VIJAY KUMAR JAIN versus STANDARD CHARTERED BANK & ORS. on 31 January 2019

[2019] 1 S.C.R. 779

VIJAY KUMAR JAIN

v.

STANDARD CHARTERED BANK & ORS.

(Civil Appeal No. 8430 of 2018)

JANUARY 31, 2019

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss.21, 24, 25 and30 – Right of member of suspended Board of Directors to accesscertain documents particularly the resolution plans – Held: Thoughthe erstwhile Board of Directors are not members of the Committeeof Creditors (CoC), yet, they have a right to participate in each andevery meeting held by the CoC and also have a right to discussalong with members of the CoC all the resolution plans that arepresented at such meetings under s.25(2)(i)– Members of erstwhileBoard of Directors, being vitally interested in resolution plans thatmay be discussed at meetings of the CoC must be given a copy ofsuch plans as part of “documents” that have to be furnished alongwith the notice of such meetings.

Insolvency and Bankruptcy Code, 2016 – Statutory schemeof the Code relating to the former members of the Board of Directors– Discussed.

Allowing the appeal and writ petition, the Court HELD: 1. The statutory scheme of the Code relating tothe former members of the Board of Directors is that a CoC isfirst constituted under Section 21 consisting only of all the financialcreditors of the corporate debtor. Under Section 24, all meetingsof this committee are to be conducted by the resolutionprofessional who, however, does not happen to be part of thiscommittee. The resolution professional has to give notice of eachand every meeting of the CoC, inter alia, to members of thesuspended Board of Directors. Like operational creditors whomay attend and participate in such meetings, provided theaggregate dues owing to them are not less than ten per cent ofthe total debt, both such operational creditors and erstwhilemembers of the Board of Directors have no vote. Once the

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Aresolution professional convenes meetings of the CoC, he is topresent all resolution plans at these meetings. Under Section30, the resolution professional shall examine each resolution planreceived by him in which he must confirm, inter alia, that suchplan provides for the repayment of the debts of operationalcreditors which shall not be less than the amount to be paid toBthem in the event of liquidation of the corporate debtor. Thisplan is then submitted to the Adjudicating Authority if it isapproved by the requisite majority of the CoC. The AdjudicatingAuthority under Section 31(1), if satisfied that the plan passesmuster, shall then, by order, approve such plan, which shall beCbinding on all stakeholders involved in the resolution plan,including guarantors. It cannot be gainsaid that operationalcreditors, who may participate in such meetings but have no rightto vote, are vitally interested in such resolution plans, and mustbe furnished copies of such plans beforehand if they are toparticipate effectively in the meeting of the CoC. [Paras 8, 9][805-DD-G; 806-A, B-C]

2.1 Section 31(1) of the Code would make it clear that suchmembers of the erstwhile Board of Directors, who are oftenguarantors, are vitally interested in a resolution plan as suchresolution plan then binds them. Such plan may scale down theEdebt of the principal debtor, resulting in scaling down the debt ofthe guarantor as well, or it may not. The resolution plan may alsoscale down certain debts and not others, leaving guarantors ofthe latter kind of debts exposed for the entire amount of thedebt. The Regulations also make it clear that these persons areFvitally interested in resolution plans as they affect them. Thus,under Regulation 36 of the CIRP Regulations, the informationmemorandum that is given to each member of the CoC and toany potential resolution applicant, will contain details of guaranteesthat have been given in relation to the debts of the corporatedebtor. Also, under Regulation 37(d) of the CIRP Regulations, aGresolution plan may provide for satisfaction or modification ofany security interest. [Para 12][808-B-D]

2.2 Under Regulation 37(1)(f), a resolution plan may providefor reduction in the amount payable to the creditors, which againvitally impacts the rights of a guarantor. Last but not least, aHresolution 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 Directorsby Regulation 39(5) of the CIRP Regulations. Such copy can onlybe sent to participants because they are vitally interested in theoutcome of such resolution plan, and may, as persons aggrieved,file an appeal from the Adjudicating Authority’s order to theAppellate Tribunal. Apart from this, Section 60(5)(c) is also verywide, and a member of the erstwhile Board of Directors also hasan independent right to approach the Adjudicating Authority,which must then hear such person before it is satisfied that suchresolution plan can pass muster under Section 31 of the Code.[Para 12][808-G-H; 809-A-C]

2.3 Every participant is entitled to a notice of every meetingof the CoC. Such notice of meeting must contain an agenda ofthe meeting, together with the copies of all documents relevantfor matters to be discussed and the issues to be voted upon atthe meeting by Regulation 21(3)(iii). Resolution plans are“matters to be discussed” at such meetings, and the erstwhileBoard of Directors are “participants” who will discuss theseissues. The expression “documents” is a wide expression whichwould certainly include resolution plans. [Para 13][809-D-E]

2.4 Regulation 35 makes it clear that the resolutionprofessional shall provide fair value and liquidation value to everymember of the committee only after receipt of resolution plansin accordance with the Code. Also, under Regulation 38(1)(a), aresolution plan shall include a statement as to how it has dealtwith the interest of all stakeholders, and under sub-clause 3(a), aresolution plan shall demonstrate that it addresses the cause ofdefault. This Regulation also, therefore, recognizes the vitalinterest of the erstwhile Board of Directors in a resolution plantogether with the cause of default. It is here that the erstwhiledirectors can represent to the CoC that the cause of default isnot due to the erstwhile management, but due to other factorswhich may be beyond their control, which have led to non-paymentof the debt. Therefore, a combined reading of the Code as wellas the Regulations leads to the conclusion that members of theerstwhile Board of Directors, being vitally interested in resolutionplans that may be discussed at meetings of the CoC, must begiven a copy of such plans as part of “documents” that have to be ABC

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Afurnished along with the notice of such meetings. As a result,the arguments of the respondents that “committee” and“participant” are used differently, which would lead to the resultthat resolution plans need not be furnished to the erstwhilemembers of the Board of Directors, must be rejected. So far asconfidential information is concerned, it is clear that the resolutionBprofessional can take an undertaking from members of theerstwhile Board of Directors, as has been taken in the facts ofthe present case, to maintain confidentiality. The source of thispower is Regulation 7(2)(h) of the Insolvency and BankruptcyBoard of India (Insolvency Professionals) Regulations, 2016, readCwith paragraph 21 of the First Schedule thereto. This can be inthe form of a non-disclosure agreement in which the resolutionprofessional can be indemnified in case information is not keptstrictly confidential. [Paras 14, 15][809-F-H; 810-A-E]

Mobilox Innovations Private Limited v. Kirusa SoftwareDPrivate Limited (2018) 1 SCC 353 : [2017] 10 SCR1006; Arcelormittal India Private Limited v. SatishKumar Gupta & Ors. 2018 (13) SCALE 381 – referredto.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8430of 2018.

