Upon 'Supersession' Of Directors Under RBI Act, They Are Not Entitled To Notice Of CoC Meeting: NCLAT

Factual Background

The Appellant is a promotor, majority shareholder, erstwhile director and guarantor of DHFL/ Corporate Debtor. In November 2019, the RBI exercised its powers u/s 45-IE of the RBI Act and superseded the Board of Directors because the business of DHFL was being carried out in a manner detrimental to the interests of the creditors and depositors. Thus, the Board of Directors of DHFL vacated their offices and the power stood transferred to the Administrator, who then initiated Corporate Insolvency Resolution Process of the Corporate Debtor. Thereafter, a moratorium was imposed.

This Administrator did not give due notice of the meetings of the CoC along with documents and agenda for meetings to the Appellant/ erstwhile Director of DHFL/Corporate Debtor.

The Adjudicating Authority refused the request of the Appellant to be allowed to attend meetings of the CoC as member of the erstwhile Board of Directors of the Corporate Debtor since the erstwhile directors were superseded by the Administrator under the RBI Act and thus they could not be permitted to participate in the CIRP. Against this, the Appellant preferred an appeal in the NCLAT.

Issues

1.Is there a difference between the 'supersession of Directors' under the RBI Act and the 'suspension of Directors' under the Code?

2. Whether a 'Superseded director', who had vacated office on supersession of Board under RBI Act, is entitled to the notice of CoC meeting and has the right to participate in the meeting of the CoC?

Analysis

Supersession Of Directors V. Suspension Of Directors:

Noting the provision contained in Section 45-IE of the RBI Act, the Tribunal held that as per the said Section, upon exercise of the power by the RBI, the Board of Directors 'vacate' their office. This has finality attached to it. In the present case, the directors have been superseded by the Administrator under the RBI Act and their vacation is final. If they are to be appointed at a later stage, it would be a fresh/ new appointment and not a continuation of the previous appointment as Directors of the Company.

The Tribunal observed that since the Board of Directors of DHFL had already vacated their offices, the powers of Board of Directors stood vested in the Administrator as per Section 45-IE of the RBI Act. There was no question of 'suspension' of the Board of Directors u/s 17(i)(b) of the IBC.

Notice Of Meeting:

Section 24(3)(b) of the IBC provides that the Resolution Professional should give notice/ details of the meeting of the CoC to the 'suspended' Directors of the Corporate Debtor. This notice is to be given to the 'suspended' Board of Directors, and 'suspended' u/s 24(3)(b) has the same meaning as 'suspended' u/s 17(1)(b) of the Code.

In the present case, since from November 2019, the Board of Directors of DHFL had vacated their office and the Administrator took over, there is no question of the Directors of DHFL permitting them to participate in the CoC meeting.

They are not 'suspended' Directors for the purposes of Section 24(3)(b) of the Code.

The NCLAT held-

"On a bare reading of Section 45-IE of the RBI Act, the supersession of the Board of Directors under the said provision has finality attached to it. Accordingly, if the RBI exercised the said powers and the Directors have vacated office, as in the present case. There is no question of the powers of the Board of Directors who have already vacated office and consider them

'suspended' under Section 17(1)(b) of the Code."

Thus, the superseded Directors were not entitled to get a notice of the meeting of the Committee of Creditors.

In Vijay Kumar Jain v. Standard Chartered Bank, the Supreme Court stated-

"The proviso to Section 21(2) of the I&B Code clarifies that a Director who is also a Financial Creditor who is a related party of the Corporate Debtor shall not have any right of representation, participation or voting in a meeting of a Committee of Creditors. Further, Directors simpliciter are not the subject matter of the proviso to Section 21(2) of the Code. But only Directors who are related parties of the Corporate Debtor. Therefore, only such persons do not have any right of representation, participation, or voting in the Committee of

Creditors meeting."

The Tribunal held- "Given the law laid down by Hon'ble Supreme Court Vijay Kumar Jain' case, it is clear that Director Simpliciter can participate in the CoC of the Corporate Debtor. However, the person who is not in the office and deemed to have vacated the office under the RBI Act cannot claim parity with the suspended Director under the Code."

Non-supply Of Approved Resolution Plan:

The Appellant was aggrieved by the non-supply of the approved Resolution Plan. The Respondent contended that for the Resolution Plan to be successful, it must be confidential.

There are several provisions in the Code and Regulations which provide for confidentiality of the Plan. Section 29(2) requires a confidentiality undertaking from the Resolution Applicants before they are provided access to relevant Information about the Corporate Debtor.

Regulation 21 of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations 2016 also requires insolvency professional to ensure that the confidentiality of Information relating to the Insolvency Resolution, Liquidation, or Bankruptcy Process is maintained.

In this regard, the Tribunal observed-

"It is also a known fact that Resolution Plans involve extensive grounds of preparation, review and deliberations by the Resolution Applicant and later by the insolvency professionals and COC; and giving it to the appellants on demand for a copy of the same will be akin to trivialising these efforts and disturbing the sanctity of the entire CIRP."

Regulation 36 of the CIRP Regulations also imposes a duty on the Resolution Professional to share the Information Memorandum with the members of the CoC after an undertaking of confidentiality of information.

Since in the present case, the Directors were 'superseded' and are not members of the CoC as they vacated their offices before the initiation of CIRP of the Corporate Debtor, they are not entitled to participate in meetings of CoC or share the documents. They cannot be considered as a Director Simpliciter to benefit from participating in the meeting of CoC.

It was held that-

"A removed Director from the Board of Directors cannot interfere in the Company's affairs per contra a suspended Director always remains on the erstwhile Board of the Company and assist the IRP/RP as per requirement."

The NCLAT held that the Directors who have vacated their offices are not entitled to share any document, but the copy of the Resolution Plan after approval from the Adjudicating Authority cannot be treated as a confidential document.

Citation: Company Appeal (AT) (Insolvency) No. 785 of 2020 and Company Appeal (AT) (Insolvency) No. 647 of 2021

Counsel for the Appellant: None

Counsel for the Respondent: Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA).

Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Aniruddh Gambhir, Advocates for COC.

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