In the given case, if Corporate Insolvency Resolution Process (CIRP) is initiated against Swarnim Builders, who can be a member of the Committee of Creditors (CoC) ? Whether Moon Star Financiers Limited (MFL), in whose f

Members of the Committee of Creditors (CoC): Section 21(2) of the Insolvency and Bankruptcy Code, 2016 provides that the committee of creditors shall comprise of all financial creditors of the corporate debtor. First proviso of Section 21(2) of the Code provides that the financial creditor or the authorised representative of the financial creditor as referred under sub-section (6) or sub-section (6A) or sub-section (5) of Section 24 of the Code, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors. Second proviso of Section 21(2) of the Code provides that the first proviso shall not apply to a financial creditor that is regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed prior to the insolvency commencement date. Section 21(3) states that subject to sub-sections (6) and (6A) of Section 21 of the Code where corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. When creditor is financial creditor as well as operational creditor of the corporate debtor: In this situation Sub-Section 4 is to be read with Sub-Section 5 of Section 21 of the Code. Section 21(4) provides that where any person is a financial creditor as well as an operational creditor- such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. Section 21(5) provides that where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. Rishabh Suppliers Ltd. (RSL) supplied materials (operational debt) and later assigned its receivables to MFL. Since the debt originated as operational debt, even though assigned to a financial institution, MFL is treated as an operational creditor under Section 21(5). The CoC in Swarnim Builders' CIRP will consist only of financial creditors such as banks and homebuyers (recognized as financial creditors under Section 5(8)(f)). Moon Star Financiers Ltd. (MFL), having received assignment of operational debt from RSL, will be treated as an operational creditor only under Section 21(5) of the Code, and thus cannot be a voting member of the CoC.