TMI Blog2019 (2) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors have no right to vote but are only participants in meetings of the committee of creditors, yet, they would certainly have a right to be given a copy of the resolution plans before such meetings are held so that they may effectively comment on the same to safeguard their interest. Under Regulation 36 of the CIRP Regulations, the information memorandum that is given to each member of the CoC and to any potential resolution applicant, will contain details of guarantees that have been given in relation to the debts of the corporate debtor (see Regulation 36(2)(f) of the CIRP Regulations). Also, under Regulation 37(d) of the CIRP Regulations, a resolution plan may provide for satisfaction or modification of any security interest. 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. Equally, the Regulations, far from going beyond the Code, flesh out the true intention of the Code that is achieved by reading the plain language of the Sections that have already been adverted to - So far as confiden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed to effectively participate in these meetings. It is stated before us that in the tenth meeting dated 12.08.2018, the appellant executed a nondisclosure agreement for sharing resolution plans of the corporate debtor. Under the said agreement, the appellant undertook to indemnify the resolution professional and keep information that is received as to the resolution plan strictly confidential. 3. By an order dated 01.08.2018, the NCLT dismissed the application with liberty to the appellant to attend CoC meetings but not to insist upon being provided information considered confidential either by the resolution professional or the committee of creditors. Against this order, the appellant filed an appeal before the Appellate Tribunal which recognized the appellant s right to attend and participate in CoC meetings, but denied the appellant s prayer to access certain documents, most particularly, the resolution plans. Thereafter, an application for modification/clarification of the Appellate Tribunal s order was also dismissed. Aggrieved by the order dated 09.08.2018 of the Appellate Tribunal, the appellants have filed the present appeal. In the meanwhile, on 23.08.2018, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a vital stake in what ultimately gets passed by the committee of creditors. Apart from this, under Section 60(5) of the Code, such persons have a right to challenge the terms of a proposed resolution plan before the Tribunal, and under Section 61, may go further against the Adjudicating Authority s order to the Appellate Tribunal. They relied upon and referred to the Bankruptcy Law Committee Report of 2015 to buttress their submissions. 5. As against this, Dr. Abhishek Manu Singhvi, and Mr. Raunak Dhillon, appearing on behalf of the resolution professional, relied strongly on Section 30(3) of the Code and Regulation 39(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [ CIRP Regulations ] which made it clear that resolution plans were only to be given to the committee of creditors for its consideration. They further argued that the terms committee and participant are differently defined under the Regulations and that participants are expressly excluded by Regulation 39. They also argued, that if any of the Regulations go beyond the provisions of the Code, they must be struck down as ultra vires, as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de it clear that a director, who is also a financial creditor, has no right to participate in a meeting of the committee of creditors. Thus, a harmonious construction of the various provisions of the Code would lead to the anomaly that a director simplicitor would have the right to get documents but a director who is a financial creditor would have no such right. They also adverted to the expression participant as opposed to the expression committee and stated that the legislature, in its wisdom, created a differentiation between the two. They also stated that the confidentiality requirement would be breached if a copy of the resolution plan were to be given to the members of the suspended Board of Directors and added that it would be in the interest of some members of the suspended Board who may attempt to sabotage the corporate insolvency resolution process, for which reason also, resolution plans should be kept hidden from them. They argued that the persons aggrieved in Section 61 would necessarily refer to persons aggrieved for the purpose of Section 60(5) also, and as members of the ex-Board of Directors cannot be said to be persons aggrieved, they cannot possibly approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. (6) Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or agent to act for all financial creditors, each financial creditor may- (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share with one or more financial credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate insolvency resolution process. (10) The resolution professional shall make available any financial information 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 members of the committee of creditors may meet in person or by such electronic means as may be specified. (2) All meetings of the committee of creditors shall be conducted by the resolution professional. (3) The resolution professional shall give notice of each meeting of the committee of creditors to- (a) members of committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6-A) of Section 21 and sub-section (5); (b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be; (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt. (4) The directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of committee of creditors, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions as may be specified by the Board, to submit a resolution plan or plans; (i) present all resolution plans at the meetings of the committee of creditors; (j) file application for avoidance of transactions in accordance with Chapter III, if any; and (k) such other actions as may be specified by the Board. (emphasis supplied) 29. Preparation of information memorandum.-(1) The resolution professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan. (2) The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes- (a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading; (b) to protect any intellectual property of the corporate debtor it may have access to; and (c) not to share relevant information with third parties unless clauses (a) and (b) of this subsection are complied with. Explanation.-For the purposes of this section, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under Section 29-A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it: Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of Section 29-A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of Section 29-A: Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of Section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section. Provided also that the eligibility criteria in Section 29-A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the approval of the Competition Commission of India under that Act prior to the approval of such resolution plan by the committee of creditors. (emphasis supplied) 60. Adjudicating Authority for corporate persons.