IBC Section 28: Approval of committee of creditors for certain actions

Section 28 of Insolvency and Bankruptcy Code, 2016: Approval of committee of creditors for certain actions

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) Notwithstanding anything contained in any other law for the time being in force, the resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the committee of creditors namely:-

(a) raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting;

(b) create any security interest over the assets of the corporate debtor;

(c) change the capital structure of the corporate debtor, including by way of issuance of additional securities, creating a new class of securities or buying back or redemption of issued securities in case the corporate debtor is a company;

(d) record any change in the ownership interest of the corporate debtor;

(e) give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting;

(f) undertake any related party transaction;

(g) amend any constitutional documents of the corporate debtor;

(h) delegate its authority to any other person;

(i) dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;

(j) make any change in the management of the corporate debtor or its subsidiary;

(k) transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;

(l) make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or

(m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.

(2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1).

(3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of sixty-six per cent. of the voting shares.

(4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void.

(5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this Code.

1. Subs. by Act 26 of 2018, s. 20, for sub-section (2) (w.e.f. 6-6-2018).

Legal Commentary & Landmark Judgments: Section 28

Section 28 specifies major corporate and financial actions that a Resolution Professional is strictly prohibited from taking during CIRP without the prior approval of the Committee of Creditors by a 66% majority.

Roster of Restrained Actions: The RP cannot: raise interim finance, create security on assets, change capital structure, record changes in ownership, amend constitutional documents, undertake related party transactions, or make significant commercial changes without CoC approval.
Mandatory 66% CoC Approval: Requires an affirmative vote of not less than sixty-six percent of the voting share of the financial creditors.
Voidness of Unauthorized Actions (Section 28(4)): Any action taken by the RP in contravention of sub-section (1) shall be void ab initio.
Disciplinary Consequence (Section 28(5)): The CoC may report an RP taking unauthorized actions to the IBBI for disciplinary action.

Key Landmark Precedents:

Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2020) 8 SCC 531: The Supreme Court held that Section 28 ensures that the management of the corporate debtor by the RP remains subject to the continuous democratic commercial control of the financial creditors.
Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta (2021) 7 SCC 209: Affirmed that Section 28 prevents unilateral asset disposal or debt creation by the RP without collective creditor sanction.

Courtroom Practice & Strategic Litigation Guidance:

The RP must never execute loan agreements, lease transfers, or asset encumbrances on his own authority. Every transaction listed in Section 28(1) must be placed as an independent voting agenda item before the CoC and secured with 66% voting before execution.