Kapil Wadhawan vs Administrator Of Dewan Housing Finance ...

S. CONTENTS Para PAGES NO.

1. Factual Background of CA No.785 of 2020 1 3-6

2. Factual Background of CA No.647 of 2020 1.10 6-7

3. Appellant's Submission 2 7

4. Right to participate in the Committee of 3 7-12 Creditor of DHFL

5. Respondent No. 1 / Administrator's 4 12-15 submission

6. Points arising for consideration 4.6 15

7. Analysis 5 15-38

Contention by Appellant 5.3 16-17

Section 45-IE of the Reserve Bank of India 5.6 17-21 Act explained

Section 24(3)(b) of the Insolvency and 5.12 21-25 Bankruptcy Code explained

Obligations of Directors as guarantors for 5.18 25-26 DHFL

Relevant Rules explained 5.20 26-29

Observation of Adjudicating Authority with 5.25 29-30 reference to IA 701 of 2021

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 B Resolution Plan to obtain critical Information 5.27 30-31 relating to the CIRP

Regulation 36 explained 5.30 31-33

7. Conclusion 5.34 39

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021

[Arising out of Order dated 28 April 2020 in MA No. 518 of 2020 in Company Petition No.4258 of 2019 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai]

1. Company Appeal (AT) (Insolvency) No. 785 of 2020

IN THE MATTER OF:

Dheeraj Wadhawan Having his address at: 22/23, Sea View Palace Pali Hill, Bandra, Mumbai - 400050 Appellant

Versus

The Administrator Respondent Dewan Housing Finance Corporation Limited Having a registered office at: 6th Floor, HDIL Towers, Anant Kanekar Marg Station Road, Bandra (East) Mumbai - 400051

Present:

For Appellant : None

Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA).

Ms Liz Mathew, Ms Sonali Jain, Mr Rohan Rajadhyaksha, Advocates for Administrator. Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Aniruddh Gambhir, Advocates for COC.

With 2. Company Appeal (AT) (Insolvency) No. 647 of 2021

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 1 of 39 IN THE MATTER OF: Kapil Wadhawan R/o 13th, 14th, 15th & 16th Floor D.B. Breeze, 16th Road, Khar (West) Mumbai - 400 052 Presently in judicial custody, Maharashtra Email: mail@aglaw.in Appellant

Versus

1. Administrator of Dewan Housing Finance Corporation Limited Having a registered office at: 6th Floor, HDIL Towers Anant Kanekar Marg Station Road, Bandra (East) Mumbai - 400051 Email: dhfladministrator@dhfl.com lizmathew.law@gmail.com Respondent No.1

2. Piramal Capital & Housing Finance Limited Having its registered office at: 4th Floor, Piramal Tower Peninsula Corporate Park Ganpatrao Kadam Marg, Lower Parel West, Mumbai - 400013 Email: bipin.singh@piramal.com Respondent No.2

Present:

For Appellant : None

For Respondent : Mr Ashish Bhan, Mr Ketan Gaur, Ms Chitra Rentala, Mr Aayush Mitruka, Mr Kaustub Narendran, Ms Samriddhi Shukla, Ms Lisa Mishra and Mr Vishal Hablani, Advocates for Intervenor (Piramal Capital & Housing Finance Ltd., SRA).

Mr Raunak Dhillon, Mr Animesh Bisht, Ms Saloni Kapadia, Ms Madhavi Khanna, Mr Shubhankar Jain, Mr Aniruddh Gambhir, Advocates for COC.

CORAM: Hon'ble Mr Justice M. Venugopal, Member (J) Hon'ble Mr V. P. Singh, Member (T) Hon'ble Dr Ashok Kumar Mishra, Member (T)

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 2 of 39

(Virtual Mode)

[Per; V. P. Singh, Member (T)]

1. Factual Background

1.1 The Company Appeal CA (AT) (Ins) No 785 of 2020 is filed by

Appellant Dheeraj Wadhawan, erstwhile Promoter/Director of DHFL, against

the Order dated 28 April 2020 in the Miscellaneous Application being

numbered as MA 518 of 2020 in Company Petition (IB) No. 4258/2019 under

Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B

Code'), seeking participation in the CoC1 of DHFL, rejected by the Adjudicating

Authority/NCLT holding that the Appellant is not entitled to attend the

meetings of the Committee of Creditors as member of the erstwhile Board of

Directors.

1.2 The Appellants are the superseded Directors on the Erstwhile Board of

Directors of the Corporate Debtor, i.e. Dewan Housing Finance Corporation

Limited ("DHFL"). The Appellants are also personal guarantors for various

loans the Corporate Debtor avails. The Corporate Director is a Housing

Finance Company regulated under the National Housing Bank Act, 1987(for

brevity 'NHB Act') and Reserve Bank of India Act, 1934 ('RBI Act'). On 15

November 2019, the Central Government made Insolvency and Bankruptcy

(Insolvency and Liquidation Proceedings of Financial Service Providers and

1 Committee of Creditors

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 3 of 39 Application to Adjudication Authority) Rules, 2019 (for brevity 'FSP Rules')

that provide CIRP for Financial Service Providers such as DHFL.

1.3 On 20 November 2019, RBI exercised its power under Section 45-IE of

the Reserve Bank of India Act, 1934 and superseded the Board of Directors of

DHFL by appointing Mr R. Subramaniakumar as the Administrator.

Subsequently, on 29 November 2019, RBI initiated the Insolvency Resolution

Process of the Corporate Debtor by filling the CP (IB) No. 4258 of 2019.

1.4 By an order dated 03 December 2019, the AA/NCLT2 admitted the

Petition and the Administrator appointed by RBI on 20 November 2019 was

appointed as the Administrator under the 'FSP Rules'.

1.5 Given the express provisions of the IBC and settled law, the Appellant

being directors of the erstwhile Board of DHFL, anticipated that the

Administrator shall give due notice of the meetings of the Committee of

Creditors ("CoC") to them along with the agenda for the meeting to be held.

