2025 (5) TMI 860 - AT - IBC

Entitlement to suspended director of a corporate debtor for copy of resolution plan - HELD THAT - The present is a case the brother of the Appellant Joginder Singh has expressed intention to submit a plan who was also allowed time to file a plan by 03.02.2025 which is noticed in the Company Appeal (AT) (Insolvency) No. 619 of 2025 decided today. When the brother of the Appellant was submitting a plan the RP was well within his rights to ask the Appellant to give undertaking that neither the Appellant nor any of related party shall submit the resolution plan. Giving the resolution plan to Appellant who was suspended director when his brother was intending to file resolution plan would have been opening the all relevant facts and the copy of the resolution plan. Hence RP was right in asking the undertaking which was never given by the Appellant. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

a. Whether a suspended director of a corporate debtor is entitled to participate in the Committee of Creditors (CoC) meetings and receive copies of resolution plans during the Corporate Insolvency Resolution Process (CIRP).

b. Whether the suspended director, who is also a relative of a competing resolution applicant, can be denied access to resolution plans on the ground of potential conflict of interest and allegations of forgery against related parties.

c. The validity and implications of requiring the suspended director to provide an undertaking that neither he nor any of his related parties will submit a resolution plan before being given access to the resolution plans.

d. Whether the Resolution Professional (RP) acted within his rights in refusing to provide copies of resolution plans to the suspended director without such undertaking.

2. ISSUE-WISE DETAILED ANALYSIS

Issue a: Entitlement of Suspended Director to Participate in CoC Meetings and Receive Resolution Plans

Relevant Legal Framework and Precedents: The Supreme Court judgment in Vijay Kumar Jain vs. Standard Chartered Bank & Ors. establishes that the suspended management has a right to participate in CoC meetings and access documents, including resolution plans, during CIRP. This recognizes the vital interest of the suspended management in the resolution process.

Court's Interpretation and Reasoning: The Tribunal acknowledged that the suspended director is entitled to participate in CoC meetings. However, the entitlement to receive copies of resolution plans is subject to further considerations, especially where conflict of interest arises.

Key Evidence and Findings: The Appellant, a suspended director, sought access to resolution plans but was denied by the RP. The RP's refusal was based on the fact that the Appellant's brother had expressed intention to submit a competing resolution plan, and the Appellant himself was related to a person who had previously committed forgery in the context of resolution plan submission.

Application of Law to Facts: While the general principle from the Supreme Court case supports the Appellant's right to access, the Tribunal found that such right is not absolute and must be balanced against the risk of conflict of interest and potential misuse of sensitive information.

Treatment of Competing Arguments: The Appellant relied heavily on the Supreme Court precedent to argue for unconditional access. The RP countered by highlighting the familial relationships and alleged forgery, which could compromise the integrity of the resolution process if confidential information was shared.

Conclusions: The Tribunal held that although the suspended director has the right to participate in CoC meetings, this does not automatically entitle him to copies of resolution plans when there is a competing interest involved.

Issue b: Denial of Access to Resolution Plans Due to Conflict of Interest and Allegations of Forgery

Relevant Legal Framework and Precedents: The Tribunal relied on a recent NCLAT judgment (Yashdeep Sharma vs. Tara Chand Meenia) which clarified that where the suspended management is also a competing resolution applicant, sharing resolution plans of other applicants in advance could trigger conflict of interest and bias.

Court's Interpretation and Reasoning: The Tribunal distinguished the present case from the Supreme Court's decision by emphasizing the admitted fact that the Appellant was related to persons involved in competing resolution plans and alleged forgery. Hence, the principle of confidentiality and fairness in the CIRP process took precedence.

Key Evidence and Findings: The RP's submission that the Appellant's relative had submitted a forged bank guarantee was a significant factor. The familial ties between the Appellant, his brother (a prospective resolution applicant), and the nephew who allegedly forged documents were material to the decision.

