2025 (11) TMI 684 - AT - IBC

Decision upholds RP's refusal to share valuation reports with suspended management under Section 24 IBC; confidentiality respected

Manish Bagrodia Director (Suspended Powers) of Winsome Yarns Limited Versus Anil Kohli Resolution Professional of Winsome Yards Limited, Delhi

NCLAT dismissed the appeal, upholding the Adjudicating Authority's refusal to furnish the first set of valuation reports to the suspended management. The ... CIRP - Denial of access to the first set of two valuation reports to suspended management of the Corporate Debtor - denial of parity in the access to documents made available to the CoC - denial of participative rights in the CoC meetings - HELD THAT:- On perusal of section 24 of IBC, of IBC, it is clear that the RP is required to give notice of each meeting of the CoC to members of CoC under Section 24(3)(a) which includes the authorized representatives referred to in Sections 21(6) and (6-A). On the other hand, the members of the suspended Board of Directors or partners of the corporate persons have been separately covered under Section 24(3)(b). Thus, the members of the suspended Board of Directors have been treated separately and distinctly from the members of CoC in Section 24(3)(a) of IBC. It is also noticed that the Operational Creditors and their representatives whose dues are not less than 10% of the debt have also been categorized separately under Section 24(3)(c). It therefore becomes clear that the Financial Creditors, the Operational Creditors and suspended management have not been clubbed together but classified separately under Section 24(3). Further Section 24(4) clearly provide that Operational Creditors and ex-directors and partners are bereft of voting rights in CoC meetings. There are no mention of any discussion to be held on the valuation reports submitted by the first set of two valuers. It is submitted by the Respondent that the valuation reports had not been submitted by the registered valuers as on the date of issue of notice on 03.06.2024 and hence not flagged for discussions. The valuation reports were received from the valuers only on the date of the meeting. Since the reports from the two valuers reached on 06.06.2024, which was the date on which the CoC meeting was scheduled, these reports could not possibly have been circulated along with the notice and agenda which had been circulated on 03.06.2024. Ostensibly therefore there are no intentional omission on the part of the RP in not having circulated the valuation reports alongwith the meeting notice. There are no deliberate lapse or wilful irregularity in the conduct of the RP while sending notice of the CoC meetings to the Appellant or any signs of breach or non-compliance to the mandate of Section 24(3) of the IBC. The RP was of the view that the Appellant had the status of a participant in the CoC meeting and not that of a member of the CoC, hence, in terms of Section 21 of the IBC and CIRP Regulation 35(2), the valuation report could not have been shared with the Appellant. The representative of Indian Overseas Bank inspite of being a Financial Creditor was also asked to excuse himself from the meeting as he had not submitted the confidentiality undertaking. Similarly, the Appellant was also requested to excuse himself from the meeting so that the valuation reports could be presented and discussed. This is therefore clearly not a case where the RP had been arbitrary or selectively discriminatory in not sharing the valuation report with the Appellant during the 9th CoC meeting. On the issue of participative rights raised by the Appellant, it was also pointed out by the RP that the Appellant had been allowed to join the meeting immediately after the discussion of valuation reports was over. It is also important to note that though the ex-director of the Corporate Debtor was asked to excuse himself while the valuation report and the valuation methodology was being discussed by the CoC, he was allowed to rejoin the meeting thereafter on conclusion of deliberations held in respect of Agenda Item-4. Thus, it is apparent from record of the minutes that the ex-director was not prevented from participating in the 9th CoC meeting in respect of the other agenda items - the RP had allowed the Appellant to participate in the 9th CoC meeting on other agenda items as well as assured them of continued participation in future CoC meetings - there are no instance of RP having precluded or blocked the Appellant from participation in crucial discussions relating to valuation and resolution plans. The Adjudicating Authority did not commit any mistake in holding that the right to participate of the Appellant under Section 24 of the IBC did not extend to deliberations over documents which are statutorily restricted and confidential in nature. In making this observation, the Adjudicating Authority in impugned order has also relied on the judgment of this Tribunal in Arabinda Kumar Rath [2025 (5) TMI 582 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] wherein it has been held that the RP is not obligated to share valuation reports containing confidential information of the fair value and liquidation value of the Corporate Debtor with the suspended management. The RP has acted in a fair and transparent manner in supplying documents including valuation reports and resolution plans to the Appellant. When the fresh valuation report formed the basis of the CIRP and the same had already been