1.6 On 10 January 2020, 12 January 2020, 14 & 15 January 2020, the

Appellant addressed an email to the Respondent/Administrator requesting

him to send notice of every meeting of the CoC along with the agenda of such

meetings. The respondent/Administrator, vide email dated 12 January 2020,

replied that members of the erstwhile Board of Directors of the Financial

Service Provider were not legally entitled to attend CoC meetings. Moreover,

since the insolvency commencement date, the superseded Board of Directors

2 Adjudicating Authority

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 4 of 39 were no longer directors of the Financial Service Provider. Hence, the

'superseded' Directors could not be treated as 'suspended' Directors within

the meaning of Section 24 of the IBC.

1.7 However, on account of the Respondent's refusal to provide the

Appellants with due and meaningful notice of the CoC meetings despite

repeated correspondence in that regard, constrained the Appellant to file

Miscellaneous Application being IA No.518 of 2020 in CP 4258 of 2019,

wherein the relief sought against the Resolution Professional to provide the

Appellants with a copy of Company Application, i.e. IA 518 of 2020 filed in CP

IB 4258 of 2020 along with the copy of the Resolution Plan submitted by IInd

Respondent.

1.8 Accordingly, the relief sought by the Appellants in the above IA 518 of

2020 is given below for ready reference.

a) A declaration that the Appellant is entitled to attend each and every meeting of the COC as a member of the Erstwhile Board of Directors of the Financial Service Provider, either by himself or through his representative, including by video conferencing.

b) A direction to the Respondent/ Administrator to furnish records and notices of meetings of the COC held so far;

c) A direction to the Respondent/ Administrator to send advance notice of each meeting of the COC along with the agenda and copies of the documents relevant for such meetings;

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 5 of 39

d) A direction to the Respondent/ Administrator not to implement any decision taken at the meetings of the COC held without the presence of the Appellant.

(verbatim copy)

1.9 The AA/NCLT rejected the above-said Intervention Application and

passed the Impugned Order dated 28 April 2020, which is challenged in this

Appeal.

1.10 Company Appeal No. CA 647 of 2021 is filed against the impugned

Order dated 7 June 2021 in IA No. 701 of 2021 in Interlocutory Application

No. 449 of 2021 in company petition CP/IB/4258/MB/C-II/2019. By the

impugned Order, the Adjudicating Authority has rejected the prayer of the

Appellant to be provided with a copy of the IA No 449 of 2021 along with a

copy of the Resolution Plan submitted by 2nd Respondent.

1.11 The Appellant contends that the entire Corporate Insolvency Resolution

Process of DHFL, a Financial Service Provider, has been administered in a

wholly non-transparent and Opaque manner since its commencement. There

has been a material irregularity in the exercise of powers by Respondent No.1

during the CIRP, which has ultimately resulted in denial of a copy of even the

Resolution Plan without any justification. As a result, the Appellant was

constrained to file IA No. 701 of 2021 before the Adjudicating Authority for a

copy of the Resolution Plan. The said application was rejected vide its

impugned Order dated 7 June 2021; the Appellant was constrained to file this

Appeal.

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 6 of 39 1.12 Civil Appeal No. 647 of 2021 is filed by Mr Kapil Wadhawan on being

aggrieved by Order of the AA/NCLT rejecting his Interlocutory Application

being IA 701 of 2021 to provide a copy of Interlocutory Application filed IA 449

of 2021, along with a copy of the Resolution Plan submitted by IInd

Respondent. Further, the cause of the rejection of IA 701 of 2021 and IA 518

of 2020 was that the 'Superseded Directors' are not on the same footing as

suspended directors. Therefore the Appellants who happens to be superseded

Directors, who were not on the Board of DHFL, i.e. on the date of initiation of

CIRP, were denied notice and participation in the CoC meetings of the

corporate debtors and further restricted the copy of the Resolution Plan

submitted by the IInd Respondent. Therefore, the question of law that has

cropped up for the determination of these Appeals is the same. Therefore,

these Appeals are decided together.

1.13 The Parties are represented by their original status in the Company

Petition for the sake of convenience.

2. Appellant's Submissions

2.1 The Appellant contends that the CIR Process is vitiated by violation of

principles of natural justice as the Appellant (Erstwhile Director) was first

denied the opportunity to participate in meetings of the CoC. Then violations

compounded by denying a copy of the Resolution Plan which affects the

interest of the Appellant.

3. Right to participate in the COC of DHFL

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 7 of 39 3.1 The learned Counsel for the Appellant submits that the provision of the

Code provides for the rights of and erstwhile Director to participate in the

meetings of the COC and is provided with all the relevant documents and

merely because the erstwhile Board of Directors being superseded before the

initiation of CIRP, same had no impact whatsoever on the rights under the

Code.

3.2 The learned counsel for the RBI3 and Piramal4 submitted that only

"suspended" directors had rights under the Insolvency and Bankruptcy Code,

2016, as opposed to the Appellant's who were part of the "superseded" Board

of Directors under Section 45 (I-E) of the Reserve Bank of India act, 1934.

However, given the context and the scheme of the Code, there is no legal

difference between a "superseded" director and a "suspended" Director.

3.3 The Code was made applicable to DHFL under the Financial Service

Providers Rules ("FSP rules"). Rule 4 deals with the insolvency of a Financial

Service Provider. Rule 5 provides that the entire Code applies mutatis

mutandis to a Corporate Debtor under the 'FSP Rules' subject only to

modifications provided under Rule 5. Admittedly, there has been no such

modification whatsoever. Moreover, once the RBI as the Applicant elected to

proceed under the Code, the corporate debtor cannot recourse to the RBI Act

to deprive the Appellant of an opportunity to participate in CoC meetings and

obtain copies of the relevant documents, under the provisions of the Code.

3 Reserve Bank of India 4 Piramal Capital Housing Finance Ltd

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 8 of 39 Once the RBI has elected to invoke the provisions of the Code, the provisions

of the Code would apply with full force and in its entirety.

3.4 Consequently, an erstwhile Director's rights under the Code apply to

former directors of the Financial Service Provider. The decision to supersede

the Board of Directors of DHFL and initiate the corporate insolvency

resolution process had no opposition before the NCLT. The law regarding the

doctrine of election is well settled. The promoters/shareholders of the DHFL

placed reliance on the case-law of the Hon'ble Supreme Court in the case of

National Insurance Company versus Mastan, reported in (2006) 2 SCC 641,

paragraph 21, 23 to 29 and Kanhaiyalal versus State Bank of India, reported

in 2008 SCC online Patna 27.

