“Where there is a sale of the same property in favour of a prior and subsequent transferee and the subsequent transferee has, under the conveyance outstanding in his favour, paid the purchase­money to the vendor, then in a suit for specific performance brought by the prior transferee, in case he succeeds, the question arises as to the proper form of decree in such a case. The practice of the Courts in India has not been uniform and three distinct lines of thought emerge. According to one point of view, the proper form of decree is to declare the subsequent purchase void as against the prior transferee and direct conveyance by the vendor alone. A second considers that both vendor and vendee should join, while a third would limit execution of the conveyance to the subsequent purchaser alone. According to the Supreme Court, the proper form of decree is to direct specific performance of the contract between the vendor and the prior transferee and direct the subsequent transferee to join in the conveyance so as to pass on the title which resides in him to the prior transferee. He does not join in any special covenants made between the prior transferee and his vendor; all he does is to pass on his title to the prior transferee.”

 “Where there is a sale of the same property in
favour   of   a  prior   and   subsequent   transferee
and the subsequent transferee has, under the
conveyance   outstanding   in   his   favour,   paid
the purchase­money to the vendor, then in a
suit for specific performance brought by the
prior   transferee,   in   case   he   succeeds,   the
question   arises   as   to   the   proper   form   of
decree   in   such  a  case.    The  practice  of  the
Courts   in   India   has   not   been   uniform   and
three   distinct   lines   of   thought   emerge.
According   to   one   point   of   view,   the   proper
form  of  decree   is  to  declare  the   subsequent
purchase void as against the prior transferee
and  direct  conveyance  by  the  vendor  alone.
A   second   considers   that   both   vendor   and
vendee should join, while a third would limit
execution   of   the   conveyance   to   the
subsequent   purchaser   alone.     According   to
the Supreme Court, the proper form of decree
is   to   direct   specific   performance   of   the
contract   between   the   vendor   and   the   prior
transferee   and   direct   the   subsequent
transferee to join in the conveyance so as to
pass on the title which resides in him to the
prior   transferee.     He   does   not   join   in   any
special   covenants   made   between   the   prior
transferee   and  his  vendor;   all  he  does   is  to
pass on his title to the prior transferee.”



Hon'ble Mr. Justice Abhay Manohar Sapre 

         REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.5177 OF 2009
Vijay A. Mittal & Ors.              ….Appellant(s)
VERSUS
Kulwant Rai (Dead) Thr. LRs.
& Anr.            …Respondent(s)
J U D G M E N T
Abhay Manohar Sapre, J.
1. This appeal is directed against the final judgment
and order dated 21.12.2007 passed by the High Court
of Punjab & Haryana at Chandigarh in RSA No.1537 of
1993   whereby   the   Single   Judge   of   the   High   Court
dismissed   the   regular   second   appeal   filed   by   the
appellants   herein   and   upheld   the   judgment/decree
1
dated 15.04.1993 of the First Appellate Court in C.A.
No.7 of 15.02.1992.
2. In order to appreciate the controversy involved in
this appeal, it is necessary to set out the relevant facts
hereinbelow.
3. Appellant   Nos.1   to   4   and   7   are   the   legal
representatives   of   the   original   defendant   No.1­Amar
Nath.  Appellant No.5 (Yash Pal Mittal), who was the
original   defendant   No.2   also   died   and   he   is   now
represented   by   his   legal   heirs   (i)   Rita   Mittal   (ii)
Akanksha and (iii) Akshay Mittal and Appellant No.6
(Sunil Mittal) is the original defendant No.3 whereas
respondent No.1 (Kulwant Rai) is the original plaintiff,
who also died and is now represented by his legal heirs
(i) Sudesh Goel, (ii) Ajay Goel and (iii) Sanjay K. Goel
and   respondent   No.2   (Atul   Kumar)   is   the   original
plaintiff No.2 in the civil suit out of which this appeal
arises.
2
4. In short, the civil suit out of which this appeal
arises was originally filed by one ­ Kulwant Rai as
plaintiff No.1 and Atul Kumar as plaintiff No.2 against
the defendants, namely, (1) Amar Nath, (2) Yash Pal
Mittal, (3) Sunil Mittal and (4) Bal Kishandas.
5. During the pendency of the civil suit, Kulwant
Rai (Plaintiff No.1), Amar Nath (defendant No.1) and
Yashpal Mittal (defendant No.2) died and, therefore,
their legal representatives, on whom the right to sue
devolved as detailed above, were brought on record in
places of the original plaintiff/defendants in the civil
suit to enable them to continue the  lis  on behalf of
those who died.
6. As   mentioned   above,   two   aforementioned
plaintiffs (respondents herein) filed a civil suit against
the aforementioned four defendants (appellants herein)
on 19.03.1982 claiming a relief of specific performance
of the agreement dated 12.06.1979 in relation to the
suit   property  (as  detailed  in   the   plaint)   situated  at
3
Narain Dass Building, Durga Charan Road, Ambala
Cantt.
7. The suit was founded on the agreement dated
12.06.1979 entered into between the plaintiffs and the
defendant   No.1   (Amar   Nath)   for   sale   of   the   suit
property for a sum of Rs.46,000/­.  According to the
plaintiffs, they paid a sum of Rs.5,000/­ by way of
earnest money to defendant No.1 (Amar Nath) and the
sale deed in relation to the suit property was to be
executed on or before 31.12.1979 by defendant No.1
(Amar Nath) in favour of the plaintiffs on paying the
balance consideration before the sub­Registrar.
8. It was alleged that defendant No.1 (Amar Nath)
instead of selling the suit property to the plaintiffs in
terms   of   agreement   dated   12.06.1979   sold   it   to
defendant Nos. 2 and 3 on 27.11.1981. The plaintiffs
alleged that they were ready to perform their part of
the agreement but it was defendant No.1 (Amar Nath)
who failed to perform his part and committed breach
4
by selling the suit property to defendant Nos. 2 and 3
on a higher price and, therefore, the plaintiffs were
constrained   to   file   the   suit   for   seeking   specific
performance of the agreement dated 12.06.1979.
9. Defendant No.1 (Amar Nath) died and, therefore,
he   could   not   file   his   written   statement.   His   legal
representatives, however, filed the written statement.
Their defense was three­fold.
10. First – Amar Nath (defendant No.1) was not the
absolute owner of the suit property because the suit
property was a Joint Hindu Family property; Second,
Amar   Nath   (defendant   No.1)   was,   therefore,   not
competent to enter into an agreement to sell the suit
property; and the Third, the sale in question was not
for any legal necessity and, therefore, it was bad in law
and not binding on the legal representatives because
their   consents   were   not   obtained   by   Amar   Nath
(defendant No.1) prior to entering into an agreement of
sale.
5
11. So far as defendant Nos. 2 to 4 are concerned,
they filed their written statement. They admitted that
the   suit   property   belonged   to   Amar   Nath(defendant
No.1).     They averred that they purchased the suit
property from Amar Nath pursuant to the agreement,
which they had entered into with him somewhere in
the   year   1978.   They   alleged   that   they   had   no
knowledge   of   the   agreement   of   the   plaintiffs   and,
therefore, they were  bona fide  purchasers of the suit
property.
12. The   Trial   Court   by   judgment/decree   dated
22.11.1991 dismissed the suit. It was held that the
agreement dated 12.06.1979 is proved; the plaintiffs
were ready and willing to perform their part of the
agreement but since Amar Nath was not competent to
enter into the agreement with the plaintiffs because
the suit property was a Joint Hindu Family property
and   Amar   Nath   was   only   a   Karta;   and   lastly,   the
6
Plantiffs failed to aver that the sale was for the legal
necessity and for the benefit of the family.
13. The   plaintiffs   felt   aggrieved   and   filed   appeal
before the First Appellate Court. By judgment/decree
dated 15.04.1993, the First Appellate Court allowed
the appeal, set aside the judgment/decree of the Trial
Court and decreed the plaintiffs’ suit.
14. The First Appellate Court held that the sale deed
executed by Late Amar Nath in favour of defendant
Nos. 2 and 3 was bad in law inasmuch as the same
was   obtained   by   a   collusion   so   as   to   deprive   the
plaintiffs   of   the   fruits   of   their   agreement   dated
12.06.1979.   It was also held that defendant Nos. 2
and   3   were   not  bona   fide  purchaser   of   the   suit
property.  It was also held that the suit property was
Joint Hindu family property and Amar Nath was its
Karta.   It was also held that the agreement of sale
entered   into   by   Amar   Nath   was   binding   on   all
coparceners.
7
15. The defendants, therefore, felt aggrieved and filed
the   second   appeal   before   the   High   Court.     By
impugned order, the High Court dismissed the second
appeal and upheld the judgment/decree of the first
Appellate Court.
16. It   was   held   that   Amar   Nath   executed   the
agreement dated 12.06.1979 as a Karta of Joint Hindu
Family.     It   was   also   held   that   the   agreement   was
binding on Amar Nath and his legal representatives.
17. It   is   against   this   order,   the   defendants   have
carried the matter to this Court in special leave to
appeal.
18.  Having heard the learned counsel for the parties
and on perusal of the record of the case, we find no
merit in this appeal.
19. In   the   first   place,   in   our   considered   opinion,
when the three Courts below have held against the
defendants   and   in   favour   of   the   plaintiffs   that   the
plaintiffs were ready and willing to perform their part
8
of the agreement, this finding was binding on the High
Court and also on this Court.
20. Indeed, the Trial Court had already recorded this
finding in plaintiffs’ favour but since the Trial Court
dismissed the suit on other grounds, the defendants
had a right to challenge this finding by filing cross
objection before the First Appellate Court in plaintiffs’
appeal but the defendants did not do so and accepted
this finding. The First Appellate Court while decreeing
the plaintiffs’ suit upheld this finding being not under
challenge and the High Court upheld it by dismissing
defendants’ second appeal.
21. A   finding   on   the   issue   of   readiness   and
willingness   is   one   of   the   important   and   relevant
findings   in   a   suit   for   specific   performance   of   an
agreement. It is a finding based on facts and once it is
recorded, it becomes a finding of fact.
22. In this view of the matter, unless such finding is
found to be against the pleadings or contrary to the
9
evidence or the law governing the issue, it is binding
on the High Court and also on this Court.
