Insolvency Resolution: Supreme Court Grants Suspended Directors Access to Resolution Plans

The Supreme Court of India recently delivered a crucial judgment in Vijay Kumar Jain vs. Standard Chartered Bank & Ors., addressing the rights of members of the suspended Board of Directors in corporate insolvency resolution processes (CIRP). The case revolved around whether suspended directors of a company undergoing insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC), had the right to access resolution plans being considered by the Committee of Creditors (CoC).

Background of the Case

The case arose from insolvency proceedings against Ruchi Soya Industries Ltd., a company engaged in the processing of oilseeds and refining crude oil. In September 2017, Standard Chartered Bank and DBS Bank filed petitions before the National Company Law Tribunal (NCLT), which admitted them in December 2017. The resolution professional (RP) appointed under the process invited bids for a resolution plan, and a plan submitted by Adani Wilmar Limited was approved by the CoC with a majority of 96.86%.

The appellant, Vijay Kumar Jain, a suspended director of Ruchi Soya, approached the NCLT, seeking access to the resolution plans and other documents related to the CIRP. The NCLT denied his request, allowing him to attend CoC meetings but refusing access to confidential resolution plans. The National Company Law Appellate Tribunal (NCLAT) upheld this decision. Jain then approached the Supreme Court.

Key Legal Issues

Whether members of the suspended Board of Directors of a corporate debtor are entitled to access resolution plans submitted under the IBC.
Whether denying such access violates the rights of suspended directors to participate meaningfully in CoC meetings.
The role of Section 24(3) of the IBC in determining the rights of participants in CoC meetings.

Petitioner’s Arguments

The Insolvency and Bankruptcy Code (IBC) mandates that members of the suspended Board of Directors be notified of CoC meetings and be allowed to participate.
Under Regulation 21 of the Insolvency Resolution Process for Corporate Persons Regulations, 2016, notices of CoC meetings must include copies of all relevant documents related to the agenda, which should include resolution plans.
Suspended directors are often guarantors to corporate loans, and resolution plans impact their liabilities. Hence, they must be informed of plan details.
Under Section 60(5) of the IBC, suspended directors have the right to challenge resolution plans before the NCLT, which is not possible without access to such plans.

Respondents’ Arguments

The IBC does not grant voting rights to suspended directors, and they are not members of the CoC.
Regulation 39(2) of the IBC Regulations states that resolution plans are to be provided only to CoC members, not directors.
The confidentiality of resolution plans must be maintained to prevent disruptions in the insolvency process.
Under Section 30(3) of the IBC, only the CoC has the authority to approve resolution plans.

Supreme Court’s Observations

The Supreme Court, comprising Justice R.F. Nariman and Justice Navin Sinha, ruled in favor of the petitioner, making several key observations:

“Though the erstwhile Board of Directors are not members of the CoC, they have a right to participate in meetings and discuss resolution plans.”

The Court held that:

Under Section 24(3) of the IBC, members of the suspended Board must receive notices of CoC meetings, which must include relevant documents.
Resolution plans are critical documents that directly impact stakeholders, including directors who may be guarantors.
The argument that directors are only meant to provide information to the CoC and not receive information was incorrect.
The confidentiality of resolution plans can be maintained through non-disclosure agreements signed by suspended directors.

The Court further emphasized:

“Resolution plans can significantly impact the liabilities of personal guarantors, and therefore, directors must have the opportunity to review them.”

Final Verdict

The Supreme Court set aside the NCLAT’s order and ruled that:

Suspended directors must be given copies of resolution plans to enable meaningful participation in CoC meetings.
Resolution professionals may require suspended directors to sign non-disclosure agreements before granting access.
The ongoing CIRP process must be extended to account for the time lost due to these legal proceedings.

Legal and Corporate Implications

The judgment reinforces the principle of fair participation in insolvency proceedings.
It clarifies that suspended directors retain certain rights despite losing management control.
Resolution professionals must ensure transparency while maintaining confidentiality safeguards.
The ruling sets a precedent for future insolvency cases where directors seek access to key documents.

This landmark decision enhances the accountability of the insolvency process, ensuring that all affected stakeholders, including suspended directors, have the necessary information to protect their interests.

Petitioner Name: Vijay Kumar Jain.
Respondent Name: Standard Chartered Bank & Ors..
Judgment By: Justice R.F. Nariman, Justice Navin Sinha.
Place Of Incident: India.
Judgment Date: 31-01-2019.

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