FFrom the Judgment and Order dated 09.08.2018 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No. 442 of 2018.

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W.P. (C) No. 1266 of 2018.G

Mr. Sanjay Kumar Jain, ASG, Krishnan Venugopal, Shyam Divan,Dr. Abhishek Manu Singhvi, Kailash Vasudev, Sr.Advs., Arvind KumarGupta, Ms. Henna George, Jay Zaveri, Ms. Sugandha, Ms. V.S. Lakshmi,A. Venayagam Balan, Ms. Sonia Dube, S. Chakraborty, Ms. KanchanYadav, Anurag Singh, Ms. Harshita Verma, Ms. Surbhi Anand, Ms.

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Sugandha Yadav, M/s. Legal Options, Nakul Sachdeva, Aakarshan Sahay,Faisal Sherwani, Raunak Dhillon, Ms. Ananya Dhar Choudhury, TarunAgarwal, M/s. Cyril Amarchand Mangaldas Dhruv Dewan, Ms. YashnaMehta, Ravinder Nijhawan, S. S. Shroff, Ms. Sunita Sharma, PrashantSingh, A.K. Sharma, Advs. for the appearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The present appeal arises out of anAppellate Tribunal’s judgment rejecting the appellant’s prayer fordirections to the resolution professional to provide all relevant documentsincluding the insolvency resolution plans in question to members of thesuspended Board of Directors of the corporate debtor in each case sothat they may meaningfully participate in meetings held by the committeeof creditors [“CoC”].

2. We may take the facts of Civil Appeal No.8430 of 2018. RuchiSoya Industries Ltd. – the corporate debtor, was incorporated on06.01.1986. It is said to be a profit-making company in the business ofprocessing of oil-seeds and refining crude oil for edible use. In September,2017, Company Petition Nos.1371 and 1372 were filed by StandardChartered Bank Ltd. and DBS Bank Ltd., being financial creditors ofthe aforesaid corporate debtor. These two company petitions wereadmitted on 8[th] and 15[th] December, 2017, respectively, by the NationalCompany Law Tribunal [“NCLT”]. One Shri Shailendra Ajmera ofErnst and Young was appointed as the Interim Resolution Professionalin both petitions. The CoC was constituted under Section 21 of theInsolvency and Bankruptcy Code, 2016 [“Insolvency Code” or“Code”], and the appellant being a member of the suspended Board ofDirectors was given notice and the agenda for the first CoC meetingheld on 12.01.2018, and was permitted to attend the aforesaid meeting.He alleges, which is disputed by the respondents, that subsequentmeetings of the CoC were held in which he was denied participation. Asa result, the appellant filed Miscellaneous Application No.518 of 2018 on07.06.2018 before the NCLT in order that the appellant be allowed toeffectively participate in these meetings. It is stated before us that in thetenth meeting dated 12.08.2018, the appellant executed a non-disclosureagreement for sharing resolution plans of the corporate debtor. Underthe said agreement, the appellant undertook to indemnify the resolutionprofessional and keep information that is received as to the resolutionplan strictly confidential.

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A3. By an order dated 01.08.2018, the NCLT dismissed theapplication with liberty to the appellant to attend CoC meetings but notto insist upon being provided information considered confidential eitherby the resolution professional or the committee of creditors. Against thisorder, the appellant filed an appeal before the Appellate Tribunal whichrecognized the appellant’s right to attend and participate in CoC meetings,Bbut denied the appellant’s prayer to access certain documents, mostparticularly, the resolution plans. Thereafter, an application formodification/clarification of the Appellate Tribunal’s order was alsodismissed. Aggrieved by the order dated 09.08.2018 of the AppellateTribunal, the appellants have filed the present appeal. In the meanwhile,Con 23.08.2018, the resolution plan of one Adani Wilmar Limited wasapproved by majority of 96.86% of the committee of creditors. On24.08.2018, the resolution professional submitted its resolution plan, asapproved by the CoC, to the Adjudicating Authority. On 27.08.2018, thisCourt, by an interim order, stated, while issuing notice, that the bids willnot be finalized by the Adjudicating Authority without the leave of thisDCourt. On 10.09.2018, this Court clarified, in an application filed by theresolution professional, that the Adjudicating Authority could continuewith the proceedings but no order could be passed on the same until thisCourt adjudicates on the present appeal.

4. On behalf of the appellants, we have heard Shri Shyam DivanEand Shri Arvind Kumar Gupta. The learned counsel referred to Sections24, 25, 29 and 31 of the Code together with Regulations made thereunder.According to the learned counsel, under Section 24(3), the resolutionprofessional has to give notice of each meeting of the committee ofcreditors to the members of the suspended Board of Directors, and underFRegulation 21, the notice of these meetings shall not only contain anagenda of the meetings but shall also contain copies of all documentsrelevant to the matters to be discussed and issues to be voted upon atthe meeting. This necessarily means that access to the resolution plansand other relevant documents under consideration at these meetings must be supplied together with the notice of the meeting to members ofGsuspended Board of Directors. They drew a dichotomy between thecommittee of creditors and meetings of the committee of creditors andstated that as they are “participants” in the meetings of the committeeof creditors, albeit without voting rights, yet, they are persons who, inorder to participate effectively, must be given the necessary documentsH

so that their views can also be considered by the committee of creditors.According to them, Section 31(1) of the Code makes it clear that oncethe resolution plan is passed by the Adjudicating Authority, it shall bebinding on the corporate debtor together with guarantors and otherstakeholders. This being the case, it is clear that the erstwhile Board ofDirectors, which consists of persons who may have given personalguarantees for the debts owed by the corporate debtor, will be bound bythe resolution plan, and therefore, have a vital stake in what ultimatelygets passed by the committee of creditors. Apart from this, under Section60(5) of the Code, such persons have a right to challenge the terms of aproposed resolution plan before the Tribunal, and under Section 61, maygo further against the Adjudicating Authority’s order to the AppellateTribunal. They relied upon and referred to the Bankruptcy LawCommittee Report of 2015 to buttress their submissions.