23. Learned counsel for the appellants was not able
to point out any infirmity or illegality in this finding. It
is apart from the fact that the appellants (defendants)
failed to challenge its legality and correctness at the
first appellate stage in an appeal filed by the plaintiffs,
which was the appropriate stage to challenge.   It is,
therefore, binding on this Court.
24. The other argument of learned counsel for the
appellants (defendants) was that since the respondents
(plaintiffs)   got   impleaded   only   some   legal
representatives out of eight legal representatives of late
Amar Nath in their first appeal and remaining legal
representatives were not impleaded, the decree of the
Trial Court dismissing the civil suit  qua  those legal
representatives,   who   were   not   made   parties   in   the
appeal, had become final.
10
25. It was, therefore, urged that the First Appellate
Court by allowing the appeal filed by the plaintiffs and
decreeing   their   suit   has   passed   two   conflicting
decrees­one against some which has decreed the suit
and   other   against   some   which   has   resulted   in
dismissal of the suit.  It  is not legally permissible.
26. This   submission   was   dealt   with   by   the   High
Court  while  answering  5th  substantial  question  and
was rejected.  In our view, the High Court was right for
the following reasons.
27. First, all the legal representatives of late Amar
Nath were already on record in the Trial Court in the
suit and all had taken  similar defense in support of
their case against the plaintiffs. In other words, there
was no conflict of interest amongst them either inter se
or qua the plaintiffs.
28. Second, those legal representatives, who filed the
written   statement,   had   filed   a   joint   and   common
written statement whereas those, who did not file the
11
written statement, had given their power of attorney in
favour of the legal representatives, who had filed the
written statement.
29. Third, one legal representative, who did not file
his   written   statement   remained  ex­parte.  In   these
circumstances,    it was not necessary to implead him
as party respondent in the first appeal.
30.  Fourth, it is a trite law that if out of all the legal
representatives, majority of them are already on record
and   they   contested   the   case   on   merits,   it   is   not
necessary   to   bring   other   legal   representatives   on
record.  The reason is that the estate and the interest
of the deceased devolved on the legal representatives is
sufficiently represented by those who are already on
record.
31. Fifth, the defendants, who were respondents in
the first appeal, did not raise any objection before the
First Appellate Court.  Had such objection been raised,
the appellants (plaintiffs) would have cured the defect
12
by impleading them as party respondents before the
First Appellate Court.
32. As   rightly   argued   by   the   counsel   for   the
respondents, the reason for not impleading some legal
representatives   in   the   first   appeal   was   that   their
names were not shown in the decree of the Trial Court.
It was for this reason, the first appeal was filed by the
plaintiffs   only   against   those   legal   representatives
whose names were shown in the decree. 
33. In   the   light   of   this   factual   scenario   and   the
reasons   set   out   above,   we   are   of   the   considered
opinion that no case was made out by the appellants
to challenge the decree before the High Court on the
ground   that   the   impugned   decree   has   resulted   in
passing any conflicting decree by the First Appellate
Court ­ one of dismissal of the suit by the Trial Court
and the other  decreeing the suit by the First Appellate
Court.
13
34. Learned counsel for the appellants (defendants)
then   argued   that   the   two   Courts   below   were   not
justified   in   declaring   the   sale   made   in   favour   of
defendant Nos. 2 and 3 by defendant No.1 as bad in
law. According to the learned counsel, it should have
been   held   to   be   a  bona   fide  sale   for   consideration
without notices to the agreement of the plaintiff with
defendant No.1.
35. We find no merit in this submission for more
than one reason. First, the finding on this issue being
a   concurrent   finding   of   fact   recorded   against   the
appellants by the Appellate Court and the High Court,
the same is binding on this Court.
36. Second, the finding apart from being concurrent
is otherwise not liable to be interfered with for the
reason that the sale made by defendant No.1 in favour
of defendant Nos. 2 and 3 was on the face of it, a
collusive   sale   made   to   avoid   the   agreement   of   the
plaintiffs.
14
37. Third, defendant Nos. 2 and 3 did not adduce any
evidence to prove that their agreement was prior in
point of time as against the agreement of the plaintiffs
and, therefore, they were entitled to get the sale deed
executed pursuant to their prior agreement.
38. Fourth, the legal representatives of Amar Nath
having stepped into his shoes were entitled to raise
that defense which was available to Amar Nath against
the plaintiffs in addition to one which was appropriate
to their character as legal representatives as provided
under   Order   22   Rule   4(2)   of   the   Code   of   Civil
Procedure, 1908.
39. Fifth, the plaintiffs were only entitled to prove the
existence of the valid agreement with the defendant
No.1 – Amar Nath and its performance by the plaintiffs
qua him. This finding of readiness and willingness was
recorded in plaintiffs’ favour throughout.
40. The Trial Court had framed two Issues (7 and 8)
on the questions as to whether the suit property was a
15
Joint Hindu Family property of Amar Nath and, if so,
whether Amar Nath was its Karta or not. The Trial
Court held that the suit property was the Joint Hindu
Family property of which Amar Nath was its Karta.
41. This Court in a case  Sunil  Kumar  &   Anr.  vs.
Ram Parkash & Ors., (1988) 2 SCC 77 examined the
status and the powers of a Karta while dealing with
the   Joint   Hindu   Family   property   in   the   following
words.
“6.   In   this   appeal   we   are   called   upon   to
decide  the  only  question  whether  a   suit   for
permanent   injunction   restraining   the   Karta
of the joint Hindu family from alienating the
house  property  belonging  to the  joint  Hindu
family in pursuance of the agreement to sell
executed already in favour of the predecessor
of   the   appellants,   Jai   Bhagwan,   since
deceased, is maintainable.   It is  well settled
that   in   a  Joint  Hindu  Mitakshara  Family,  a
son   acquires   by   birth   an   interest   equal   to
that of the father in ancestral property.  The
father by reason of his paternal relation and
his  position  as  the  head of  the  family   is   its
Manager  and  he   is  entitled  to  alienate   joint
family property so as to bind the interests of
both   adult   and   minor   coparceners   in   the
property,   provided   that   the   alienation   is
made for legal necessity or for the benefit of
the estate or for meeting an antecedent debt.
The  power  of   the  Manager  of   a   joint  Hindu
16
family   to   alienate   a   joint   Hindu   family
property is analogous to that of a Manager for
an   infant   heir   as   observed   by   the   Judicial
Committee   in   Hunoomanpersaud   Panday   v.
Mussumat Babooee Munraj Koonweree (1856)
6 Moo Ind App 393)”
42. Keeping in view the aforementioned principle of
law and applying the same to the facts of the case at
hand, we are of the considered opinion that the Courts
below   were   justified   in   holding   that   the   agreement
dated   12.6.1979   was   binding   on   the   legal   heirs   of
Amar Nath for the following reasons:
43. First, no issue was framed on the question of
“legal necessity”. In our opinion, it should have been
framed; Second, yet the First Appellate Court while
allowing the plaintiffs’ appeal recorded a categorical
finding that one son of Amar Nath had signed the
agreement in question and, therefore, it was a case
where legal representatives of Late Amar Nath were
aware of the existence of the agreement and also had
given their consent; and Third, this finding was upheld
17
by the High Court while dismissing the defendants’
appeal.
44. One cannot dispute the power of a Karta to sell
the   Joint   Hindu   Family   property.     It   is,   indeed,
inherent   in   him.     However,   it   is   subject   to  certain
restrictions, namely, the sale should be for the legal
necessity and for the benefit of the family.
45. It   is   clear   that   Amar   Nath   had   obtained   the
consent   of   the   legal   heirs   before   entering   into   an
agreement for sale of the suit property to the plaintiffs.
The   very   fact   that   one   son   of   Amar   Nath   was   a
signatory to the agreement was sufficient to draw a
presumption that the agreement to sell was made by
Amar Nath with the consent of other coparceners.  It is
also for the reason because none of the coparceners
had   raised   any   objection   till   the   filing   of   written
statement in the suit. The very fact that Amar Nath
sold the suit property to defendant Nos. 2 and 3 and
which was not objected to by his legal heirs showed
18
that the plea regarding legal necessity had no factual
basis to sustain.
46. It is for all these reasons, we are of the view that
the appellants (defendants) have failed to make out
any   case   so   as   to   call   for   any   interference   in   the
impugned judgment. 
47. This takes us to examine another question which
arises in this case but was not taken note of by the
Courts below while decreeing the suit.  It relates to the
nature of decree to be passed in this case.
48. The question arises in this way.  The effect of
the decree passed in this case is that the original
defendant   No.1,   now   represented   by   his   legal
representatives (Appellant Nos.1­4 & 7) along with
legal representatives of original defendant No. 2, i.e.,
(i) Rita Mittal, (ii) Akanksha and (iii) Akshay Mittal,
and   defendant   No.   3   (Appellant   No.6   herein)   are
required to execute the sale deed in favour of legal
representatives   of   original   plaintiff   No.1,   i.e.,
19
respondent No.1(i) Sudesh Goel, (ii) Ajay Goel and
(iii) Sanjay K. Goel and Atul Kumar, plaintiff No.2
(respondent No.2 herein) jointly. 
49. Yet   another   effect   of   the   decree   is   that   the
transaction of sale of suit property between original
defendant   No.1,   now   represented   by   his   legal
representatives   (Appellant   Nos.1­4   &   7)   and
defendant   No.2   (Appellant   No.5   herein),   now
represented   by   his   legal   representatives   and
defendant Nos.3(Appellant No.6 herein) is declared
bad in law and stands nullified.  As a consequence
thereof,   legal   representatives   of   defendant
No.1(Appellant Nos.1­4 & 7) are required to return
Rs.48,000/­ to original defendant No.2 (appellant
No.5   herein),   now   represented   by   his   legal
representatives and defendant No.3 (appellant No.6
herein)   in   the   absence   of   any   contract   to   the
contrary in this behalf between the parties.   The
reason being that once the sale is declared bad, the
20
transaction   of   sale   fails   and,   therefore,   the
seller(defendant No.1) has no right to retain the sale
consideration with himself and has to refund the
sale consideration to the buyers(defendant Nos.2 &
3) [See Section 65 of the Indian Contract Act]. 
50. The question arose before this Court in the
case of  Lala Durga Prasad & Anr. Vs. Deep Chand
& Ors., AIR 1954 SC 75 as to what form of decree
should be passed in the case of specific performance
of contract where the suit property is sold by the
defendant, i.e., the owner of the suit property to
another person and later he suffers a decree for
specific   performance   of   contract   directing   him   to
transfer the suit property to the plaintiff in term of
contract.
