Superseded financial service provider board: erstwhile directors cannot join the CIRP or demand resolution plans

Supersession of the board of a financial service provider under the Reserve Bank of India Act, with an administrator taking charge, meant the erstwhile directors were treated as having vacated office and could not participate in the CIRP or attend Committee of Creditors meetings. In the absence of any specific provision granting access, they were also not entitled to copies of resolution plans submitted by prospective resolution applicants. The principle applied distinguished the position of suspended directors in a corporate insolvency from ex-directors of a superseded financial service provider, and the entitlement recognised in Vijay Kumar Jain was held inapplicable on these facts.

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Issues: Whether the suspended directors of a financial service provider, whose board had been superseded by the Reserve Bank of India and an administrator appointed, were entitled to participate in the corporate insolvency resolution process and obtain copies of resolution plans submitted by prospective resolution applicants.

Analysis: The appeal turned on the effect of supersession of the board of a financial service provider under the Reserve Bank of India Act, 1934 and the consequent position of erstwhile directors in the insolvency process initiated under the Insolvency and Bankruptcy Code, 2016. The governing principle was taken from the Supreme Court's ruling in Piramal Capital and Housing Finance Ltd., which distinguished the rights of suspended directors in a corporate insolvency from the position of ex-directors of a superseded financial service provider. Once the board stood superseded and the administrator took charge, the directors were treated as having vacated their offices and were not entitled to attend Committee of Creditors meetings or participate in the CIRP. In that situation, and in the absence of any specific provision conferring such access, they could not claim a right to receive copies of resolution plans submitted during the process. The entitlement recognised for erstwhile directors in Vijay Kumar Jain was held inapplicable on these facts.

Conclusion: The suspended directors of the superseded financial service provider had no right to participate in the CIRP or obtain copies of the resolution plans, and the rejection of their application was .

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