5. As against this, Dr. Abhishek Manu Singhvi, and Mr. RaunakDhillon, appearing on behalf of the resolution professional, relied stronglyon Section 30(3) of the Code and Regulation 39(2) of the Insolvencyand Bankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016 [“CIRP Regulations”] whichmade it clear that resolution plans were only to be given to the committeeof creditors for its consideration. They further argued that the terms“committee” and “participant” are differently defined under theRegulations and that participants are expressly excluded by Regulation39. They also argued, that if any of the Regulations go beyond theprovisions of the Code, they must be struck down as ultra vires, asunder Section 30(3) of the Code, the resolution professional is requiredto present resolution plans only to the committee of creditors. They reliedupon the Notes on Clauses to Section 24 of the Code, which, accordingto them, made it clear that the reason for the participation of the erstwhileBoard of Directors in meetings of the committee of creditors is so thatthey may give information to assess the financial position of the corporatedebtor. They are not in the position, therefore, of other creditors, whomay go into merits and demerits of resolution plans as such resolutionplans affect creditors only and not such persons. They relied upon thisCourt’s judgment in Mobilox Innovations Private Limited v. KirusaSoftware Private Limited, (2018) 1 SCC 353 [“MobiloxInnovations”], for the proposition that Notes on Clauses are importantparliamentary material that may be relied upon to understand the object AB

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Aof the Section in question. They also relied strongly upon Regulation7(2)(h) of the Insolvency and Bankruptcy Board of India (InsolvencyProfessionals) Regulations, 2016, read with the First Schedule thereto,which made it clear that confidential information can only be sharedwith the consent of the relevant parties. Further, the confidentialinformation contained in proposed resolution plans can only be sharedBwith members of the committee of creditors after receiving an undertakingfrom them under the Regulations. They further argued that persons suchas the appellant are not persons aggrieved and since no prejudice iscaused to them, do not have a right to file any application under Section60(5) of the Code or appeals to the Appellate Tribunal from orders ofCthe Adjudicating Authority under Section 61.

6. Shri Krishnan Venugopal and Shri Nakul Sachdeva, learnedcounsel appearing on behalf of the committee of creditors, argued thatthe expressions “information memorandum” and “resolution plan” areseparately defined and a specific procedure has been laid down in theDCode and Regulations dealing with them. They cannot therefore be saidto be “documents” within the meaning of Regulation 21. They alsostrongly relied upon the Notes on Clauses and stated that the role ofmembers of the suspended Board of Directors is that of informationgivers and not information seekers. They further relied upon the provisoto Section 21(2) which, according to them, made it clear that a director,Ewho is also a financial creditor, has no right to participate in a meeting ofthe committee of creditors. Thus, a harmonious construction of the variousprovisions of the Code would lead to the anomaly that a directorsimplicitor would have the right to get documents but a director who isa financial creditor would have no such right. They also adverted to the Fexpression “participant” as opposed to the expression “committee” andstated that the legislature, in its wisdom, created a differentiation betweenthe two. They also stated that the confidentiality requirement would bebreached if a copy of the resolution plan were to be given to the membersof the suspended Board of Directors and added that it would be in the interest of some members of the suspended Board who may attempt toGsabotage the corporate insolvency resolution process, for which reasonalso, resolution plans should be kept hidden from them. They argued thatthe “persons aggrieved” in Section 61 would necessarily refer to personsaggrieved for the purpose of Section 60(5) also, and as members of theex-Board of Directors cannot be said to be persons aggrieved, theyH

cannot possibly approach the Adjudicating Authority under Section 60(5)or the Appellate Tribunal under Section 61.

7. Having heard learned counsel for all parties, it is important tofirst advert to the relevant provisions of the Code and the Regulationsmade thereunder. The relevant provisions of the Code are hereinbelow:

“5. Definitions.—In this Part, unless the context otherwiserequires,—

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(10) “information memorandum” means a memorandumprepared by resolution professional under sub-section (1) ofSection 29; xxx xxx xxx

(26) “resolution plan” means a plan proposed by resolutionapplicant for insolvency resolution of the corporate debtor as agoing concern in accordance with Part II;

“21. Committee of creditors.—(1) The interim resolutionprofessional shall after collation of all claims received against thecorporate debtor and determination of the financial position of thecorporate debtor, constitute a committee of creditors.

(2) The committee of creditors shall comprise all financial creditorsof the corporate debtor:

Provided that a financial creditor or the authorised representativeof the financial creditor referred to in sub-section (6) or sub-section(6-A) or sub-section (5) of Section 24, if it is a related party of thecorporate debtor, shall not have any right of representation,participation or voting in a meeting of the committee of creditors:

Provided further that the first proviso shall not apply to a financialcreditor, regulated by a financial sector regulator, if it is a relatedparty of the corporate debtor solely on account of conversion orsubstitution of debt into equity shares or instruments convertibleinto equity shares, prior to the insolvency commencement date.

(3) Subject to sub-sections (6) and (6-A), where the corporatedebtor owes financial debts to two or more financial creditors as A

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part of a consortium or agreement, each such financial creditorshall be part of the committee of creditors and their voting shareshall be determined on the basis of the financial debts owed tothem.

(4) Where any person is a financial creditor as well as anBoperational creditor,—

(a) such person shall be a financial creditor to the extent of thefinancial debt owed by the corporate debtor, and shall beincluded in the committee of creditors, with voting shareproportionate to the extent of financial debts owed to suchCcreditor; (b) such person shall be considered to be an operational creditorto the extent of the operational debt owed by the corporatedebtor to such creditor.

(5) Where an operational creditor has assigned or legallyDtransferred any operational debt to a financial creditor, theassignee or transferee shall be considered as an operational creditorto the extent of such assignment or legal transfer.

(6) Where the terms of the financial debt extended as part of aconsortium arrangement or syndicated facility provide for a singleEtrustee or agent to act for all financial creditors, each financialcreditor may—

(a) authorise the trustee or agent to act on his behalf in thecommittee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extentFof his voting share;

(c) appoint an insolvency professional (other than the resolutionprofessional) at his own cost to represent himself in thecommittee of creditors to the extent of his voting share; or G(d) exercise his right to vote to the extent of his voting sharewith one or more financial creditors jointly or severally.

(6-A) Where a financial debt—

(a) is in the form of securities or deposits and the terms of thefinancial debt provide for appointment of a trustee or agent to H

act as authorised representative for all the financial creditors,such trustee or agent shall act on behalf of such financialcreditors; (b) is owed to a class of creditors exceeding the number asmay be specified, other than the creditors covered under clause(a) or sub-section (6), the interim resolution professional shallmake an application to the Adjudicating Authority along withthe list of all financial creditors, containing the name of aninsolvency professional, other than the interim resolutionprofessional, to act as their authorised representative who shallbe appointed by the Adjudicating Authority prior to the firstmeeting of the committee of creditors;

(c) is represented by a guardian, executor or administrator,such person shall act as authorised representative on behalf ofsuch financial creditors, and such authorised representative under clause (a) or clause(b) or clause (c) shall attend the meetings of the committee ofcreditors, and vote on behalf of each financial creditor to theextent of his voting share.

(6-B) The remuneration payable to the authorised representative—

(i) under clauses (a) and (c) of sub-section (6-A), if any, shallbe as per the terms of the financial debt or the relevantdocumentation; and

(ii) under clause (b) of sub-section (6-A) shall be as specifiedwhich shall form part of the insolvency resolution process costs.