51. The learned Judge­Vivian Bose, J. examined
this   issue   and   speaking   for   the   Bench   in   his
inimitable style of writing, held as under:
21
“Where there is a sale of the same property in
favour   of   a  prior   and   subsequent   transferee
and the subsequent transferee has, under the
conveyance   outstanding   in   his   favour,   paid
the purchase­money to the vendor, then in a
suit for specific performance brought by the
prior   transferee,   in   case   he   succeeds,   the
question   arises   as   to   the   proper   form   of
decree   in   such  a  case.    The  practice  of  the
Courts   in   India   has   not   been   uniform   and
three   distinct   lines   of   thought   emerge.
According   to   one   point   of   view,   the   proper
form  of  decree   is  to  declare  the   subsequent
purchase void as against the prior transferee
and  direct  conveyance  by  the  vendor  alone.
A   second   considers   that   both   vendor   and
vendee should join, while a third would limit
execution   of   the   conveyance   to   the
subsequent   purchaser   alone.     According   to
the Supreme Court, the proper form of decree
is   to   direct   specific   performance   of   the
contract   between   the   vendor   and   the   prior
transferee   and   direct   the   subsequent
transferee to join in the conveyance so as to
pass on the title which resides in him to the
prior   transferee.     He   does   not   join   in   any
special   covenants   made   between   the   prior
transferee   and  his  vendor;   all  he  does   is  to
pass on his title to the prior transferee.”
52. We, therefore, consider it just and proper and
with   a   view   to   end   this   litigation   between   the
parties, which is pending since 1982 and also to
balance   the   equities   amongst   the   parties   that
defendant   No.1   through   his   legal   representatives
22
(Appellant Nos. 1­4 & 7 herein) would return a sum
of   Rs.48,000/­   to   the   legal   representatives   of
defendant   No.2   (Appellant   No.5   herein)   and
defendant   No.   3   (Appellant   No.6   herein).     This
direction we give by taking recourse to our powers
under Article 142 of the Constitution of India to do
complete   justice   between   the   parties   to   the  lis
because we do not want another round of litigation
to go on for years in future between the defendants
inter se for recovery of this amount.
53. In  the light  of the foregoing discussion,  the
appeal is disposed of by modifying the judgment
and decree as under:
(i) The   legal   representatives   of   defendant   No.1
(Appellant Nos.1­4 and 7)   shall deposit a sum of
Rs. 48,000/­ in the executing Court for being paid
to the legal representatives of defendant No.2, i.e.,
(i) Rita Mittal, (ii) Akanksha and (iii) Akshay Mittal
23
and Defendant No.3 (Appellant No.6 herein) within
three months as an outer limit.
(ii) The   legal   representatives   of   original   Plaintiff
No.1,(respondent No.1 herein) i.e., (i) Sudesh Goel,
(ii)   Ajay   Goel,   and   (iii)   Sanjay   K.   Goel   and   Atul
Kumar, plaintiff No.2 (respondent No.2 herein) shall
deposit in the executing Court a sum of Rs.41,000/­
for being paid to the legal representatives of original
Defendant No.1 (Appellant Nos.1 to 4 and 7 herein)
within three months as an outer limit.
(iii) The original defendant No.1, now represented
by his legal representatives (Appellant Nos.1­4 & 7)
along   with   legal   representatives   of   original
defendant   No.   2   and   defendant   No.   3   (Appellant
No.6 herein) will jointly execute the sale deed in
favour of legal representatives of original plaintiff
No.1, i.e., respondent No.1 herein (i) Sudesh Goel,
(ii)   Ajay   Goel   and   (iii)   Sanjay   K.   Goel   and   Atul
Kumar, plaintiff No.2 (respondent No.2 herein) and
24
hand over the possession of the suit property to
them   simultaneously   and  then   will   withdraw  the
money deposited for them in Court.
54. The executing Court will ensure completion of
proceedings within the time fixed and record due
satisfaction of the decree in accordance with law.  In
case of any default, the parties will be entitled to
put the decree in execution for enforcement of the
terms   of   the   decree   of   this   Court   amongst   the
defaulting parties.
55. In view of the foregoing discussion, the appeal
stands disposed of. 
          ………...................................J.
       [ABHAY MANOHAR SAPRE]
                                   
    …...……..................................J.
                [INDU MALHOTRA]
New Delhi;
January 28, 2019
25

N. Sankaranarayanan ….Appellant(s) VERSUS The Chairman, Tamil Nadu Housing Board & Ors. ….Respondent(s)

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL Nos.7390­7391 OF 2009
N. Sankaranarayanan     ….Appellant(s)
VERSUS
The Chairman, Tamil Nadu Housing
Board & Ors.       ….Respondent(s)
WITH
CIVIL APPEAL Nos.7405­7406  OF 2009
Aruna Theatres & Enterprises
Pvt. Ltd.     ….Appellant(s)
VERSUS
The Chairman, Tamil Nadu Housing
Board & Ors.       ….Respondent(s)
               
J U D G M E N T
Abhay Manohar Sapre, J.
In Civil Appeal  Nos.7390­7391 of 2009
1. These appeals are directed against  the final
judgment and order dated 04.03.2008 passed by
1
the   High  Court   of   Judicature   at   Madras   in  Writ
Appeal No.1499 of 2005 and Writ Petition No.5718
of 2005 whereby the Division Bench of the High
Court     dismissed   the   writ   appeal   and   the   writ
petition filed by the appellant herein.
2. In order to appreciate the controversy involved
in   these   appeals,   it   is   necessary   to   set   out   few
relevant facts hereinbelow.
3. The appellant herein is the appellant in Writ
Appeal No.1499 of 2005 and writ petitioner in W.P.
No. 5718 of 2005 whereas respondent Nos. 1 to 6
herein are the respondents of the said  writ appeal
and the writ petition out of which these appeals
arise.
4. In the aforesaid writ petition, the Single Judge
passed   an   interim   order   dated   07.03.2005.   The
appellant herein (writ petitioner) felt aggrieved by
the said interim order and filed intra court appeal
before the Division Bench.
2
5.  The Division Bench,  with the consent of the
parties,   decided   the   main   writ   petition   itself   on
merits and finding no merit therein dismissed the
writ petition filed by the appellant herein by the
impugned order, which has given rise to filing of
these appeals by way of special leave by the writ
petitioner in this Court.
6. On perusal of the list of dates, special leave
petitions, writ petition, its counter, the documents
enclosed in the appeal and lastly, the findings of the
Division Bench in the impugned order, it is clear
that the dispute, which was subject matter of the
writ   petition   and   which   is   now   carried   in   these
appeals   at   the   instance   of   the   writ   petitioner
(appellant   herein),   is   essentially   between   the
members of one family whose ancestor was Late S.
Narayanapillai.   He   died   leaving   behind   six   sons.
Late   S.   Narayanapillai   owned   several   properties
3
which,  on  his   death,   were  inherited  by  his  legal
representatives. 
7.   The disputes arose between the members of
the family of Late S. Narayanapillai on his death.  In
order to resolve the disputes, the members of the
family,   therefore,   executed   one   memorandum   of
understanding on 24.09.1998 in relation to their
family properties. Unfortunately, the disputes did
not   come   to   an   end   and,   on   the   other   hand,
persisted amongst them, which led to filing of the
cases in the Company Law Board by some members
against   the   other   and   also   the   writ   petition   in
question by the appellant herein.
8. The dispute, which is subject matter of the
writ   petition   out   of   which   these   appeals   arise,
centers around to the land which is situated in a
scheme   known   as   "Ashok   Nagar   Scheme"   in
Chennai. The dispute is between the appellant,  who
is one of the members of the family and respondent
4
No. 2, which is a Private  Limited Company formed
by another member of the family.
9. One of the grievances of the appellant against
respondent   No.   2   in   the   writ   petition   is   that
respondent no 2 is running a petrol pump on a
portion of the land in question and has also let out
its part to respondent No. 3 who, in turn, is using
the same   as marriage hall for public under the
name   "Udayam   Kalyana   Mandapam".   This   act   of
respondent   No.   2   is   being   objected   to   by   the
appellant amongst them.
10.      It is with these background facts and the
grievance,  which is elaborated, the appellant filed a
writ petition and sought therein a relief for issuance
of a writ of mandamus against the State authorities
namely,  Tamil Nadu Housing Board (R­1), Chennai
City   Municipal   Corporation   (R­4)   and   Chennai
Metropolitan Development Authority (R­ 5) directing
them jointly and severally to take appropriate action
5
in   law   against   Respondent   Nos.   2   and   3   and
restrain them from continuing with their activities
on   the   land.   According   to   the   appellant,     the
activities undertaken by respondent No. 3 on the
land in question are illegal, hazardous and against
the public safety inasmuch as they are being carried
in violation of several provisions of the laws in force.
11. As   mentioned   above,   the   Division   Bench
dismissed the writ petition finding no merit therein
with the following reasons in Para 17, which reads
as under: 
“17.  A perusal of the records produced
before   this   Court   leaves   no   iota   of
doubt  that principally the  dispute  now
raised   before   this   Court   is   a   private
dispute   between   the   various   family
members  having  contesting  the  claims
to   be   on   the   Board   apart   from   those
relating to the affairs of the Company.
It is an admitted fact that the company
is  a  closely  held  company  by  a   family
members  of  six  brothers.    The  present
dispute   is   nothing   but   a   trial   for   the
show   of   their   respective   strength   to
each   other   herein.     A   petition   before
the   Company   Law   Board   is   pending
consideration   as   regards   the
continuance  of  the  directorship  of  Mr.
6
Muthusami.   Whatever be the merits of
the   petition   before   the   Company   Law
Board,   taking   note   of   the   various
contentions,   which   included   a  dispute
with reference to the area occupied by
the Theatre and the construction of the
mandapam   and   the   petrol   pump,   this
Court in the order passed on 19.9.2007
in  C.M.A.  No.1900  of  2007  has  rightly
directed   the   Company   Law   Board   to
dispose   of   the   main   petition   by
31.1.2008.”
 
12. The question, which arises for consideration in
these appeals, is whether the Division Bench was
justified in dismissing the appellant's writ petition
on the aforementioned reasoning.
