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Committee of Creditors: Role in Corporate Insolvency Resolution Processes vis-à-vis Homebuyers


The Committee of Creditors is an important organ in the insolvency mechanism. It is a committee comprising financial creditors to whom the corporate debtor owes. The committee is envisioned to be a decision making body in terms of important decisions or for that matter routine decisions during the Corporate Insolvency Resolution Process (CIRP). It is also required to assess and approve or disprove  of those proposals put forward by the Insolvency Resolution Professional (hereinafter “IRP”) or Resolution Professional (hereinafter “RP”) which may affect the outcome of CIRP. 

The Committee is envisioned to recognize and represent the interest of the financial creditors in the CIRP owing to the fact that a relatively high percentage of dues is usually owed to them by the corporate debtor. In this manner, the committee is tasked with ratifying the decisions taken by the RP or IRP in a managerial capacity. The committee is empowered to ratify or reject all decisions which can potentially affect on the CIRP and its outcome.

Under Section 18 of the Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC”), the IRP is to constitute the committee upon consideration and collation of all the claims which are received against the corporate debtor and after the determination of the overall financial condition of the corporate debtor. The public announcement plays a big role in the determination of whose interest will be taken up in CIRP as the committee is initially formed of those creditors whose claims have been received within stipulated time. Financial creditors who submit their claim after the expiry of stipulated time are admitted but only for purposes which arise after such admission. Decisions taken prior to admission cannot be brought in issue by such a financial creditor. 

UNCITRAL’s Legislative Guide to Insolvency Law

The glossary to the UNCITRAL’s Legislative Guide on Insolvency Law defines “creditor” as;

“A natural or legal person that has a claim against the debtor that arose on or before the commencement of the insolvency proceedings”

Furthermore, the glossary also defines “Creditor Committee” as a;

“Representative body of creditors appointed in accordance with the insolvency law, having consultative and other powers as specified in the insolvency law”

According to the UNCITRAL’s LGIL, creditors have a significant interest in the corporate debtor’s business once insolvency proceedings have been entered into. Insolvency representatives or professionals are put in as a general safeguard in many jurisdictions in this regard. In addition to this safeguard, many countries’ insolvency law also enable and facilitate direct involvement of the creditors in the decision making process. The rationale for the provisions for direct involvement is that due to the creditors’ position as the party with the primary economic stake in the proceedings their outcome they may lose confidence in proceedings where key decisions are made without their consent and by individuals who might not have the required expertise in the debtor’s field of business or might have lack of independence in regard to discharge of his duties which, in turn, may be due to manner of appointment.

The LGIL further provides guidance on creditors who may be appointed to a creditor committee. It lays down that different approaches are taken to come to a conclusion of this issue and that it is dictated by the role of the different creditors in the insolvency proceedings. Factors which affect the role and inclination include the status of a creditor’s claim (secured creditors generally enjoy higher status than unsecured creditors) and the nature of the creditor’s claim. The LGIL states that to ensure equality of treatment of creditors a fair chance of representation should be given to all forms of creditors. The LGIL notes that usually only unsecured creditors are represented but also recognized that some laws provide for a separate committee for secured creditors. Further, as is the case in India, the LGIL recognizes that some laws provide for representation of both forms of creditors on the committee of creditors. This is usually done in jurisdictions where the committee is made responsible for participation in the decision-making process for important decisions. In cases such as this, leaving out secured creditors and especially partially secured creditors could potentially hamper their interests.

A creditor committee or creditor representative serve the purpose of facilitation the participation of creditors in insolvency proceedings, be it liquidation or reorganization. The laws relating to committee of creditors and/or appointment of creditor representative varies between laws of different companies. Some allow the creditors themselves to decide if they will appoint a committee/representative or not, whereas in some, the court is empowered to appoint a committee or representative, as the case may be. However, the basic thought behind a committee of creditors is that it should be independent of the insolvency professional to provide a fair representation of the interest of the creditors.

