Suspended Management Must Be Provided With A Copy Of The Resolution Plan: NCLT Indore Reiterates

Background Facts

Rajpal Abhikaran Private Limited ("Corporate Debtor") was admitted in the Corporate Insolvency Resolution Process ("CIRP") on 26.03.2021 and Ms. Teena Saraswat Pandey was appointed as Interim Resolution Professional ("IRP") and thereafter, as the Resolution Professional. Real City Private Limited had submitted its Resolution Plan for the Corporate Debtor, which was approved by the Committee of Creditors ("CoC") and consequently, the Resolution Professional had filed an application under Section 30(6) read with Section 31 of Insolvency & Bankruptcy Code, 2016 (IBC) before the Adjudicating Authority for approval of the Resolution Plan.

The suspended management of the Corporate Debtor filed their objections to the said application, alleging that despite being a participant of the CoC meetings, the suspended management was never provided with the copies of the resolution plan, which is against the provisions of the IBC. The CoC had responded to the objection stating that in the 4th CoC meeting, the procedure to obtain the data was informed to the stakeholders in the following manner:

"Item NO 5. …......RP further informed CoC members that she is in process of creating Data room where IM / updated IM / all data of the company will be uploaded & access will be provided to RA & COC members who submit undertaking of confidentiality."

Decision Of The Adjudicating Authority

The Adjudicating Authority observed that the procedure to obtain information laid down by the Resolution Professional in the 4th CoC meeting talks about the access to be provided to Resolution Applicant & CoC members and it nowhere talks about the access to be provided to the suspended management.

The Bench placed reliance on the Supreme Court judgment in Vijay Kumar Jain V/s Standard Chartered Bank and Ors, Writ Petition (Civil) No.1266 of 2018, wherein it was held that:

"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 of Directors in a resolution plan together with the cause of default. It is here that the erstwhile directors can represent to the committee of creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to non-payment of the debt. Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors, must be given a copy of such plans as part of "documents" that have to be furnished along with the notice of such meetings."

The Bench observed that the suspended management must be provided with the copy of the resolution plan, however, the resolution professional can take an undertaking from members of the erstwhile Board of Directors to maintain confidentiality.

The Bench held, "Considering the above, we hereby direct the resolution professional to provide the resolution plans to the suspended management and then convene a meeting of the CoC and the CoC will deliberate on the resolution plans afresh and either reject them or approve them with the requisite majority, after which, the further procedure detailed in the Code and the Regulations will be followed. Further, the resolution professional and CoC may consider the other objections of the suspended management, if relevant. It is to be done within two weeks."

Case Title: Chandraudai Automobiles Pvt. Ltd. v Rajpal Abhikaran Pvt. Ltd., CP(IB) 6 of 2020

Counsel for Applicant: Ld. Adv. Mr. Madhav Lahoti appeared for the applicant;

Counsel for Suspended Management: Ld. Sr. Adv. Mr Rashesh Sanjanwala a.w. Ld. Adv. Mr. Nilesh P Udernani.

Click Here To Read/Download Order