13. We heard the learned counsel for the parties
and perused the record of the case. Having heard
the learned counsel, we are inclined to agree with
the reasoning and the conclusion arrived at by the
Division Bench in the impugned order.
14. In   our   considered   opinion   also,   the   writ
petition   filed   by   the   appellant   was   wholly
misconceived   and   deserved   dismissal   at   the
threshold.
7
15.  As rightly observed by the Division Bench, the
dispute sought to be raised by the appellant in his
writ   petition   was   essentially   a   private   property
dispute between the members of one family of which
the   appellant   and     respondent   No.   2   are   the
members.
16.  By indirect means such as the one resorted to
by the writ petitioner (appellant herein) by filing the
writ petition, a dispute inter se private parties of the
nature mentioned above could not be allowed to be
raised in the writ petition under Article 226/227 of
the Constitution for seeking issuance of mandamus
against the State and its authorities in relation to
the properties in question.
17. It is not in dispute that the appellant did not
file   the   writ   petition   in   his   capacity   as   publicspirited person, i.e., Public Interest Litigation (PIL).
It was, on the other hand, a writ petition was filed
by the appellant essentially to settle his personal
8
property rights disputes qua respondent Nos. 2 and
3. It is a settled law that no writ petition can be
entertained   for   issuance   of   any   writ   against   any
private individual in respect of any private property
dispute.   The   remedy   in   such   case   lies   in   civil
Courts.
18. In   other  words,  it   is  a   settled   law  that  the
questions such as,  who is the owner of the land in
question,  the appellant or respondent No. 2 or any
other member of their family, whether the land in
question   was   let   out   by   respondent   No.   2   to
respondent No. 3 and,   if so,   when, why and for
what purpose, who had the right to let out the said
land (appellant or respondent No. 2 or any other
member of the family), what was the arrangements,
if any, made in the memorandum of settlement  in
relation to the land in question inter se members of
the family, whether it was breached or not  and,  if
so,   by whom, what activities are being carried on
9
the said land and, if so,   by whom, whether such
activities   are   legal   or   illegal   etc.   are   not   the
questions   which   can   be   raised   by   any   private
individual   against   other   private   individual   in   the
writ petition under Article 226 of the Constitution. 
19. Even   if   the   writ   petitioner   did   not   raise
pointedly these questions for claiming reliefs in the
writ petition yet,  in our view,  such questions have
a material bearing while considering the grant of
reliefs   claimed   by   the   writ   petitioner   in   the   writ
petition.
20. It is not in dispute that some proceedings are
pending before the Company Law Board between
the   parties   in   relation   to   their   private   property
disputes.   If   that   be   so,     the   parties   to     such
proceedings   have   to   prosecute   the   proceedings
before CLB in  accordance with  law for obtaining
appropriate reliefs.
10
21. Before   parting,   we   consider   it   apposite   to
mention that we have not expressed any opinion on
the merits of the case. Rather,  it is not possible to
express any opinion for want of jurisdiction. The
parties,  therefore,  will be at liberty to take recourse
to all judicial remedies, as may be available to them
in   law,   for   adjudication   of   their   respective
grievances   in   appropriate   judicial   forum   against
each other.
22. Similarly, it is for the State authorities to see
as to whether any person(s) has/have contravened
or/and is/are contravening any provision(s) of any
Act or Rules or Regulations or Statutory Schemes in
any manner while using the properties and, if so,
what   action   is   called   for  qua  such   persons   and
against the activities carried on by such person(s) in
law.  We,   however,   express no opinion on any of
these issues and leave it for the State  authorities to
11
act against any such person(s) in accordance with
law.
23. We also make it clear that all such disputes
between the parties concerned on its merits will be
decided   strictly   in   accordance   with   law   by   the
Court/Tribunal/Authority,     as   the   case   may   be,
uninfluenced by any observation made by the High
Court in the impugned order and by this Court in
this order.
24. In the  light  of  the foregoing discussion and
with   the   aforementioned   observations   and   the
liberty,   we   find   no   merit   in   these   appeals.   The
appeals thus fail and are hereby dismissed. Interim
order,  if any,  passed stands vacated.
In Civil Appeal  Nos.7405­7406 of 2009
These appeals are filed by respondent No.2 in
the writ petition and the writ appeal against the
final judgment and order dated 04.03.2008 passed
12
by the High Court of Judicature at Madras in W.A.
No.1499 of 2005 and W.P. No.5718 of 2005.
In   view   of   the   order   passed   above   in   CA
Nos.7390­7391   of   2009,   these   appeals   are   also
dismissed.
         ………...................................J.
[ABHAY MANOHAR SAPRE]
                 
       
....……..................................J.
        [DINESH MAHESHWARI]
New Delhi;
January 31, 2019.
13

Section 21 of the Insolvency and Bankruptcy Code, 2016 = VIJAY KUMAR JAIN … APPELLANT(S) VERSUS STANDARD CHARTERED BANK & ORS. … RESPONDENT(S)

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
CIVIL APPEAL NO.8430 OF 2018
VIJAY KUMAR JAIN … APPELLANT(S)
VERSUS
STANDARD CHARTERED BANK
& ORS. … RESPONDENT(S)
WITH
WRIT PETITION (CIVIL) NO.1266 OF 2018
J U D G M E N T
R.F. NARIMAN, J.
1. The present appeal arises out of an Appellate Tribunal’s
judgment rejecting the appellant’s prayer for directions to the
resolution professional to provide all relevant documents including
the insolvency resolution plans in question to members of the
suspended Board of Directors of the corporate debtor in each case
1
so that they may meaningfully participate in meetings held by the
committee of creditors [“CoC”].
2. We may take the facts of Civil Appeal No.8430 of 2018.
Ruchi Soya Industries Ltd. – the corporate debtor, was incorporated
on 06.01.1986. It is said to be a profit-making company in the
business of processing of oil-seeds and refining crude oil for edible
use. In September, 2017, Company Petition Nos.1371 and 1372
were filed by Standard Chartered Bank Ltd. and DBS Bank Ltd.,
being financial creditors of the aforesaid corporate debtor. These
two company petitions were admitted on 8th and 15th December,
2017, respectively, by the National Company Law Tribunal [“NCLT”].
One Shri Shailendra Ajmera of Ernst and Young was appointed as
the Interim Resolution Professional in both petitions. The CoC was
constituted under Section 21 of the Insolvency and Bankruptcy
Code, 2016 [“Insolvency Code” or “Code”], and the appellant being
a member of the suspended Board of Directors was given notice
and the agenda for the first CoC meeting held on 12.01.2018, and
was permitted to attend the aforesaid meeting. He alleges, which is
disputed by the respondents, that subsequent meetings of the CoC
were held in which he was denied participation. As a result, the
2
appellant filed Miscellaneous Application No.518 of 2018 on
07.06.2018 before the NCLT in order that the appellant be allowed to
effectively participate in these meetings. It is stated before us that in
the tenth meeting dated 12.08.2018, the appellant executed a nondisclosure agreement for sharing resolution plans of the corporate
debtor. Under the said agreement, the appellant undertook to
indemnify the resolution professional and keep information that is
received as to the resolution plan strictly confidential.
3. By an order dated 01.08.2018, the NCLT dismissed the
application with liberty to the appellant to attend CoC meetings but
not to insist upon being provided information considered confidential
either by the resolution professional or the committee of creditors.
Against this order, the appellant filed an appeal before the Appellate
Tribunal which recognized the appellant’s right to attend and
participate in CoC meetings, but denied the appellant’s prayer to
access certain documents, most particularly, the resolution plans.
Thereafter, an application for modification/clarification of the
Appellate Tribunal’s order was also dismissed. Aggrieved by the
order dated 09.08.2018 of the Appellate Tribunal, the appellants
have filed the present appeal. In the meanwhile, on 23.08.2018, the
3
resolution plan of one Adani Wilmar Limited was approved by
majority of 96.86% of the committee of creditors. On 24.08.2018, the
resolution professional submitted its resolution plan, as approved by
the CoC, to the Adjudicating Authority. On 27.08.2018, this Court,
by an interim order, stated, while issuing notice, that the bids will not
be finalized by the Adjudicating Authority without the leave of this
Court. On 10.09.2018, this Court clarified, in an application filed by
the resolution professional, that the Adjudicating Authority could
continue with the proceedings but no order could be passed on the
same until this Court adjudicates on the present appeal.
4. On behalf of the appellants, we have heard Shri Shyam
Divan and Shri Arvind Kumar Gupta. The learned counsel referred to
Sections 24, 25, 29 and 31 of the Code together with Regulations
made thereunder. According to the learned counsel, under Section
24(3), the resolution professional has to give notice of each meeting
of the committee of creditors to the members of the suspended
Board of Directors, and under Regulation 21, the notice of these
meetings shall not only contain an agenda of the meetings but shall
also contain copies of all documents relevant to the matters to be
discussed and issues to be voted upon at the meeting. This
4
necessarily means that access to the resolution plans and other
relevant documents under consideration at these meetings must be
supplied together with the notice of the meeting to members of
suspended Board of Directors. They drew a dichotomy between the
committee of creditors and meetings of the committee of creditors
and stated that as they are “participants” in the meetings of the
committee of creditors, albeit without voting rights, yet, they are
persons who, in order to participate effectively, must be given the
necessary documents so that their views can also be considered by
the committee of creditors. According to them, Section 31(1) of the
Code makes it clear that once the resolution plan is passed by the
Adjudicating Authority, it shall be binding on the corporate debtor
together with guarantors and other stakeholders. This being the
case, it is clear that the erstwhile Board of Directors, which consists
of persons who may have given personal guarantees for the debts
owed by the corporate debtor, will be bound by the resolution plan,
and therefore, have a vital stake in what ultimately gets passed by
the committee of creditors. Apart from this, under Section 60(5) of
the Code, such persons have a right to challenge the terms of a
proposed resolution plan before the Tribunal, and under Section 61,
5
may go further against the Adjudicating Authority’s order to the
Appellate Tribunal. They relied upon and referred to the Bankruptcy
Law Committee Report of 2015 to buttress their submissions.