Committee of Creditors under the Insolvency and Bankruptcy Code, 2016

Before delving into the intricacies of insolvency law and creditors, it is pertinent to note the definition of “financial creditor”. “Financial Creditor” finds its own definition with the Insolvency and Bankruptcy Code, 2016 (hereinafter “IBC”). 

Section 5(7) of the code defines a “financial creditor” as “a person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred.”

Constitution of Committee of Creditors

The Committee of Creditors occupies a pivotal role in the Corporate Insolvency Resolution Process (hereinafter “CIRP”). The committee represents a company’s creditors in insolvency proceedings and comprises of lenders which have a priority claim on the liquidated assets of the corporate debtor. 

Impact on decision-making

The committee decides upon matters by voting. The threshold of voting varies when the voting is done for routine decisions or for more important matters. It is noteworthy that in a clarification relating to Nikhil Mehta & Sons (HUF) v. AMR Infrastructure Ltd., the National Company Law Tribunal (hereinafter “NCLT”) has ruled that an insolvency professional will be appointed even though less than 66% but slightly more than half of members present and voting voted for the appointment. The rationale given was that;

“…the voting thresholds in the IBC are merely directory in nature, and that preference can be given to decisions taken by the largest percentage in the committee of creditors in case of a deadlock. Only this interpretation would make the code workable and advance the object of this progressive legislation (IBC) rather than defeating it.”

Homebuyers: Creditors under Insolvency Law

The year of 2018 witnessed a slump in the real estate industry which led to several real estate contractors and builders being unable to complete undertaken projects. The buyers of these builders’ housing projects were thus left in a helpless situation. Most of the buyers of these homes were borrowers of bank loans with equated monthly instalments (hereinafter “EMIs”) to pay. The situation was that these buyers had to pay their EMIs without assurance of delivery of their properties. A default in payment would mean that the lenders could seize their other assets to claim their dues. It was a lose-lose situation for the homebuyers.

One of these real estate companies was Jaypee Infratech Ltd. The Jaypee homebuyers were receiving notices threatening cancellation of allotment of units in their name for defaults of EMI payments. The situation caused a lot of uproar among the homebuyers and the government had to intervene. To pacify the situation, the government promulgated the Insolvency and Bankruptcy (Amendment) Ordinance, 2018 (hereinafter “Ordinance”) on 6th of June 2018. Through the Ordinance, the Government sought to implement the recommendations of the Insolvency Law Reform Committee Report dated 3rd of April, 2018. The corresponding Bill was passed and became the Insolvency and Bankruptcy (Second Amendment) Act, 2018 on 17th of August, 2018.

The Highlights of the Ordinance were as follows:

  • Clarified via amendment of the Insolvency and Bankruptcy Code, 2016 that allottees of real estate projects were to be treated as financial creditors.
  • Reduced the voting threshold for routine decisions from 75% to 51% and voting for key decisions from 75% to 66%.
  • Made withdrawal of resolution applications submitted to the NCLT under the IBC possible. Further provided that such a decision could be taken with the approval of 90% of the committee.

Before the Ordinance, homebuyers’ rights were not clear. They could not assert their rights as they were not classified as either financial or operational creditors. This ambiguity made it easy for the real estate developers to side-line the homebuyers when facing difficulties.

In this background, a Public Interest Litigation (hereinafter “PIL”) was filed in Chitra Sharma v. Union of India. The PIL was filed by a collection of homebuyers against the order of the NCLT (Allahabad Bench) in IDBI Bank Ltd. v. Jaypee Infratech Ltd. The Supreme Court considered the PIL and directed the insolvency professional to come up with an interim resolution plan within 45 days and present it before the court and to take all necessary steps to protect the interest of the homebuyers. Furthermore, Jaypee Infratech Ltd. was directed to deposit Rs. 2000 Crores before the Court, failing which the personal properties of the directors would be attached.

Pre-Ordinance Position

Homebuyers not as Operational Creditors

In Col. Vinod Awasthi v. AMR Infrastructures Ltd. it was held that homebuyers were not “operational creditor” due to the reason that they do not provide goods or services to the real estate company. As a consequence, it was held that they could not initiate insolvency resolution process (hereinafter “IRP”). “Operational Creditor” has been defined under the IBC.

