CoC Approval Mandatory for CIRP Cost Contribution, Rules NCLAT; Sets Aside Order Against Financial Creditor
- REEDLAW
- Aug 7
- 3 min read
Updated: Aug 12
REEDLAW Legal News Network reports that the National Company Law Appellate Tribunal (NCLAT), New Delhi, has ruled that a financial creditor cannot be compelled to contribute towards CIRP costs without a valid Committee of Creditors (CoC) resolution under Section 28 of the IBC. Such a contribution qualifies as interim finance and requires at least 66% voting approval.
The NCLAT Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey, while adjudicating a company appeal, clarified that the resolution professional cannot enforce CIRP cost contributions in the absence of a CoC resolution with the required 66% majority. The Tribunal further held that simply terming it a “contribution” does not exempt it from the statutory safeguards and voting thresholds prescribed under the Code.
The National Company Law Appellate Tribunal (NCLAT), while adjudicating an appeal filed by the Appellant, the single largest financial creditor in the CIRP of the Corporate Debtor, set aside the order of the NCLT, Kolkata Bench that had directed the Appellant to contribute ₹39.4 lakh towards CIRP costs. The NCLAT found that the direction was issued without serving notice or granting an opportunity of hearing to the Appellant and was passed in violation of the procedural and substantive provisions of the Insolvency and Bankruptcy Code, 2016.
The Resolution Professional had sought contributions from all CoC members towards CIRP costs, apportioning ₹1 crore based on their respective voting shares. The Appellant, holding 39.4% voting share, had voted against the proposed resolution in the 8th CoC meeting, thereby blocking the required 66% majority. The NCLAT noted that despite this, the Adjudicating Authority had allowed the RP’s application and directed the Appellant to pay the apportioned amount without issuing notice or inviting a response, leading to a violation of principles of natural justice.
The Appellant contended that the term "contribution" used by the Tribunal was not defined under the Code and effectively amounted to interim finance, which can only be raised upon the CoC’s approval by a 66% majority as per Section 28 of the IBC. The NCLAT examined the statutory framework under Sections 5(13), 5(15), 28, and Regulations 33, 34, and newly inserted 34B of the CIRP Regulations. It concluded that any CIRP cost not covered by available funds must be raised through interim finance, which mandates 66% CoC approval—a condition not satisfied in the present case due to the Appellant's negative vote.
It was also noted that Regulation 34B(5) merely provides for the fee to be paid to the RP from funds contributed by CoC members or raised as interim finance, but does not independently authorise coercive collection of funds in the absence of the required voting threshold. The Tribunal held that the RP's attempt to treat the rejected resolution as binding on the dissenting member, particularly the one holding the highest voting share, was contrary to both the letter and spirit of the Code.
In light of the above findings, the NCLAT allowed the appeal, setting aside the impugned order passed by the NCLT on 24.09.2024, and clarified that no contribution towards CIRP costs could be imposed in the absence of a valid CoC resolution passed with the requisite majority. The appeal was disposed of without any order as to costs.
Ms. Purti Gupta, Ms. Henna George, Ms. Sunidhi Sah, and Ms. Pooja Aggarwal, Advocates, represented the Appellant.
Mr. Santosh K. Ray and Ms. Zebe Khan, Advocate, appeared for R-3 to R-6.
Mr. Shaunak Mitra, Mr. Dripto Majumdar and Mr. Akash Agarwal, Advocates, appeared for R-1.
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