5. As against this, Dr. Abhishek Manu Singhvi, and Mr. Raunak
Dhillon, appearing on behalf of the resolution professional, relied
strongly on Section 30(3) of the Code and Regulation 39(2) of the
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 [“CIRP
Regulations”] which made it clear that resolution plans were only to
be given to the committee of creditors for its consideration. They
further argued that the terms “committee” and “participant” are
differently defined under the Regulations and that participants are
expressly excluded by Regulation 39. They also argued, that if any
of the Regulations go beyond the provisions of the Code, they must
be struck down as ultra vires, as under Section 30(3) of the Code,
the resolution professional is required to present resolution plans
only to the committee of creditors. They relied upon the Notes on
Clauses to Section 24 of the Code, which, according to them, made
it clear that the reason for the participation of the erstwhile Board of
Directors in meetings of the committee of creditors is so that they
6
may give information to assess the financial position of the corporate
debtor. They are not in the position, therefore, of other creditors,
who may go into merits and demerits of resolution plans as such
resolution plans affect creditors only and not such persons. They
relied upon this Court’s judgment in Mobilox Innovations Private
Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353
[“Mobilox Innovations”], for the proposition that Notes on Clauses
are important parliamentary material that may be relied upon to
understand the object of the Section in question. They also relied
strongly upon Regulation 7(2)(h) of the Insolvency and Bankruptcy
Board of India (Insolvency Professionals) Regulations, 2016, read
with the First Schedule thereto, which made it clear that confidential
information can only be shared with the consent of the relevant
parties. Further, the confidential information contained in proposed
resolution plans can only be shared with members of the committee
of creditors after receiving an undertaking from them under the
Regulations. They further argued that persons such as the appellant
are not persons aggrieved and since no prejudice is caused to them,
do not have a right to file any application under Section 60(5) of the
7
Code or appeals to the Appellate Tribunal from orders of the
Adjudicating Authority under Section 61.
6. Shri Krishnan Venugopal and Shri Nakul Sachdeva, learned
counsel appearing on behalf of the committee of creditors, argued
that the expressions “information memorandum” and “resolution
plan” are separately defined and a specific procedure has been laid
down in the Code and Regulations dealing with them. They cannot
therefore be said to be “documents” within the meaning of
Regulation 21. They also strongly relied upon the Notes on Clauses
and stated that the role of members of the suspended Board of
Directors is that of information givers and not information seekers.
They further relied upon the proviso to Section 21(2) which,
according to them, made it clear that a director, who is also a
financial creditor, has no right to participate in a meeting of the
committee of creditors. Thus, a harmonious construction of the
various provisions of the Code would lead to the anomaly that a
director simplicitor would have the right to get documents but a
director who is a financial creditor would have no such right. They
also adverted to the expression “participant” as opposed to the
expression “committee” and stated that the legislature, in its wisdom,
8
created a differentiation between the two. They also stated that the
confidentiality requirement would be breached if a copy of the
resolution plan were to be given to the members of the suspended
Board of Directors and added that it would be in the interest of some
members of the suspended Board who may attempt to sabotage the
corporate insolvency resolution process, for which reason also,
resolution plans should be kept hidden from them. They argued that
the “persons aggrieved” in Section 61 would necessarily refer to
persons aggrieved for the purpose of Section 60(5) also, and as
members of the ex-Board of Directors cannot be said to be persons
aggrieved, they cannot possibly approach the Adjudicating Authority
under Section 60(5) or the Appellate Tribunal under Section 61.
7. Having heard learned counsel for all parties, it is important to
first advert to the relevant provisions of the Code and the
Regulations made thereunder. The relevant provisions of the Code
are hereinbelow:
“5. Definitions.—In this Part, unless the context
otherwise requires,—
xxx xxx xxx
9
(10) “information memorandum” means a
memorandum prepared by resolution
professional under sub-section (1) of Section
29;
xxx xxx xxx
(26) “resolution plan” means a plan proposed
by resolution applicant for insolvency resolution
of the corporate debtor as a going concern in
accordance with Part II;
xxx xxx xxx”
“21. Committee of creditors.—(1) The interim
resolution professional shall after collation of all claims
received against the corporate debtor and determination
of the financial position of the corporate debtor,
constitute a committee of creditors.
(2) The committee of creditors shall comprise all financial
creditors of the corporate debtor:
Provided that a financial creditor or the authorised
representative of the financial creditor referred to in subsection (6) or sub-section (6-A) or sub-section (5) of
Section 24, if it is a related party of the corporate debtor,
shall not have any right of representation, participation or
voting in a meeting of the committee of creditors:
Provided further that the first proviso shall not apply to
a financial creditor, regulated by a financial sector
regulator, if it is a related party of the corporate debtor
solely on account of conversion or substitution of debt
into equity shares or instruments convertible into equity
shares, prior to the insolvency commencement date.
(3) Subject to sub-sections (6) and (6-A), where the
corporate debtor owes financial debts to two or more
financial creditors as part of a consortium or agreement,
each such financial creditor shall be part of the
committee of creditors and their voting share shall be
determined on the basis of the financial debts owed to
them.
(4) Where any person is a financial creditor as well as an
operational creditor,—
10
(a) such person shall be a financial creditor to
the extent of the financial debt owed by the
corporate debtor, and shall be included in the
committee of creditors, with voting share
proportionate to the extent of financial debts
owed to such creditor;
(b) such person shall be considered to be an
operational creditor to the extent of the
operational debt owed by the corporate debtor
to such creditor.
(5) Where an operational creditor has assigned or legally
transferred any operational debt to a financial creditor,
the assignee or transferee shall be considered as an
operational creditor to the extent of such assignment or
legal transfer.
(6) Where the terms of the financial debt extended as
part of a consortium arrangement or syndicated facility
provide for a single trustee or agent to act for all financial
creditors, each financial creditor may—
(a) authorise the trustee or agent to act on his
behalf in the committee of creditors to the
extent of his voting share;
(b) represent himself in the committee of
creditors to the extent of his voting share;
(c) appoint an insolvency professional (other
than the resolution professional) at his own cost
to represent himself in the committee of
creditors to the extent of his voting share; or
(d) exercise his right to vote to the extent of his
voting share with one or more financial creditors
jointly or severally.
(6-A) Where a financial debt—
(a) is in the form of securities or deposits and
the terms of the financial debt provide for
appointment of a trustee or agent to act as
authorised representative for all the financial
creditors, such trustee or agent shall act on
behalf of such financial creditors;
(b) is owed to a class of creditors exceeding the
number as may be specified, other than the
11
creditors covered under clause (a) or subsection (6), the interim resolution professional
shall make an application to the Adjudicating
Authority along with the list of all financial
creditors, containing the name of an insolvency
professional, other than the interim resolution
professional, to act as their authorised
representative who shall be appointed by the
Adjudicating Authority prior to the first meeting
of the committee of creditors;
(c) is represented by a guardian, executor or
administrator, such person shall act as
authorised representative on behalf of such
financial creditors,
and such authorised representative under
clause (a) or clause (b) or clause (c) shall
attend the meetings of the committee of
creditors, and vote on behalf of each financial
creditor to the extent of his voting share.
(6-B) The remuneration payable to the authorised
representative—
(i) under clauses (a) and (c) of sub-section (6-
A), if any, shall be as per the terms of the
financial debt or the relevant documentation;
and
(ii) under clause (b) of sub-section (6-A) shall
be as specified which shall form part of the
insolvency resolution process costs.
(7) The Board may specify the manner of voting and the
determining of the voting share in respect of financial
debts covered under sub-sections (6) and (6-A).
(8) Save as otherwise provided in this Code, all
decisions of the committee of creditors shall be taken by
a vote of not less than fifty-one per cent of voting share
of the financial creditors:
Provided that where a corporate debtor does not have
any financial creditors, the committee of creditors shall
be constituted and shall comprise of such persons to
exercise such functions in such manner as may be
specified.
12
(9) The committee of creditors shall have the right to
require the resolution professional to furnish any financial
information in relation to the corporate debtor at any time
during the corporate insolvency resolution process.
(10) The resolution professional shall make available any
financial information so required by the committee of
creditors under sub-section (9) within a period of seven
days of such requisition.”
24. Meeting of committee of creditors.—(1) The
members of the committee of creditors may meet in
person or by such electronic means as may be specified.
(2) All meetings of the committee of creditors shall be
conducted by the resolution professional.
(3) The resolution professional shall give notice of each
meeting of the committee of creditors to—
(a) members of committee of creditors,
including the authorised representatives
referred to in sub-sections (6) and (6-A) of
Section 21 and sub-section (5);
(b) members of the suspended Board of
Directors or the partners of the corporate
persons, as the case may be;
(c) operational creditors or their representatives
if the amount of their aggregate dues is not less
than ten per cent of the debt.
(4) The directors, partners and one representative of
operational creditors, as referred to in sub-section (3),
may attend the meetings of committee of creditors, but
shall not have any right to vote in such meetings:
Provided that the absence of any such director,
partner or representative of operational creditors, as the
case may be, shall not invalidate proceedings of such
meeting.
(5) Subject to sub-sections (6), (6-A) and (6-B) of Section
21, any creditor who is a member of the committee of
creditors may appoint an insolvency professional other
than the resolution professional to represent such
creditor in a meeting of the committee of creditors:
13
Provided that the fees payable to such insolvency
professional representing any individual creditor will be
borne by such creditor.
(6) Each creditor shall vote in accordance with the voting
share assigned to him based on the financial debts owed
to such creditor.
(7) The resolution professional shall determine the voting
share to be assigned to each creditor in the manner
specified by the Board.
(8) The meetings of the committee of creditors shall be
conducted in such manner as may be specified.”
(emphasis supplied)
“25. Duties of resolution professional.—(1) It shall be
the duty of the resolution professional to preserve and
protect the assets of the corporate debtor, including the
continued business operations of the corporate debtor.
(2) For the purposes of sub-section (1), the resolution
professional shall undertake the following actions,
namely—
(a) take immediate custody and control of all
the assets of the corporate debtor, including the
business records of the corporate debtor;
(b) represent and act on behalf of the corporate
debtor with third parties, exercise rights for the
benefit of the corporate debtor in judicial, quasijudicial or arbitration proceedings;
(c) raise interim finances subject to the approval
of the committee of creditors under Section 28;
(d) appoint accountants, legal or other
professionals in the manner as specified by
Board;
(e) maintain an updated list of claims;
(f) convene and attend all meetings of the
committee of creditors;
(g) prepare the information memorandum in
accordance with Section 29;
(h) invite prospective resolution applicants, who
fulfil such criteria as may be laid down by him
14
with the approval of committee of creditors,
having regard to the complexity and scale of
operations of the business of the corporate
debtor and such other conditions as may be
specified by the Board, to submit a resolution
plan or plans;
(i) present all resolution plans at the meetings
of the committee of creditors;
(j) file application for avoidance of transactions
in accordance with Chapter III, if any; and
(k) such other actions as may be specified by
the Board.”