provided to the Appellant, they cannot be seen to be an aggrieved party. Further, when the CoC in its commercial wisdom had already disregarded the valuation report of the first set of valuers, the Appellant cannot substitute their own perception with the commercial wisdom of the CoC in holding that the later valuation reports showed supressed value compared to the earlier valuation reports. It may not be off the mark to hold that the Appellant being part of the suspended management was responsible for the insolvency of the Corporate Debtor. It therefore does not behove the Appellant to self-proclaim that they are the only participant entity which is focused on efficient and beneficial resolution of the Corporate Debtor - The unilateral perception of the Appellant on the reliability of the first set of valuation reports which had already been rejected by the CoC lacks force of contention. The Adjudicating Authority had not committed any error in rejecting the application filed by the Appellant to provide them with copies of the first set of valuation reports which had been discarded by the CoC. The impugned order rejecting the application does not warrant any interference - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a suspended director/erstwhile management has a legal right under the IBC and CIRP Regulations to obtain valuation reports prepared by valuers whose reports were considered and thereafter rejected by the Committee of Creditors (CoC). 2. Whether the right of participation of suspended directors/erstwhile management under Section 24 extends to attendance and involvement in deliberations on documents that are confidential in nature (specifically valuation reports) and whether exclusion from such deliberations amounted to denial of statutory participative rights. 3. Whether the Resolution Professional (RP) complied with statutory duties in (a) issuing notices and agendas for CoC meetings, (b) sharing valuation reports relied upon by the CoC, and (c) restricting circulation of valuation reports in light of confidentiality undertakings and Regulation 35(2). 4. Interpretation and application of precedent principles (principally the principle that participants must be furnished documents relevant to matters discussed) in the context of valuation reports that were not relied upon by the CoC. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to rejected valuers' reports Legal framework: Regulation 27 requires appointment of two valuers; Regulation 35 prescribes methodology for determining fair and liquidation value and provides at Reg.35(2) that after receipt of resolution plans the RP shall provide fair value, liquidation value and valuation reports to every member of the CoC on receiving a confidentiality undertaking. Section 24(3)(b) separately lists suspended board members as persons to whom notice of CoC meetings must be given; Section 24(4) permits their attendance without voting rights. Precedent treatment: The judgment recognises the general principle that participants are entitled to documents relevant to matters to be discussed (as articulated in prior Supreme Court authority), but notes Tribunal precedent holding RP need not share valuation reports with suspended management where regulations/doctrines of confidentiality apply. Interpretation and reasoning: The Court examined whether the initial valuers' reports remained part of the CIRP record after the CoC, exercising commercial wisdom, rejected them at the 9th CoC meeting and resolved to appoint fresh valuers. The Court found that once the CoC expressly discarded the first set of reports and adopted fresh valuations that formed the basis for subsequent resolution plans, the earlier reports ceased to be relevant to the ongoing CIRP and were thus not documents the RP was obliged to circulate under Reg.35(2). The agenda/notice for the 9th meeting did not mention valuation reports because the reports were received only on the meeting date, and circulation procedures were constrained by the requirement of confidentiality undertakings. Ratio vs. Obiter: Ratio - a suspended director has no enforceable right under IBC/CIRP Regulations to access valuation reports that were expressly rejected by the CoC and are no longer relied upon in the CIRP. Obiter - observations on the prudence of an applicant pressing for stale/redundant documents where CoC has exercised commercial wisdom. Conclusion: The appellant had no legal entitlement to the first set of valuers' reports once the CoC rejected them and adopted fresh valuations; denial of those reports did not amount to breach of IBC/CIRP obligations. Issue 2 - Scope of participative rights of suspended directors over confidential documents Legal framework: Section 24 grants notice and attendance rights to suspended directors but bars voting rights (Section 24(4)). Regulation 35(2) conditions disclosure of valuation reports to members of the CoC upon execution of confidentiality undertakings; Regulation 35(3) mandates confidentiality by RP and valuers. Precedent treatment: The Court accepted the proposition that participants must receive documents relevant to matters to be discussed (principle from higher authority) but qualified that confidentiality and statutory restrictions may limit disclosure of certain documents to members who satisfy undertaking requirements. Interpretation and reasoning: The Court analysed minutes and communications showing that (a) the RP requested confidentiality undertakings; (b) certain