VIJAY KUMAR JAIN versus STANDARD CHARTERED BANK & ORS.

Citation: [2019] 1 S.C.R. 779 · Decided: 31-01-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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VIJAY KUMAR JAIN
v.
STANDARD CHARTERED BANK & ORS.
(Civil Appeal No. 8430 of 2018)
JANUARY 31, 2019
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss.21, 24, 25 and
30 – Right of member of suspended Board of Directors to access
certain documents particularly the resolution plans – Held: Though
the erstwhile Board of Directors are not members of the Committee
of Creditors (CoC), yet, they have a right to participate in each and
every meeting held by the CoC and also have a right to discuss
along with members of the CoC all the resolution plans that are
presented at such meetings under s.25(2)(i)–  Members of erstwhile
Board of Directors, being vitally interested in resolution plans that
may be discussed at meetings of the CoC must be given a copy of
such plans as part of “documents” that have to be furnished along
with the notice of such meetings.
Insolvency and Bankruptcy Code, 2016 –  Statutory scheme
of the Code relating to the former members of the Board of Directors
– Discussed.
Allowing the appeal and writ petition, the Court
HELD:  1.  The statutory scheme of the Code relating to
the former members of the Board of Directors is that a CoC is
first constituted under Section 21 consisting only of all the financial
creditors of the corporate debtor.  Under Section 24, all meetings
of this committee are to be conducted by the resolution
professional who, however, does not happen to be part of this
committee. The resolution professional has to give notice of each
and every meeting of the CoC, inter alia, to members of the
suspended Board of Directors. Like operational creditors who
may attend and participate in such meetings, provided the
aggregate dues owing to them are not less than ten per cent of
the total debt, both such operational creditors and erstwhile
members of the Board of Directors have no vote. Once the
[2019] 1 S.C.R. 779
779
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SUPREME COURT REPORTS
[2019] 1 S.C.R.
resolution professional convenes meetings of the CoC, he is to
present all resolution plans at these meetings. Under Section
30, the resolution professional shall examine each resolution plan
received by him in which he must confirm, inter alia, that such
plan provides for the repayment of the debts of operational
creditors which shall not be less than the amount to be paid to
them in the event of liquidation of the corporate debtor. This
plan is then submitted to the Adjudicating Authority if it is
approved by the requisite majority of the CoC. The Adjudicating
Authority under Section 31(1), if satisfied that the plan passes
muster, shall then, by order, approve such plan, which shall be
binding on all stakeholders involved in the resolution plan,
including guarantors. 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 CoC.  [Paras 8, 9][805-
D-G; 806-A, B-C]
2.1 Section 31(1) of the Code would make it clear that such
members of the erstwhile Board of Directors, who are often
guarantors, are vitally interested in a resolution plan as such
resolution plan then binds them. Such plan may scale down the
debt of the principal debtor, resulting in scaling down the debt of
the guarantor as well, or it may not. The resolution plan may also
scale down certain debts and not others, leaving guarantors of
the latter kind of debts exposed for the entire amount of the
debt. The Regulations also make it clear that these persons are
vitally interested in resolution plans as they affect them. Thus,
under Regulation 36 of the CIRP Regulations, the information
memorandum that is given to each member of the CoC and to
any potential resolution applicant, will contain details of guarantees
that have been given in relation to the debts of the corporate
debtor. Also, under Regulation 37(d) of the CIRP Regulations, a
resolution plan may provide for satisfaction or modification of
any security interest. [Para 12][808-B-D]
2.2 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 least, a
resolution plan which has been approved or rejected by an order
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of the Adjudicating Authority, has to be sent to “participants”
which would include me

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