3.5 Further, Appellant/Promoters contended that without admitting that

there is a difference in the plane and the literal meaning of the words

"suspended" and "superseded". However, when read with the context and

purpose of the Code, there is no legal difference whatsoever between the

"suspended" Director and "superseded" Director. It is now illegal aphorism

that the results of a plain literal interpretation, if absurd, must give away to

understanding formed for the purpose, object, text and context of a particular

provision. Reliance is placed on the observations of the Hon'ble Supreme

Court in Paragraphs 28-30 in the case of Arcelor Mittal India Private Limited

versus Satish Kumar Gupta, reported in (2019) 2 SCC 1.

3.6 Promoter/Appellant further contends that the entire premise of the

Adjudicating Authority is erroneously based on the purported literal difference

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 9 of 39 between the meaning of the words 'suspended' and 'superseded'. The former

is purportedly a temporary eclipse, while the latter is purportedly a permanent

extinguishment. This completely ignores the change in the position of law

brought about by the insertion of Section 29A in the Code. Before the

amendment, an erstwhile Board of Directors was also eligible to submit

Resolution Plans and came back into the management of the Corporate

Debtor. However, after the amendment, the same is no longer permissible.

The erstwhile Board of Directors is barred from the reappointment, placing

them in the same position as a suspended Board of Directors.

3.7 Therefore, reliance upon a literal difference between "suspension" and

"supersession" is wholly misconceived. The Appellant further emphasised that

in the RBI Act, there is no provision on "superseded" Directors being made

part of a Board of Directors of the reconstituted by the RBI. As such, legally

speaking, a "supersession" under the RBI Act is not necessarily a permanent

extinguishment of rights but could be a temporary eclipse. This makes the

purported difference between the "suspended" and "superseded" even less

significant.

3.8 Therefore, in the absence of any modifications under Rule 5, coupled

with the same legal effect of "supersession" and "suspension" under the Code;

the purpose, object, text and context of the Code must guide the recognition

of the rights of the erstwhile Board of Directors, Guarantors and

Shareholders.

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 10 of 39 3.9 Respondent urged that Kapil Wadhawan was estopped from raising the

contention of denying participation in the CoC. However, he did not take any

steps after addressing correspondence requesting the same. This argument is

wholly misconceived as both Kapil Wadhwan and Dheeraj Wadhwan similarly

placed being aggrieved by the Administrator's actions in denying participation

to them in the COC.

3.10 The Appellant refers to the Judgment of the Hon'ble Supreme Court

Vijay Kumar Jain vs Standard Chartered Bank [(2019) SCC Online SC 103]

(paragraphs 10 to 21) where the rights of the Erstwhile Directors in attending

COC meeting have been elaborated and further in Arcelor Mittal India Pvt.

Ltd. vs Satish Kumar Gupta [(2019) 2 SCC 1] (in para 76.2) recognises that

there is no difference between suspension and suppression in the legal effect

as the erstwhile directors cannot be re-appointed on the Board of Directors in

any event.

3.11 The Appellant further contended that in the case of Financial Service

Providers such as DHFL, RBI had a choice of Resolution either by proceeding

under RBI Act as amended or under FSP Rules and the Code. The Resolution

under the Code and the FSP Rules is time-bound and faster. If RBI decides to

proceed under I&B Code, the same will apply to the full extent except as

provided in Rule 5 of FSP Rules. RBI had to elect and cannot proceed under

both as they are mutually exclusive and inconsistent. Suppose RBI

supersedes directors to deny them rights under the Code. In that case, it is

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 11 of 39 mala fide and cannot be permitted as RBI had no power or jurisdiction to

bypass provisions of the I&B Code.

3.12 In the line of the above contentions, the Appellant submitted that the

word 'supersedes' and 'suspended' have been used in the same context and

have the same effects. Therefore, it is absurd and inconceivable to recognise

the rights of the erstwhile Directors when the terminology used is "suspended"

and to altogether forego their rights when the word "superseded" has been

used. The protection and rights available to the suspended Directors of the

Corporate Debtor should also be open to the Superseded Directors of a

Corporate Debtor, keeping in mind that the stakes involved are the same.

3.13 The Appellant further submitted that the conduct of the Respondent/

Administrator in refusing to give notice of hearings of the meeting of CoC to

the Appellant constitutes a breach of the provision of the I&B Code.

4. Respondent No. 1/Administrator's Submission

Ist Respondent /Administrator appointed under Section 45-IE (4) of the

RBI Act, 1934 submits its reply on every issue raised in the Appeal, stating it

devoid of any merits, and based on an incorrect interpretation of the word

'superseded' as used in Section 45-IE (4) of the RBI Act, 1934, for the reasons

given as under:

4.1 The Respondent submitted that on a bare reading of Section 45-IE (4)

of the RBI Act, 1934, it is clear that upon exercise of the power under Section

45-IE (2), the Directors, including the Appellant, vacated their office and all

powers stood vested in the Administrator appointed. The vacating of office by

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 12 of 39 the Board of Directors was not temporary and has finality attached to it. RBI's

action has not been disputed or challenged in any manner whatsoever,

including the Appellant.

4.2 The Respondent further submitted that on 03 December 2019, when

Company Petition No. 4258 of 2019 was admitted by the Adjudicating

Authority for initiation of CIRP, there was no Board of the Corporate Debtor

existing, as the Directors of the erstwhile Board of CD (including the

Appellant) had already vacated their offices and their powers having stood

vested in the Administrator under Section 45-IE of RBI Act on 20 November

2019. Therefore, there is no question permitting the Appellants to participate

in the CoC meetings. However, the action of RBI in the supersession of the

erstwhile Board of CD had resulted in the vacation of office of Directors of the

erstwhile Board, that too much before the initiation of CIRP. Therefore, per

contra Suspended Director don't vacate their office on initiation of CIRP.

