Committee of Creditors (CoC)

The Committee of Creditors (CoC) is a central institutional mechanism in India’s insolvency and bankruptcy framework, designed to protect creditor interests and ensure time-bound resolution of corporate financial distress. It represents the collective decision-making body of financial creditors during insolvency proceedings and plays a decisive role in determining the future of a stressed corporate entity. In the context of banking, finance, and the Indian economy, the CoC is vital for credit discipline, resolution of non-performing assets, and preservation of financial stability.

Concept and Meaning of the Committee of Creditors

The Committee of Creditors is a body constituted during the corporate insolvency resolution process, comprising financial creditors of a defaulting corporate debtor. Financial creditors typically include banks, financial institutions, and debenture holders who have extended loans or credit facilities to the debtor.
The CoC is empowered to evaluate, negotiate, and approve resolution plans submitted for reviving the distressed entity. Its decisions are based on voting shares proportional to the financial exposure of each creditor, reflecting their stake in the outcome of the insolvency process.

Role in the Insolvency Resolution Framework

The CoC functions as the apex decision-making authority during insolvency resolution. While insolvency professionals manage the day-to-day affairs of the debtor during the resolution period, all major commercial decisions require CoC approval. These include interim finance arrangements, continuation or termination of key contracts, and approval of resolution plans.
This structure ensures that commercial wisdom rests with creditors rather than judicial or administrative authorities. By placing financial decisions in the hands of lenders, the framework aligns resolution outcomes with market realities and credit risk assessment.

Importance in the Banking System

For banks and financial institutions, the Committee of Creditors is a crucial mechanism for addressing stressed assets. Rising non-performing assets have historically posed challenges to the Indian banking system. The CoC enables lenders to collectively decide the most viable recovery strategy, whether through restructuring, change in ownership, or liquidation.
By allowing coordinated action, the CoC reduces delays and conflicts among creditors. This collective approach improves recovery rates, strengthens balance sheets, and restores banks’ capacity to extend fresh credit to productive sectors of the economy.

Composition and Voting Mechanism

The CoC primarily consists of financial creditors, as they are considered better equipped to assess the viability and feasibility of resolution plans. Each member’s voting power is proportional to the amount of debt owed to them by the corporate debtor.
Decisions of the CoC are taken through voting, with specified majority thresholds required for approval of key actions such as resolution plans. This voting-based mechanism ensures transparency, fairness, and proportional representation of creditor interests.

Role of the Regulator and Institutional Oversight

The functioning of the Committee of Creditors is indirectly influenced by the Reserve Bank of India, which regulates banks and financial institutions participating in insolvency proceedings. RBI guidelines on asset classification, provisioning, and resolution of stressed assets shape how banks approach decision-making within the CoC.
Capital market participants and financial creditors operating under the supervision of the Securities and Exchange Board of India may also be part of the CoC when debt instruments are involved. This ensures consistency between insolvency resolution and broader financial market regulation.

Impact on Credit Discipline and Borrower Behaviour

The CoC has significantly strengthened credit discipline in the Indian financial system. Borrowers are more aware that default can lead to loss of control over their companies, as resolution plans approved by the CoC may involve change in management or ownership.
This shift has altered borrower behaviour, encouraging timely repayment and prudent financial management. The credible threat of resolution through creditor-driven mechanisms has enhanced accountability and reduced strategic defaults.

Economic Significance in the Indian Economy

At the macroeconomic level, the Committee of Creditors contributes to economic efficiency by enabling faster resolution of stressed assets. Capital locked in unviable or distressed firms can be redeployed to more productive uses, supporting economic growth and employment.
Efficient insolvency resolution also improves investor confidence, both domestic and international. A transparent and creditor-driven resolution framework reduces uncertainty and enhances the attractiveness of India as an investment destination.

Advantages of the Committee of Creditors

The CoC offers several advantages, including creditor empowerment, faster decision-making, and market-oriented resolution outcomes. By vesting commercial decisions with creditors, it reduces judicial overreach and procedural delays.
The collective approach minimises conflicts among lenders and promotes coordinated recovery strategies. This strengthens the resilience of the banking system and improves overall credit market efficiency.

Limitations and Challenges

Despite its strengths, the Committee of Creditors faces certain challenges. Differences in creditor interests, risk appetite, and provisioning positions can complicate consensus-building. Smaller creditors may feel overshadowed by large lenders due to voting weightage based on exposure.
There are also concerns regarding delays, litigation, and implementation challenges in complex insolvency cases. Ensuring timely decision-making and balancing recovery with business continuity remain ongoing challenges.