(7) The Board may specify the manner of voting and thedetermining of the voting share in respect of financial debts coveredunder sub-sections (6) and (6-A).

(8) Save as otherwise provided in this Code, all decisions of thecommittee of creditors shall be taken by a vote of not less thanfifty-one per cent of voting share of the financial creditors:

Provided that where a corporate debtor does not have any financialcreditors, the committee of creditors shall be constituted and shallcomprise of such persons to exercise such functions in suchmanner as may be specified.

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SUPREME COURT REPORTS

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(9) The committee of creditors shall have the right to require theresolution professional to furnish any financial information in relationto the corporate debtor at any time during the corporate insolvencyresolution process.

(10) The resolution professional shall make available any financialBinformation so required by the committee of creditors under sub-section (9) within a period of seven days of such requisition.”

24. Meeting of committee of creditors.—(1) The membersof the committee of creditors may meet in person or by suchelectronic means as may be specified.

C(2) All meetings of the committee of creditors shall be conductedby the resolution professional.

(3) The resolution professional shall give notice of each meetingof the committee of creditors to—

D(a) members of committee of creditors, including the authorisedrepresentatives referred to in sub-sections (6) and (6-A) ofSection 21 and sub-section (5); (b) members of the suspended Board of Directors or thepartners of the corporate persons, as the case may be;

(c) operational creditors or their representatives if the amountof their aggregate dues is not less than ten per cent of thedebt.

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(4) The directors, partners and one representative of operationalcreditors, as referred to in sub-section (3), may attend the meetingsFof committee of creditors, but shall not have any right to vote insuch meetings:

Provided that the absence of any such director, partner orrepresentative of operational creditors, as the case may be, shallnot invalidate proceedings of such meeting.

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(5) Subject to sub-sections (6), (6-A) and (6-B) of Section 21,any creditor who is a member of the committee of creditors mayappoint an insolvency professional other than the resolutionprofessional to represent such creditor in a meeting of thecommittee of creditors:

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VIJAY KUMAR JAIN v. STANDARD CHARTERED BANK[R. F. NARIMAN, J.]

Provided that the fees payable to such insolvency professionalrepresenting any individual creditor will be borne by such creditor.

(6) Each creditor shall vote in accordance with the voting shareassigned to him based on the financial debts owed to such creditor.

(7) The resolution professional shall determine the voting share tobe assigned to each creditor in the manner specified by the Board.

(8) The meetings of the committee of creditors shall be conductedin such manner as may be specified.”

“25. Duties of resolution professional.—(1) It shall be theduty of the resolution professional to preserve and protect theassets of the corporate debtor, including the continued businessoperations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professionalshall undertake the following actions, namely—

(a) take immediate custody and control of all the assets of thecorporate debtor, including the business records of the corporatedebtor; (b) represent and act on behalf of the corporate debtor withthird parties, exercise rights for the benefit of the corporatedebtor in judicial, quasi-judicial or arbitration proceedings;

(c) raise interim finances subject to the approval of thecommittee of creditors under Section 28; (d) appoint accountants, legal or other professionals in themanner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee ofcreditors; (g) prepare the information memorandum in accordance withSection 29; (h) invite prospective resolution applicants, who fulfil suchcriteria as may be laid down by him with the approval ofcommittee of creditors, having regard to the complexity and A

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scale of operations of the business of the corporate debtor andsuch other conditions as may be specified by the Board, tosubmit a resolution plan or plans;

(i) present all resolution plans at the meetings of the committeeof creditors; B

(j) file application for avoidance of transactions in accordancewith Chapter III, if any; and (k) such other actions as may be specified by the Board.”

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“29. Preparation of information memorandum.—(1) Theresolution professional shall prepare an information memorandumin such form and manner containing such relevant information asmay be specified by the Board for formulating a resolution plan.

(2) The resolution professional shall provide to the resolutionDapplicant access to all relevant information in physical andelectronic form, provided such resolution applicant undertakes—

(a) to comply with provisions of law for the time being in forcerelating to confidentiality and insider trading; (b) to protect any intellectual property of the corporate debtorit may have access to; and E

(c) not to share relevant information with third parties unlessclauses (a) and (b) of this sub-section are complied with.

Explanation.—For the purposes of this section, “relevantinformation” means the information required by the resolutionapplicant to make the resolution plan for the corporate debtor,which shall include the financial position of the corporate debtor,all information related to disputes by or against the corporate debtorand any other matter pertaining to the corporate debtor as may bespecified.”

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“30. Submission of resolution plan.—(1) A resolution applicantmay submit a resolution plan along with an affidavit stating thathe is eligible under Section 29-A to the resolution professionalprepared on the basis of the information memorandum.

(2) The resolution professional shall examine each resolution planreceived by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution processcosts in a manner specified by the Board in priority to thepayment of other debts of the corporate debtor; (b) provides for the payment of the debts of operational creditorsin such manner as may be specified by the Board which shallnot be less than the amount to be paid to the operational creditorsin the event of a liquidation of the corporate debtor underSection 53;

(c) provides for the management of the affairs of the corporatedebtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law forthe time being in force;

(f) conforms to such other requirements as may be specifiedby the Board.

Explanation.—For the purposes of clause (e), if any approvalof shareholders is required under the Companies Act, 2013 (18 of2013) or any other law for the time being in force for theimplementation of actions under the resolution plan, such approvalshall be deemed to have been given and it shall not be acontravention of that Act or law.

(3) The resolution professional shall present to the committee ofcreditors for its approval such resolution plans which confirm theconditions referred to in sub-section (2).

(4) The committee of creditors may approve a resolution plan bya vote of not less than sixty-six per cent of voting share of thefinancial creditors, after considering its feasibility and viability, andsuch other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017,where the resolution applicant is ineligible under Section 29-A

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and may require the resolution professional to invite a freshresolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred toin the first proviso is ineligible under clause (c) of Section 29-A,the resolution applicant shall be allowed by the committee ofcreditors such period, not exceeding thirty days, to make paymentof overdue amounts in accordance with the proviso to clause (c)of Section 29-A:

Provided also that nothing in the second proviso shall be construedas extension of period for the purposes of the proviso to sub-section (3) of Section 12, and the corporate insolvency resolutionprocess shall be completed within the period specified in that sub-section.

Provided also that the eligibility criteria in Section 29-A asamended by the Insolvency and Bankruptcy Code (Amendment)Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolutionapplicant who has not submitted resolution plan as on the date ofcommencement of the Insolvency and Bankruptcy Code(Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of thecommittee of creditors in which the resolution plan of the applicantis considered:

Provided that the resolution applicant shall not have a right tovote at the meeting of the committee of creditors unless suchresolution applicant is also a financial creditor.