4.3 The Respondent also submitted that under Section 24(3)(b) of the I&B

Code, a notice of each meeting of COC is required to be given to the

"suspended" Directors. Notably, the phrase "suspended" in Section 24(3)(b) of

the Code is relatable to the words "suspended" in Section 17(1)(b) of the I&B

Code. In other words, the clear intent of the Code is that those directors who

hold office on the date of commencement of CIRP and whose powers stand

"suspended" under Section 17(1)(b) of the Code by the appointment of IRP

that are entitled to receive notice of the meetings of COC under Section

24(3)(b) and not Directors who have already been removed, dismissed, deemed

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 13 of 39 to have vacated office, or suspended by reasons of any other Act and who are

not in the office on the CIRP commencement date.

4.4 The Respondent further stated that Appellant's reliance on Vijay Kumar

Jain vs Standard Chartered Bank5 is based on a patent misreading said

judgment. In Vijay Kumar Jain (supra), the Hon'ble Supreme Court was

concerned with the extent to which Directors who had been suspended on the

appointment of the IRP was entitled to participate in the COC meetings. The

right of the said Directors to attend CoC meetings was not under dispute

(unlike the present case).In Vijay Kumar Jain's case, Hon'ble Supreme Court

had not expressed that the superseded Directors of the Erstwhile Board who

have already vacated their offices as Directors before the appointment of the

IRP are entitled to notice of and participation in CoC meetings. The use of

expression "erstwhile" or "former" Directors by the Supreme Court in Vijay

Kumar Jain (supra) has been distorted by the Appellant since the same was

not intended to alter the clear language of Section 17(1)(b) and Section 24(3)(b)

of I&B Code. The above contentions equally apply to the Appellant's

mechanical reliance on the phrase "superseded" used by the Hon'ble Supreme

Court in Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta6.

4.5 The Respondent also submitted that substantial progress had been

made in the CIRP of the DHFL. The timelines of the Code are sacrosanct, and

the Administrator and CoC are making every effort to complete the CIRP

5 (2019)20 SCC455 6 (2019) 2 SCC 1

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 14 of 39 within the stipulated timelines. At this stage, any delay in the process on

account of the present Appeal will cause severe prejudice and derail the CIRP,

thereby affecting the interest of DHFL's Stakeholders. Therefore, the

Adjudicating Authority has correctly passed the Order after considering all

the relevant factors and applying the precise position of law as emanating

from the RBI Act and Code. Therefore, the Appeal ought to be dismissed.

4.6 Heard the arguments of the Learned Counsel for the parties and

perused the records. The points that arise for our consideration in these

Appeals are as under;

1. 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?

5. Analysis

5.1 Kapil Wadhwan and Dheeraj Wadhwan (the Appellants in CA (AT) (Ins)

No's 647/2021 and 785/2021) are the promoters, major shareholders,

erstwhile directors and guarantors of the Dewan Housing Finance

Corporation Limited ("DHFL").

5.2 The Appellants have alleged that the CIRP of DHFL had been conducted

in blatantly illegal and violated the most elementary principles of natural

justice. As a result, both the Appellant's, despite being Promoters/Share

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 15 of 39 Holders/Directors/Guarantor, is shut out of the meetings of the COC and

prevented in any manner from participating in the CIRP. This is entire without

precedent in so far as the CIRP of the DHFL is the first occasion in the entire

history of the Code that erstwhile Directors have been prevented from

participating in the meetings of the COC.

5.3 It is contended that denial of any semblance of natural justice to the

Appellant had been carried to the point where the Appellant's despite being

major stakeholders and their interest being vitally affected, were denied even

a copy of the Resolution Plan even after the COC approved the same. The

Appellants were thus denied any opportunity to object to the plan before the

Adjudicating Authority/NCLT.

5.4 Added further, despite being denied Information, from what little could

be gleaned from the public domain, it was clear that the offer is being made

for DHFL at a serious undervalue. With what little Information he had in

possession, Kapil Wadhwan made a settlement proposal which was not even

placed before the CoC for consideration. This plan offers ₹ 53,000 crores more

than the Resolution Plan of Piramal and would have paid all the creditors,

including thousands of public depositors, in full. These members of the public

have not even had an adequate opportunity to consider the settlement

proposal. The CoC and NCLT have approved the Resolution Plan of Piramal,

a travesty that constitutes a severe failure of justice.

5.5 Further, they expected that the Administrator should give due notice of

the meetings of the COC, with the documents and agenda for the meetings.

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 16 of 39 However, despite several communications, the Administrator refused the

Appellant's request constraining Dheeraj Wadhwan, the Appellants in CA (AT)

(Ins) No. 785 of 2020, to file MA No. 518 2020. The same was rejected by the

impugned judgement dated 28 April 2020, which proceeds inter alia on the

erroneous basis that 'suspension' is temporary by nature and that the

erstwhile directors have been superseded (which is more permanent) cannot

be permitted to participate in the CIRP.

5.6 For the present Appeal, it is relevant to take note of Section 45-IE of the

RBI Act, which is as follows:

[45-IE. Supersession of Board of directors of non- banking financial Company (other than Government Company).--(1) Where the Bank is satisfied that in the public interest or to prevent the affairs of a non-banking financial company being conducted in a manner detrimental to the interest of the depositors or creditors, or of the non-banking financial company (other than Government Company), or for securing the proper management of such Company or for financial stability, it is necessary so to do, the Bank may, for reasons to be recorded in writing, by Order, supersede the Board of Directors of such Company for a period not exceeding five years as may be specified in the Order, which may be extended from time to time, so, however, that the total period shall not exceed five years.

(2) The Bank may, on supersession of the Board of Directors of the non-banking financial Company under sub-

section (1), appoint a suitable person as the Administrator for such period as it may determine.

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 17 of 39 (3) The Bank may issue such directions to the Administrator as it may deem appropriate and the Administrator shall be bound to follow such directions.

