Resolution seeking Liquidation of the ‘Corporate Debtor’, the Appellant Bank cannot now turn around and say that they are not liable to pay the CIRP Costs and Fees. Further, The Hon’ble NCLAT relied upon Regulation 12(3) of CIRP Regulations, 2016, which reads as follows: “12. Submission of proof of claims. (3) Where the creditor in sub-regulation (2) is (a financial creditor under Regulation 8), it shall be included in the committee from the date of admission of such claim: Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.”

RATIO LAID DOWN

Despite of change in the constitution of the CoC, it will not affect its previous decision.

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