Erstwhile Directors of corporate debtor must be given the resolution plans for attending CoC meetings

Supreme Court: The Bench of RF Nariman and Navin Sinha, JJ, yet again dealing with an issue relating to the Insolvency and Bankruptcy Code, 2016, held that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors, must be given a copy of such plans as part of “documents” that have to be furnished along with the notice of such committee of creditor (CoC) meetings.

The Court was hearing the appeal arising out of an Appellate Tribunal’s judgment rejecting the appellant’s 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 in each case so that they may meaningfully participate in meetings held by the CoC.

Holding that the expression “documents” is a wide expression which would certainly include resolution plans, the Bench said:

“every participant is entitled to a notice of every meeting of the committee of creditors. Such notice of meeting 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 vide Regulation 21(3)(iii). Obviously, resolution plans are “matters to be discussed” at such meetings, and the erstwhile Board of Directors are “participants” who will discuss these issues.”

The Court also noticed that under Regulation 38(1)(a), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-clause 3(a), a resolution plan shall demonstrate that it addresses the cause of default. It, hence, said:

“This Regulation also, therefore, recognizes the vital interest of the erstwhile Board of Directors in a resolution plan together with the cause of default. It is here that the erstwhile directors can represent to the committee of creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to non-payment of the debt.”

The Court also rejected the contention that a director simplicitor would have the right to get documents as against a director who is a financial creditor. It explained:

“The proviso to Section 21(2) clarifies 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 committee of creditors. 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 committee of creditors.”

The Court, hence, directed that the appellants be given copies of all resolution plans submitted to the CoC within a period of two weeks.

[Vijay Kumar Jain v. Standard Chartered Bank, 2019 SCC OnLine SC 103, decided on 31.01.2019]

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