- xxx xxx xxx (5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of- (a) any application or proceeding by or against the corporate debtor or corporate person; (b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries 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 or liquidation proceedings of the corporate debtor or corporate person under this Code. xxx xxx xxx 61. Appeals and Appellate Authority.-(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 be discussed 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 means and the time schedule, including the time period during which the votes may be cast; (b) provide the login ID and the details of a facility for generating password and for keeping security and casting of vote in a secure manner; and (c) provide contact details of the person who will address the queries connected with the electronic voting. (emphasis supplied) 24. Conduct of meeting.- (1) The resolution professional shall act as the chairperson of the meeting of the committee. (2) At the commencement of a meeting, the resolution professional shall take a roll call when every participant attending through video conferencing or other audio and visual means shall state, for the record, the following,- (a) his name; (b) whether he is attendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt of resolution plans in accordance with the Code and these regulations, the resolution professional shall provide the fair value and the liquidation value to every member of the committee in electronic form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29. (3) The resolution professional and registered valuers shall maintain confidentiality of the fair value and the liquidation value. 36. Information memorandum.- (1) Subject to sub-regulation (4), the resolution professional shall submit the information memorandum in electronic form to each member of the committee within two weeks of his appointment, but not later than fifty-fourth day from the insolvency commencement date, whichever is earlier. (2) The information memorandum shall contain the following details of the corporate debtor- (a) assets and liabilities, with such description, as on the insolvency commencement date, as are generall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor for maximization of value of its assets, including but not limited to the following- (a) transfer of all or part of the assets of the corporate debtor to one or more persons; (b) sale of all or part of the assets whether subject to any security interest or not; (c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; (ca) cancellation or delisting of any shares of the corporate debtor, if applicable; (d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debt due from the corporate debtor; (f) reduction in the amount payable to the creditors; (g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporate debtor; (i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; (j) change in portfolio of goods or services produced or rendered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions, 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 received under sub-regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modifications as it deems fit: Provided that the committee shall record the reasons for approving or rejecting a resolution plan. (4) The resolution professional shall endeavour to submit the resolution plan approved by the committee to the Adjudicating Authority at least fifteen days before the maximum period for completion of corporate insolvency resolution process under section 12, along with a compliance certificate in Form H of the Schedule. (5) The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtant in that, the resolution professional has to give notice of each and every meeting of the committee of creditors, inter alia, to members of the suspended Board of Directors. Like operational creditors who may attend and participate in such meetings, provided the aggregate dues owing to them are not less than ten per cent of the total debt, both such operational creditors and erstwhile members of the Board of Directors have no vote. Section 25(2)(f) and (i) are also important in that, once the resolution professional convenes meetings of the committee of creditors, he is to present all resolution plans at these meetings. Under Section 30, the resolution professional shall examine each resolution plan received by him in which he must confirm, inter alia, that such plan provides for the repayment of the debts of operational creditors which shall not be less than the amount to be paid to them in the event of liquidation of the corporate debtor. This plan is then submitted to the Adjudicating Authority if it is approved by the requisite majority of the committee of creditors. The Adjudicating Authority under Section 31(1), if satisfied that the plan passes muster, shall then, by or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxx xxx xxx 38. It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in the prescribed form. The corporate debtor is then given a period of 10 days from the receipt of the demand notice or copy of the invoice to bring to the notice of the operational creditor the existence of a dispute, if any. We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which the existence of a dispute alone is mentioned. Even otherwise, the word and occurring in Section 8(2)(a) must be read as or keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as or 12. There is no doubt whatsoever that Notes on Clauses are an important aid to the construction of Sections of the Code as they show what the Drafting Committee had in mind when such provisions were drafted. However, a closer look at the Notes on Clause 24 makes it clear that the third sentence of the Notes on Clause 24 is itself problematic. First and foremost, it speaks of the resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Code as follows: 3. Definitions.-In this Code, unless the context otherwise requires,- xxx xxx xxx (31) security interest means right, title or interest or a claim to property, created in favour of, or provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation of any person: Provided that security interest shall not include a performance guarantee; xxx xxx xxx This would certainly include a guarantor who may be a member of the erstwhile Board of Directors. Further, under Regulation 37(1)(f), a resolution plan may provide for reduction in the amount payable to the creditors, which again vitally impacts the rights of a guarantor. Last but not least, a resolution 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 Directors vide Regulation 39(5) of the CIRP Regulations. Obviously, such copy can only be sent to participant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15. 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. Equally, the Regulations, far from going beyond the Code, flesh out the true intention of the Code that is achieved by reading the plain language of the Sections that have already been adverted to. So far as confidential information is concerned, it is clear that the resolution professional can take an undertaking from members of the erstwhile Board of Directors, as has been taken in the facts of the present case, to maintain confidentiality. The source of this power is Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Profess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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