SC: Insolvency Resolution Plans Should be shared with Former Board of Directors of Corporate Debtor to attend CoC Meetings

SC: Insolvency Resolution Plans Should be shared with Former Board of Directors of Corporate Debtor to attend CoC Meetings

January 31: The Supreme Court bench of Justice Rohinton Nariman and Navin Sinha today in a judgment held that copies of Insolvency Resolution Plan must be provided to the members of suspended Board of Directors of a Corporate Debtor, in order to effectively participate in the meetings of Committee of Creditors (CoC).

National Company Law Appellate Tribunal (NCLAT) rejected the prayer of former director for getting the copy of relevant documents including resolution plans from the RP following which an appeal was filed by a member of the suspended Board of Directors of the Corporate Debtor, Ruchi Soya Industries Limited against the decision in the court.

Notably, Both the NCLT and NCLAT ruled that appellant had no right to receive the resolution plans.

Brief background of the case, the appellant filed an application in the NCLT alleging that he was given permission to attend the first meeting of the Committee of Creditors (CoC) but later his participation was denied in the subsequent meetings.

The NCLT responding to the application filed by the appellant passed an order granting him with the liberty to attend CoC meetings but was not provided with the permission to insist for the confidential information either by the resolution professional or the committee of creditors.

The appellant then filed an appeal before NCLAT against the orders of NCLT which recognized the appellant’s right to attend and participate in CoC meetings, but denied the appellant’s prayer to access certain documents, most particularly, the resolution plans which led to the appeal in Supreme Court.

The Counsel, Senior Advocate Shyam Divan and advocate Arvind Kumar Gupta, appearing on the behalf of appellant submitted in SC that as per Section 24(3) of the Insolvency and Bankruptcy Code(IBC), RP has to give notice to the members of suspended Board of Directors for participating in the CoC meetings. Under Regulation 21 of CIRP Regulations 2016, 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. Since an approved resolution plan is binding on the erstwhile directors under Section 31(1) IBC, they have a vital stake in the issue, and some of them may have offered personal guarantee for the corporate debtor. Therefore, the appellant argued for the right to access resolution plans.

Senior Advocate Abhishek Manu Singhvi and advocate Raunak Dhillon, appearing on behalf of the resolution professional, contended that only the CoC was entitled to have resolution plans, as per Section 30(3) IBC read with Regulation 39(2) CIRP Regulations. Relying on the Notes on Clauses to Section 24 of the Code, they argued that the members of suspended Board of Directors are permitted to participate in CoC meetings only for the purpose of giving information regarding the financial status of the debtor. They further relied upon the proviso to Section 21(2) which, according to them, made it clear that a director, who is also a financial creditor, has no right to participate in a meeting of the committee of creditors.

After giving consideration to the arguments of both the sides, the bench ruled in favor of the appellant. It observed that, the statutory scheme of IBC and CIRP Regulations made it clear that “though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i)”.

Consequently, the court allowed the appeal and set aside the NCLAT judgment.

Insolvency and Bankruptcy Code (IBC)
National Company Law Appellate Tribunal (NCLAT)
National Company Law Tribunal (NCLT)

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