(6) The resolution professional shall submit the resolution plan asapproved by the committee of creditors to the AdjudicatingAuthority.”

“31. Approval of resolution plan.—(1) If the AdjudicatingAuthority is satisfied that the resolution plan as approved by thecommittee of creditors under sub-section (4) of Section 30 meetsthe requirements as referred to in sub-section (2) of Section 30, itshall by order approve the resolution plan which shall be bindingon the corporate debtor and its employees, members, creditors,guarantorsand other stakeholders involved in the resolution plan:

Provided that the Adjudicating Authority shall, before passingan order for approval of resolution plan under this sub-section,satisfy that the resolution plan has provisions for its effectiveimplementation.

(2) Where the Adjudicating Authority is satisfied that the resolutionplan does not [conform] to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the Adjudicating Authorityunder Section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relatingto the conduct of the corporate insolvency resolution processand the resolution plan to the Board to be recorded on itsdatabase.

(4) The resolution applicant shall, pursuant to the resolution planapproved under sub-section (1), obtain the necessary approvalrequired under any law for the time being in force within a periodof one year from the date of approval of the resolution plan by theAdjudicating Authority under sub-section (1) or within such periodas provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision forcombination, as referred to in Section 5 of the Competition Act,2002 (12 of 2003), the resolution applicant shall obtain the approvalof the Competition Commission of India under that Act prior tothe approval of such resolution plan by the committee of creditors.”

“60. Adjudicating Authority for corporate persons.—

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(5) Notwithstanding anything to the contrary contained in any otherlaw for the time being in force, the National Company LawTribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporatedebtor or corporate person; A

B

C

D

E

F

G

H

A

(b) any claim made by or against the corporate debtor orcorporate person, including claims by or against any of itssubsidiaries situated in India; and

(c) any question of priorities or any question of law or facts,arising out of or in relation to the insolvency resolution orliquidation proceedings of the corporate debtor or corporateperson under this Code.

B

“61. Appeals and Appellate Authority.—(1) Notwithstandinganything to the contrary contained under the Companies Act, 2013(18 of 2013), any person aggrieved by the order of the AdjudicatingAuthority under this part may prefer an appeal to the NationalCompany Law Appellate Tribunal.

C

xxx xxx xxx”

“62. Appeal to Supreme Court.—(1) Any person aggrieved byan order of the National Company Law Appellate Tribunal mayfile an appeal to the Supreme Court on a question of law arisingout of such order under this Code within forty-five days from thedate of receipt of such order.

D

xxx xxx xxx”E

The relevant provisions of the Insolvency and Bankruptcy Boardof India (Insolvency Resolution Process for Corporate Persons)Regulations, 2016 read as under:

“2. Definitions.— (1) In these Regulations, unless the contextFotherwise requires—

xxx xxx xxx

(d) “committee” means a committee of creditors establishedunder Section 21; Gxxx xxx xxx

(l) “participant” means a person entitled to attend a meeting ofthe committee under Section 24 or any other person authorisedby the committee to attend the meeting;

H

“19. Notice for meetings of the committee.— (1) Subject tothis Regulation, a meeting of the committee shall be called bygiving not less than five days’ notice in writing to every participant,at the address it has provided to the resolution professional andsuch notice may be sent by hand delivery, or by post but in anyevent, be served on every participant by electronic means inaccordance with Regulation 20.

(2) The committee may reduce the notice period from five daysto such other period of not less than twenty-four hours, as it deemsfit:

Provided that the committee may reduce the period to such otherperiod of not less than forty-eight hours if there is an authorisedrepresentative.”

“21. Contents of the notice for meeting.—(1) The notice shallinform the participants of the venue, the time and date of themeeting and of the option available to them to participate throughvideo conferencing or other audio and visual means, and shallalso provide all the necessary information to enable participationthrough video conferencing or other audio and visual means.

(2) The notice of the meeting shall provide that a participant mayattend and vote in the meeting either in person or through anauthorised representative:

Provided that such participant shall inform the resolutionprofessional, in advance of the meeting, of the identity of theauthorised representative who will attend and vote at the meetingon its behalf.

(3) The notice of the meeting shall contain the following—

(i) a list of the matters to be discussed at the meeting;

(ii) a list of the issues to be voted upon at the meeting; and

(iii) copies of all documents relevant to the matters to bediscussed and the issues to be voted upon at the meeting.

(4) The notice of the meeting shall—

(a) state the process and manner for voting by electronic meansand the time schedule, including the time period during whichthe votes may be cast; AB

C

D

E

F

G

H

A

B

C

D

E

F

G

H

(b) provide the login ID and the details of a facility for generatingpassword and for keeping security and casting of vote in asecure manner; and

(c) provide contact details of the person who will address thequeries connected with the electronic voting.

“24. Conduct of meeting.— (1) The resolution professional shallact as the chairperson of the meeting of the committee.

(2) At the commencement of a meeting, the resolution professionalshall take a roll call when every participant attending through videoconferencing or other audio and visual means shall state, for therecord, the following,—

(a) his name;

(b) whether he is attending in the capacity of a member of thecommittee or any other participant;

(c) whether he is representing a member or group of members; (d) the location from where he is participating; (e) that he has received the agenda and all the relevant materialfor the meeting; and (f) that no one other than him is attending or has access to theproceedings of the meeting at the location of that person.

(3) After the roll call, the resolution professional shall inform theparticipants of the names of all persons who are present for themeeting and confirm if the required quorum is complete.

(4) The resolution professional shall ensure that the requiredquorum is present throughout the meeting.

(5) From the commencement of the meeting till its conclusion, noperson other than the participants and any other person whosepresence is required by the resolution professional shall be allowedaccess to the place where meeting is held or to the videoconferencing or other audio and visual facility, without thepermission of the resolution professional.

(6) The resolution professional shall ensure that minutes are madein relation to each meeting of the committee and such minutesshall disclose the particulars of the participants who attended themeeting in person, through video conferencing, or other audio andvisual means.

(7) The resolution professional shall circulate the minutes of themeeting to all participants by electronic means within forty eighthours of the said meeting.”

“35. Fair value and Liquidation value.—(1) Fair value andliquidation value shall be determined in the following manner—

(a) the two registered valuers appointed under Regulation 27shall submit to the resolution professional an estimate of thefair value and the liquidation value computed in accordancewith internationally accepted valuation standards, after physicalverification of the inventory and fixed assets of the corporatedebtor; (b) if in the opinion of the resolution professional, the twoestimates of a value are significantly different, he may appointanother registered valuer who shall submit an estimatecomputed in the same manner; and

(c) the average of the two closest estimates shall be consideredthe fair value or the liquidation value, as the case may be.

