Suspended directors of corporate debtor not entitled to confidential documents: NCLT

The IBC expressly allows suspended directors of a company under moratorium to participate in the CoC meetings. The extent of their participation in these meetings was, however, unclear. In a recent ruling in the case of Ruchi Soya Industries, the Mumbai Bench of the NCLT has dealt with the question..Vijay Kumar Jain, a suspended director of Ruchi Soya Industries approached the NCLT initially seeking to set aside the decisions of the CoC at meetings for which he was not invited to. Without setting aside the decisions taken at such meetings, the NCLT passed an order permitting him to be a part of future meetings. Subsequently, upon request, Jain was refused access to confidential documents by the CoC/RP. He then approached the NCLT praying to get access to such documents..The question of whether confidential documents should be shared with such suspended directors arose before a bench of Judicial Member BSV Prakash Kumar and Technical Member Ravikumar Duraisamy..In arriving at an answer to the question, the NCLT drew a distinction between the ‘participants’ that are allowed to attend CoC meetings as opposed to ‘members’ of the CoC. In order to arrive at this distinction, the NCLT observed Regulations 21 and 35 of the IBBI (CIRP) Regulations. The Bench was of the view that while suspended directors are allowed to participate in the CoC meetings, they are not ‘members’ of the CoC..Regulation 21 requires a notice of the meeting to be given to all ‘participants’ and documents relevant to matters that will be discussed to the CoC. Based on a reading of Section 24 of the IBC, the Bench found that such suspended directors are evidently allowed to be a part of such meetings..However, being a participant is not enough to get access to confidential documents. Regulation 35, which requires disclosure of fair value and liquidation value, stipulates that such information is to be provided only to ‘members’ of the CoC. The NCLT further noted Regulation 39 which requires the resolution plan to be submitted only to members of the Committee..Based on this, the NCLT drew the distinction between participants and members and found that directors being participants can be a part of the meetings, but are not entitled to the confidential documents which members of the CoC require access to..This stance was further fortified by the NCLT while recognising the nature of roles played by CoC members as opposed to suspended directors. Creditors being the ones who ‘bear the brunt’ of the outcome of a resolution plan, the Bench found no reason for disclosure of such confidential information to the suspended directors..As such, the NCLT recorded that the directors do not have any interest in the outcome of the resolution plan, or for that matter any decisions taken pursuant to confidential documents as a part of the CoC process. The NCLT held,.“When his participation is not required for the CoC to take any call over the resolution plan pending before them, this applicant/ director cannot press upon them to provide such information to this applicant”.The members finally also held that the director was, in fact, resorting to these proceedings in order to delay the proceedings..Moreover, it has to be seen by the court of law, by such violation what is the loss the applicant sustains in violation of a provision of law. In this case, no issue has been raised by the director that he would sustain some loss by virtue of not providing him with the resolution plan..The NCLT finally passed an order dismissing the application, while allowing the director to be a part of the CoC meetings, but did not grant him any access to confidential documents..Nakul Sachdeva, Partner Designate at Luthra & Luthra appeared for the CoC whereas Dhananjay Kumar, Partner at Cyril Amarchand Mangaldas appeared for the resolution professional..(Read the order)