CoC Approval Of Resolution Plan Does Not Establish Suspended Management's Cooperation With RP: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld an order imposing costs on a suspended director for failing to cooperate with the Resolution Professional (RP).

It ruled that approval of a resolution plan by the Committee of Creditors (CoC) does not raise a presumption that the suspended management fulfilled its statutory duty to cooperate during the corporate insolvency resolution process (CIRP).

The Bench of Judicial Member Justice Sharad Kumar Sharma and Technical Member Arun Baroka observed,

“The Appellant also contends that, since the CoC approved the resolution plan, it must be presumed that the documents supplied were sufficient. We do not agree. Approval of a plan by the CoC is a commercial decision. It raises no presumption that the suspended management has cooperated with the RP. The CIRP may proceed on information which the RP gathers from other sources, but that does not relieve the suspended management of its duty.”

The appeal was filed by Narayan Ramchandra Ghumatkar, a suspended director of KSL & Industries Ltd., challenging an order passed by the Ahmedabad Bench of the National Company Law Tribunal (NCLT) on an application filed by the RP.

The NCLT had imposed costs of ₹25,000 each on Ghumatkar and another respondent for making incorrect submissions and failing to provide documents sought by the RP. Both were directed to deposit the amount with the Prime Minister's National Relief Fund.

The CIRP against KSL & Industries Ltd. commenced on September 6, 2019. Kiran Shah was appointed as the RP on July 28, 2020.

Ghumatkar maintained that the suspended management had substantially complied with the RP's requests. He relied on documents that he claimed to have furnished in response to the NCLT's directions dated June 8, 2022 and September 15, 2022. These included employee records, bank statements, details of fixed assets and deposits, GST returns and information about the corporate debtor's properties.

He also pointed out that Mansi Wadkar, another director who had been closely involved in the company's financial affairs, died on May 2, 2021. According to him, the remaining suspended directors had limited access to the information she possessed. They continued to provide whatever records were available with them.

Ghumatkar further argued that the CIRP had progressed to the stage of inviting resolution plans. The resolution plan submitted by a prospective resolution applicant was eventually approved by the CoC. He contended that this demonstrated that the RP had received the necessary information and that the suspended management had cooperated with the process.

He also maintained that all documents available at the corporate debtor's premises had been handed over and nothing had been suppressed. The only remedy for alleged non-cooperation, he argued, was under Section 70 of the Insolvency and Bankruptcy Code, 2016 (IBC), and not Section 19(2).

The RP, however, maintained that several documents remained outstanding despite repeated requests through emails and telephone calls. These included the fixed assets register, title documents relating to the company's properties, employee records and other statutory documents required for the CIRP.

The RP contended that the appellant's conduct disrupted the ongoing CIRP and prejudiced the interests of the corporate debtor's stakeholders.

The NCLAT rejected Ghumatkar's reliance on the CoC's approval of the resolution plan. It observed that the RP could have proceeded with the CIRP using information obtained from other sources. The fact that the process had advanced did not establish that the suspended management had furnished all the documents sought from it.

The Bench also rejected the argument that Section 70 was the only remedy available for non-cooperation. It observed,

“Section 70 provides for punishment for misconduct in the course of CIRP. It does not take away the power of the Adjudicating Authority to impose costs on a party for its conduct in the proceedings before it.”

On whether costs could be imposed under Section 19(2), the NCLAT agreed that the provision only allows the RP to approach the adjudicating authority for directions when the suspended management fails to cooperate. It does not expressly confer the power to impose costs.

However, the Bench held that the NCLT could exercise this power under Section 60(5) of the IBC read with Rule 11 of the NCLT Rules, 2016. It relied on Supreme Court judgments holding that an order does not become invalid merely because an incorrect statutory provision has been invoked, provided the authority possesses the requisite power under law.

The NCLAT also examined whether the RP had established which documents remained outstanding and why they were required after approval of the resolution plan. It noted that the RP could not provide a precise explanation despite being directed to do so during the appeal.

The tribunal, however, noted that the NCLT's order was based on another list of outstanding documents submitted by the RP through an affidavit dated March 6, 2024. It found no reason to interfere with the NCLT's finding that the documents had not been furnished.

Reiterating that the obligation to cooperate with the RP under Section 19(1) is a continuing one, the Bench held that partial compliance cannot be treated as full compliance.

It consequently found the costs of ₹25,000 justified and dismissed the appeal, upholding the NCLT's order.