2019 (2) TMI 97 - SC - Insolvency and Bankruptcy

Prayer for directions to the resolution professional to provide all relevant documents including the insolvency resolution plans in question to members of the suspended Board of Directors of the corporate debtor - Held that - 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). It cannot be gainsaid that operational creditors, who may participate in such meetings but have no right to vote, are vitally interested in such resolution plans, and must be furnished copies of such plans beforehand if they are to participate effectively in the meeting of the committee of creditors. This is for the reason that under Section 30(2)(b), repayment of their debts is an important part of the resolution plan qua them on which they must comment. Thus, even though persons such as operational creditors have no right to vote but are only participants in meetings of the committee of creditors, yet, they would certainly have a right to be given a copy of the resolution plans before such meetings are held so that they may effectively comment on the same to safeguard their interest. Under Regulation 36 of the CIRP Regulations, the information memorandum that is given to each member of the CoC and to any potential resolution applicant, will contain details of guarantees that have been given in relation to the debts of the corporate debtor (see Regulation 36(2)(f) of the CIRP Regulations). Also, under Regulation 37(d) of the CIRP Regulations, a resolution plan may provide for satisfaction or modification of any security interest. The arguments of the respondents that committee and participant are used differently, which would lead to the result that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected. Equally, the Regulations, far from going beyond the Code, flesh out the true intention of the Code that is achieved by reading the plain language of the Sections that have already been adverted to - So far as confidential information is concerned, it is clear that the resolution professional can take an undertaking from members of the erstwhile Board of Directors, as has been taken in the facts of the present case, to maintain confidentiality. The time that has been utilized in these proceedings must be excluded from the period of the resolution process of the corporate debtor - the appellants will be given copies of all resolution plans submitted to the CoC within a period of two weeks from the date of this judgment - appeal allowed.

Issues Involved:
1. Right of suspended Board of Directors to access insolvency resolution plans.
2. Interpretation of relevant sections and regulations under the Insolvency and Bankruptcy Code, 2016.
3. Confidentiality concerns regarding the sharing of resolution plans.
4. The role and rights of participants in the Committee of Creditors (CoC) meetings.
5. Applicability of the Bankruptcy Law Committee Report of 2015.

Detailed Analysis:

1. Right of suspended Board of Directors to access insolvency resolution plans:
The appeal arose from the Appellate Tribunal's judgment rejecting the appellant’s request for access to relevant documents, including insolvency resolution plans, to enable meaningful participation in CoC meetings. The appellant, a member of the suspended Board of Directors, was initially allowed to attend CoC meetings but was later denied participation and access to documents, leading to the filing of Miscellaneous Application No.518 of 2018. The NCLT dismissed the application, allowing attendance at CoC meetings without access to confidential information. The Appellate Tribunal upheld this decision, prompting the present appeal.

2. Interpretation of relevant sections and regulations under the Insolvency and Bankruptcy Code, 2016:
The appellant argued that under Sections 24, 25, 29, and 31 of the Code, and corresponding regulations, members of the suspended Board of Directors should be provided with all relevant documents, including resolution plans, to participate effectively in CoC meetings. The respondents countered that resolution plans are only to be given to the CoC under Section 30(3) and Regulation 39(2). The court examined the statutory scheme, noting that while the suspended Board of Directors are not CoC members, they have a right to participate in meetings and discuss resolution plans presented under Section 25(2)(i), as these plans bind them under Section 31(1).

3. Confidentiality concerns regarding the sharing of resolution plans:
The respondents emphasized the confidentiality of resolution plans, arguing that sharing them with the suspended Board could lead to breaches. The court acknowledged the need for confidentiality but noted that the resolution professional could require non-disclosure agreements and indemnities to safeguard confidential information, as provided under Regulation 7(2)(h) and the First Schedule of the Insolvency Professionals Regulations, 2016.

4. The role and rights of participants in the Committee of Creditors (CoC) meetings:
The court highlighted that participants, including the suspended Board of Directors, have the right to receive notice of CoC meetings, which must include an agenda and copies of all relevant documents (Regulation 21(3)(iii)). The term "documents" includes resolution plans, and participants must have access to these to effectively discuss and safeguard their interests. The court rejected the argument that participants are only information providers, noting that they are vitally interested in the resolution plans, which affect their rights and liabilities.

5. Applicability of the Bankruptcy Law Committee Report of 2015:
The court referred to the Bankruptcy Law Committee Report of 2015, which emphasized the need for information symmetry between creditors and debtors and access to essential information for all parties involved in the resolution process. The court found that the report supported the appellant's position on the need for access to resolution plans.

Conclusion:
The court concluded that the suspended Board of Directors must be given copies of resolution plans to participate effectively in CoC meetings. The judgment of the Appellate Tribunal was set aside, and the appeal was allowed. The court directed that the appellants be provided with resolution plans within two weeks, followed by CoC meetings to deliberate on the plans afresh. The time utilized in these proceedings was excluded from the resolution process period.

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