(2) After the receipt of resolution plans in accordance with theCode and these regulations, the resolution professional shall providethe fair value and the liquidation value to every member of thecommittee in electronic form, on receiving an undertaking fromthe member to the effect that such member shall maintainconfidentiality of the fair value and the liquidation value and shallnot use such values to cause an undue gain or undue loss to itselfor any other person and comply with the requirements under sub-section (2) of Section 29.

(3) The resolution professional and registered valuers shall maintainconfidentiality of the fair value and the liquidation value.”

A

B

CD

E

F

G

H

A

B

C

D

E

F

G

H

“36. Information memorandum.— (1) Subject to sub-regulation(4), the resolution professional shall submit the informationmemorandum in electronic form to each member of the committeewithin two weeks of his appointment, but not later than fifty-fourthday from the insolvency commencement date, whichever is earlier.

(2) The information memorandum shall contain the following detailsof the corporate debtor—

(a) assets and liabilities, with such description, as on theinsolvency commencement date, as are generally necessaryfor ascertaining their values.

Explanation.- “Description” includes the details such as dateof acquisition, cost of acquisition, remaining useful life,identification number, depreciation charged, book value, andany other relevant details.

(b) the latest annual financial statements;

(c) audited financial statements of the corporate debtor for thelast two financial years and provisional financial statementsfor the current financial year made up to a date not earlierthan fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, theamounts claimed by them, the amount of their claims admittedand the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtorwith respect to related parties; (f) details of guarantees that have been given in relation to thedebts of the corporate debtor by other persons, specifying whichof the guarantors is a related party; (g) the names and addresses of the members or partners holdingat least one per cent stake in the corporate debtor along withthe size of stake; (h) details of all material litigation and an ongoing investigationor proceeding initiated by Government and statutory authorities;

(i) the number of workers and employees and liabilities of thecorporate debtor towards them; and (j) [* * *]

(k) [* * *]

(l) other information, which the resolution professional deemsrelevant to the committee.

(3) A member of the committee may request the resolutionprofessional for further information of the nature described in thisRegulation and the resolution professional shall provide suchinformation to all members within reasonable time if suchinformation has a bearing on the resolution plan.

(4) The resolution professional shall share the informationmemorandum after receiving an undertaking from a member ofthe committee to the effect that such member or resolutionapplicant shall maintain confidentiality of the information and shallnot use such information to cause an undue gain or undue loss toitself or any other person and comply with the requirements undersub-section (2) of Section 29.”

“37. Resolution plan.— A resolution plan shall provide for themeasures, as may be necessary, for insolvency resolution of thecorporate debtor for maximization of value of its assets, includingbut not limited to the following—

(a) transfer of all or part of the assets of the corporate debtorto one or more persons; (b) sale of all or part of the assets whether subject to anysecurity interest or not;

(c) the substantial acquisition of shares of the corporate debtor,or the merger or consolidation of the corporate debtor withone or more persons; (ca) cancellation or delisting of any shares of the corporatedebtor, if applicable; (d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debtdue from the corporate debtor; (f) reduction in the amount payable to the creditors; A

B

C

D

E

F

G

H

A(g) extension of a maturity date or a change in interest rate orother terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporatedebtor;

(i) issuance of securities of the corporate debtor, for cash,Bproperty, securities, or in exchange for claims or interests, orother appropriate purpose; (j) change in portfolio of goods or services produced or renderedby the corporate debtor; (k) change in technology used by the corporate debtor; and C

(l) obtaining necessary approvals from the Central and StateGovernments and other authorities.”

“38. Mandatory contents of the resolution plan.— (1) TheDamount due to the operational creditors under a resolution planshall be given priority in payment over financial creditors.

(1-A) A resolution plan shall include a statement as to how it hasdealt with the interests of all stakeholders, including financialcreditors and operational creditors, of the corporate debtor.E

(2) A resolution plan shall provide:

(a) the term of the plan and its implementation schedule;(b) the management and control of the business of the corporatedebtor during its term; and F

(c) adequate means for supervising its implementation.

(3) A resolution plan shall demonstrate that:

(a) it addresses the cause of default;

(b) it is feasible and viable;

G

(c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline forthe same; and (e) the resolution applicant has the capability to implement theHresolution plan.”

“39. Approval of resolution plan.—(1) A prospective resolutionapplicant in the final list may submit resolution plan or plans inaccordance with the Code and these regulations to the resolutionprofessional electronically within the time given in the request forresolution plans under regulation 36B along with:

(a) And affidavit stating that it is eligible under section 29A tosubmit resolution plans; and (b) [***]

(c) An undertaking by the prospective resolution applicant thatevery information and records provided in connection with orin the resolution plan is true and correct and discovery of falseinformation and record at any time will render the applicantineligible to continue in the corporate insolvency resolutionprocess, forfeit any refundable deposit, and attract penal actionunder the Code.

(1A) A resolution plan which does not comply with the provisionsof sub-regulation (1) shall be rejected.

(2) The resolution professional shall submit to the committee allresolution plans which comply with the requirements of the Codeand regulations made thereunder along with the details of followingtransactions, if any, observed, found or determined by him:—

(a) preferential transactions under Section 43; (b) undervalued transactions under Section 45;

(c) extortionate credit transactions under Section 50; and (d) fraudulent transactions under Section 66, and the orders, if any, of the adjudicating authority in respect of such transactions.

(3) The committee shall evaluate the resolution plans receivedunder sub-regulation (1) strictly as per the evaluation matrix toidentify the best resolution plan and may approve it with suchmodifications as it deems fit:

Provided that the committee shall record the reasons for approvingor rejecting a resolution plan.

A

B

C

DE

F

G

H

SUPREME COURT REPORTS

A(4) The resolution professional shall endeavour to submit theresolution plan approved by the committee to the AdjudicatingAuthority at least fifteen days before the maximum period forcompletion of corporate insolvency resolution process under section12, along with a compliance certificate in Form H of the Schedule.

B(5) The resolution professional shall forthwith send a copy of theorder of the Adjudicating Authority approving or rejecting aresolution plan to the participants and the resolution applicant.

(6) A provision in a resolution plan which would otherwise requirethe consent of the members or partners of the corporate debtor,Cas the case may be, under the terms of the constitutionaldocuments of the corporate debtor, shareholders’ agreement, jointventure agreement or other document of a similar nature, shalltake effect notwithstanding that such consent has not beenobtained.

D(7) No proceedings shall be initiated against the interim resolutionprofessional or the resolution professional, as the case may be,for any actions of the corporate debtor, prior to the insolvencycommencement date.

(8) A person in charge of the management or control of the businessEand operations of the corporate debtor after a resolution plan isapproved by the Adjudicating Authority, may make an applicationto the Adjudicating Authority for an order seeking the assistanceof the local district administration in implementing the terms of aresolution plan.”