In Pawan Dubey v. JBK Developers CP, it was held that provisions of IBC which deal with operational creditors cannot be so widely interpreted as to include persons which have dues on account of advances made for purchasing property to be constructed by the real estate developer. Moreover, the homebuyers have remedies under the Consumer Protection Act, 1986 and civil procedure.

Homebuyers not as Financial Creditors

Creditors are of two types, the second of which are financial creditors. Corporate debtors owe financial creditors financial debt. In the general trend of things, the National Company Law Appellate Tribunal (“NCLAT”) has held that transactions where amounts are paid for buying real estate in the future do not have the effect of commercial lending and hence, are not financial debts.

In Nikhil Mehta & Sons (HUF) v. AMR Infrastructure Ltd., it was held that when transactions were purely due to an agreement of sale or purchase of property, it would not acquire the status of a financial debt. Hence, in order to qualify as financial debt, money has to be advanced for a consideration for the value of money at the time which was not the case for homebuyers as the consideration paid was for purchase and was not meant to be returned for time value of money. However, in appeal before the NCLAT, it was noted by the appellate tribunal that the MOU effective between the parties, the homebuyers were referred to as investors, hence, the homebuyers were, in fact, investors investing in a “committed returns plan” and the company had agreed to commit to paying monthly returns to their investors. Hence, going by logic, the NCLAT held the homebuyers to be financial creditors.

Post-Ordinance Position

With the new amendment, an explanation was inserted which made amount raised under a real estate project to be deemed as a financial debt. The definitions of “Allotee” and “Real Estate Project” are provided in the Real Estate (Regulation and Development) Act, 2016 (hereinafter “RERA”). Under the RERA, a “Real Estate Project” is the activity of developing buildings, apartments or land into plots or apartments for the purposes of sale for the entire end-product or some of it. On the other hand, “Allottee” is a person to who is a transferee of an end product of a real estate project such as a flat, plot, apartment etc.

Homebuyers as Financial Creditors

The amendment inserted the explanation which makes the homebuyers deemed financial creditors, hence, protecting their interests under the IBC.

The Supreme Court, in the latter part of 2018 also cracked down with a heavy hand on Amprapali group against whom Surajit Sinha v. Amprapali Centurian Park, is being adjudicated by the NCDRC and also in respect of whom, CIRP is underway which allegedly siphoned funds off of homebuyers in order to further business interests. The Court ordered the attachment of bank accounts, movables of about 40 Amrapali Group Companies in light of the group immensely hampering the rights of homebuyers.

Representation of homebuyers on the Committee of Creditors

Post- amendment, it became an issue as to whether the homebuyers will be allowed representation on the committee of creditors. Jaypee Infratech had far more money raised from homebuyers than banks. The question begged as to how to go about aligning the interests of banks and homebuyers. Both these parties would give their input based on different objectives. Banks would press for liquidation in order to retrieve the money and keeping it from becoming a non-performing asset (hereinafter “NPA”) whereas the homebuyers or at least a section of homebuyers would want what they paid for various reasons, either to fulfil the need for an abode or in order to enjoy the property prices which may have risen.

Another issue was that being deemed to be a financial creditor in itself is not enough, it is also essential to be classified as a secured creditor. “Secured Creditor” is defined under the IBC. The secured creditors come before unsecured creditors in the waterfall mechanism under Section 53 of the IBC. Hence, banks will always have an advantage over the homebuyers unless they get a separate representation in the waterfall mechanism in the provision of Section 53 of the IBC.

Furthermore, there is a conflict between the RERA and IBC. Section 89 of RERA provides for operation of the section notwithstanding any other law being in force for the time being. Whereas, similarly, Section 238 of the IBC provides that the provisions of IBC would have effect notwithstanding any other provision of any other act being inconsistent with it. It remains to be seen what would happen if a real estate regulator is approached by homebuyers and at the same time the banks approach the NCLT against the developer. Since, IBC provides for moratorium, it cannot be said what would happen to the RERA proceedings.

