Suspended Director Cannot Seek Valuation Reports When Competing as Resolution Applicant: NCLT Mumbai

Suspended Director Cannot Seek Valuation Reports When Competing as Resolution Applicant: NCLT Mumbai

Introduction

The National Company Law Tribunal (NCLT), Mumbai Bench, has held that a suspended director who is also a prospective resolution applicant is not entitled to access valuation reports and other confidential documents generated during the Corporate Insolvency Resolution Process (CIRP). The Tribunal ruled that disclosure of such information would compromise the integrity and sanctity of the insolvency process and run contrary to settled principles under the Insolvency and Bankruptcy Code, 2016 (IBC).

Factual Background

The controversy arose in the CIRP of Megi Agro Chem Limited, which was initiated in August 2022 on an application filed by Pridhvi Asset Reconstruction and Securitisation Company Ltd., the sole member of the Committee of Creditors (CoC).

Abhay Narhar Kadam, a suspended director of the corporate debtor, moved an application before the NCLT alleging lack of transparency in the insolvency proceedings. He contended that the resolution professional had failed to share valuation reports, the resolution plan, and minutes of CoC meetings with suspended directors, thereby violating the scheme of the IBC.

Procedural Background

The application was heard by a coram comprising Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati. Kadam also sought deferment of the hearing on approval of a resolution plan submitted by Arainfra Projects Private Limited, citing alleged procedural lapses in the conduct of the CIRP.

Issues

1. Whether a suspended director is entitled to access valuation reports and other confidential CIRP documents.

2. Whether denial of such information amounts to a violation of transparency or provisions of the IBC, particularly when the suspended director is a prospective or competing resolution applicant.

Contentions of the Parties

The applicant argued that non-disclosure of valuation reports and CoC-related documents undermined transparency and fairness in the insolvency process. He asserted that access to these documents was necessary to ensure compliance with the IBC and to meaningfully participate in the proceedings.

The resolution professional and other respondents opposed the plea, submitting that valuation reports are confidential documents meant exclusively for the commercial decision-making of the CoC. They contended that disclosure to persons connected with the erstwhile management who were themselves interested in submitting resolution plans would result in an unfair advantage and prejudice the process.

Reasoning and Analysis

The NCLT rejected the applicant’s contentions and reaffirmed the confidential nature of valuation reports. It held that such reports are prepared solely to aid the CoC in exercising its commercial wisdom and are not meant for dissemination to suspended directors, particularly when they or their associates are prospective or competing resolution applicants.

The Tribunal observed that disclosure of valuation reports in such circumstances would undermine the sanctity and integrity of the CIRP and defeat the objective of value maximisation. It noted that persons connected with the erstwhile management had either submitted or expressed an intention to submit resolution plans, making the demand for sensitive commercial information untenable. The NCLT found no violation of the IBC or procedural irregularity in the conduct of the insolvency proceedings.

Decision

The Tribunal dismissed the application, holding that a suspended director who is also a prospective resolution applicant has no right to seek valuation reports or other confidential CIRP documents. It concluded that no grounds were made out to interfere with the ongoing process or the consideration of the resolution plan.

In this case the applicant was represented by Adv Smit Shah.