The National Company Law Appellate Tribunal, Principal Bench, New Delhi (“NCLAT”), in its order dated October 10, 2023, in the matter of Vinay Kumar Singhal, Resolution Professional for M/s. PG Advertising Private Limited v. Mahesh Bajaj [Comp. App. (AT) (Ins) No. 645 of 2023], has held that an operational creditor, who was merely a participant in the meetings of the committee of creditors (“CoC”), would have no right to seek a copy of the information memorandum.

Facts

Mr. Tulsi Nandan Kant Bansal, the financial creditor of M/s. PG Advertising Private Limited (“Corporate Debtor”), filed an application under Section 7 (Initiation of corporate insolvency resolution process by financial creditor) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking resolution of an amount of INR 1,05,00,000/-, which was due from the Corporate Debtor to such financial creditor. The said application was admitted by the National Company Law Tribunal, New Delhi (“NCLT”) on October 18, 2022, and corporate insolvency resolution process (“CIRP”) was initiated against the Corporate Debtor. Following this, a moratorium was imposed, and Mr. Vinay Kumar Singhal (“Petitioner”) was appointed as the interim resolution professional.

During the pendency of the CIRP, Mr. Mahesh Bajaj (“Respondent”), one of the operational creditors of the Corporate Debtor, representing 10% of the total debt owed by the Corporate Debtor, filed an application before the NCLT for issuance of directions to the Petitioner for providing the information memorandum and other relevant documents to him, since he was a participant of the CoC. The NCLT, vide its order dated May 3, 2023 (“Impugned Order”), instructed the Petitioner to deliver a copy of the information memorandum along with the other relevant documents to the Respondent, despite the fact that the Respondent was merely a participant and not a member of the CoC.

Aggrieved by the Impugned Order, the Petitioner filed the present appeal before the NCLAT, urging the NCLAT to set aside the Impugned Order.

Issue

Whether a copy of the information memorandum can be ordered to be given to an operational creditor, who is merely a participant in the meeting of the CoC and not a member.

Arguments

Contentions of the Petitioner:

The Petitioner submitted that the term ‘member’ has neither been defined in IBC nor in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”). Whilst referring to Section 21(2) (Committee of creditors) of IBC, the Petitioner submitted that the CoC must essentially comprise of all the financial creditors of a corporate debtor and that an operational creditor was not a member.

The Petitioner further referred to Section 24 (Meeting of committee of creditors) of IBC, and submitted that Section 24(3) of IBC provides for the issuance of notice of each meeting of the CoC and Section 24(3)(c) of IBC deals with the issuance of notice to the operational creditors of the corporate debtor or their representatives. The Petitioner submitted that while Section 24(4) of IBC provides the operational creditors or their representatives with a right to attend the CoC meeting, it does not provide them with a right to vote at such meeting. Further, Section 24(8) of IBC stipulates that the meeting of the CoC must be conducted in a specific manner, as enumerated in the CIRP Regulations.

The Petitioner referred to Regulation 2(1)(d) (Definition) of CIRP Regulations which defines ‘committee’ as a CoC established under Section 21 of IBC and to Regulation 2(1)(l) of CIRP Regulations which defines ‘participant’ as a person entitled to attend a meeting of the CoC under Section 24 of IBC, or any other person authorized by the CoC to attend the meeting.

The Petitioner argued that as per Regulation 36(4) (Information memorandum) of the CIRP Regulations, the resolution professional of the corporate debtor must share the information memorandum with the members of the CoC, upon receiving an undertaking from the member of the CoC to the effect that such member shall maintain confidentiality of the information and shall not use such information to cause an undue gain or loss to itself or any other person. The Petitioner contended that there was no provision, either in IBC or the CIRP Regulations for giving information memorandum to the participants in the meeting of the CoC, and that the NCLT had committed an error in passing the Impugned Order on the ground that there was no such prohibition under the legislature. The Petitioner concluded its arguments by submitting that reliance by the NCLT on the case of Vijay Kumar Jain v. Standard Chartered Bank and Others [Civil Appeal No. 8430 of 2018] (“Vijay Kumar Jain Case”), at the time of passing the Impugned Order, was not sustainable since the said case had altogether different facts and dealt with the supply of resolution plan to the erstwhile member of the board of directors as a participant of the CoC.

