B&B: Insolvency Resolution Plan should be shared with erstwhile Board of Directors of Corporate Debtor, Supreme Court

31 January 2019: The Supreme Court has held that members of the erstwhile/ suspended Board of Directors of a Corporate Debtor, must be given copies of Insolvency Resolution Plan that may be discussed at meetings of the Committee of Creditors (CoC).

The judgment was rendered by a Bench of Justices Rohinton Nariman and Navin Sinha in an appeal filed against a decision of the National Company Law Appellate Tribunal (NCLAT) rejecting prayer to provide all relevant documents including the insolvency resolution plans to members of the suspended Board of Directors of the corporate debtor.

Background

The appellant was a member of the suspended Board of Directors of the Corporate Debtor, Ruchi Soya Industries Limited.

He was given notice and permission to attend the first meeting of the Committee of Creditors (CoC) but was denied participation in the subsequent meetings. He filed an application in the National Company Law Tribunal (NCLT) challenging this.

The NCLT passed an order granting liberty to the appellant to attend CoC meetings but not to insist upon being provided information considered confidential either by the resolution professional or the committee of creditors.

Against this order, the appellant filed an appeal before the NCLAT which recognized the appellant’s right to attend and participate in CoC meetings, but denied the appellant’s prayer to access certain documents, most particularly, the resolution plans. This led to the appeal in Supreme Court.

Arguments by parties

Appearing for the appellant, Senior Advocate Shyam Divan and advocate Arvind Kumar Guptacontended that under Section 24(3), the resolution professional has to give notice of each meeting of the committee of creditors to the members of the suspended Board of Directors. Further, under Regulation 24 of the Regulation framed under the Insolvency and Bankruptcy Code (IBC), the notice of these meetings shall not only contain an agenda of the meetings but shall also contain copies of all documents relevant to the matters to be discussed and issues to be voted upon at the meeting. This necessarily means that access to the resolution plans and other relevant documents under consideration at these meetings must be supplied together with the notice of the meeting to members of suspended Board of Directors.

Senior Advocate Abhishek Manu Singhvi and advocate Raunak Dhillon, appearing on behalf of the resolution professional, relied strongly on Section 30(3) of the Code and Regulation 39(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) which made it clear that resolution plans were only to be given to the committee of creditors for its consideration.

They further argued that the terms “committee” and “participant” are differently defined under the Regulations and that participants are expressly excluded by Regulation 39. They also argued, that if any of the Regulations go beyond the provisions of the Code, they must be struck down as ultra vires, as under Section 30(3) of the Code, the resolution professional is required to present resolution plans only to the committee of creditors.

Respondents also placed heavy reliance on Notes on Clauses to Section 24 which according to them made 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.

Judgment

The Court proceeded to trace the statutory scheme laid down by the Code and held that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors, and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings under Section 25(2)(i).

In this regard, the Court also referred to the position of the Operational Creditor in the CoC.

“It cannot be denied that operational creditors, who may participate in such meetings but have no right to vote, are vitally interested in such resolution plans, and must be furnished copies of such plans beforehand if they are to participate effectively in the meeting of the committee of creditors.”

This is for the reason that under Section 30(2)(b), repayment 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, they 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, the Court held.

Addressing the contention of Notes on Clause raised by the respondents, the Court stated that a closer look at the Notes on Clause 24 makes it clear that the third sentence of the Notes on Clause 24 is itself problematic and it is difficult to understand the same.

  • First and foremost, it speaks of the resolution professional seeking information. The resolution professional does not seek information at a meeting of the committee of creditors, which is what Section 24 is all about. The resolution professional only seeks information from the erstwhile Board of Directors under Section 29 before preparing an information memorandum, which then includes the financial position of the corporate debtor and information relating to disputes by or against the corporate debtor etc. All this has nothing to do with Section 24 of the Code which deals with meetings of the committee of creditors.
  • Secondly, the resolution professional does not prepare a resolution plan as is mentioned in the Notes on Clause 24; he only prepares an information memorandum which is to be given to the resolution applicants who then submit their resolution plans under Section 30 of the Code. The committee 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.

