In an important ruling in the matter of ANG Industries Limited v/s Shah Brothers Ispat Private Limited & Ashok Leyland Limited, the National Company Law Appellate Tribunal (NCLAT) vide an order dated 24 May 2018 (available here), has analysed the following critical issues:
(i) Whether the resolution professional is required to give notice to ‘Operational Creditors’ or their representatives to attend the meeting of Committee of Creditors (COC); and
(ii) What is the legislative intent behind allowing the ‘suspended board of directors’, the ‘partners of the corporate debtor’, the ‘operational creditors or their representatives’ or the ‘resolution applicant(s)’ to attend the meeting of the COC, even though they do not have the right to vote?
The NCLAT while relying upon the findings of Joint Parliamentary Committee and its earlier ruling in the matter of Rajputana Properties Private Limited v/s Ultra Tech Cement Limited & Others (available here), observed that:
1. The COC is composed of financial creditors, who have capability to assess the commercial viability of the corporate debtor and who are willing to modify the terms of debt contract in negotiation between them and the corporate debtor. The COC can modify the terms of debt contract only by negotiation between them and the corporate debtor, that means its board of directors. That is the reason why the board of directors have also been allowed to attend the meeting of the COC though they have no voting right;
2. The operational creditors are not able to decide the commercial viability of the corporate debtor nor can they take risk of restructuring their debt in order to make the corporate debtor a going concern. However, as the operational creditors have right to trigger corporate insolvency resolution process under Section 9 of the IBC, their presence is also required to present their views/concerns on important issues. The important issues and the views/concerns as may be raised by those who are present are required to be taken into account by the COC while finalizing the resolution plans.
3. If Section 24 of the Insolvency and Bankruptcy Code, 2016 (IBC) is read with Section 30 of the IBC, it is clear that the following persons can take part in the meeting of the COC at the time of approval of one or other resolution plan: (a) members of COC; (b) members of the suspended board of directors; (c) partners of the corporate persons; (d) operational creditors or their representatives if the amount of their aggregate dues is not less than 10% of the debt; and (e) resolution applicant(s) when resolution plan of such applicant(s) are placed for consideration.
4. The members of the COC have voting right but others who attend the meeting as noticed above including the Board of Directors, Partners, Operational Creditor(s) and the Resolution Applicant(s) have no voting right.
5. The intention of the legislature is clear that the COC while approving or rejecting one or other resolution plan should follow such procedure which is transparent. Those who are watching the proceeding are not mere spectators but may express their views to the COC for coming to conclusion in one or other way. Therefore, views, if any, expressed by the suspended board of directors or its partners; operational creditors or its representatives and/or resolution applicant(s), should be taken into consideration by the COC before approving or rejecting one or other resolution plan. The views so expressed by any of those who are watching the proceeding should also be recorded (in short).
6. As the resolution plans are opened and placed before the COC, as per Section 30(5) of the IBC, the resolution applicant(s) are entitled to be present, and the COC may point out whether one or other resolution applicant is ineligible in terms of Section 29A or not. If one or other objection is overruled, reasons should be recorded by the COC. After decision of the COC, the RP is required to place the decision before the respective NCLT as per Section 31 of the IBC. The respective NCLT can then go through the reasoning to accept or reject one or other objection or suggestion and may express its own opinion/decision in the said matter.