NCLAT Draws the Line: Suspended Directors Shut Out from Rejected Valuation Reports to Protect CIRP Confidentiality

NCLAT Draws the Line: Suspended Directors Shut Out from Rejected Valuation Reports to Protect CIRP Confidentiality

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), held that suspended directors are not entitled to access valuation reports rejected by the Committee of Creditors (CoC). The Tribunal emphasized that such documents are confidential and not part of the ongoing Corporate Insolvency Resolution Process (CIRP) once discarded by the CoC in the exercise of its commercial wisdom.

Factual Background

Winsome Yarns Limited was admitted into CIRP on 22 December 2023. Initially, two valuers were appointed to assess the fair and liquidation value of the corporate debtor’s assets. However, the CoC found the reports inflated and resolved to appoint two new valuers for a fresh valuation. The suspended directors sought access to the earlier reports through several communications with the Resolution Professional (RP), which were denied on grounds of confidentiality and redundancy.

Procedural Background

The suspended directors filed an application before the National Company Law Tribunal (NCLT) seeking access to the earlier valuation reports, which was dismissed. Aggrieved, they preferred an appeal before the NCLAT, contending that as ex-directors, they were entitled to review all CIRP-related documents, including valuation reports.

Issues

1. Whether suspended directors are entitled to access valuation reports that have been rejected by the CoC.

2. Whether denial of access violates Sections 24(3)(b) and 24(4) of the Insolvency and Bankruptcy Code, 2016 (IBC).

3. Whether confidentiality under Regulation 35(2) of the CIRP Regulations overrides participation rights of suspended directors.

Contentions of the Parties

Appellant’s Contentions: The suspended directors argued that as participants under Section 24 of the IBC, they had a statutory right to access all documents discussed in CoC meetings.

They contended that denial of access to the valuation reports violated their right to meaningfully participate in the resolution process. They further relied on Vijay Kumar Jain v. Standard Chartered Bank, asserting that all materials shared with CoC should also be accessible to directors.

Respondent’s Contentions: The RP argued that the earlier valuation reports had been rejected and were no longer relevant to the CIRP records. Under Regulation 35(2) of the CIRP Regulations, valuation reports are confidential and accessible only to CoC members who have signed confidentiality undertakings. It was submitted that the fresh valuation reports relied upon by the CoC had already been shared with the directors, fulfilling the RP’s disclosure obligations.

Reasoning and Analysis

The Tribunal noted that a distinction exists between CoC members and participants under Section 24 of the IBC. Suspended directors may attend meetings but do not enjoy identical rights as voting members. It was observed that the first set of valuation reports was never part of the CoC’s final agenda and had been rejected based on commercial wisdom. Once discarded, such documents became redundant and irrelevant for the ongoing resolution process. The NCLAT emphasized that confidentiality is an integral part of the CIRP framework. Even certain CoC representatives were excluded from valuation discussions until confidentiality undertakings were submitted—indicating equal treatment. The Tribunal clarified that Vijay Kumar Jain must be read contextually and does not mandate disclosure of every document to directors, particularly those not forming part of the active CIRP record. Accordingly, the Tribunal concluded that the RP had acted transparently and that denial of access to rejected valuation reports was neither arbitrary nor discriminatory.

Implications

This decision reaffirms the sanctity of confidentiality in the insolvency process and the limited participatory rights of suspended directors. It underscores the CoC’s primacy in determining the relevance of documents and reinforces that only active, approved materials form part of CIRP proceedings. The decision ensures protection of sensitive valuation data while balancing procedural transparency.

In this case the appellant was represented by Mr. Pulkit Deora, Advocate. Meanwhile the respondent was represented by Ms. Sandeep Bajaj, Ms. Honey Satpal, Mr. Mayank Biyani, Ms. Pooja Singh and Mr. Aakash Agarwala, Advocates