(emphasis supplied)
“29. Preparation of information memorandum.—(1)
The resolution professional shall prepare an information
memorandum in such form and manner containing such
relevant information as may be specified by the Board for
formulating a resolution plan.
(2) The resolution professional shall provide to the
resolution applicant access to all relevant information in
physical and electronic form, provided such resolution
applicant undertakes—
(a) to comply with provisions of law for the time
being in force relating to confidentiality and
insider trading;
(b) to protect any intellectual property of the
corporate debtor it may have access to; and
(c) not to share relevant information with third
parties unless clauses (a) and (b) of this subsection are complied with.
Explanation.—For the purposes of this section,
“relevant information” means the information required by
the resolution applicant to make the resolution plan for
the corporate debtor, which shall include the financial
position of the corporate debtor, all information related to
disputes by or against the corporate debtor and any
other matter pertaining to the corporate debtor as may
be specified.”
15
“30. Submission of resolution plan.—(1) A resolution
applicant may submit a resolution plan along with an
affidavit stating that he is eligible under Section 29-A to
the resolution professional prepared on the basis of the
information memorandum.
(2) The resolution professional shall examine each
resolution plan received by him to confirm that each
resolution plan—
(a) provides for the payment of insolvency
resolution process costs in a manner specified
by the Board in priority to the payment of other
debts of the corporate debtor;
(b) provides for the payment of the debts of
operational creditors in such manner as may be
specified by the Board which shall not be less
than the amount to be paid to the operational
creditors in the event of a liquidation of the
corporate debtor under Section 53;
(c) provides for the management of the affairs
of the corporate debtor after approval of the
resolution plan;
(d) the implementation and supervision of the
resolution plan;
(e) does not contravene any of the provisions of
the law for the time being in force;
(f) conforms to such other requirements as may
be specified by the Board.
Explanation.—For the purposes of clause (e), if any
approval of shareholders is required under the
Companies Act, 2013 (18 of 2013) or any other law for
the time being in force for the implementation of actions
under the resolution plan, such approval shall be
deemed to have been given and it shall not be a
contravention of that Act or law.
(3) The resolution professional shall present to the
committee of creditors for its approval such resolution
plans which confirm the conditions referred to in subsection (2).
(4) The committee of creditors may approve a resolution
plan by a vote of not less than sixty-six per cent of voting
16
share of the financial creditors, after considering its
feasibility and viability, and such other requirements as
may be specified by the Board:
Provided that the committee of creditors shall not
approve a resolution plan, submitted before the
commencement of the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2017, where the resolution
applicant is ineligible under Section 29-A and may
require the resolution professional to invite a fresh
resolution plan where no other resolution plan is
available with it:
Provided further that where the resolution applicant
referred to in the first proviso is ineligible under clause
(c) of Section 29-A, the resolution applicant shall be
allowed by the committee of creditors such period, not
exceeding thirty days, to make payment of overdue
amounts in accordance with the proviso to clause (c) of
Section 29-A:
Provided also that nothing in the second proviso shall
be construed as extension of period for the purposes of
the proviso to sub-section (3) of Section 12, and the
corporate insolvency resolution process shall be
completed within the period specified in that sub-section.
Provided also that the eligibility criteria in Section 29-A
as amended by the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ord. 6 of 2018) shall
apply to the resolution applicant who has not submitted
resolution plan as on the date of commencement of the
Insolvency and Bankruptcy Code (Amendment)
Ordinance, 2018.
(5) The resolution applicant may attend the meeting of
the committee of creditors in which the resolution plan of
the applicant is considered:
Provided that the resolution applicant shall not have a
right to vote at the meeting of the committee of creditors
unless such resolution applicant is also a financial
creditor.
(6) The resolution professional shall submit the
resolution plan as approved by the committee of
creditors to the Adjudicating Authority.”
17
“31. Approval of resolution plan.—(1) If the
Adjudicating Authority is satisfied that the resolution plan
as approved by the committee of creditors under subsection (4) of Section 30 meets the requirements as
referred to in sub-section (2) of Section 30, it shall by
order approve the resolution plan which shall be binding
on the corporate debtor and its employees, members,
creditors, guarantors and other stakeholders involved in
the resolution plan:
Provided that the Adjudicating Authority shall, before
passing an order for approval of resolution plan under
this sub-section, satisfy that the resolution plan has
provisions for its effective implementation.
(2) Where the Adjudicating Authority is satisfied that the
resolution plan does not [conform] to the requirements
referred to in sub-section (1), it may, by an order, reject
the resolution plan.
(3) After the order of approval under sub-section (1),—
(a) the moratorium order passed by the
Adjudicating Authority under Section 14 shall
cease to have effect; and
(b) the resolution professional shall forward all
records relating to the conduct of the corporate
insolvency resolution process and the
resolution plan to the Board to be recorded on
its database.
(4) The resolution applicant shall, pursuant to the
resolution plan approved under sub-section (1), obtain
the necessary approval required under any law for the
time being in force within a period of one year from the
date of approval of the resolution plan by the
Adjudicating Authority under sub-section (1) or within
such period as provided for in such law, whichever is
later:
Provided that where the resolution plan contains a
provision for combination, as referred to in Section 5 of
the Competition Act, 2002 (12 of 2003), the resolution
applicant shall obtain the approval of the Competition
18
Commission of India under that Act prior to the approval
of such resolution plan by the committee of creditors.”
(emphasis supplied)
“60. Adjudicating Authority for corporate persons.—
xxx xxx xxx
(5) Notwithstanding anything to the contrary contained
in any other law for the time being in force, the National
Company Law Tribunal shall have jurisdiction to entertain
or dispose of—
(a) any application or proceeding by or against
the corporate debtor or corporate person;
(b) any claim made by or against the corporate
debtor or corporate person, including claims by
or against any of its subsidiaries situated in
India; and
(c) any question of priorities or any question of
law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings
of the corporate debtor or corporate person
under this Code.
xxx xxx xxx”
“61. Appeals and Appellate Authority.—(1)
Notwithstanding anything to the contrary contained under
the Companies Act, 2013 (18 of 2013), any person
aggrieved by the order of the Adjudicating Authority
under this part may prefer an appeal to the National
Company Law Appellate Tribunal.
xxx xxx xxx”
“62. Appeal to Supreme Court.—(1) Any person
aggrieved by an order of the National Company Law
Appellate Tribunal may file an appeal to the Supreme
Court on a question of law arising out of such order
under this Code within forty-five days from the date of
receipt of such order.
xxx xxx xxx”
19
The relevant provisions of the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 read as under:
“2. Definitions.— (1) In these Regulations, unless the
context otherwise requires—
xxx xxx xxx
(d) “committee” means a committee of creditors
established under Section 21;
xxx xxx xxx
(l) “participant” means a person entitled to
attend a meeting of the committee under
Section 24 or any other person authorised by
the committee to attend the meeting;
xxx xxx xxx”
“19. Notice for meetings of the committee.— (1)
Subject to this Regulation, a meeting of the committee
shall be called by giving not less than five days' notice in
writing to every participant, at the address it has provided
to the resolution professional and such notice may be
sent by hand delivery, or by post but in any event, be
served on every participant by electronic means in
accordance with Regulation 20.
(2) The committee may reduce the notice period from
five days to such other period of not less than twentyfour hours, as it deems fit:
Provided that the committee may reduce the period to
such other period of not less than forty-eight hours if
there is an authorised representative.”
“21. Contents of the notice for meeting.—(1) The
notice shall inform the participants of the venue, the time
and date of the meeting and of the option available to
them to participate through video conferencing or other
audio and visual means, and shall also provide all the
20
necessary information to enable participation through
video conferencing or other audio and visual means.
(2) The notice of the meeting shall provide that a
participant may attend and vote in the meeting either in
person or through an authorised representative:
Provided that such participant shall inform the
resolution professional, in advance of the meeting, of the
identity of the authorised representative who will attend
and vote at the meeting on its behalf.
(3) The notice of the meeting shall contain the following
—
(i) a list of the matters to be discussed at the
meeting;
(ii) a list of the issues to be voted upon at the
meeting; and
(iii) copies of all documents relevant to the
matters to be discussed and the issues to be
voted upon at the meeting.
(4) The notice of the meeting shall—
(a) state the process and manner for voting by
electronic means and the time schedule,
including the time period during which the votes
may be cast;
(b) provide the login ID and the details of a
facility for generating password and for keeping
security and casting of vote in a secure manner;
and
(c) provide contact details of the person who
will address the queries connected with the
electronic voting.
(emphasis supplied)
“24. Conduct of meeting.— (1) The resolution
professional shall act as the chairperson of the meeting
of the committee.
(2) At the commencement of a meeting, the resolution
professional shall take a roll call when every participant
attending through video conferencing or other audio and
visual means shall state, for the record, the following,—
21
(a) his name;
(b) whether he is attending in the capacity of a
member of the committee or any other
participant;
(c) whether he is representing a member or
group of members;
(d) the location from where he is participating;
(e) that he has received the agenda and all the
relevant material for the meeting; and
(f) that no one other than him is attending or
has access to the proceedings of the meeting at
the location of that person.
(3) After the roll call, the resolution professional shall
inform the participants of the names of all persons who
are present for the meeting and confirm if the required
quorum is complete.
(4) The resolution professional shall ensure that the
required quorum is present throughout the meeting.
(5) From the commencement of the meeting till its
conclusion, no person other than the participants and
any other person whose presence is required by the
resolution professional shall be allowed access to the
place where meeting is held or to the video conferencing
or other audio and visual facility, without the permission
of the resolution professional.
(6) The resolution professional shall ensure that minutes
are made in relation to each meeting of the committee
and such minutes shall disclose the particulars of the
participants who attended the meeting in person, through
video conferencing, or other audio and visual means.
(7) The resolution professional shall circulate the minutes
of the meeting to all participants by electronic means
within forty eight hours of the said meeting.”
