It says if the information is confidential, the CoC could keep it to itself to maximise the valuation of assets.
Is a suspended director of a corporate debtor entitled to confidential information in possession of the Resolution Professional (RP) and the Committee of Creditors (CoC)?
The Mumbai bench of National Company Law Tribunal (NCLT) has answered the question in negative while concluding that if the information is confidential, the CoC could keep it to itself to maximise the valuation of assets.
A bench of BSV Prakash Kumar and Ravikumar Duraisamy said so while deciding the application of a suspended director of a corporate debtor who sought documents and information placed before the CoC while the CoC and the RP were apprehensive that doing so will be detrimental to the interest of the creditors in maximization of the value of the assets of the company.
“If these kinds of applications are entertained, it is difficult for the RPs as well as CoC to complete the process within the timelines given under the code (IBC),” said the bench while disposing of the application.
On suspended director claiming confidential information citing the IBC, the bench said, “After having the legislature examine all these legacy problems, it has taken a decision in this code to shift management from Board management to Creditor Management so that they can act prudently as to how they have to go about realising their dues from the corporate debtor”.
In the instant case, Vijay Kumar Jain, a suspended director of corporate debtor, sought the tribunal to direct that all documents and information be provided to him for setting aside the CIRP process.
He said being the suspended director of the corporate debtor, he had the right to participate in the CoC meetings and to receive all documents tendered before the CoC which are pertinent to the issues that come up in its meetings as well as CIRP proceedings of the corporate debtor.
He also relied on NCLAT decision dated May 15, 2018, in Rajputana Properties Pvt Ltd vs Ultra Tech Cements Ltd and others, wherein it was held that suspended directors of the board are not mere spectators and are entitled to express their views to the CoC for coming to a conclusion in one way or the other.
He also argued that confidentiality clause will not bar him from having access to the information upon which the CoC proposes to act.
Appearing for the Resolution Professional, Dhananjay Kumar, Partner, CAM, submitted that the order of NCLAT in Rajputana Properties case is only in relation to allowing suspended directors in CoC meetings, but not to share any information in respect of resolution plan.
He also submitted that the purpose of allowing the suspended board of directors attend CoC meetings is to enable them to assess the commercial viability while relying on Clause 24 of the IBC, 2015.
Appearing for the CoC, Nakul Sachdeva, partner designate at Luthra & Luthra Law Office, submitted that the NCLAT has clearly held that confidential documents are not to be shared by the RP with the other contending resolution applicants.
What the NCLT said
Relying on Regulations 21 and 24, the tribunal said the copies of all relevant documents have to be provided to all participants enabling them to participate through video conference and audio and visual means.
It then referred to Regulation 35 and said, “When it comes to the chapter dealing with resolution plan in the regulations, in Regulation 35, it has been mentioned after the receipt of resolution plans, in accordance with the code and these regulations, the RP shall provide fair value and liquidation value to every member of the CoC in electronic form on receiving an undertaking that such member shall maintain confidentiality of the fair value and liquidation value and shall not use such value to cause any undue gain or loss to itself or any other person…”
“As per this code as well as the CIRP regulations, either the suspended director or any other person other than the CoC will not be called as members, they are defined as participants, therefore, wherever participants are entitled to get the information, this suspended Board of Directors are equally entitled to get the same. In the event where disclosure is limited to members alone, such information need not be given to the participants, other than the CoC.”
“…when it has come to a resolution plan in Regulation 35, it has been categorically mentioned that the resolution professional can provide the fair value and liquidation value to the members alone that too after taking confidentiality undertaking from such members and it has not been mentioned anywhere that this resolution plan or the valuations can be parted with the suspended directors,” it noted.
The tribunal also looked at the total debt exposure of the company, which was around Rs 9,500 crores, while the liquidation value was around Rs 2,300 crores, and held that even if the director is allowed to receive all commercial information, then also there is no chance for him to get anything out of this resolution plan because the liquidation value is far less than the liability exposure of this company.
The bench further said in such a situation it could not hold that by not providing confidential information to the director, his interest is going to be affected.
It also held that the applicant has not raised any grievance that he would be suffering any loss by not being allowed in the meeting and his only grievance was about violation of procedure laid under the code and added that, “…it is now not a happy situation to any creditor who gets less than what he has given. Now it appears that this applicant does not want to allow the creditors at least to timely realise whatever that has remained in the company”.
The bench also said that when the participation of the applicant is not required for CoC to take any call over the resolution plan pending before them, the applicant cannot press upon them to provide such information to him as the CoC and the RP are apprehensive that doing so will be detrimental to the interest of the creditors in maximization of the value of the assets of the company.