The National Company Law Appellate Tribunal in the case of Dheeraj Wadhawan v. The Administrator, Dewan Housing Finance Corporation Limited [Company Apeal CA (AT) (Ins) No. 785 of 2020] dated 27.01.2022 held that Superseded Directors are not entitled to the notice of CoC Meeting under the RBI Act.
In the present case, the former DHFL promoter/director Dheeraj Wadhawan (herein referred as Appellant) filed an appeal under Section 60 (5) of Insolvency & Bankruptcy Code 2016 (the I&B Code) before the National Company Law Appellate Tribunal (the Tribunal) against the order of National Company Law Tribunal (Adjudicating Authority) dated 28.04.2020, wherein the Adjudicating Authority rejected the participation of the Appellant on the grounds that the Appellants are not entitled to attend the meetings of Committee of Creditors (CoC) as a member of the erstwhile Board of Directors.
The Appellants are members of the Erstwhile Board of Directors of Dewan Housing Finance Corporation Limited (DHCL) (herein referred as Corporate Debtor). The Corporate Debtor is a Housing Finance Company governed by the National Housing Bank Act, 1987 (the NHB Act) and the Reserve Bank of India Act, 1934 (the RBI Act). The Appellant is also the personal guarantor of the Corporate Debtor..
Reserve Bank of India (the RBI) superseded the Board of Directors of Corporate Debtor by appointing Mr R. Subramaniakumar as the Administrator dated 29.11.2019 under Section 45-IE of the RBI Act.
On 29.11.20219, the RBI filed Petition to commence the Insolvency Resolution Process of the Corporate Debtor, which was admitted by the Adjudicating Authority vide order dated 03.12.2019.
The Corporate Debtor anticipated about the notification of the meeting conducted by the CoC along with the agenda of the meeting wherein the Corporate Debtor issued several communications vide emails to the Respondent/Administrator requesting about the notice of meeting of CoC along with the agenda of meeting. However, the Respondent vide email dated 12.01.2020 clearly denied the Appellant to attend the CoC meeting on the grounds that the Appellants are not eligible to attend on the said meeting, as the Corporate Insolvency Resolution Process (CIRP) is initiated, the superseded Board of Directors could not be treated as ‘suspended’ Directors within the meaning of Section 24 of I&B Code.
The Appellant thereafter filed a Miscellaneous Application wherein Appellant sought a relief to provide the copy of Company Application, i.e. IA 518 of 2020 filed in CPIB 4258 of 2020 along with the copy of the Resolution Plan submitted by the Respondent. The Adjudicating Authority rejected the plea of the Appellant vide order dated 28.04.2020. Thus, the present Appeal.
ISSUES BEFORE THE TRIBUNAL
- Whether the RBI Act’s “supersession of directors” differ from the “suspension of directors” under the Code?
- Whether a “Superseded director,” who was removed from the Board of Directors under the RBI Act, have a right to attend a CoC meeting and get a notice of the meeting?
CONTENTIONS OF THE PARTIES
The Appellant contended that the CIRP process is conducted against the principal of natural justice as the Appellant was not provided the opportunity to attend the CoC and also denied the copy of Resolution Plan.
The Appellant submitted that the provisions of the I&B Code provides the right to the Appellant to attend the CoC meetings and to receive all the documents relevant to the same. Merely being superseded prior to initiation of CIRP, does not take away the all the rights from Appellant which are provided by the I&B Code.
The RBI contended that in light of I&B Code, only those directors who had been “suspended” had rights, as opposed to the Appellants, who were part of the “superseded” board. However, there is no legal distinction between a “superseded” and a “suspended” director within the context and scheme of I&B Code. The I&B Code is equally applicable to the Appellants and Corporate Debtor cannot deny the participation or denial to obtain the copies of the relevant documents to the RBI being one of the Appellant under the I&B Code.
The former directors of the Corporate Debtor are entitled to the same rights under the I&B Code as current directors. The Adjudicating Authority never objected to Corporate Board of Directors of Corporate Debtor being superseded and the initiation of the CIRP. The doctrine of election is well-established in the law by the virtue of Apex Court’s decision in the case of National Insurance Company versus Mastan (2006) 2 SCC 641 and decision in the case of Kanhaiyalal versus State Bank of India 2008 SCC online.
The Appellant argued that, although the difference in the plan and literal meaning of the word “suspended” and “superseded” is quite evident. However, in light of I&B Code, the words “suspended” and “superseded” have no legal distinction. The Appellant further relied on the decision of Arcelor Mittal India Private Limited versus Satish Kumar Gupta, (2019) 2 SCC 1 and stated that “the absurdity of the simple literal interpretation” is no longer admissible as a defence to the legal claim.
The Appellant in light of aforesaid arguments further stated that, when it comes to eclipses, the word “suspended” is a temporary one while the word “superseded” is considered as the permanent extinguishment.
The Appellant referred to the provisions of RBI Act and submitted that, there is no specific provision under the RBI Act which specifically provides that the superseded directors are the part of Board of Directors. The RBI Act defines “supersession” as a temporary eclipse of rights rather than a permanent extinction of those rights. Thus, it is even more difficult to discern the real difference between “suspended” and “superseded.”
The Appellant while elaborating on the rights of the Erstwhile Directors in attending COC meeting, relied on the Apex Court’s decision in the case of Vijay Kumar Jain vs Standard Chartered Bank [(2019) SCC Online SC 103 and Arcelor Mittal India Pvt.Ltd. vs Satish Kumar Gupta [(2019) 2 SCC 1 where it was held that since the former directors can’t be re-appointed to the Board of Directors, there is no difference in legal effect between suspension and suppression.
