New Delhi | In a significant ruling under the Insolvency and Bankruptcy Code (IBC), the National Company Law Tribunal (NCLT), New Delhi, has held that a financial creditor cannot refuse to bear its share of Corporate Insolvency Resolution Process (CIRP) costs once it has participated in Committee of Creditors (CoC) meetings and approved those expenses.
The tribunal made it clear that participation in the decision-making process carries corresponding financial responsibility. A creditor who has taken part in CoC deliberations and consented to the costs placed before the committee cannot later distance itself from the obligation to pay.
Clear Stand by the Tribunal
The ruling was delivered by a bench comprising Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi. The bench observed that membership of the CoC is not limited to exercising voting rights, but also entails adherence to the decisions collectively taken by the committee.
The tribunal emphasized that CIRP costs form the backbone of the insolvency resolution mechanism. Allowing financial creditors to selectively accept benefits while avoiding liabilities would undermine the very structure of the IBC framework.
Background of the Dispute
The matter arose after a Resolution Professional (RP) approached the NCLT seeking directions against a financial creditor who had refused to contribute to CIRP expenses despite active participation in CoC meetings.
According to the RP, the creditor attended multiple CoC meetings where CIRP expenses, professional fees, and administrative costs were placed before members and approved through majority decisions. However, the same creditor later declined to pay its apportioned share, contending that it was not bound to bear the costs.
IBC Objectives Reiterated
Rejecting the creditor’s argument, the NCLT reiterated that the primary objective of the IBC is to ensure a timely, efficient, and structured insolvency resolution process. This objective can only be achieved if all financial creditors contribute equitably to the costs necessary for running the process.
The tribunal categorically held that CIRP costs are not discretionary in nature. Once approved by the CoC, they acquire the character of a statutory obligation, binding on all participating financial creditors.
Strengthening the Role of the CoC
Legal experts view the ruling as a reinforcement of the collective responsibility of the Committee of Creditors. The tribunal observed that a financial creditor cannot influence or participate in CoC decisions and later attempt to dissociate itself from the financial implications of those very decisions.
The bench further stated that “selective compliance” has no place under the IBC regime, as it would result in uncertainty, delay, and unfair burden on other stakeholders.
Relief for Resolution Professionals
The decision is also being seen as a crucial relief for Resolution Professionals, who often face challenges in recovering approved CIRP costs. The NCLT clarified that RPs are fully entitled to recover costs approved by the CoC, and tribunals will step in to protect the integrity of the insolvency process.
By affirming the RP’s right to recover such costs, the order strengthens procedural discipline and ensures continuity of insolvency proceedings without financial disruption.
Impact on Future Insolvency Proceedings
Legal commentators believe this ruling will serve as an important precedent for future cases where financial creditors attempt to evade CIRP expenses after participating in CoC meetings.
The judgment sends a clear message that rights under the IBC come with corresponding responsibilities, and financial creditors must act in good faith throughout the insolvency resolution process.
Overall, the ruling reinforces the spirit of the IBC by ensuring accountability, predictability, and collective responsibility, essential for the effective functioning of India’s insolvency regime.