(4) Upon making the Order of supersession of the Board of Directors of a non-banking financial company,--

(a) the chairman, managing Director and other directors shall from the date of supersession of the Board of Directors vacate their offices;

(b) all the powers, functions and duties, which may, by or under the provisions of this Act or any other law for the time being in force, be exercised and discharged by or on behalf of the Board of Directors of such non-

banking financial Company or by a resolution passed in general meeting of such non-banking financial Company, shall, until the Board of Directors of such Company is reconstituted, be exercised and discharged by the Administrator referred to in sub-section (2).

(5)(a) The Bank may constitute a committee consisting of three or more members who have experience in law, finance, banking, administration or accountancy to assist the Administrator in discharge of his duties.

(b) The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Bank.

(6) The salary and allowances payable to the Administrator and the members of the committee constituted by the Bank shall be such as may be specified by the Bank and be paid by the concerned non-banking financial Company.

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 18 of 39 (7) On or before the expiration of the period of supersession of the Board of Directors as specified in the Order issued under sub-section (1), the Administrator of the non-banking financial Company shall facilitate reconstitution of the Board of Directors of the non-banking financial Company.

(8) Notwithstanding anything contained in any other law for the time being in force or in any contract, no person shall be entitled to claim any compensation for the loss or termination of his office.

(9) The Administrator referred to in sub-section (2) shall vacate office immediately after the Board of Directors of the non-banking financial Company has been reconstituted.]."

5.7 On a bare reading of Section 45-IE of the Act, it is clear that upon

exercise of the said power by the RBI7 , the Board of Directors vacates their

office. In other words, the vacating of office of the said Board of Directors has

finality attached to it. The Appellant's contention that Section 45-IE of the RBI

Act does not bar the said directors who have vacated their offices from

becoming directors of the Company when the Board is reconstituted cannot

and does not alter the precise position that the supersession of the directors

and their vacation of office is final and that their appointment, if at all, at a

subsequent stage (and if fulfilling criteria of being fit and proper) is a

fresh/new appointment and not a continuation of the original offices as

Directors of the Company.

7 Reserve Bank of India

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 19 of 39 5.8 On 28 November 2019, the RBI exercised its power under Section 45-

IE (2) of the RBI Act and superseded the Board of Directors of DHFL. This was

done as the business of DHFL has been conducted in a manner that was

detrimental to the interest of the depositors DHFL's creditors, which led to a

severe deterioration in DHFL's financial position. Given the above, the then

Board of Directors of DHFL vacated their respective offices on 20 November

2019. In other words, w.e.f. 20 November 2019, there was no Board of

Directors in DHFL, and their power stood vested in the Administrator under

the RBI Act.

5.9 On 22 November 2019, the RBI, in the exercise of the power conferred

under Section 45-IE (5)(a) of the RBI Act, constituted an Advisory Committee

to assist the Administrator. After that, on 29 November 2019, the RBI filed

the above Company Petition for initiation of CIRP8 of DHFL under the FSP

Rules9. Accordingly, the interim moratorium period as defined under Section

14 of the IBC, 2016 commences from the date of filing of the Company Petition

before the Adjudicating Authority/NCLT under Rule 5(b)(i) of FSP Rules.

5.10 On 02 December 2019, Respondent was appointed as Administrator

under FSP Rules. It is pertinent to note that as of this date, the Board of

Directors of DHFL had already vacated their respective offices, and

Respondent/Administrator of DHFL was discharging duties under Section 45-

IA(4)(b) of the RBI Act.

8 Corporate Insolvency Resolution Process 9 Financial Service Provider and Application to Adjudication Rules, 2019

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 20 of 39 5.11 Since the erstwhile members of the Board of Directors of DHFL had

already vacated their offices, the powers of the Board of Directors had stood

vested in the Administrator on 03 December 2019 under Section 45-IE of the

RBI Act. In such a scenario, there is no question of any powers of the Board

being suspended as per Section 17(i)(b) of the Code upon the admission of the

above Company Petition. Consequently, there is no question of considering

the Appellant as being a 'suspended' Director for the Code.

5.12 It is important to mention that Section 24(3)(b) of the Code provides

that the Resolution Professional should give notice/details of the meeting of

the Committee of Creditors to 'suspended' Directors of the Corporate Debtor.

The said provision reads as follows:

"24. Meeting of committee of creditors.--(1) The members of the committee of creditors may meet in person or by such electronic means as may be specified.

(2) All meetings of the committee of creditors shall be conducted by the Resolution professional.

(3) The Resolution professional shall give notice of each meeting of the committee of creditors to--

(a) members of [committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6-A) of Section 21 and sub-section (5)];

(b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be;

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 21 of 39

(c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt."

5.13 On a bare reading of Section 24(3)(b) of the Code, it is clear that the

notice of each meeting of the Committee of Creditors is required to be given to

the 'suspended' Board of Directors. The word 'suspended' used in Section

24(3)(b) of the Code is clearly and directly relatable to the words 'suspended'

in Section 17(1)(b) of the Code. In other words, it is those directors whose

powers stand 'suspended' under Section 17(1)(b) of the Code by appointment

of the Interim Resolution Professional that is entitled to receive notice of the

meetings of the Committee of Creditors under Section 24(3)(b) of the Code. In

the present case, it is an admitted position that with effect from 20 November

2019, upon the RBI exercising powers under Section 45-IE of the RBI Act, the

Board of Directors of DHFL stood superseded and had vacated office.

Accordingly, at the time of appointment of the Administrator under the FSP

Rules by the NCLT on 03 December 2019, there was no question of the powers

of the Board of Directors of DHFL. Since they had already vacated their offices

on 20 November 2019, there is no question of the said Directors of DHFL

permitting them to participate in the CoC meetings in this scenario. They had

already vacated their offices on supersession of the erstwhile Board.

Therefore, they have not qualified as 'suspended' Directors for Section 24(3)(b)

of the Code.

5.14 The Appellant has attempted to equate supersession of the Board of

Directors under Section 45-IE of the RBI Act with the suspension of the Board

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 22 of 39 of Directors under Section 17(1)(b) of the Code on the basis that both have

the same 'legal effects' and that there is 'no legal prohibition' for the same

Directors to be appointed on the reconstituted Board of Directors under

Section 45-IE(7) of the Code. This is a misconceived proposition since

'suspension', and 'supersession' are distinct concepts in law. Moreover, when

a Company Petition is admitted under Sections 7, 9 or 10 of the Code, the

resultant 'suspension' of Directors under Section 17(1)(b) of the Code does not

necessarily mean that it is on account of severe governance issues, unlike in

a case where the RBI exercises powers under Section 45-IE of the RBI Act.

