2022 (1) TMI 1286 - AT - Insolvency and Bankruptcy

Violation of principles of natural justice - Seeking participation in the CoC of DHFL - rejection by the Adjudicating Authority/NCLT holding that the Appellant is not entitled to attend the meetings of the Committee of Creditors as member of the erstwhile Board of Directors - Section 60(5) of the Insolvency and Bankruptcy Code 2016. Is there a difference between the supersession of Directors under the RBI Act and the suspension of Directors under the Code? Whether a Superseded director who had vacated office on supersession of Board under RBI Act is entitled to the notice of CoC meeting and has the right to participate in the meeting of the CoC? HELD THAT - The Resolution Plan deliberately deals with confidentiality provisions requiring all parties involved in the resolution process to keep the Information provided therein confidential. Further the Appellant submitting that the Resolution Plan may become public after its approval by the learned tribunal does not justify overriding the confidentiality provisions. Allowing such parties to receive a copy of the Resolution Plan would not only jeopardise the revival and Resolution in the form of successful implementation of the Resolution Plan for the corporate debtor but also set a dangerous precedent where any party would seek a copy of the Resolution Plan that the COC has already approved - It is important to mention that CIRP Regulation 36(4) imposes a duty on the RP to share the Information Memorandum with the members of CoC after an undertaking of confidentiality of Information. However the Appellants are not a member of CoC and they have been removed from the erstwhile Board of DHFL and have vacated the office before initiation of CIRP of the Corporate Debtor. Therefore they are not entitled to participate in the CoC meetings or share the documents. Section 45-IE (4)(a) of the RBI Act provides that upon making an order of supersession of the Board of Directors of a non-banking financial company Director shall from the supersession of the Board of Directors vacate their offices. After vacation or removal from the office of the Director the said person cannot claim their entitlement to participate in the CoC of the Corporate Debtor. A removed Director from the Board of Directors cannot interfere in the Company s affairs per contra a suspended Director always remains on the erstwhile Board of the Company and assist the IRP/RP as per requirement - the Appellant erstwhile Directors who have vacated the offices are also not entitled to share any document. However the copy of the Resolution Plan after approval from the Adjudicating Authority can not be treated as a confidential document. Therefore after final approval of the Resolution Plan its certified copy may be issued as per Rules. The impugned Order needs no interference - Appeal disposed off.

Summary

Issues Involved:
1. Difference between 'supersession of Directors' under the RBI Act and 'suspension of Directors' under the IBC.
2. Entitlement of 'superseded directors' to notice and participation in CoC meetings.
3. Denial of a copy of the Resolution Plan to the erstwhile directors.

Detailed Analysis:

1. Difference between 'supersession of Directors' under the RBI Act and 'suspension of Directors' under the IBC:
The Tribunal analyzed the distinction between 'supersession' and 'suspension' of directors. Under Section 45-IE of the RBI Act, when the RBI supersedes the Board of Directors, the directors vacate their office, and their powers are vested in the Administrator. This action has finality and is not a temporary suspension. In contrast, under the IBC, 'suspension' of directors under Section 17(1)(b) occurs upon the initiation of CIRP, where the directors' powers are suspended but they remain in office. The Tribunal concluded that 'supersession' and 'suspension' are distinct legal concepts with different implications.

2. Entitlement of 'superseded directors' to notice and participation in CoC meetings:
The Tribunal held that 'superseded' directors, who vacated their office upon the RBI's order of supersession, are not entitled to notice of and participation in CoC meetings under Section 24(3)(b) of the IBC. The provision applies to 'suspended' directors whose powers are suspended under Section 17(1)(b) but who remain in office. The Tribunal rejected the appellants' argument that there is no legal difference between 'superseded' and 'suspended' directors for the purposes of the IBC, emphasizing that the supersession under the RBI Act has finality and results in the vacation of office.

3. Denial of a copy of the Resolution Plan to the erstwhile directors:
The Tribunal addressed the appellants' contention that they were denied a copy of the Resolution Plan, which affected their ability to object to the plan before the Adjudicating Authority. The Tribunal noted that confidentiality is critical for the successful restructuring of the Corporate Debtor and that several provisions in the IBC and related regulations safeguard confidentiality. The Tribunal upheld the Adjudicating Authority's decision to deny the appellants a copy of the Resolution Plan, emphasizing that the appellants, having vacated their offices, are not entitled to participate in CoC meetings or access confidential documents. However, the Tribunal clarified that a certified copy of the Resolution Plan could be issued after its final approval by the Adjudicating Authority.

Conclusion:
The Tribunal concluded that the appeals lacked merit and upheld the Adjudicating Authority's orders. It emphasized the finality of the supersession of the Board of Directors under the RBI Act and the distinct legal implications of 'supersession' and 'suspension' under the IBC. The Tribunal also highlighted the importance of maintaining confidentiality in the CIRP and the limited rights of erstwhile directors who have vacated their offices. The appeals were disposed of with no order as to costs.