Imp. Rulings; Sharing of IM’s, Resolution Plan & Valuation Reports,
Index;
A. Sharing of IM’s (Information Memorandum)
NCLAT (10.10.2023) in Vinay Kumar Singhal RP Vs. Mahesh Bajaj [Comp. App. (AT) (Ins) No. 645 of 2023 & I.A. No. 2602, 2141 of 2023, (2023) ibclaw.in 705 NCLAT]
B. Sharing of Resolution Plan with BOD.
NCLT Hyderabad (2024.02.06) in Prasada Raju M.R.V Vs. Sri. Vamsi Kambhammettu, RP. [I.A. No. 78 of 2023 in I.A. No. 1468 of 2022, in CP (IB) No.682/07/ HDB/ 2018 ]
SCI (2019.01.31) in Vijay Kumar Jain vs Standard Chartered Bank [CIVIL APPEAL NO.8430 OF 2018]
C. Sharing of Valuation Reports with BOD.
NCLT Ahmedabad-2 (30.03.2022) in Hemant Shantilal Shah s Anr. Vs. Care Office Ltd. [LA No. 434 of 2020 IN CP (IB) 602 of 2018 ]
D. Sharing of Valuation Reports with OC.
NCLAT (23.09.2022) in Rahul Khilnani Vs. Sh. Atul Kumar Jain Resolution Professional [Company Appeal (AT) (Insolvency) No. 586 of 2021]
E. Sharing of Valuation Reports with SCC - BOD
NCLT Chandigarh (08.07.2022) in Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. Vs. Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd. [IA No.46/2022 in CP (IB) No.340/Chd/Pb/2018 ]
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1. NCLAT (10.10.2023) in Vinay Kumar Singhal RP Vs. Mahesh Bajaj [Comp. App. (AT) (Ins) No. 645 of 2023 & I.A. No. 2602, 2141 of 2023, (2023) ibclaw.in 705 NCLAT] held that;
From the aforesaid two provisions and the fact that the Code and Regulations are totally silent about the supply of the information memorandum to the participant, it has to be inferred that the legislature has made a provision for providing a copy of the information memorandum to the member of the CoC and the Resolution Applicant but not to the participant of the meeting of the CoC such like the present Respondent.
Thus, in view of the aforesaid discussion, the question framed in the beginning is hereby answered to the effect that the Operational Creditor being a participant in the meeting of the CoC has no right to seek a copy of the information memorandum.
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2. NCLT Hyderabad (2024.02.06) in Prasada Raju M.R.V Vs. Sri. Vamsi Kambhammettu, RP. [I.A. No. 78 of 2023 in I.A. No. 1468 of 2022, in CP (IB) No.682/07/ HDB/ 2018 ] held that;
It is contended that the CD being MSME, the Applicant, who was a promoter/director of the CD, was permitted to submit a Resolution Plan. Therefore, he was participating in CoC meeting in dual capacity as part of the suspended management and also as a Resolution Applicant.
However, the role of the Applicant as ‘Resolution Applicant’ is circumscribed. Under section 30(5) of IBC, “the resolution applicant may attend the meeting of the committee of creditors in which resolution plan of the applicant is considered”. It clearly follows that a Resolution Applicant can attend CoC meeting only in respect of the plan that was submitted by him, and will have no access to the Resolution Plans submitted by others.
The cited case law of Vijay Kumar Jain Vs. Standard Chartered Bank also does not support the Applicant's argument. That case dealt with the eligibility of a former director who, being an unrelated financial creditor of the CD, sought access to CoC meetings and Resolution Plans submitted by Prospective Resolution Applicants. The Apex Court decision in that case affirmed the right of such individuals to attend CoC meetings and access Resolution Plans. However, that judgment will not apply to a suspended promoter/director who is also a Resolution Applicant.
In the present case, not only the Applicant is related to the CD, being a promoter/director, he is also a Resolution Applicant. The CD being the MSME, he was permitted to submit a Resolution Plan. However, he was rightly kept out by the CoC from the proceedings of examination and evaluation of the Resolution Plans submitted by other Resolution Applicants.
Clearly the ‘conflict of interest’ for the Applicant, who was part of the CoC in the dual capacity did not end with him being rejected as Resolution Applicant. His capacity to be an impartial observer of the CoC’s deliberations was compromised and his views on the Resolution Plan submitted by any other Resolution Applicant would necessarily have a potential of bias even after he was out of the race.
Once the CoC has endorsed a Plan by requisite percentage of voting share, it is only for this Authority to adjudicate thereon and approve it under the provisions of IBC.
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3. SCI (2019.01.31) in Vijay Kumar Jain vs Standard Chartered Bank [CIVIL APPEAL NO.8430 OF 2018] held that;
This statutory scheme, therefore, makes 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).
It is also important to note that 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 expression “documents” is a wide expression which would certainly include resolution plans.
Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion 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 meetings.
As a result of the aforesaid discussion, 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.
Therefore, the contention that a director simplicitor would have the right to get documents as against a director who is a financial creditor is not an argument that is based on the proviso to Section 21(2), correctly read, as it refers only to a financial creditor who is a related party of the corporate debtor. For this reason, this argument also must be rejected.
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4. NCLT Ahmedabad-2 (30.03.2022) in Hemant Shantilal Shah s Anr. Vs. Care Office Ltd. [LA No. 434 of 2020 IN CP (IB) 602 of 2018 ] held that;
Also, 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. 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 nonpayment of the debt.
Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion 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 meetings.
As a result of the aforesaid discussion, 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.
Resolution plan is a highly confidential document but when such document is required to be given to the most affected parties being erstwhile members of the Board of Directors of the corporate debtor, then the valuation report in our view which is an important document having bearing onto the fate of corporate debtor must be supplied to ex-management.
There is no specific provision to not to share copy of valuation report with ex-directors, we hold that in the interest of justice the copy of valuation report needs to be supplied to ex directors, as already directed by the Predecessor Bench.
We are of the opinion that Resolution Professional shall provide a copy of the valuation report to the suspended management of the corporate debtor subject to an undertaking from members of the suspended management, to maintain confidentiality.
The source of this power is Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, read with paragraph 21 of the First Schedule thereto.
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5. NCLAT (23.09.2022) in Rahul Khilnani Vs. Sh. Atul Kumar Jain Resolution Professional [Company Appeal (AT) (Insolvency) No. 586 of 2021] held that;
In fact, the confidentiality is to be maintained regarding the Fair Value and Liquidation Value lest it should cause any undue claim to itself or any third party. This Tribunal is of the earnest view that as per the provisions of the Code, the Appellants (Operational Creditors) are not required to know the Liquidation Value.
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6. NCLT Chandigarh (08.07.2022) in Kulwinder Singh Makhni, Suspended Director of M/s Punjab Basmati Rice Ltd. Vs. Mr. Sanjay Kumar Aggarwal, Liquidator of M/s Punjab Basmati Rice Ltd. [IA No.46/2022 in CP (IB) No.340/Chd/Pb/2018 ] held that;
This Bench holds that to enable a Member of Stakeholders’ Consultation Committee to meet the mandate under Regulations 31-A(1) and as laid down in 31-A(5), the copy of the valuation report needs to be shared with the applicant i.e. Member of Stakeholders’ Consultation Committee, as the same would be crucial in determining the reserve price of the asset of the corporate debtor.
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