The relevant provisions of the Insolvency and Bankruptcy BoardFof India (Insolvency Professionals) Regulations, 2016 read as under:

“7. Certificate of registration.—

xxx xxx xxx

(2) The registration shall be subject to the conditions that theGinsolvency professional shall—

xxx xxx xxx

(h) abide by the Code of Conduct specified in the First Scheduleto these Regulations; and Hxxx xxx xxx”

VIJAY KUMAR JAIN v. STANDARD CHARTERED BANK[R. F. NARIMAN, J.]

“FIRST SCHEDULE

[Under Regulation, 7(2)(h)]

CODE OF CONDUCT FOR INSOLVENCY PROFESSIONALS

xxx xxx xxx

Confidentiality.

21. An insolvency professional must ensure that confidentiality ofthe information relating to the insolvency resolution process,liquidation or bankruptcy process, as the case may be, is maintainedat all times. However, this shall not prevent him from disclosingany information with the consent of the relevant parties or requiredby law.

8. The statutory scheme of the Code, insofar as the formermembers of the Board of Directors are concerned, is as follows:

A committee of creditors is first constituted under Section 21consisting only of all the financial creditors of the corporate debtor. UnderSection 24, all meetings of this committee are to be conducted by theresolution professional who, however, does not happen to be part of thiscommittee. Section 24(3)(b) is important in that, the resolution professionalhas to give notice of each and every meeting of the committee of creditors,inter alia, to members of the suspended Board of Directors. Likeoperational creditors who may attend and participate in such meetings,provided the aggregate dues owing to them are not less than ten percent of the total debt, both such operational creditors and erstwhilemembers of the Board of Directors have no vote. Section 25(2)(f) and(i) are also important in that, once the resolution professional convenesmeetings of the committee of creditors, he is to present all resolutionplans at these meetings. Under Section 30, the resolution professionalshall examine each resolution plan received by him in which he mustconfirm, inter alia, that such plan provides for the repayment of thedebts of operational creditors which shall not be less than the amount tobe paid to them in the event of liquidation of the corporate debtor. Thisplan is then submitted to the Adjudicating Authority if it is approved bythe requisite majority of the committee of creditors. The AdjudicatingAuthority under Section 31(1), if satisfied that the plan passes muster, A

B

C

D

E

F

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H

Ashall then, by order, approve such plan, which shall be binding on allstakeholders involved in the resolution plan, including guarantors.

9. This statutory scheme, therefore, makes it clear that thoughthe erstwhile Board of Directors are not members of the committee ofcreditors, yet, they have a right to participate in each and every meetingBheld by the committee of creditors, and also have a right to discuss alongwith members of the committee of creditors all resolution plans that arepresented at such meetings under Section 25(2)(i). It cannot be gainsaidthat operational creditors, who may participate in such meetings but haveno right to vote, are vitally interested in such resolution plans, and mustbe furnished copies of such plans beforehand if they are to participateCeffectively in the meeting of the committee of creditors. This is for thereason that under Section 30(2)(b), repayment of their debts is animportant part of the resolution plan qua them on which they mustcomment. So the first important thing to notice is that even though personssuch as operational creditors have no right to vote but are only participantsDin meetings of the committee of creditors, yet, they would certainly havea right to be given a copy of the resolution plans before such meetingsare held so that they may effectively comment on the same to safeguardtheir interest.

10. However, it was argued before us that the Notes on ClausesEto Section 24 make it clear that the erstwhile members of the Board ofDirectors are participants in these meetings only so that the committeeof creditors and the resolution professional may seek information fromthem. The Notes on Clauses, heavily relied upon by learned counsel forthe respondents, read as follows:

F“Clause 24 prescribes the modalities for the meeting of thecommittee of creditors. The meetings are conducted by theresolution professional and may be attended by the members ofthe board directors or partners of the corporate debtor. This givesan opportunity for the committee of creditors and the resolutionprofessional to seek information that they may require to assessGthe financial position of the corporate debtor and prepare aresolution plan.”

VIJAY KUMAR JAIN v. STANDARD CHARTERED BANK[R. F. NARIMAN, J.]

11. This Court in Mobilox Innovations (supra) stated:

“27. The notes on clauses annexed to the Bill are extremelyimportant and read as follows……”

xxx xxx xxx

“38. It is, thus, clear that so far as an operational creditor isconcerned, a demand notice of an unpaid operational debt or copyof an invoice demanding payment of the amount involved must bedelivered in the prescribed form. The corporate debtor is thengiven a period of 10 days from the receipt of the demand noticeor copy of the invoice to bring to the notice of the operationalcreditor the existence of a dispute, if any. We have also seen thenotes on clauses annexed to the Insolvency and Bankruptcy Billof 2015, in which “the existence of a dispute” alone is mentioned.Even otherwise, the word “and” occurring in Section 8(2)(a) mustbe read as “or” keeping in mind the legislative intent and the factthat an anomalous situation would arise if it is not read as“or”……”

12. There is no doubt whatsoever that Notes on Clauses are animportant aid to the construction of Sections of the Code as they showwhat the Drafting Committee had in mind when such provisions weredrafted. However, a closer look at the Notes on Clause 24 makes itclear that the third sentence of the Notes on Clause 24 is itselfproblematic. First and foremost, it speaks of the resolution professionalseeking information. The resolution professional does not seek informationat a meeting of the committee of creditors, which is what Section 24 isall about. The resolution professional only seeks information from theerstwhile Board of Directors under Section 29 before preparing aninformation memorandum, which then includes the financial position ofthe corporate debtor and information relating to disputes by or againstthe corporate debtor etc. All this has nothing to do with Section 24 of theCode which deals with meetings of the committee of creditors. Secondly,the resolution professional does not prepare a resolution plan as ismentioned in the Notes on Clause 24; he only prepares an informationmemorandum which is to be given to the resolution applicants who thensubmit their resolution plans under Section 30 of the Code. The committeeof creditors, in turn, gets information so that they can assess the financialposition of the corporate debtor from various sources beforethey meet.

