TaxTMI 
TaxTMI 
2019 (2) TMI 97
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.... the aforesaid corporate debtor. These two company petitions were admitted on 8th and 15th December, 2017, respectively, by the National Company Law Tribunal ["NCLT"]. One Shri Shailendra Ajmera of Ernst and Young was appointed as the Interim Resolution Professional in both petitions. The CoC was constituted under Section 21 of the Insolvency and Bankruptcy Code, 2016 ["Insolvency Code" or "Code"], and the appellant being a member of the suspended Board of Directors was given notice and the agenda for the first CoC meeting held on 12.01.2018, and was permitted to attend the aforesaid meeting. He alleges, which is disputed by the respondents, that subsequent meetings of the CoC were held in which he was denied participation. As a result, the appellant filed Miscellaneous Application No.518 of 2018 on 07.06.2018 before the NCLT in order that the appellant 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 informa....
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....tors. They drew a dichotomy between the committee of creditors and meetings of the committee of creditors and stated that as they are "participants" in the meetings of the committee of creditors, albeit without voting rights, yet, they are persons who, in order to participate effectively, must be given the necessary documents so that their views can also be considered by the committee of creditors. According to them, Section 31(1) of the Code makes it clear that once the resolution plan is passed by the Adjudicating Authority, it shall be binding on the corporate debtor together with guarantors and other stakeholders. This being the case, it is clear that the erstwhile Board of Directors, which consists of persons who may have given personal guarantees for the debts owed by the corporate debtor, will be bound by the resolution plan, and therefore, have 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. Th....
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....o prejudice is caused to them, do not have a right to file any application under Section 60(5) of the Code or appeals to the Appellate Tribunal from orders of the Adjudicating Authority under Section 61. 6. Shri Krishnan Venugopal and Shri Nakul Sachdeva, learned counsel appearing on behalf of the committee of creditors, argued that the expressions "information memorandum" and "resolution plan" are separately defined and a specific procedure has been laid down in the Code and Regulations dealing with them. They cannot therefore be said to be "documents" within the meaning of Regulation 21. They also strongly relied upon the Notes on Clauses and stated that the role of members of the suspended Board of Directors is that of information givers and not information seekers. They further relied upon the proviso to Section 21(2) which, according to them, made 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 cred....
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....cial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares, prior to the insolvency commencement date. (3) Subject to sub-sections (6) and (6-A), where the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. (4) Where any person is a financial creditor as well as an operational creditor,- (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate 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 transferr....
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....ocumentation; and (ii) under clause (b) of sub-section (6-A) shall be as specified which shall form part of the insolvency resolution process costs. (7) The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6-A). (8) Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent of voting share of the financial creditors: Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified. (9) The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the 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 requisitio....
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....ly- (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasijudicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under Section 28; (d) appoint accountants, legal or other professionals in the manner as specified by Board; (e) maintain an updated list of claims; (f) convene and attend all meetings of the committee of creditors; (g) prepare the information memorandum in accordance with Section 29; (h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions 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; ....
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....n and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. Explanation.-For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law. (3) The resolution professional shall present to the committee of creditors for its approval such resolution plans which confirm the conditions referred to in subsection (2). (4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board: Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Or....
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.... satisfied that the resolution plan does not [conform] to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under Section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. (4) The resolution applicant shall, pursuant to the resolution plan approved under sub-section (1), obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later: Provided that where the resolution plan contains a provision for combination, as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the resolution applicant shall obtain the approval of the Competition Commission of India under that Act....
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....elivery, or by post but in any event, be served on every participant by electronic means in accordance with Regulation 20. (2) The committee may reduce the notice period from five days to such other period of not less than twentyfour hours, as it deems fit: Provided that the committee may reduce the period to such other period of not less than forty-eight hours if there is an authorised representative." "21. Contents of the notice for meeting.-(1) The notice shall inform the participants of the venue, the time and date of the meeting and of the option available to them to participate through video conferencing or other audio and visual means, and shall also provide all the necessary information to enable participation through video conferencing or other audio and visual means. (2) The notice of the meeting shall provide that a participant may attend and vote in the meeting either in person or through an authorised representative: Provided that such participant shall inform the resolution professional, in advance of the meeting, of the identity of the authorised representative who will attend and vote at the meeting on its behalf. (3) The notice o....