As per the Insolvency and Bankruptcy (Second Amendment) Act, 2018, the homebuyers have now been classified as financial creditors and resultantly now are to get representation in the Committee of Creditors. Homebuyers are a numerous party, and as such including all of them in the Committee of Creditors would be near to impossible. To get around this issue, an amendment in Section 21 of the IBC has been effected. The amendment inserts Section 21(6A) in the IBC. It provides for the appointment of an authorized representative of homebuyers in the Committee of Creditors. This amendment was followed by required amendments in the Regulations framed by the Insolvency and Bankruptcy Board of India (hereinafter IBBI). 

The regulation which stands out as being most significant is Regulation 16A(7) of the IBBI (Insolvency Resolution Process For Corporate Persons) (Third Amendment) Regulations, 2018 which provides as under:

“The voting share of a creditor in a class shall be in proportion to the financial debt which includes an interest at the rate of eight percent per annum unless a different rate has been agreed to between the parties.”

In law, it is implied that interest will be simple interest unless otherwise is provided. Going by this implication, banks which charge an average of 12% interest per annum and as an additional standard practice compound the interest monthly leads to an effective simple interest of 17.27% per annum for debts owed to banks as against 8% per annum interest owed to homebuyers over a period of 10 years. So large is the difference in the debt owed to each of these credits that homebuyers will be at a disadvantage in comparison to banks in the Committee of Creditors. This disparity cannot be reduced unless required amendments are enacted. 


The regime relating to the Committee of Creditors is still at its infancy stage in India. There are various problems and hitches in its working currently which will be smoothed out only with time and adequate amendments and legislation. The Government and the IBBI will play a crucial role in the coming few years of the entire insolvency regime.

The main issue before us is bringing the average homebuyer who now happens to be a financial creditor be brought in a position equivalent to, financial creditors such as banks. This is because the general trend with real estate developers is that they depend largely on the amounts advanced by the homebuyers to complete the project. This effectively should put the homebuyers in a position much better than it is right now in CIRP as it is homebuyers who are suffering from uncertainty in light of such practices. They may or may not get the property they paid for.

Such a situation harms the real estate market and puts the entire insolvency regime of India in question when a real estate developer goes bankrupt and the homebuyers are left with peanuts. The solution to the problem could be immediate legislative changes which provide for compulsory borrowing from secured creditors such as banks for real estate development for at least 50% of the cost of the project in cases where borrowing is indeed required. Furthermore, Regulation 16A (7) of the IBBI (Insolvency Resolution Process For Corporate Persons) Regulations, 2018 could also be amended to rectify the issue of the debt to banks being always more than the debts to homebuyers. This issue can be rectified by regulations within insolvency laws which provide for a better standing to the homebuyers than the paltry 8% interest offered to homebuyers by default.


Statutes, Regulations and Instruments

UNCITRAL Legislative guide on Insolvency Law

Insolvency and Bankruptcy Code, 2016

IBBI (Insolvency Resolution Process For Corporate Persons) Regulations, 2018

Real Estate (Regulation and Development) Act, 2016


  • J Roderick “Bankruptcy and Insolvency Law” Irwin law review
  • Duns “Insolvency: Law & Policy” Oxford University
  • Nishith Desai Associates “A primer on Insolvency and Bankruptcy Code, 2016”
  • Sir Roy Goode “Principles of Corporate Insolvency Law” Sweet and Maxwell Elizabeth Warren “Bankruptcy Policy” Chicago Law Review
  • Honsberger “Conflict of laws and bankruptcy reform”
  • Guzman “International bankruptcy: In defence of Universalism” Michigan law review
  • Trautman “Four models for International Bankruptcy”
  • Westbrook: Theory and pragmatism in global insolvencies: Choice of law and choice of forum”

Blogs and Websites


  • www.scroll.in
  • www.indiacorplaw.in
  • www.livelaw.in
  • mca.gov.in
  • ibbi.gov.in

Written by

Mihir Kunal Ekka,

M.P Ranchi.