The Supreme Court on Thursday held that the suspended board of directors of a company undergoing insolvency proceedings and its operational creditors must be given all the documents of a resolution plan (RP) as their say in the repayment of debts and safeguarding their interest is important.

It said every participant in the committee of creditors (CoC) meetings is entitled to a notice of every meeting and such notice 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.
Setting aside the NCLAT judgment that had refused to give copies of all the resolution plans to the suspended directors of Ruchi Soya Industries, undergoing insolvency proceedings, a Bench led by Justice RF Nariman held that the suspended directors must be given copies of all RPs within two weeks from the date of this judgment.

“The resolution applicant in each of these cases will then convene a CoC meeting within two weeks thereafter, which will include the erstwhile board of directors as participants. The CoC will then deliberate on the RPs afresh and either reject them or approve of them with the requisite majority, after which, the further procedure detailed in the IBC and the regulations will be followed,” the apex court said.

It further said the time that has been taken in these proceedings will be excluded from the period of the RP of Mumbai-based edible oil maker Ruchi Soya. The embattled company has many manufacturing plants and its leading brands include Nutrela, Mahakosh, Sunrich, Ruchi Star and Ruchi Gold. It has a total debt of about Rs12,000 crore. The company was admitted for the Corporate Insolvency Resolution Process on December 8, 2017 after its two creditors – Standard Chartered Bank and DBS Bank – moved the NCLT, Mumbai.

Earlier in September, the SC had allowed the NCLT to continue processing the bids for Ruchi Soya, but restrained it from finalising the bid without its approval. Ruchi Soya, which owes around Rs33 crore to Standard Chartered and around Rs150 crore to DBS Bank, figured in the RBI’s second list of 28 defaulters.

Baba Ramdev’s Patanjali Ayurved; Godrej Agrovet; Kolkata-based Emami Agrotech, an edible oil and biodiesel arm of Emami Group; and Adani Wilmar are in the fray to acquire assets of Ruchi Soya.
However, after the two rounds of bidding, the CoC had approved Adani Wimar’s bid for the bankruptcy-bound company with about 96% votes in favour. Adani and Patanjali group have been engaged in a long-drawn battle to take over Ruchi Soya. While Adani Wilmar emerged as the highest bidder with a Rs6,000-crore offer, Patanjali group came second with a Rs5,700-crore bid.

The judgment came on an appeal by Ruchi Soya’s suspended director Vijay Kumar Jain, challenging the tribunal’s August 9 order that had refused to direct resolution professional Shailendra Ajmera to give all the documents, including the RP, to the suspended board of directors (BoD) including him.

Seeking transparency in the insolvency proceedings, Jain argued that without being provided with the copies of the RP and the relevant documents, the presence of suspended BoD “shall be nothing but an act of futility as no valid input can be given”. According to Justice Nariman, the statutory scheme makes it clear that though the erstwhile BoDs are not members of the CoC, yet they have a right to participate in each and every meeting and also have a right to discuss all resolution plans that are presented at such meetings under Section 25(2)(i) as they are “vitally interested in resolution plans”.

Even operational creditors, who may participate in such meetings but have no right to vote, are vitally interested in such RPs and must be furnished copies beforehand as “repayment of their debts is an important part of the RP so that they may effectively comment on the same to safeguard their interest.”
The top court rejected the CoC’s stand that the proviso to Section 21(2) clarifies that a director who is also a financial creditor and a related party of the corporate debtor shall not have any right of representation, participation, or voting in a CoC meeting, as the confidentiality requirement would be breached and some members of the suspended board may attempt to sabotage the corporate insolvency resolution process.