2022 (4) TMI 522 - Tri - Insolvency and Bankruptcy

Partial win for ex-directors in tribunal decision, emphasizing transparency and asset value maximization.

Hemant Shantilal Shah and Ors. Versus Care Office Ltd. and Ors.

The Tribunal partially allowed the application, specifically directing the Resolution Professional to provide the valuation report to the ex-directors. ... Entitlement to copy of valuation report of the assets of corporate debtor to ex-directors - whether the suspended management of the Corporate Debtor is entitled to get the copy of the valuation reports prepared during CIRP? - whether Resolution Professional can supply the valuation report copy as per provisions of the IB Code? - HELD THAT:- Resolution plan is a highly confidential document but when such document is required to be given to the most affected parties being erstwhile members of the Board of Directors of the corporate debtor, then the valuation report in our view which is an important document having bearing onto the fate of corporate debtor must be supplied to ex-management. In present case it is the valuation report which is in question. Whether it can be shared by Resolution Professional with ex-directors specially when the ex-management alleges and apprehends that properties of corporate debtor are being valued and offered at throw away price. In our view, the ex-management is the appropriate concerned parties to comment on valuation of properties of corporate debtor. The corporate debtor is the body of Ex-management and they were in control and handling the same till CIRP initiation. It would be pre-judicial if they are not even allowed to view the valuation and point out the shortfalls in valuation, if any. There is no specific provision to not to share copy of valuation report with ex-directors, it is held that in interest of justice the copy of valuation report needs to be supplied to ex-directors, as already directed by the Predecessor Bench - the Resolution Professional are directed to supply copy of valuation report to the applicants within 2 days of this order. Application allowed in part. Issues Involved:1. Tagging the present IA with IA No. 358 of 2020.2. Extinguishing personal guarantees and mortgages upon approval of the resolution plan.3. Legality of the resolution approving the resolution plan.4. Reduction of the claim of the State Bank of India.5. Staying proceedings of IA No. 358 of 2020.6. Providing the valuation reports to the ex-directors.Detailed Analysis:1. Tagging the Present IA with IA No. 358 of 2020:The applicants requested that the current Interlocutory Application (IA) be tagged with IA No. 358 of 2020 to be decided together. This request was not the primary focus of the judgment and was not addressed in detail.2. Extinguishing Personal Guarantees and Mortgages:The applicants sought an order declaring that personal guarantees and mortgages given to financial creditors would be extinguished if the resolution plan in IA 358 of 2020 was approved. This issue was not the primary focus of the judgment and was left for further consideration.3. Legality of the Resolution Approving the Resolution Plan:The applicants challenged the resolution passed by the Committee of Creditors (CoC) in its 8th meeting, claiming it was illegal, null, and void due to contradictory minutes circulated by the Resolution Professional. This issue was not the primary focus of the judgment and was left for further consideration.4. Reduction of the Claim of the State Bank of India:The applicants requested a reduction in the claim amount of the State Bank of India. This issue was not the primary focus of the judgment and was left for further consideration.5. Staying Proceedings of IA No. 358 of 2020:The applicants sought to stay the proceedings of IA No. 358 of 2020 until the present application was tagged with it. This request was not the primary focus of the judgment and was not addressed in detail.6. Providing the Valuation Reports to the Ex-Directors:The main issue addressed in the judgment was whether the ex-directors were entitled to receive the valuation reports of the corporate debtor's assets. The applicants argued that the resolution plan presented the assets at a throw-away price, contrary to the objective of maximizing the value of the assets under the Insolvency and Bankruptcy Code (IBC).The judgment referenced the Supreme Court case of Vijay Kumar Jain v. Standard Chartered Bank & Ors., which established that ex-directors are participants in CoC meetings and are entitled to receive relevant documents, including resolution plans. The Tribunal noted that the valuation report is a crucial document for determining the worth of a corporate debtor and should be accessible to the ex-management to ensure the maximization of the asset value.The Tribunal directed the Resolution Professional to provide the valuation report to the ex-directors, subject to an undertaking to maintain confidentiality. This decision was based on the principle that all concerned parties should have access to documents crucial for the insolvency resolution process.Conclusion:The application was partially allowed, specifically in terms of providing the valuation report to the ex-directors (prayer f(ii)). The other prayers were listed for further consideration on 05.04.2022. The Tribunal emphasized the importance of transparency and the involvement of ex-directors in the resolution process to ensure the maximization of the corporate debtor's asset value.