Lender influencing corporate debtor's policy decisions is a 'related party' and cannot join the Committee of Creditors

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Published 28 October 2026

Case: Phoenix ARC Private Limited v. Ketulbhai Ramubhai Macwan, Resolution Professional & Ors.
Court: Supreme Court of India
Bench: Justices D.Y. Chandrachud, Indu Malhotra and Indira Banerjee
Citation: 2021 SCC OnLine SC 255
Decided: 3 March 2021
Statutes: Insolvency and Bankruptcy Code, 2016 — s.5(24), s.21(2)
Source: LiveLaw

Bottom Line Up Front (BLUF)

In Phoenix ARC Private Limited v. Ketulbhai Ramubhai Macwan, Resolution Professional & Ors., 2021 SCC OnLine SC 255, the Supreme Court held on March 3, 2021, that a financial creditor influencing the corporate debtor's policy decisions is a 'related party' under Section 5(24) of the IBC, 2016, and is thus barred from the Committee of Creditors under Section 21(2).

Ratio Decidendi · Legal Principle Established

A financial creditor who has the ability to influence the policy decisions of the corporate debtor, either directly or indirectly, falls within the definition of 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code, 2016, and is consequently disqualified from being a member of the Committee of Creditors under Section 21(2) of the Code.

Practice & Procedural Impact for Advocates

Advocates representing financial creditors must meticulously examine the nature of their client's relationship with the corporate debtor to assess potential 'related party' disqualification. Resolution Professionals should conduct thorough due diligence on all creditors to identify any influence over the corporate debtor's policy decisions, ensuring compliance with Section 21(2) of the IBC.

Key Legal Takeaways

1Influence over policy decisions, not just shareholding, determines 'related party' status.
2Section 5(24) of the IBC has a broad scope for defining 'related party'.
3A 'related party' financial creditor is excluded from the Committee of Creditors under Section 21(2) of the IBC.

The Legal Issue The Supreme Court addressed the interpretation of 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code, 2016 (IBC), specifically concerning a financial creditor's eligibility to be part of the Committee of Creditors (CoC) under Section 21(2) of the IBC. The core question was whether a lender, by virtue of its ability to influence the corporate debtor's policy decisions, could be deemed a 'related party' and thus be excluded from the CoC.

Court's Reasoning The Supreme Court, in Phoenix ARC Private Limited v. Ketulbhai Ramubhai Macwan, Resolution Professional & Ors., held that the definition of 'related party' under Section 5(24) of the IBC is expansive. The Court reasoned that the legislative intent behind excluding 'related parties' from the CoC, as per Section 21(2), is to prevent potential conflicts of interest and ensure that decisions are made in the best interest of all creditors, free from undue influence. The Court found that if a financial creditor has the capacity to influence the policy decisions of the corporate debtor, irrespective of direct ownership or control, they fall within the ambit of a 'related party'. This interpretation focuses on the substance of the relationship and the actual ability to influence, rather than merely formalistic criteria.

What Follows The Supreme Court's decision means that any financial creditor found to have influenced the corporate debtor's policy decisions will be disqualified from participating in the Committee of Creditors. This ruling reinforces the integrity of the corporate insolvency resolution process by ensuring that only independent creditors, free from conflicts of interest, can make critical decisions regarding the corporate debtor's future. Resolution Professionals must now undertake a more rigorous assessment of creditor relationships to identify and exclude such 'related parties' from the CoC.