A

BC

DEF

G

H

A

BC

DEF

G

H

AIt is, therefore, difficult to understand the Notes on Clause 24. Evenassuming that the Notes on Clause 24 may be read as being a one-waystreet by which erstwhile members of the Board of Directors are only toprovide information, we find that Section 31(1) of the Code would makeit clear that such members of the erstwhile Board of Directors, who areoften guarantors, are vitally interested in a resolution plan as suchBresolution plan then binds them. Such plan may scale down the debt ofthe principal debtor, resulting in scaling down the debt of the guarantoras well, or it may not. The resolution plan may also scale down certaindebts and not others, leaving guarantors of the latter kind of debts exposedfor the entire amount of the debt. The Regulations also make it clearCthat these persons are vitally interested in resolution plans as they affectthem. Thus, under Regulation 36 of the CIRP Regulations, the informationmemorandum that is given to each member of the CoC and to anypotential resolution applicant, will contain details of guarantees that havebeen given in relation to the debts of the corporate debtor (see Regulation36(2)(f) of the CIRP Regulations). Also, under Regulation 37(d) of theDCIRP Regulations, a resolution plan may provide for satisfaction ormodification of any security interest. Security interest is defined by Section3(31) of the Code as follows:

“3. Definitions.—In this Code, unless the context otherwiserequires,—

E

xxx xxx xxx

(31) “security interest” means right, title or interest or a claimto property, created in favour of, or provided for a securedcreditor by a transaction which secures payment orFperformance of an obligation and includes mortgage, charge,hypothecation, assignment and encumbrance or any otheragreement or arrangement securing payment or performanceof any obligation of any person:

Provided that security interest shall not include a performanceGguarantee;

This would certainly include a guarantor who may be a memberof the erstwhile Board of Directors. Further, under Regulation 37(1)(f),a resolution plan may provide for reduction in the amount payable to the H

creditors, which again vitally impacts the rights of a guarantor. Last butnot least, a resolution plan which has been approved or rejected by anorder of the Adjudicating Authority, has to be sent to “participants” whichwould include members of the erstwhile Board of Directors – videRegulation 39(5) of the CIRP Regulations. Obviously, such copy canonly be sent to participants because they are vitally interested in theoutcome of such resolution plan, and may, as persons aggrieved, file anappeal from the Adjudicating Authority’s order to the Appellate Tribunalunder Section 61 of the Code. Quite apart from this, Section 60(5)(c) isalso very wide, and a member of the erstwhile Board of Directors alsohas an independent right to approach the Adjudicating Authority, whichmust then hear such person before it is satisfied that such resolution plancan pass muster under Section 31 of the Code.

13. It is also important to note that every participant is entitled toa notice of every meeting of the committee of creditors. Such notice ofmeeting must contain an agenda of the meeting, together with the copiesof all documents relevant for matters to be discussed and the issues tobe voted upon at the meeting vide Regulation 21(3)(iii). Obviously,resolution plans are “matters to be discussed” at such meetings, and theerstwhile Board of Directors are “participants” who will discuss theseissues. The expression “documents” is a wide expression which wouldcertainly include resolution plans.

14. Under Regulation 24(2)(e), the resolution professional has totake a roll call of every participant attending through video conferencingor other audio and visual means, and must state for the record that suchperson has received the agenda and all relevant material for the meetingwhich would include the resolution plan to be discussed at such meeting.Regulation 35 makes it clear that the resolution professional shall providefair value and liquidation value to every member of the committee onlyafter receipt of resolution plansin accordance with the Code [see regulation35(2)]. Also, under Regulation 38(1)(a), a resolution plan shall include astatement as to how it has dealt with the interest of all stakeholders, andunder sub-clause 3(a), a resolution plan shall demonstrate that it addressesthe cause of default. This Regulation also, therefore, recognizes the vitalinterest of the erstwhile Board of Directors in a resolution plan togetherwith the cause of default. It is here that the erstwhile directors canrepresent to the committee of creditors that the cause of default is notdue to the erstwhile management, but due to other factors which may be AB

CD

E

F

G

H

Abeyond their control, which have led to non-payment of the debt.Therefore, a combined reading of the Code as well as the Regulationsleads to the conclusion that members of the erstwhile Board of Directors,being vitally interested in resolution plans that may be discussed atmeetings of the committee of creditors, must be given a copy of suchplans as part of “documents” that have to be furnished along with theBnotice of such meetings.

15. As a result of the aforesaid discussion, the arguments of therespondents that “committee” and “participant” are used differently, whichwould lead to the result that resolution plans need not be furnished to theerstwhile members of the Board of Directors, must be rejected. Equally,Cthe Regulations, far from going beyond the Code, flesh out the trueintention of the Code that is achieved by reading the plain language ofthe Sections that have already been adverted to. So far as confidentialinformation is concerned, it is clear that the resolution professional cantake an undertaking from members of the erstwhile Board of Directors,Das has been taken in the facts of the present case, to maintainconfidentiality. The source of this power is Regulation 7(2)(h) of theInsolvency and Bankruptcy Board of India (Insolvency Professionals)Regulations, 2016, read with paragraph 21 of the First Schedule thereto.This can be in the form of a non-disclosure agreement in which theresolution professional can be indemnified in case information is not keptEstrictly confidential.

16. The argument on behalf of the committee of creditors basedon the proviso to Section 21(2) is also misconceived. The proviso toSection 21(2) clarifies that a director who is also a financial creditorwho is a related party of the corporate debtorshall not have any right ofFrepresentation, participation, or voting in a meeting of the committee ofcreditors. Directors, simplicitor, are not the subject matter of the provisoto Section 21(2), but only directors who are related parties of thecorporate debtor. It is only such persons who do not have any right ofrepresentation, participation, or voting in a meeting of the committee ofGcreditors. Therefore, the contention that a director simplicitor wouldhave the right to get documents as against a director who is a financialcreditor 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 relatedparty of the corporate debtor. For this reason, this argument also mustbe rejected.H

17. We may also mention in passing that the Bankruptcy LawCommittee Report of November, 2015 stated:

“II. The Code will enable symmetry of information betweencreditors and debtors.

5. The law must ensure that information that is essential for theinsolvency and the bankruptcy resolution process is created andavailable when it is required.

6. The law must ensure that access to this information is madeavailable to all creditors to the enterprise, either directly or throughthe regulated professional.

7. The law must enable access to this information to third partieswho can participate in the resolution process, through the regulatedprofessional.”

Paragraph II (7) correctly reflects the reason for Section 24(3)(b)of the Code.

18. We may indicate that the time that has been utilized in theseproceedings must be excluded from the period of the resolution processof the corporate debtor as has been held in Arcelormittal India PrivateLimited v. Satish Kumar Gupta & Ors., Civil Appeal Nos. 9402-9405/2018 [decided on 04.10.2018] (at paragraph 83). In each of thesecases, the appellants will be given copies of all resolution plans submittedto the CoC within a period of two weeks from the date of this judgment.The resolution applicant in each of these cases will then convene ameeting of the CoC within two weeks thereafter, which will include theappellants as participants. The CoC will then deliberate on the resolutionplans afresh and either reject them or approve of them with the requisitemajority, after which, the further procedure detailed in the Code and theRegulations will be followed. For all these reasons, we are of the viewthat the petition and appeal must be allowed and the NCLAT judgmentset aside.

Devika Gujral

Matters allowed.

A

B

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F

G

H