participants (including the suspended director) were asked to excuse themselves during that agenda item because they had not furnished such undertaking or were participants rather than members; and (c) the suspended director was readmitted post-discussion and received all materials actually relied upon by the CoC. The Court concluded that Section 24 participation rights do not extend to compelled access to statutorily restricted/confidential documents absent the conditions in Reg.35(2) being met, and that temporary exclusion during confidential deliberations, with readmission thereafter, did not violate participation rights. Ratio vs. Obiter: Ratio - participation under Section 24 does not automatically override confidentiality obligations or statutory restrictions on disclosure; temporary exclusion from confidential agenda items is permissible where confidentiality and Reg.35 conditions apply. Obiter - comment that participants may be required to execute nondisclosure undertakings under professional regulations if disclosure is to be permitted. Conclusion: Exclusion of the appellant during confidential discussion of valuation reports (and non-disclosure of those reports where the statutory conditions were unmet) did not violate participative rights under Section 24. Issue 3 - Compliance by the Resolution Professional with notice, agenda, and disclosure obligations Legal framework: Section 24(3) requires RP to give notice of CoC meetings to specified categories (members of CoC, suspended board, certain operational creditors); Regulation 35 and Regulation 27 govern valuers' appointment and disclosure of valuation reports to CoC members subject to confidentiality. Precedent treatment: The Court applied statutory text and prior authorities distinguishing members of CoC from participants; it relied on Tribunal precedent that RP need not share valuation reports with suspended management absent regulatory conditions. Interpretation and reasoning: The Court inspected the 9th meeting notice/agenda and found no intentional omission: the valuation reports were received on the meeting date and thus could not have been appended to a notice issued earlier. The RP circulated the valuation reports to those CoC members who had furnished confidentiality undertakings, requested excusal of persons not having such undertakings, and subsequently shared the final valuation reports and resolution plans relied upon by the CoC with the appellant. The Court found no wilful or arbitrary omission and held the RP complied with statutory duties. Ratio vs. Obiter: Ratio - RP acted within statutory/regulatory framework in notice, agenda, and selective disclosure based on confidentiality undertakings; absence of pre-circulation because reports arrived on meeting date is not proof of misconduct. Obiter - suggestion that RPs should act transparently and provide relied-upon materials to participants when permissible. Conclusion: The RP discharged obligations under Section 24 and Regulation 35; sharing of the valuation reports actually relied upon by the CoC, and exclusion from confidential segments where appropriate, constituted lawful conduct. Issue 4 - Application of precedent requiring disclosure of documents to participants Legal framework and precedent: The principle that participants should receive documents relevant to matters to be discussed was acknowledged; however, the Court evaluated its applicability where documents are confidential and where the CoC has discarded earlier reports. Precedent treatment: The Court accepted the principle in general but distinguished it on facts: where a document was not part of the agenda/was received only on the meeting date/was rejected by the CoC and where disclosure conditions (confidentiality undertakings) were unmet, the duty to furnish does not extend to such documents. Interpretation and reasoning: The Court reconciled the precedents by holding that the broad right to receive relevant documents does not trump statutory confidentiality protections and the CoC's commercial wisdom in rejecting reports that become superfluous to the CIRP. The Court further held that furnishing of documents that actually formed part of the CIRP (fresh valuation reports and resolution plans) took place and remedied any possible prejudice. Ratio vs. Obiter: Ratio - participants' entitlement to documents is subject to statutory/regulatory limitations (confidentiality, CoC membership, and relevance), and prior precedent does not mandate disclosure of documents that are not relied upon by the CoC. Obiter - caution against tactical applications of disclosure requests aimed at derailing CIRP. Conclusion: Precedent obliging disclosure of documents to participants is applicable only insofar as the documents are relevant, part of the agenda, and disclosure conditions (if any) are satisfied; it does not confer a right to obtain discarded or confidential reports where statutory safeguards limit disclosure. Final Disposition (reflecting Court's conclusion) The Adjudicating Authority's refusal to direct production of the first set of valuation reports and its finding that participation rights did not include access to those confidential and discarded reports were upheld. The RP complied with statutory duties by circulating the valuation reports and resolution plans that were actually relied upon by the CoC and by managing confidential disclosures in accordance with Regulation 35(2). The appeal was dismissed as lacking merit.