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

The NCLAT in a Bench comprising of Justice M. Venugopal (Judicial Member), Mr. V.P. Singh and Dr. Ashok Kumar Mishra (Technical Members) in Dheeraj Wadhawan v. The Administrator, Dewan Housing Finance Corporation Ltd. held that there exists a difference between 'supersession of Directors' under the RBI Act and 'suspension of Directors' under the IBC and that a 'Superseded director' who vacated office on supersession of Board under the RBI Act is not entitled to the notice of CoC meeting and has no right to participate in the meeting. 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 In November 2019, the RBI exercised its powers u/s 45-IE of the RBI Act and superseded the Board of Directors because the business of DHFL was being carried out in a manner detrimental to the interests of the creditors and depositors.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of the CoC as member of the erstwhile Board of Directors of the Corporate Debtor since the erstwhile directors were superseded by the Administrator under the RBI Act and thus they could not be permitted to participate in the CIRP.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. Issues1.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 Whether a 'Superseded director', who had vacated office on supersession of Board under RBI Act, is entitled to the notice of CoC meeting and has the right to participate in the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 In the present case, the directors have been superseded by the Administrator under the RBI Act and their vacation is final.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...

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

LIVELAW NEWS NETWORK

Tags