Circular On Anomaly Shows Goals Of Code Take Priority

The Insolvency and Bankruptcy Code, 2016 (IBC), implements a "creditor-in-possession" regime that vests decision making powers of the insolvent company with a "committee of creditors" (CoC), astutely recognizing that financial creditors will be better motivated than the previous managers to preserve the asset base of an insolvent company.

Despite shifting such control to the CoC, the provisions of the IBC and its regulations create an anomalous situation in which a provision of the Companies Act, 2013, could make a resolution plan agreed by the CoC subject to approval by shareholders of the insolvent company. While section 238 of the IBC states that the IBC will have overriding effect over the provisions of any other law, section 30(2)(e) of the IBC mandates that a resolution plan must be in conformity with the provisions of any law in force.