The Court also noted that Regulations also make it clear that members of erstwhile BoD are vitally interested in resolution plans as they affect them.

“A resolution plan which has been approved or rejected by an order of the Adjudicating Authority, has to be sent to “participants” which would include members of the erstwhile Board of Directors – vide Regulation 39(5) of the CIRP Regulations. Obviously, such copy can only be sent to participants because they are vitally interested in the outcome of such resolution plan.”

The Court further noted that every participant is entitled to a notice of every meeting of the committee of creditors. Such notice of meeting must contain an agenda of the meeting, together with the copies of all documents relevant for matters to be discussed and the issues to be voted upon at the meeting by way of Regulation 21(3)(iii). 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, the Court ruled.

Based on the above, the Court held that the arguments of the respondents that “committee” and “participant” are used differently and that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected.

“…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.

As a result of the aforesaid discussion, the arguments of the respondents that “committee” and “participant” are used differently, which would lead to the result that resolution plans need not be furnished to the erstwhile members of the Board of Directors, must be rejected.”

The Court, therefore, allowed the appeal and set aside the NCLAT judgment.

Bar & Bench reported

BS:New twist in Reid & Taylor saga: New company bids for resolution process

31 January 2019: In a fresh twist in the Reid & Taylor saga, a New Delhi-based company, Indian Gas Ltd, (IGL), was asked by the National Company Law Tribunal (NCLT), Mumbai, to bid for the resolution process of the debt-hit fashion major, here on Thursday.

The development came at the last-minute after CFM Asset Reconstruction Pvt Ltd (CFMARPL), Ahmadabad, informed the NCLT that it was no longer interested in submitting the Resolution Plan.

 While the NCLT bench comprising Judge Bhaskar P. Mohan and Judge V. Nallasenapathy ordered a refund of Rs 2 crore paid by it two weeks ago, it asked the new bidder IGL, registered in Chennai, to pay a non-refundable Rs 2 crore on February 5.

The judges also directed the IGL to appear before the NCLAT on February 1 to prove its bonafides and interest in investing in the Resolution Process of Reid & Taylor.

This is significant since one of the largest investors in Reid & Taylor, Finquest Financial Solutions, had moved the NCLAT challenging the NCLT Mumbai’s order asking CFMARPL to participate in the Resolution Process although the statutory 270 days period was over.

The NCLAT had issued notices to all concerned parties and has kept the matter for further hearing tomorrow.

The NCLT has asked the IGL to prove its networth of over Rs 50 crore by February 5. Earlier, IGL had claimed before the court that their networth was Rs 1,500 crore.

However, Finquest Financial Solutions had questioned IGL’s claim to participate in the Resolution Process, with its counsel Zal Andhyarujina urging that the 270-day period should not be extended under any circumstances and also since his clients (Finquest Financial Solutions) felt that IGL’s interests are questionable.

In order to prove his contention, Andhyarujina said that against the IGL’s claim of Rs 1,500 crore networth, their balance sheet shows a networth of only Rs 6 crore.

To this, the NCLT bench said it was allowing IGL’s claim after hearing more than 50 per cent creditors of Reid & Taylor. 

However, the judges warned that in case IGL is unable to deposit the Rs 2 crore and prove its networth of over Rs 50 crore by February 5, it would be construed as misrepresentation to get an adjournment and the bench would not hesitate to launch criminal proceedings of cheating against them.

Earlier a Hong Kong-based SPGP Holdings, which had claimed a networth of Rs 70 crore, was later calculated to be only around Rs 7 crore.

In December, the creditors’ committee had moved the NCLT for liquidation of Reid & Taylor as no credible investors were ready to submit a resolution plan for the debt-hit big fashion brand.

