Appellate Tribunal affirms that ex-directors of financial service providers cannot claim participation rights in insolvency proceedings following RBI action.
In a landmark judgment, the National Company Law Appellate Tribunal (NCLAT) Principal Bench at New Delhi, comprising Justice Ashok Bhushan and Member (Technical) Barun Mitra, has upheld the Reserve Bank of India's decision to supersede the board of AVIOM India Housing Finance Pvt. Ltd., denying suspended directors the right to participate in the Corporate Insolvency Resolution Process (CIRP).
The case, "Kaajal Aijaz Ilmi v. Ram Kumar," revolved around the appellant, Kaajal Aijaz Ilmi, a suspended director of AVIOM, challenging the order of the National Company Law Tribunal (NCLT) which rejected her plea for access to resolution plans submitted by prospective resolution applicants. The NCLT had previously initiated CIRP against AVIOM following RBI's supersession of its board in January 2025.
The RBI had exercised its powers under Section 45-IE of the Reserve Bank of India Act, 1934, to appoint Mr. Ram Kumar as the administrator of AVIOM, triggering the CIRP under Section 227 of the Insolvency and Bankruptcy Code, 2016. The appellant argued for rights akin to those recognized under Section 24 of the IBC for suspended directors, relying on the precedent set by "Vijay Kumar Jain v. Standard Chartered Bank."
However, the tribunal, referring to the Supreme Court's recent decision in "Piramal Capital and Housing Finance Ltd. v. 63 Moons Technologies Ltd.," affirmed that the supersession of the board by RBI results in the vacation of office by directors, thereby nullifying their rights to attend Committee of Creditors (CoC) meetings or access resolution plans during CIRP.
The judgment delineates the distinction between suspended directors of general corporate debtors and those of financial service providers, emphasizing that the latter do not retain rights under the IBC following RBI intervention. The resolution plans, once approved by the NCLT, can only be accessed as public documents under the Indian Evidence Act, 1872.
This decision underscores the regulatory authority of the RBI over financial service providers and clarifies the limited rights of ex-directors post-supersession. The tribunal's ruling reinforces the precedent set by the Supreme Court, providing clarity on the application of insolvency regulations to financial entities.
Bottom Line:
Suspended Directors of financial service providers, whose boards have been superseded by the Reserve Bank of India, cannot claim a right to attend Committee of Creditors (CoC) meetings or participate in the Corporate Insolvency Resolution Process (CIRP) nor are entitled to receive a copy of the resolution plan.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 24, 227; Reserve Bank of India Act, 1934 Section 45-IE; Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019; Indian Evidence Act, 1872.
Kaajal Aijaz Ilmi v. Ram Kumar, (NCLAT)(Principal Bench)(New Delhi) : Law Finder Doc Id # 2821312