(emphasis supplied)
“35. Fair value and Liquidation value.—(1) Fair value
and liquidation value shall be determined in the following
manner—
(a) the two registered valuers appointed under
Regulation 27 shall submit to the resolution
22
professional an estimate of the fair value and
the liquidation value computed in accordance
with internationally accepted valuation
standards, after physical verification of the
inventory and fixed assets of the corporate
debtor;
(b) if in the opinion of the resolution
professional, the two estimates of a value are
significantly different, he may appoint another
registered valuer who shall submit an estimate
computed in the same manner; and
(c) the average of the two closest estimates
shall be considered the fair value or the
liquidation value, as the case may be.
(2) After the receipt of resolution plans in accordance
with the Code and these regulations, the resolution
professional shall provide the fair value and the
liquidation value to every member of the committee in
electronic form, on receiving an undertaking from the
member to the effect that such member shall maintain
confidentiality of the fair value and the liquidation value
and shall not use such values to cause an undue gain or
undue loss to itself or any other person and comply with
the requirements under sub-section (2) of Section 29.
(3) The resolution professional and registered valuers
shall maintain confidentiality of the fair value and the
liquidation value.”
“36. Information memorandum.— (1) Subject to subregulation (4), the resolution professional shall submit
the information memorandum in electronic form to each
member of the committee within two weeks of his
appointment, but not later than fifty-fourth day from the
insolvency commencement date, whichever is earlier.
(2) The information memorandum shall contain the
following details of the corporate debtor—
(a) assets and liabilities, with such description,
as on the insolvency commencement date, as
23
are generally necessary for ascertaining their
values.
Explanation.- “Description” includes the details
such as date of acquisition, cost of acquisition,
remaining useful life, identification number,
depreciation charged, book value, and any
other relevant details.
(b) the latest annual financial statements;
(c) audited financial statements of the corporate
debtor for the last two financial years and
provisional financial statements for the current
financial year made up to a date not earlier than
fourteen days from the date of the application;
(d) a list of creditors containing the names of
creditors, the amounts claimed by them, the
amount of their claims admitted and the security
interest, if any, in respect of such claims;
(e) particulars of a debt due from or to the
corporate debtor with respect to related parties;
(f) details of guarantees that have been given in
relation to the debts of the corporate debtor by
other persons, specifying which of the
guarantors is a related party;
(g) the names and addresses of the members
or partners holding at least one per cent stake
in the corporate debtor along with the size of
stake;
(h) details of all material litigation and an
ongoing investigation or proceeding initiated by
Government and statutory authorities;
(i) the number of workers and employees and
liabilities of the corporate debtor towards them;
and
(j) [* * *]
(k) [* * *]
(l) other information, which the resolution
professional deems relevant to the committee.
(3) A member of the committee may request the
resolution professional for further information of the
nature described in this Regulation and the resolution
24
professional shall provide such information to all
members within reasonable time if such information has
a bearing on the resolution plan.
(4) The resolution professional shall share the
information memorandum after receiving an undertaking
from a member of the committee to the effect that such
member or resolution applicant shall maintain
confidentiality of the information and shall not use such
information to cause an undue gain or undue loss to
itself or any other person and comply with the
requirements under sub-section (2) of Section 29.”
“37. Resolution plan.— A resolution plan shall provide
for the measures, as may be necessary, for insolvency
resolution of the corporate debtor for maximization of
value of its assets, including but not limited to the
following—
(a) transfer of all or part of the assets of the
corporate debtor to one or more persons;
(b) sale of all or part of the assets whether
subject to any security interest or not;
(c) the substantial acquisition of shares of the
corporate debtor, or the merger or consolidation
of the corporate debtor with one or more
persons;
(ca) cancellation or delisting of any shares of
the corporate debtor, if applicable;
(d) satisfaction or modification of any security
interest;
(e) curing or waiving of any breach of the terms
of any debt due from the corporate debtor;
(f) reduction in the amount payable to the
creditors;
(g) extension of a maturity date or a change in
interest rate or other terms of a debt due from
the corporate debtor;
(h) amendment of the constitutional documents
of the corporate debtor;
(i) issuance of securities of the corporate
debtor, for cash, property, securities, or in
25
exchange for claims or interests, or other
appropriate purpose;
(j) change in portfolio of goods or services
produced or rendered by the corporate debtor;
(k) change in technology used by the corporate
debtor; and
(l) obtaining necessary approvals from the
Central and State Governments and other
authorities.”
(emphasis supplied)
“38. Mandatory contents of the resolution plan.— (1)
The amount due to the operational creditors under a
resolution plan shall be given priority in payment over
financial creditors.
(1-A) A resolution plan shall include a statement as to
how it has dealt with the interests of all stakeholders,
including financial creditors and operational creditors, of
the corporate debtor.
(2) A resolution plan shall provide:
(a) the term of the plan and its implementation
schedule;
(b) the management and control of the business
of the corporate debtor during its term; and
(c) adequate means for supervising its
implementation.
(3) A resolution plan shall demonstrate that:
(a) it addresses the cause of default;
(b) it is feasible and viable;
(c) it has provisions for its effective
implementation;
(d) it has provisions for approvals required and
the timeline for the same; and
(e) the resolution applicant has the capability to
implement the resolution plan.”
“39. Approval of resolution plan.—(1) A prospective
resolution applicant in the final list may submit resolution
plan or plans in accordance with the Code and these
regulations to the resolution professional electronically
26
within the time given in the request for resolution plans
under regulation 36B along with:
(a) And affidavit stating that it is eligible under
section 29A to submit resolution plans; and
(b) [***]
(c) An undertaking by the prospective resolution
applicant that every information and records
provided in connection with or in the resolution
plan is true and correct and discovery of false
information and record at any time will render
the applicant ineligible to continue in the
corporate insolvency resolution process, forfeit
any refundable deposit, and attract penal action
under the Code.
(1A) A resolution plan which does not comply with the
provisions of sub-regulation (1) shall be rejected.
(2) The resolution professional shall submit to the
committee all resolution plans which comply with the
requirements of the Code and regulations made
thereunder along with the details of following
transactions, if any, observed, found or determined by
him:—
(a) preferential transactions under Section 43;
(b) undervalued transactions under Section 45;
(c) extortionate credit transactions under
Section 50; and
(d) fraudulent transactions under Section 66,
and the orders, if any, of the adjudicating
authority in respect of such transactions.
(3) The committee shall evaluate the resolution plans
received under sub-regulation (1) strictly as per the
evaluation matrix to identify the best resolution plan and
may approve it with such modifications as it deems fit:
Provided that the committee shall record the reasons for
approving or rejecting a resolution plan.
(4) The resolution professional shall endeavour to submit
the resolution plan approved by the committee to the
Adjudicating Authority at least fifteen days before the
maximum period for completion of corporate insolvency
27
resolution process under section 12, along with a
compliance certificate in Form H of the Schedule.
(5) The resolution professional shall forthwith send a
copy of the order of the Adjudicating Authority approving
or rejecting a resolution plan to the participants and the
resolution applicant.
(6) A provision in a resolution plan which would otherwise
require the consent of the members or partners of the
corporate debtor, as the case may be, under the terms of
the constitutional documents of the corporate debtor,
shareholders' agreement, joint venture agreement or
other document of a similar nature, shall take effect
notwithstanding that such consent has not been
obtained.
(7) No proceedings shall be initiated against the interim
resolution professional or the resolution professional, as
the case may be, for any actions of the corporate debtor,
prior to the insolvency commencement date.
(8) A person in charge of the management or control of
the business and operations of the corporate debtor after
a resolution plan is approved by the Adjudicating
Authority, may make an application to the Adjudicating
Authority for an order seeking the assistance of the local
district administration in implementing the terms of a
resolution plan.”
The relevant provisions of the Insolvency and Bankruptcy Board of
India (Insolvency Professionals) Regulations, 2016 read as under:
“7. Certificate of registration.—
xxx xxx xxx
(2) The registration shall be subject to the conditions that
the insolvency professional shall—
xxx xxx xxx
(h) abide by the Code of Conduct specified in
the First Schedule to these Regulations; and
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xxx xxx xxx”
“FIRST SCHEDULE
[Under Regulation, 7(2)(h)]
CODE OF CONDUCT FOR INSOLVENCY
PROFESSIONALS
xxx xxx xxx
Confidentiality.
21. An insolvency professional must ensure that
confidentiality of the information relating to the
insolvency resolution process, liquidation or bankruptcy
process, as the case may be, is maintained at all times.
However, this shall not prevent him from disclosing any
information with the consent of the relevant parties or
required by law.
xxx xxx xxx”
8. The statutory scheme of the Code, insofar as the former
members of the Board of Directors are concerned, is as follows:
A committee of creditors is first constituted under Section 21
consisting only of all the financial creditors of the corporate debtor.
Under Section 24, all meetings of this committee are to be
conducted by the resolution professional who, however, does not
happen to be part of this committee. Section 24(3)(b) is important in
that, the resolution professional has to give notice of each and every
meeting of the committee of creditors, inter alia, to members of the
suspended Board of Directors. Like operational creditors who may
29
attend and participate in such meetings, provided the aggregate
dues owing to them are not less than ten per cent of the total debt,
both such operational creditors and erstwhile members of the Board
of Directors have no vote. Section 25(2)(f) and (i) are also important
in that, once the resolution professional convenes meetings of the
committee of creditors, he is to present all resolution plans at these
meetings. Under Section 30, the resolution professional shall
examine each resolution plan received by him in which he must
confirm, inter alia, that such plan provides for the repayment of the
debts of operational creditors which shall not be less than the
amount to be paid to them in the event of liquidation of the corporate
debtor. This plan is then submitted to the Adjudicating Authority if it
is approved by the requisite majority of the committee of creditors.
The Adjudicating Authority under Section 31(1), if satisfied that the
plan passes muster, shall then, by order, approve such plan, which
shall be binding on all stakeholders involved in the resolution plan,
including guarantors.
9. This statutory scheme, therefore, makes it clear that though
the erstwhile Board of Directors are not members of the committee
of creditors, yet, they have a right to participate in each and every
30
meeting held by the committee of creditors, and also have a right to
discuss along with members of the committee of creditors all
resolution plans that are presented at such meetings under Section
25(2)(i). It cannot be gainsaid that operational creditors, who may
participate in such meetings but have no right to vote, are vitally
interested in such resolution plans, and must be furnished copies of
such plans beforehand if they are to participate effectively in the
meeting of the committee of creditors. This is for the reason that
under Section 30(2)(b), repayment of their debts is an important part
of the resolution plan qua them on which they must comment. So
the first important thing to notice is that even though persons such
as operational creditors have no right to vote but are only
participants in meetings of the committee of creditors, yet, they
would certainly have a right to be given a copy of the resolution
plans before such meetings are held so that they may effectively
comment on the same to safeguard their interest.