But, the Reid & Taylor Employees’ Association, backed by SPGP Holdings, had requested the NCLT for an opportunity to help bail out the company by submitting a resolution plan, but it failed to materialise, paving the way for CFMARPL.

After CFMARPL backed out today, the IGL has now stepped into the picture.

IANS, Business Standard reported

 

 

TT: Reliance twist to Essar case

31 January 2019: Reliance Industries, India’s biggest company by market capitalisation, has waded into the Essar Steel bankruptcy case, the fiercest legal battle raging in India’s insolvency landscape.

The company, majority owned by Asia’s richest man billionaire Mukesh Ambani, has filed two applications before the National Company Law Tribunal (NCLT), Ahmedabad.

The applications will come up for hearing on Thursday and the bench, comprising Harihar Prakash Chaturvedi and Manorama Kumari, is likely to take up the applications for hearing before admitting them. There are 44 other applications listed for hearing.

In one of the applications, Satish Kumar Gupta, the resolution professional (RP) in Essar Steel India Ltd, has been made the respondent.

In the other case, the State Bank of India, which has the biggest say in the committee of creditors because it has the highest exposure valued at Rs 15,431 crore, has been made the main respondent.

RIL is listed as one of the operational creditors to Essar Steel with a total claim valued at Rs 16.41 crore. However, the RP rejected as much as Rs 15.42 crore of RIL’s claim against Essar and admitted a little over Rs 99 lakh.

The Reliance move comes at a crucial stage in the 18-month battle for control of Essar Steel between the Ruias and Lakshmi Niwas Mittal-owned ArcelorMittal.

ArcelorMittal, the world’s largest steelmaker, is on the verge of gaining control of Essar Steel after the NCLT ruled on Tuesday that the Ruias-led consortium’s offer of Rs 54,389 crore was not maintainable under the rules governing the bankruptcy resolution process.

The 8-million-tonne prized asset located on the west coast in Gujarat, where RIL’s jumbo refinery and petrochemical complex is also based, will provide a much needed toehold to Mittal in his home soil India, which has emerged as one of the brightest investment spots in global steel landscape.

eliance Industries, India’s biggest company by market capitalisation, has waded into the Essar Steel bankruptcy case, the fiercest legal battle raging in India’s insolvency landscape.

The company, majority owned by Asia’s richest man billionaire Mukesh Ambani, has filed two applications before the National Company Law Tribunal (NCLT), Ahmedabad.

The applications will come up for hearing on Thursday and the bench, comprising Harihar Prakash Chaturvedi and Manorama Kumari, is likely to take up the applications for hearing before admitting them. There are 44 other applications listed for hearing.

In one of the applications, Satish Kumar Gupta, the resolution professional (RP) in Essar Steel India Ltd, has been made the respondent.

In the other case, the State Bank of India, which has the biggest say in the committee of creditors because it has the highest exposure valued at Rs 15,431 crore, has been made the main respondent.

RIL is listed as one of the operational creditors to Essar Steel with a total claim valued at Rs 16.41 crore. However, the RP rejected as much as Rs 15.42 crore of RIL’s claim against Essar and admitted a little over Rs 99 lakh.

The Reliance move comes at a crucial stage in the 18-month battle for control of Essar Steel between the Ruias and Lakshmi Niwas Mittal-owned ArcelorMittal.

ArcelorMittal, the world’s largest steelmaker, is on the verge of gaining control of Essar Steel after the NCLT ruled on Tuesday that the Ruias-led consortium’s offer of Rs 54,389 crore was not maintainable under the rules governing the bankruptcy resolution process.

The 8-million-tonne prized asset located on the west coast in Gujarat, where RIL’s jumbo refinery and petrochemical complex is also based, will provide a much needed toehold to Mittal in his home soil India, which has emerged as one of the brightest investment spots in global steel landscape.

The Telegraph reported