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....sure that minutes are made in relation to each meeting of the committee and such minutes shall disclose the particulars of the participants who attended the meeting in person, through video conferencing, or other audio and visual means. (7) The resolution professional shall circulate the minutes of the meeting to all participants by electronic means within forty eight hours of the said meeting." (emphasis supplied) "35. Fair value and Liquidation value.-(1) Fair value and liquidation value shall be determined in the following manner- (a) the two registered valuers appointed under Regulation 27 shall submit to the resolution professional an estimate of the fair value and the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the resolution professional, the two estimates of a value are significantly different, he may appoint another registered valuer who shall submit an estimate computed in the same manner; and (c) the average of the two closest estimates shall be considered the ....
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....rs holding at least one per cent stake in the corporate debtor along with the size of stake; (h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (i) the number of workers and employees and liabilities of the corporate debtor towards them; and (j) [* * *] (k) [* * *] (l) other information, which the resolution professional deems relevant to the committee. (3) A member of the committee may request the resolution professional for further information of the nature described in this Regulation and the resolution professional shall provide such information to all members within reasonable time if such information has a bearing on the resolution plan. (4) The resolution professional shall share the information memorandum after receiving an undertaking from a member of the committee to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Secti....
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.... and viable; (c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline for the same; and (e) the resolution applicant has the capability to implement the resolution plan." "39. Approval of resolution plan.-(1) A prospective resolution applicant in the final list may submit resolution plan or plans in accordance with the Code and these regulations to the resolution professional electronically within the time given in the request for resolution plans under regulation 36B along with: (a) And affidavit stating that it is eligible under section 29A to submit resolution plans; and (b) [***] (c) An undertaking by the prospective resolution applicant that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code. (1A) A resolution plan which does not comply with the provisions of sub-regulati....
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....al district administration in implementing the terms of a resolution plan." The relevant provisions of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 read as under: "7. Certificate of registration.- xxx xxx xxx (2) The registration shall be subject to the conditions that the insolvency professional shall- xxx xxx xxx (h) abide by the Code of Conduct specified in the First Schedule to these Regulations; and xxx xxx xxx" "FIRST SCHEDULE [Under Regulation, 7(2)(h)] CODE OF CONDUCT FOR INSOLVENCY PROFESSIONALS xxx xxx xxx Confidentiality. 21. An insolvency professional must ensure that confidentiality of the information relating to the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law. xxx xxx xxx" 8. The statutory scheme of the Code, insofar as the former members of the Board of Directors are concerned, is as follows: A committee ....
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....nt of their debts is an important part of the resolution plan qua them on which they must comment. So the first important thing to notice is that even though persons such as operational creditors 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. 10. However, it was argued before us that the Notes on Clauses to Section 24 make it clear that the erstwhile members of the Board of Directors are participants in these meetings only so that the committee of creditors and the resolution professional may seek information from them. The Notes on Clauses, heavily relied upon by learned counsel for the respondents, read as follows: "Clause 24 prescribes the modalities for the meeting of the committee of creditors. The meetings are conducted by the resolution professional and may be attended by the members of the board directors or partners of the corporate debtor. This gives an opportunity for the committee of creditors and the resolution professional to ....
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....tee of creditors, in turn, gets information so that they can assess the financial position of the corporate debtor from various sources before they meet. It is, therefore, difficult to understand the Notes on Clause 24. Even assuming that the Notes on Clause 24 may be read as being a one-way street by which erstwhile members of the Board of Directors are only to provide information, we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. The Regulations also make it clear that these persons are vitally interested in resolution plans as they affect them. Thus, 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 de....
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....ation 21(3)(iii). Obviously, resolution plans are "matters to be discussed" at such meetings, and the erstwhile Board of Directors are "participants" who will discuss these issues. The expression "documents" is a wide expression which would certainly include resolution plans. 14. Under Regulation 24(2)(e), the resolution professional has to take a roll call of every participant attending through video conferencing or other audio and visual means, and must state for the record that such person has received the agenda and all relevant material for the meeting which would include the resolution plan to be discussed at such meeting. Regulation 35 makes it clear that the resolution professional shall provide fair value and liquidation value to every member of the committee only after receipt of resolution plans in accordance with the Code [see regulation 35(2)]. Also, under Regulation 38(1)(a), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-clause 3(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognizes the vital interest of the erstwhile Board....