5.15 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. The Appellant's contention

that the suspension of powers of the Board of Directors (under Section 17(1)(b)

of the Code) may also have the 'legal effect' of the said Directors vacating office

is irrelevant and a mere red herring. As to the Appellant's contention that

there is 'no legal prohibition' for the same Directors to be appointed on the

reconstituted Board of Directors under Section 45-IE(7) of the Code, the said

contention is misconceived, irrelevant and overlooks the fact that the vacation

of office under Section 45-IE has finality, attached to it. Accordingly, any

appointment of such a person as a Director on the 'reconstituted' Board of

Directors under Section 45-IE(7) of the RBI Act the period of supersession is

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 23 of 39 over, is a new appointment (which will undoubtedly be required to satisfy all

legal requirements, including of being a 'fit and proper person' at that stage)

and is not a continuation of the original appointment as Director, but a

fresh/new appointment.

5.16 However, such a further appointment may be possible when the Board

of Directors is reconstituted. Therefore, it cannot take away from the

supersession under Section 45-IE(2) of the RBI Act, when ordered by the RBI,

has attained finality. Therefore, those directors who were already removed and

dismissed are deemed to have vacated office under the RBI Act w.e.f the date

of supersession of the Board.

5.17 The Appellant has relied on the decision of the Hon'ble Supreme Court

in Vijay Kumar Jain vs Standard Chartered Bank (2019 SCC Online SC 13)

to contend that the word 'erstwhile' or 'former' directors used in the said

judgment would mean that Directors who have vacated office under Section

45-IE of the RBI Act are also included in the ambit of Section 24(3)(b) of the

Code. However, this contention is misconceived and based on a patent

misreading of the judgment in Vijay Kumar Jain (supra). 5.18 At the outset, it is pertinent to note that in Vijay Kumar Jain (supra),

the Hon'ble Supreme Court was concerned with the extent to which Directors

who had been suspended on the appointment of the Interim Resolution

Professional, in that case, were entitled to participate in the meetings of the

CoC. In other words, the said Directors' right to attend the CoC meetings was

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 24 of 39 not under dispute but merely the width of their rights and whether the same

included copies of the documents discussed at the CoC meetings. 5.19 In Vijay Kumar Jain (supra), the Hon'ble Supreme Court did not express

any view on whether persons who have already vacated their offices as

Directors before the appointment of the Interim Resolution Professional are

entitled to notice and participation in CoC meetings. Thus, the Appellant's

reliance on Vijay Kumar Jain (supra) is misplaced. The use of expression

'erstwhile' or 'former' Directors by the Hon'ble Supreme Court in Vijay Kumar

Jain (supra) was not intended to (and does not) alter the clear language of

Section 17(1)(b) and Section 24(3)(b) of the Code. The Appellant's contention

is based on a misreading of the observations of the Hon'ble Supreme Court

and is contrary to settled legal principles laid down by the Hon'ble Supreme

Court.

5.20 The obligations of Directors as guarantors for DHFL cannot (and does

not) mean that such persons are necessarily entitled to attend or participate

in CoC meetings. The Appellant's contention overlooks that Resolution Plan

binds every person a guarantor for DHFL under Section 31 of the Code is not

ipso facto entitled to attend and participate in CoC meetings. The Appellant's

contention overlooks that the Appellant had vacated office under Section 45-

IE of the RBI Act on 20 November 2019. There was no question of their powers

as Directors being suspended under Section 17(1)(b) of the Code on 03

December 2019, when the above Company Petition was admitted. Therefore,

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 25 of 39 there is no question of the said persons being entitled to notice of CoC

meetings under Section 24(3)(b) of the Code.

5.21 We are not convinced with the above argument advanced by the

Learned Senior Counsel about the applicability of the doctrine of election in

this case. Appellant contends that RBI as the Applicant elected to proceed

under the Code, the Administrator cannot take recourse to the RBI Act to

deprive the Appellant of an opportunity to participate in CoC meetings and

obtain copies of relevant documents.

5.22 Relevant CIRP Rules is given for ready reference:

"Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019.

4. General modifications.-- For the purposes of these rules, in all the provisions relating to insolvency and liquidation proceedings under the Code,--

(i) for the expression "corporate debtor" wherever they occur, shall mean "financial service provider"; and

(ii) for the expressions "insolvency professional", "interim resolution professional", "resolution professional" or "liquidator", wherever they occur, shall mean "administrator".

5. Corporate Insolvency Resolution Process of financial service providers.-- The provisions of the Code relating to the Corporate Insolvency Resolution Process of the corporate debtor shall, mutatis mutandis apply, to the insolvency resolution process of a financial service

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 26 of 39 provider subject to the following modifications, namely:--

(a) Initiation of Corporate Insolvency Resolution Process.--

(i) no corporate insolvency resolution process shall be initiated against a financial service provider which has committed a default under section 4, except upon an application made by the appropriate regulator in accordance with rule 6;

(ii) the application under sub-clause (i) shall be dealt with in the same manner as an application by a financial creditor under section 7, subject to clause (iii); and

(iii) on the admission of the application, the Adjudicating Authority shall appoint the individual proposed by the appropriate regulator in the application filed under sub-clause (i) of clause (a) of rule 5, as the Administrator."

5.23 Rule 4 of FSP Rules provides for general modifications of the Code

concerning insolvency of a Financial Service Provider. Rule 5 provides that

the entire Code applies mutatis mutandis to a Corporate Debtor subject to

modifications provided under Rule 5. Admittedly, no such modifications are

provided under the Code to exclude superseded Directors prohibiting them

from participating in the CoC meetings. However, we can take note of the

Hon'ble Supreme Court finding in the case of Vijay Kumar Jain (supra).

5.24 In the case mentioned above, Hon'ble Supreme Court has held that; the

proviso to Section 21(2) of the I&B Code clarifies that a Director who is also a

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 27 of 39 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.

