The Supreme Court held that the board of directors should be given the resolution plans so that they may present greater information to the creditors' committee about their indebtedness. Despite Section 60(5) of the Code, a board of directors has the right to challenge the terms of a proposed resolution plan before the Tribunal under Section 61 of the Code, which will increase the number of court cases and burden on courts. However, providing resolution plans before they are passed to the adjudicating authority will save time.
In the instant case titled Vijay Kumar Jain v. Standard Chartered Bank two issues were raised before the Supreme Court for clarification:
Whether all participants in the meeting of the Committee of Creditors, including members of the suspended Board of Directors, entitled to notice/agenda including resolution plans together with documents/ issues to be voted upon at the meeting?
Whether the Resolution Professional can be indemnified through a non-disclosure agreement?
With regard to the first issue, the Hon’ble Supreme Court while allowing the writ petition and company appeal has observed that the statutory scheme 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.
The erstwhile Board of Directors 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)
As of the second issue, The Apex Court also deliberated that so far as ‘Confidential information is concerned, it is clear that Resolution Professional can take an undertaking from members of the erstwhile Board of Directors to maintain confidentiality. [Regulation 7(2)(h) of IBBI (Insolvency Professionals).
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.
The Court categorically held that:
“We find that 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 binds them. Such a plan may scale down the debt of the principal debtor, resulting in scaling down the debt or 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 people are vitally interested in resolution plans as they affect them.”
The Supreme Court ordered the resolution expert to supply the appellant directors with copies of the resolution plans. As a result, before deciding on the fate of the resolution plans and the corporate debtor itself, the resolution expert must organise a CoC meeting in which the directors can participate.