Application of Law to Facts: The Tribunal applied the principle that sharing resolution plans with a competing applicant or related parties could lead to bias or misuse of information, thus justifying denial of access in this scenario.

Treatment of Competing Arguments: The Appellant argued for transparency and access rights, while the RP stressed the need to maintain integrity and prevent conflict of interest. The Tribunal sided with the RP's concerns.

Conclusions: The Tribunal concluded that the denial of access to resolution plans was justified due to the conflict of interest and allegations of forgery involving related parties.

Issue c: Requirement of Undertaking from Suspended Director Before Providing Resolution Plans

Relevant Legal Framework and Precedents: There is no explicit statutory provision mandating such an undertaking, but the RP's request is grounded in the need to safeguard the CIRP process from conflicts and misuse of information.

Court's Interpretation and Reasoning: The Tribunal found that the RP was justified in seeking an undertaking that neither the Appellant nor his related parties would submit a resolution plan before sharing confidential documents.

Key Evidence and Findings: The RP's email dated 04.02.2025 clearly communicated this condition to the Appellant. The Appellant did not provide the undertaking, leading to the refusal to share the resolution plan.

Application of Law to Facts: Given the competing interests and potential for conflict, the RP's condition was reasonable and necessary to protect the integrity of the CIRP.

Treatment of Competing Arguments: The Appellant did not challenge the reasonableness of the undertaking but contended that the right to access was unconditional. The Tribunal rejected this view.

Conclusions: The Tribunal upheld the RP's requirement of an undertaking as a legitimate protective measure in the circumstances.

Issue d: Legitimacy of RP's Refusal to Provide Resolution Plans Without Undertaking

Relevant Legal Framework and Precedents: The CIRP Regulations and judicial precedents emphasize the RP's duty to protect the confidentiality of resolution plans and ensure a fair process.

Court's Interpretation and Reasoning: The Tribunal held that the RP acted within his rights and duties by refusing to provide the resolution plans without the undertaking, especially given the familial and competing interests involved.

Key Evidence and Findings: The Tribunal noted that the brother of the Appellant was allowed to submit a resolution plan, reinforcing the RP's concern about conflict of interest if the Appellant accessed competing plans without safeguards.

Application of Law to Facts: The RP's actions aligned with the principle of maintaining fairness and confidentiality in the CIRP process.

Treatment of Competing Arguments: The Appellant's claim of breach of duty by the RP was rejected as unfounded in light of the circumstances.

Conclusions: The Tribunal affirmed the RP's refusal as lawful and appropriate.

3. SIGNIFICANT HOLDINGS

The Tribunal emphasized the following principles and conclusions:

"We have no quarrel with the proposition of law laid down by the Hon'ble Apex Court in Vijay Kumar Jain supra that the suspended management has a right to participate in the CoC meetings and access documents including resolution plan since Regulation of CIRP Regulations recognizes the vital interest of the suspended management in a resolution plan. This judgment... is however not applicable in the facts of the present case since here in light of the distinguishing fact that suspended management had also staked their claim as a Resolution Applicant. When it is an admitted fact that the Appellant was also a competing Resolution Applicant, no copy of the resolution plan of other PRAs could have been shared in advance with the Appellant as it would have triggered conflict of interest."

The Tribunal established that:

- The right of a suspended director to participate in CoC meetings does not automatically extend to access to resolution plans when the director or related parties are competing resolution applicants.

- Protection of confidentiality and prevention of conflict of interest are paramount in the CIRP process.

- The RP is entitled to insist on an undertaking from the suspended director that neither he nor any related party will submit a resolution plan before sharing confidential documents.

- Failure to provide such undertaking justifies refusal to share resolution plans.

- Allegations of forgery by related parties further strengthen the RP's position to deny access.

Accordingly, the Tribunal dismissed the appeal, affirming the Adjudicating Authority's order rejecting the application of the suspended director to access resolution plans without providing the requisite undertaking.