The Supreme Court in the case of Vijay Kumar Jain v. Standard Chartered Bank and others, 2019 SCC OnLine SC 103 dealt with the issue as to whether the resolution professional should provide all the documents including the insolvency resolution plans to the suspended board of directors of the corporate debtor.
An application was filed by the Appellant before the Adjudicating Authority ("NCLT") praying that the Appellant be allowed to effectively participate in the Committee of Creditors (CoC) meetings. The NCLT dismissed the application with liberty to the Appellant to attend the CoC meetings but not to insist upon being provided information which was considered confidential either by the resolution professional or the CoC. An appeal was filed against the aforesaid order before the Appellate Tribunal ("NCLAT") which recognized the right of the appellant to attend and participate in the CoC meeting but denied the appellant's prayer to access certain documents, most particularly, the resolution plan.
Aggrieved by the aforesaid order, an appeal was filed before the Supreme Court.
It was contended by the Appellant that under Section 24(3) of the Code, the resolution professional has to give notice of each meeting of the CoC to the members of the suspended Board of Directors, and under Regulation 21, the notice of these meetings shall not only contain an agenda of the meetings but shall also contain copies of all documents relevant to the matters to be discussed and issues to be voted upon at the meeting, which necessarily included the resolution plans. The Appellant further relied on Section 31(1) to contend that the erstwhile Board of Directors, which consists of persons who may have given personal guarantees for the debts owed by the corporate debtor, will be bound by the resolution plan, and therefore, have a vital stake in what ultimately gets passed by the CoC. In addition to the above, it was also contended that under Section 60(5) of the Code, such persons have a right to challenge the terms of a proposed resolution plan before the NCLT, and under Section 61, may go further against the NCLT's order to the NCLAT.
The Respondents on the other hand relied on Section 30(3) of the Code and Regulation 39(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to state that resolution plans were only to be given to the CoC for its consideration. They further argued that the terms "committee" and "participant" are differently defined under the Regulations and that participants are expressly excluded by Regulation 39. They further relied upon the Notes on Clauses to Section 24 of the Code, which, according to them, made it clear that the reason for the participation of the erstwhile Board of Directors in meetings of the CoC is so that they may give information to assess the financial position of the corporate debtor. They are not in the position, therefore, of other creditors, who may go into merits and demerits of resolution plans as such resolution plans affect creditors only and not such persons.
The Supreme Court referred to the statutory scheme of the Code and inter alia observed that the statutory scheme makes it clear that though the erstwhile Board of Directors are not members of the CoC, yet, they have a right to participate in each and every meeting held by the CoC, and also have a right to discuss along with members of the CoC all resolution plans that are presented at such meetings under Section 25(2)(i).
The Court further referred to the notes on Clause 24 and noted that the same speaks of the resolution professional seeking information. The resolution professional does not seek information at a meeting of the CoC, which is what Section 24 is all about. The resolution professional only seeks information from the erstwhile Board of Directors under Section 29 before preparing an information memorandum, which then includes the financial position of the corporate debtor and information relating to disputes by or against the corporate debtor etc. All this has nothing to do with Section 24 of the Code which deals with meetings of the CoC. Secondly, the resolution professional does not prepare a resolution plan as is mentioned in the Notes on Clause 24; he only prepares an information memorandum which is to be given to the resolution applicants who then submit their resolution plans under Section 30 of the Code. Further Section 31(1) of the Code makes it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan and such resolution plan binds them.
The Court also went on to observe that a resolution plan which has been approved or rejected by an order of the Adjudicating Authority, has to be sent to "participants" which would include members of the erstwhile Board of Directors. Such copy can only be sent to participants because they are vitally interested in the outcome of such resolution plan, and may, as persons aggrieved, file an appeal from the Adjudicating Authority's order to the Appellate Tribunal under Section 61 of the Code.
It was further noted that Section 60(5)(c) is very wide, and a member of the erstwhile Board of Directors has an independent right to approach the Adjudicating Authority, which must then hear such person before it is satisfied that such resolution plan can pass muster under Section 31 of the Code.
The Court held that every participant is entitled to a notice of every meeting of the CoC, which must contain an agenda of the meeting, together with the copies of all documents relevant for matters to be discussed and the issues to be voted upon at the meeting and the expression "documents" is a wide expression which would certainly include resolution plans.
On a combined reading of the Code as well as the Regulations, the Supreme Court held that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the CoC, must be given a copy of such plans as part of "documents" that have to be furnished along with the notice of such meetings.
As regards the issue with regard to confidential information, the Supreme Court observed that the resolution professional can take an undertaking from members of the erstwhile Board of Directors, to maintain confidentiality. This can be in the form of a non-disclosure agreement in which the resolution professional can be indemnified in case information is not kept strictly confidential.
The Court further clarified with reference to Section 21(2) that a director who is also a financial creditor who is a related party of the corporate debtor shall not have any right of representation, participation, or voting in a meeting of the CoC. Directors, simplicitor, are not the subject matter of the proviso to Section 21(2), but only directors who are related parties of the corporate debtor. It is only such persons who do not have any right of representation, participation, or voting in a meeting of the CoC.
The afore said decision is indeed a welcoming decision as the suspended board of directors are in complete knowledge of the working and financial health of the corporate debtor, which will in turn facilitate or help the resolution professional or the CoC to appreciate any given resolution plan more appropriately.
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