Contentions of the Respondent:

Respondent submitted that there was no error in the Impugned Order, and hence did not call for any interference by the NCLAT. Respondent submitted that while the definition of ‘member’ is conspicuous by its absence in both IBC and the CIRP Regulations and the definition of ‘participant’ has been given only in the CIRP Regulations, it did not mean that the information memorandum and other documents cannot be supplied to the Respondent.

Respondent referred to Regulations 21(2) (Contents of the notice for meeting) and 21(3)(iii) of the CIRP Regulations and submitted that it was essential to supply to each member of the meeting of the CoC, copies of all documents, which are relevant for the matter to be discussed and issues to be voted upon at the meetings of the CoC. Respondent further referred to Regulation 24(2)(e) (Conduct of meeting) of the CIRP Regulations to contend that the meeting of the CoC cannot be convened without supplying an agenda with all the relevant material for the said meeting.

Respondent, in order to support its submissions, relied on the Vijay Kumar Jain Case, wherein the Hon’ble Supreme Court had held that although the erstwhile board of directors of the corporate debtor were not members of the CoC, they had a right to participate in each and every meeting held by the CoC, and also had a right to discuss along with members of the CoC all resolution plans that were presented at such meetings of the CoC. The Hon’ble Supreme Court also opined that even though persons such as operational creditors have no right to vote and were merely participants in meetings of the CoC, they would still have a right to be given a copy of the resolution plans before such meetings are held so as to effectively comment on the same to safeguard their interest, as operational creditors of the corporate debtor.

Observations of the NCLAT

The NCLAT observed that the Respondent had admitted that he was merely a participant to the CoC meeting. Further, it was an admitted fact that there is no definition of ‘member’ provided in IBC or in the CIRP Regulations, albeit repeatedly used in IBC as well as the CIRP Regulations. The NCLAT observed that while both IBC and the CIRP Regulations are silent about the supply of the information memorandum to a participant of a CoC meeting, the legislature has made a provision for providing a copy of the information memorandum to the member of the CoC and the resolution applicant of the corporate debtor. In this regard, the NCLAT further observed that since IBC and the CIRP Regulations are totally silent about the supply of the information memorandum to the participant of the CoC meeting, it has to be inferred that the legislature has made a provision for providing a copy of the information memorandum to the member of the CoC and the resolution applicant but not to the participant of the CoC meeting, as the Respondent. Therefore, the finding of the NCLT that since there is no express prohibition in IBC or the CIRP Regulations for providing the information memorandum to an operational creditor (as a participant of the CoC meeting) was totally erroneous and unsustainable.

The NCLAT observed that the NCLT wrongly relied on the Vijay Kumar Jain Case, at the time of passing the Impugned Order, as there was no reasonable nexus attached with the supply of information memorandum to the participant as the Respondent. Further, although the Hon’ble Supreme Court, in the Vijay Kumar Jain Case, had opined that the expression ‘documents’ was a wide expression which would include resolution plans, the information memorandum which was one of its own kind could not be referred to as a document which had to be given to the participant of the meeting of the CoC, especially when there was no such provision under the legislature.

Decision of the NCLAT

In view of the above, the NCLAT set aside the Impugned Order and held that the Respondent being a participant in the meeting of the CoC had no right to seek a copy of the information memorandum.

VA View:

Through this judgement, the NCLAT has clarified the position under IBC on an operational creditor’s right to seek a copy of information memorandum, and has rightly observed that while the legislature has made a provision to provide a copy of the information memorandum to the ‘members’ of the CoC, there is no provision for providing a copy of such information memorandum to the ‘participants’ in meetings of the CoC.

The NCLAT has rightly held that since IBC and the CIRP Regulations are totally silent on the supply of the information memorandum to the participant of the CoC meeting, it has to be inferred that the legislature has made a provision for providing a copy of the information memorandum to only the members of the CoC and the resolution applicant (and not to the participant of the CoC meeting, as the Respondent in the instant case).

For any query, please write to Mr. Bomi Daruwala at [email protected]

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