5.25 Superseded Directors are those Directors who have been removed or

deemed to have demitted office and who are not holding the position of

Director on the CIRP commencement date, cannot be considered a Director

Simpliciter to benefit from participating in the meeting of CoC. Section 45-IE

(4)(a) of the RBI Act provides that upon making an order of supersession of

the Board of Directors of a non-banking financial company, Director shall

from the supersession of the Board of Directors vacate their offices. Section

45-IE of the RBI Act empowers the RBI for the supersession of the Board of

Directors of a non-banking financial company. After vacation or removal from

the office of the Director, the said person cannot claim their entitlement to

participate in the CoC of the Corporate Debtor. A removed Director from the

Board of Directors cannot interfere in the Company's affairs per contra a

suspended Director always remains on the Board. Given the law laid down by

Hon'ble Supreme Court Vijay Kumar Jain' case, it is clear that Director

Simpliciter can participate in the CoC of the Corporate Debtor. However, the

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 28 of 39 person who is not in the office and deemed to have vacated the office under

the RBI Act cannot claim parity with the suspended Director under the Code.

5.26 In IA 701 of 2021, prayer was made to provide the Applicant /Appellant

copies of the captioned Interlocutory Application No.449 of 2021 along with

its enclosures, including the said Resolution Plan. This application was

rejected. Feeling aggrieved by this Order, CA No. 647 of 2021 is filed.

5.27 Adjudicating authority has rejected the application with the observation

that "the successful resolution applicant and COC had vehemently objected to

his prayer and may impact the plan, its business strategy etc. In the absence

of appropriate legal submissions, pleadings, grounds, they are not inclined to

grant the player. Accordingly, this IA is dismissed, and no order as to costs."

5.28 The Appellant had contended that they were also aggrieved by the Order

refusing to supply the copy of the approved Resolution Plan. In reply,

Respondent vouched that confidentiality is critical for a successful

restructuring of the Corporate Debtor. Accordingly, several provisions have

been incorporated in the Code and the Allied regulations to safeguard the

confidentiality concerns relating to insolvency resolution, liquidation, or

bankruptcy. For instance, Section 29 (2) of the Code requires a confidentiality

undertaking from the Resolution Applicant's before they are provided access

to relevant Information about the Corporate Debtor. Similarly, Regulation 21

of the Insolvency and Bankruptcy Board of India (Insolvency Professionals)

Regulations 2016 also requires insolvency professional to ensure the

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 29 of 39 confidentiality of Information relating to the Insolvency Resolution,

Liquidation, or Bankruptcy Process is maintained.

5.29 Further, the Resolution Plans to obtain critical Information relating to

the CIRP, the resolution applicant and the Corporate Debtor, which are

commercially sensitive and may be subject to obligations owed to 3rd parties

such as trade secrets, research and development Information and customer

information. It is also a known fact that Resolution Plans involve extensive

grounds of preparation, review and deliberations by the Resolution Applicant

and later by the insolvency professionals and COC; and giving it to the

appellants on demand for a copy of the same will be akin to trivialising these

efforts and disturbing the sanctity of the entire CIRP.

5.30 The Resolution Plan deliberately deals with confidentiality provisions

requiring all parties involved in the resolution process to keep the Information

provided therein confidential. Further, the Appellant submitting that the

Resolution Plan may become public after its approval by the learned tribunal

does not justify overriding the confidentiality provisions. Allowing such parties

to receive a copy of the Resolution Plan would not only jeopardise the revival

and Resolution in the form of successful implementation of the Resolution

Plan for the corporate debtor but also set a dangerous precedent where any

party would seek a copy of the Resolution Plan that the COC has already

approved.

5.31 It is important to mention that CIRP Regulation 36(4) imposes a duty

on the RP to share the Information Memorandum with the members of CoC

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 30 of 39 after an undertaking of confidentiality of Information. However, the Appellants

are not a member of CoC, and they have been removed from the erstwhile

Board of DHFL and have vacated the office before initiation of CIRP of the

Corporate Debtor. Therefore, they are not entitled to participate in the CoC

meetings or share the documents.

5.32 Regulation 36 is quoted below for ready reference;

"Regulation 36

36. Information memorandum.-- [(1) Subject to sub- regulation (4), the Resolution professional shall submit the information memorandum in electronic form to each member of the committee within two weeks of his appointment, but not later than fifty-fourth day from the insolvency commencement date, whichever is earlier.]

(2) The information memorandum shall contain the following details of the corporate debtor--

[(a) assets and liabilities with such description, as on the insolvency commencement date, as are generally necessary for ascertaining their values.

Explanation--"Description" includes the details such as date of acquisition, cost of acquisition, remaining useful life, identification number, depreciation charged, book value, and any other relevant details.]

(b) the latest annual financial statements;

(c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 31 of 39 up to a date not earlier than fourteen days from the date of the application;

(d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims;

(e) particulars of a debt due from or to the corporate debtor with respect to related parties;

(f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantors is a related party;

(g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake;

(h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities;

(i) the number of workers and employees and liabilities of the corporate debtor towards them;

(j) [* * *] (k) [* * *] (l) other Information, which the Resolution professional deems relevant to the committee.

(3) A member of the committee may request the Resolution

professional for further Information of the nature described in this Regulation and the Resolution professional shall provide

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 32 of 39 such Information to all members within reasonable time if such Information has a bearing on the resolution plan.

[(4) The Resolution professional shall share the information memorandum after receiving an

undertaking from a member of the committee [* * *] to the effect that such member or resolution applicant shall maintain confidentiality of the Information and shall not use such Information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of Section 29.]"

5.33 The Appellants adverted to the observations of the Hon'ble Supreme

Court in Paragraphs 14, 16, 17, 19.5, 20-23 & 25 in the case of Vijay Kumar

Jain v. Standard Chartered Bank, (2019) 20 SCC 455 quoted below for ready

reference;

"14. The relevant provisions of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 read as under:

"7. Certificate of registration.--

(1) ***

(2) The registration shall be subject to the conditions that the insolvency professional shall--

*** (h) abide by the Code of Conduct specified in the First Schedule to these Regulations; and

***" "FIRST SCHEDULE [Under Regulation 7(2)(h)] CODE OF CONDUCT FOR INSOLVENCY PROFESSIONALS ***

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 33 of 39 21. Confidentiality.--An insolvency professional must

ensure that confidentiality of the Information relating to the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law."