The Respondent contended that Section 45-IE (4) of the RBI Act makes it crystal clear that the Directors, including the Appellant, vacated their positions and all powers passed to the Administrator constituted upon the exercise of the power under Section 45-IE (2) of RBI Act. The resignation of the Board of Directors was not a short-term measure, but rather a permanent one and the action of RBI was never opposed or objected by Appellant.
Moreover, the Respondent further stated that, the Board of Directors of Corporate Debtor was not in existence when the Adjudicating Authority pronounced the order as the former board along with Appellant had vacated their offices and their powers had been transferred to the Administrator under Section 45-IE of the RBI Act on 20.11.2019.
The Respondent submitted that the under Section 24(3)(b) of the I&B Code the mandate to provide the notice of intimation of meeting of CoC is only for the ‘suspended’ directors. The mandate is only applicable to the Directors who have already removed, dismissed, deemed to have vacated office, or suspended by reasons of any other Act and who are not in the office on the CIRP commencement date.
The Respondent distinguished the decision Vijay Kumar Jain (supra) and stated that the decision has been misinterpreted by the Appellant as in Vijay Kumar Jain (supra) case the Apex Court did not indicate that Directors who had already relinquished their positions as Directors prior to the appointment of the IRP were entitled to notice and participation in CoC meetings. Although the Apex Court referred to the term “erstwhile” or “former” directors in its decision, the Appellant has misconstrued that phrase, by stating that it was never meant to alter the plain language of I&B Code under Sections 17(1)(b) and 24(3)(b) of I&B Code. The Respondent also contended that the Appellant’s mechanical reliance on the language “superseded” used by the Apex Court in Arcelor Mittal (Supra) is also subject to the same criticisms.
DECISION AND FINDINGS
The Tribunal relied upon the submissions of both the parties and observed that, the interpretation of Section 45-IE of the RBI Act clearly states that the Board of Directors of RBI are removed and have vacated their offices which has attained the finality and cannot be altered.
The Tribunal observed that since the Appellants has already vacated the offices of Corporate Debtor and the their powers were vested ti the Administrator under Section 45-IE of RBI Act, the contention that the powers of Board were suspended as per Section 17(i)(b) of I&B Code upon the admission of the above Company Petition becomes academic.
With the reference of Section 24(3)(b) of I&B Code, the Tribunal noted that Section 24(3)(b) of the I&B Code clearly provides for the intimation of the notice of meeting of CoC by the Resolution Professional to ‘suspended directors’ of the Corporate Debtor. The Tribunal noted that merely a bare reading of Section 24(3)(b) of I&B 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 Tribunal further observed that term “suspended” used under Section 24(3)(b) of I&B Code is directly relatable to term ‘suspended’ in Section 17(1)(b) of I&B Code. Thus, the Directors whose powers are suspended under Section 17(1)(b) of I&B Code are entitled to receive the notice of the meetings of the CoC under Section 24(3)(b) of the I&B Code. .
The Tribunal rejected the contentions of the Appellant that the suspension of powers of the Board of Directors under Section 17(1)(b) of the I&B Code may also have the ‘legal effect’ of the said Directors vacating office and noted that the directors who are removed or dismissed have deemed to have vacated the office under the provisions of RBI Act w.e.f the date of supersession of the Board.
The Tribunal did not concur with the contentions of Appellant and distinguished the decision of Vijay Kumar Jain (supra) wherein Tribunal held that the reliance of Appellant on the decision of Vijay Kumar Jain (supra) is incorrect and is misconceived as the dispute arise in Vijay Kumar Jain (supra) is very limited and does not relates to the facts of the present case.
The Tribunal further held that, Appellant merely being a guarantor of Corporate Debtor does not become entitled to attend or participate in the meetings of the CoC and held that since the Appellant has vacate the office on 20.11.2019 there could not be any question regarding the powers of Appellants as Directors being suspended under Section 17(1)(b) of the I&B Code when the Company Petition was admitted.
The Tribunal also noted that 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 date of commencement of CIRP. Thus, such Directors cannot be cannot be considered a Director merely to enjoy the benefit of participating in the meeting of CoC. The Tribunal held that;
“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”
According to the CIRP Regulation 36(4), the RP is required to share the Information Memorandum with members of the CoC after an agreement to keep the information confidential. The Appellants, on the other hand, are not members of the CoC and have been expelled from the former. There is no right of access to any documents for the Appellant, former Directors who have left their positions. However, once the Adjudicating Authority has approved a copy of the Resolution Plan, it cannot be considered a confidential document. As a result, a certified copy of the Resolution Plan may be issued following final approval of the document.
In light of the aforementioned, the Tribunal found that the order of Adjudicating Authority does not necessitate any further review. As a result, both appeals have been dismissed, with no regard for expenses.
Through this decision the Tribunal has provided the detailed analysis between the interpretations of terms of ‘suspension’ and ‘superseded.’ It has clearly stated that once the Board of directors have been replaced, they would be considered as superseded and not suspended since they have vacated the office and such Directors shall not be entitled to attend or participate in the meetings of CoC or to receive any relevant documents.
Though it is a trite law, the Tribunal has again highlighted that once the directors vacate the office, they shall not have any kind of influence on the company’s business, whereas a suspended director can always assist the IRP/RP as needed. Thus, such Directors have no legal right to receive any kind of documents or notice for the intimation for the meetings of CoC.
Further the Tribunal has also cleared that the Directors who have vacated their offices under Section 45-IE of the RBI Act, are not covered under the ambit of Section 24(3)(b)of the I&B Code.
-Team AMLEGALS assisted by Ms. Anushka Agrawal (Intern)
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