10. However, it was argued before us that the Notes on Clauses
to Section 24 make it clear that the erstwhile members of the Board
of Directors are participants in these meetings only so that the
committee of creditors and the resolution professional may seek
31
information from them. The Notes on Clauses, heavily relied upon
by learned counsel for the respondents, read as follows:
“Clause 24 prescribes the modalities for the meeting of
the committee of creditors. The meetings are conducted
by the resolution professional and may be attended by
the members of the board directors or partners of the
corporate debtor. This gives an opportunity for the
committee of creditors and the resolution professional to
seek information that they may require to assess the
financial position of the corporate debtor and prepare a
resolution plan.”
(emphasis supplied)
11. This Court in Mobilox Innovations (supra) stated:
“27. The notes on clauses annexed to the Bill are
extremely important and read as follows……”
xxx xxx xxx
“38. It is, thus, clear that so far as an operational creditor
is concerned, a demand notice of an unpaid operational
debt or copy of an invoice demanding payment of the
amount involved must be delivered in the prescribed
form. The corporate debtor is then given a period of 10
days from the receipt of the demand notice or copy of the
invoice to bring to the notice of the operational creditor
the existence of a dispute, if any. We have also seen the
notes on clauses annexed to the Insolvency and
Bankruptcy Bill of 2015, in which “the existence of a
dispute” alone is mentioned. Even otherwise, the word
“and” occurring in Section 8(2)(a) must be read as “or”
keeping in mind the legislative intent and the fact that an
anomalous situation would arise if it is not read as
“or”……”
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12. There is no doubt whatsoever that Notes on Clauses are an
important aid to the construction of Sections of the Code as they
show what the Drafting Committee had in mind when such
provisions were drafted. However, a closer look at the Notes on
Clause 24 makes it clear that the third sentence of the Notes on
Clause 24 is itself problematic. First and foremost, it speaks of the
resolution professional seeking information. The resolution
professional does not seek information at a meeting of the
committee of creditors, which is what Section 24 is all about. The
resolution professional only seeks information from the erstwhile
Board of Directors under Section 29 before preparing an information
memorandum, which then includes the financial position of the
corporate debtor and information relating to disputes by or against
the corporate debtor etc. All this has nothing to do with Section 24 of
the Code which deals with meetings of the committee of creditors.
Secondly, the resolution professional does not prepare a resolution
plan as is mentioned in the Notes on Clause 24; he only prepares an
information memorandum which is to be given to the resolution
applicants who then submit their resolution plans under Section 30
of the Code. The committee of creditors, in turn, gets information so
33
that they can assess the financial position of the corporate debtor
from various sources before they meet. It is, therefore, difficult to
understand the Notes on Clause 24. Even assuming that the Notes
on Clause 24 may be read as being a one-way street by which
erstwhile members of the Board of Directors are only to provide
information, we find that Section 31(1) of the Code would make it
clear that such members of the erstwhile Board of Directors, who
are often guarantors, are vitally interested in a resolution plan as
such resolution plan then binds them. Such plan may scale down
the debt of the principal debtor, resulting in scaling down the debt of
the guarantor as well, or it may not. The resolution plan may also
scale down certain debts and not others, leaving guarantors of the
latter kind of debts exposed for the entire amount of the debt. The
Regulations also make it clear that these persons are vitally
interested in resolution plans as they affect them. Thus, under
Regulation 36 of the CIRP Regulations, the information
memorandum that is given to each member of the CoC and to any
potential resolution applicant, will contain details of guarantees that
have been given in relation to the debts of the corporate debtor (see
Regulation 36(2)(f) of the CIRP Regulations). Also, under Regulation
34
37(d) of the CIRP Regulations, a resolution plan may provide for
satisfaction or modification of any security interest. Security interest
is defined by Section 3(31) of the Code as follows:
“3. Definitions.—In this Code, unless the context
otherwise requires,—
xxx xxx xxx
(31) “security interest” means right, title or
interest or a claim to property, created in favour
of, or provided for a secured creditor by a
transaction which secures payment or
performance of an obligation and includes
mortgage, charge, hypothecation, assignment
and encumbrance or any other agreement or
arrangement securing payment or performance
of any obligation of any person:
Provided that security interest shall not include a
performance guarantee;
xxx xxx xxx”
This would certainly include a guarantor who may be a member of
the erstwhile Board of Directors. Further, under Regulation 37(1)(f),
a resolution plan may provide for reduction in the amount payable to
the creditors, which again vitally impacts the rights of a guarantor.
Last but not least, a resolution plan which has been approved or
rejected by an order of the Adjudicating Authority, has to be sent to
“participants” which would include members of the erstwhile Board
of Directors – vide Regulation 39(5) of the CIRP Regulations.
Obviously, such copy can only be sent to participants because they
35
are vitally interested in the outcome of such resolution plan, and
may, as persons aggrieved, file an appeal from the Adjudicating
Authority’s order to the Appellate Tribunal under Section 61 of the
Code. Quite apart from this, Section 60(5)(c) is also very wide, and a
member of the erstwhile Board of Directors also has an independent
right to approach the Adjudicating Authority, which must then hear
such person before it is satisfied that such resolution plan can pass
muster under Section 31 of the Code.
13. It is also important to note that every participant is entitled to
a notice of every meeting of the committee of creditors. Such notice
of meeting 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 vide Regulation 21(3)(iii).
Obviously, resolution plans are “matters to be discussed” at such
meetings, and the erstwhile Board of Directors are “participants”
who will discuss these issues. The expression “documents” is a wide
expression which would certainly include resolution plans.
14. Under Regulation 24(2)(e), the resolution professional has to
take a roll call of every participant attending through video
36
conferencing or other audio and visual means, and must state for
the record that such person has received the agenda and all
relevant material for the meeting which would include the resolution
plan to be discussed at such meeting. Regulation 35 makes it clear
that the resolution professional shall provide fair value and
liquidation value to every member of the committee only after receipt
of resolution plans in accordance with the Code [see regulation
35(2)]. Also, under Regulation 38(1)(a), a resolution plan shall
include a statement as to how it has dealt with the interest of all
stakeholders, and under sub-clause 3(a), a resolution plan shall
demonstrate that it addresses the cause of default. This Regulation
also, therefore, recognizes the vital interest of the erstwhile Board of
Directors in a resolution plan together with the cause of default. It is
here that the erstwhile directors can represent to the committee of
creditors that the cause of default is not due to the erstwhile
management, but due to other factors which may be beyond their
control, which have led to non-payment of the debt. Therefore, a
combined reading of the Code as well as the Regulations leads to
the conclusion that members of the erstwhile Board of Directors,
being vitally interested in resolution plans that may be discussed at
37
meetings of the committee of creditors, must be given a copy of
such plans as part of “documents” that have to be furnished along
with the notice of such meetings.
15. As a result of the aforesaid discussion, the arguments of the
respondents that “committee” and “participant” are used differently,
which would lead to the result that resolution plans need not be
furnished to the erstwhile members of the Board of Directors, must
be rejected. Equally, the Regulations, far from going beyond the
Code, flesh out the true intention of the Code that is achieved by
reading the plain language of the Sections that have already been
adverted to. So far as confidential information is concerned, it is
clear that the resolution professional can take an undertaking from
members of the erstwhile Board of Directors, as has been taken in
the facts of the present case, to maintain confidentiality. The source
of this power is Regulation 7(2)(h) of the Insolvency and Bankruptcy
Board of India (Insolvency Professionals) Regulations, 2016, read
with paragraph 21 of the First Schedule thereto. This can be in the
form of a non-disclosure agreement in which the resolution
professional can be indemnified in case information is not kept
strictly confidential.
38
16. The argument on behalf of the committee of creditors based
on the proviso to Section 21(2) is also misconceived. The proviso to
Section 21(2) clarifies that a director who is also a financial creditor
who is a related party of the corporate debtor shall not have any
right of representation, participation, or voting in a meeting of the
committee of creditors. Directors, simplicitor, are not the subject
matter of the proviso to Section 21(2), but only directors who are
related parties of the corporate debtor. It is only such persons who
do not have any right of representation, participation, or voting in a
meeting of the committee of creditors. Therefore, the contention that
a director simplicitor would have the right to get documents as
against a director who is a financial creditor is not an argument that
is based on the proviso to Section 21(2), correctly read, as it refers
only to a financial creditor who is a related party of the corporate
debtor. For this reason, this argument also must be rejected.
17. We may also mention in passing that the Bankruptcy Law
Committee Report of November, 2015 stated:
“II. The Code will enable symmetry of information
between creditors and debtors.
39
5. The law must ensure that information that is essential
for the insolvency and the bankruptcy resolution process
is created and available when it is required.
6. The law must ensure that access to this information is
made available to all creditors to the enterprise, either
directly or through the regulated professional.
7. The law must enable access to this information to third
parties who can participate in the resolution process,
through the regulated professional.”
Paragraph II (7) correctly reflects the reason for Section 24(3)(b) of
the Code.
18. We may indicate that the time that has been utilized in these
proceedings must be excluded from the period of the resolution
process of the corporate debtor as has been held in Arcelormittal
India Private Limited v. Satish Kumar Gupta & Ors., Civil Appeal
Nos. 9402-9405/2018 [decided on 04.10.2018] (at paragraph 83). In
each of these cases, the appellants will be given copies of all
resolution plans submitted to the CoC within a period of two weeks
from the date of this judgment. The resolution applicant in each of
these cases will then convene a meeting of the CoC within two
weeks thereafter, which will include the appellants as participants.
The CoC will then deliberate on the resolution plans afresh and
either reject them or approve of them with the requisite majority,
40
after which, the further procedure detailed in the Code and the
Regulations will be followed. For all these reasons, we are of the
view that the petition and appeal must be allowed and the NCLAT
judgment set aside.
……………………J.
(R.F. Nariman)
……………………J.
(Navin Sinha)
New Delhi;
January 31, 2019
41