(emphasis supplied)

16. This statutory scheme, therefore, makes it clear 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). It cannot be gainsaid 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, yet, they would 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.

17. However, it was argued before us that the Notes on Clauses to Section 24 make 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. The Notes on Clauses, heavily relied upon by the learned counsel for the respondents, read as follows:

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 34 of 39 "Clause 24 prescribes the modalities for the meeting of the Committee of Creditors. The meetings are conducted by the Resolution professional and may be attended by the members of the Board of Directors or partners of the corporate debtor. This gives an opportunity for the Committee of Creditors and the Resolution professional to seek Information that they may require to assess the financial position of the corporate debtor and prepare a resolution plan."

(emphasis supplied)

19.5. Further, under Regulation 37(1)(f), a resolution plan may provide for reduction in the amount payable to the creditors, which again vitally impacts the rights of a guarantor.

Last but not the least, 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, and may, as persons aggrieved, file an appeal from the adjudicating authority's Order to the Appellate Tribunal under Section 61 of the Code. Quite apart from this, Section 60(5)(c) is also very wide, and a member of the erstwhile Board of Directors also has an independent right to approach the adjudicating authority, which must then hear such person before it is satisfied that such resolution plan can pass muster under Section 31 of the Code.

20. It is also important to note 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 vide Regulation 21(3)(iii). Obviously, resolution plans are "matters to be discussed" at such meetings, and the erstwhile Board of Directors are "participants" who will discuss these

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 35 of 39 issues. The expression "documents" is a wide expression which would certainly include resolution plans.

21. Under Regulation 24(2)(e), the Resolution professional has to take a roll call of every participant attending through videoconferencing or other audio and visual means, and must state for the record that such person has received the agenda and all relevant material for the meeting which would include the resolution plan to be discussed at such meeting. Regulation 35 makes it clear that the Resolution professional shall provide fair value and liquidation value to every member of the committee only after receipt of resolution plans in accordance with the Code [see Regulation 35(2)]. 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- regulation (3)(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognises 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.

22. 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. Equally, the Regulations, far from going beyond the Code, flesh out the true intention of the Code that is achieved by reading the plain language of the sections

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 36 of 39 that have already been adverted to. So far as confidential Information is concerned, it is clear that the Resolution professional can take an undertaking from members of the erstwhile Board of Directors, as has been taken in the facts of the present case, to maintain confidentiality. The source of this power is Regulation 7(2)(h) of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, read with Para 21 of the First Schedule thereto. This can be in the form of a non-disclosure agreement in which the Resolution professional can be indemnified in case information is not kept strictly confidential.

23. The argument on behalf of the Committee of Creditors based on the proviso to Section 21(2) is also misconceived. The proviso to Section 21(2) clarifies that a Director who is also a financial creditor who is a related party of the corporate debtor, shall No. have any right of representation, participation, or voting in a meeting of the Committee of Creditors.

Directors, simpliciter, are not the subject-matter of the proviso to Section 21(2), but only Directors who are related parties of the corporate debtor. It is only such persons who do not have any right of representation, participation, or voting in a meeting of the Committee of Creditors. Therefore, the contention that a Director simpliciter would have the right to get documents as against a Director who is a financial creditor is not an argument that is based on the proviso to Section 21(2), correctly read, as it refers only to a financial creditor who is a related party of the corporate debtor. For this reason, this argument also must be rejected.

25. We may indicate that the time that has been utilised in these proceedings must be excluded from the period of the resolution process of the corporate debtor as has been held in Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta [Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] (decided on 4-10-2018) (at para 83). In each of these cases, the

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 37 of 39 appellants will be given copies of all resolution plans submitted to the CoC within a period of two weeks from the date of this judgment. The resolution applicant in each of these cases will then convene a meeting of the CoC within two weeks thereafter, which will include the appellants as participants. The CoC will then deliberate on the resolution plans afresh and either reject them or approve of them with the requisite majority, after which, the further procedure detailed in the Code and the Regulations will be followed. For all these reasons, we are of the view that the petition and Appeal must be allowed and the NCLAT judgment [Vijay Kumar Jain v. Standard Chartered Bank Ltd., 2018 SCC OnLine NCLAT 855] set aside."

(emphasis supplied)

5.34 The above-mentioned case law is not applicable in the present case as

Superseded Directors are those Directors who have been removed or deemed

to have demitted office and who were not holding the position of Director on

the CIRP commencement date, cannot be considered a Director Simpliciter to

benefit from participating in the meeting of CoC. Section 45-IE (4)(a) of the

RBI Act provides that upon making an order of supersession of the Board of

Directors of a non-banking financial company, Director shall from the

supersession of the Board of Directors vacate their offices. After vacation or

removal from the office of the Director, the said person cannot claim their

entitlement to participate in the CoC of the Corporate Debtor. A removed

Director from the Board of Directors cannot interfere in the Company's affairs

per contra a suspended Director always remains on the erstwhile Board of the

Company and assist the IRP/RP as per requirement.

5.35 Therefore, the Appellant, erstwhile Directors, who have vacated the

offices are also not entitled to share any document. However, the copy of the

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 38 of 39 Resolution Plan after approval from the Adjudicating Authority can not be

treated as a confidential document. Therefore, after final approval of the

Resolution Plan, its certified copy may be issued as per Rules.

5.36 We have concluded unanimously that the impugned Order needs no

interference in the circumstances stated above. Accordingly, both the Appeals

are disposed off--no order as to costs.

[Justice M. Venugopal] Member (Judicial)

[Mr. V. P. Singh] Member (Technical)

[Dr. Ashok Kumar Mishra] Member (Technical) NEW DELHI 27th January 2022

pks

Company Appeal (AT) (Insolvency) No. 785 of 2020 & 647 of 2021 39 of 39