Section 28: Approval of Committee of Creditors for Certain Actions
Section 28 of the Insolvency and Bankruptcy Code, 2016 (IBC) requires a resolution professional (RP) to obtain prior approval of the committee of creditors (CoC) before taking specified significant decisions during the corporate insolvency resolution process.
Meaning and scope of Section 28
Section 28 places statutory controls on specified acts of the resolution professional. It operates notwithstanding anything inconsistent in another law. The RP continues to manage the corporate debtor during CIRP, but the decisions listed below require the CoC's prior consent.
Section 28(1): Actions requiring prior CoC approval
The following thirteen categories correspond to clauses (a) to (m) of Section 28(1):
- Clause (a): Interim finance above the limit approved by the CoC.
- Clause (b): Creation of a security interest over corporate debtor assets.
- Clause (c): Changes to capital structure, including issue, buyback or redemption of securities.
- Clause (d): Recording changes in ownership interests.
- Clause (e): Bank account debit instructions above limits fixed by the CoC.
- Clause (f): Related-party transactions.
- Clause (g): Amendments to constitutional documents.
- Clause (h): Delegation of the resolution professional's authority.
- Clause (i): Disposal of shareholder or nominee shares to third parties.
- Clause (j): Changes to management of the corporate debtor or subsidiary.
- Clause (k): Transfer of rights, financial debts or operational debts under material contracts outside the ordinary course.
- Clause (l): Changes to appointments or contract terms of personnel specified by the CoC.
- Clause (m): Changes to appointment or terms of statutory or internal auditors.
These categories are a reader-friendly explanation of the statutory clauses. For the exact operative language, consult the official text of the Code.
Section 28(2) and (3): Meeting and voting threshold
Before undertaking any listed action, the resolution professional must convene a meeting of the committee of creditors and seek a vote. An action is approved only if creditors holding at least 66 percent of the voting shares vote in favour. The percentage is based on voting share, not a simple headcount of creditors.
The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 substituted 66 percent for the earlier 75 percent requirement in Section 28(3).
Section 28(4) and (5): Consequences of acting without approval
Where an RP takes an action covered by Section 28(1) without obtaining the required approval in the manner prescribed by Section 28, the action is void under Section 28(4). The CoC may also report the conduct to the Insolvency and Bankruptcy Board of India (IBBI) for action under the Code pursuant to Section 28(5).
Important legal terms
Committee of creditors (CoC)
The committee constituted under Section 21 of the IBC, principally comprising eligible financial creditors, which exercises specified decision-making powers during CIRP.
Resolution professional (RP)
The insolvency professional appointed to conduct CIRP and manage the corporate debtor in accordance with the Code, including duties under Sections 23 and 25.
Interim finance
Finance raised by the resolution professional during CIRP, as defined in Section 5(15) of the IBC, subject to the applicable statutory requirements.
Related party
A person or entity falling within the relevant relationships set out in Section 5(24) of the IBC in relation to a corporate debtor.
Security interest
A right, title, interest or claim to property created in favour of, or provided for, a secured creditor by a transaction securing payment or performance, subject to the definition and exclusions in Section 3(31).
Practical compliance checklist
Before proceeding, identify whether the proposal falls within Section 28(1), circulate adequate information to the CoC, convene the meeting in accordance with the Code and applicable CIRP Regulations, record voting shares and the result, and act only after the statutory threshold is met. Additional requirements under the Code and regulations may also apply.
Official law and further reading
For the current consolidated legislation and applicable regulations, refer to the India Code official legislation portal, the Insolvency and Bankruptcy Board of India and the IBBI legal framework and amended CIRP Regulations.
Also read: The Insolvency and Bankruptcy Code, 2016.