Notice of meeting of CoC to the operational creditors: Section 24(3)(c) IBC, 2016 promoting good corporate governance
In recent times corporate governance has been the core of all corporate laws, promoting transparency and inclusive growth of all stakeholders. Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) was also framed keeping in sight the inclusive approach and safeguarding interests of all stakeholders.
Though the Code gives preference to financial creditors (hereinafter referred to as “FCs”) with respect to approval of resolution plan and other decisions, it also allows for equal and fair representation of operational creditors (hereinafter referred to as “OCs”) and erstwhile members of the board, thereby maintaining transparency throughout the proceedings of the meeting of committee of creditors (hereinafter referred to as “CoC”).
Pursuant to Section 24(3)(c) of the Code, the resolution professional (hereinafter referred to as “RP”) is required to give notice of meeting of CoC to the OCs or their representatives if the amount of their aggregate dues is not less than ten percent (10%) of the debt.
Here the intention of the legislature is to conduct the procedure of meeting of CoC in s transparent manner, which leads to inclusion of OCs if their aggregate (collective) dues are at least 10% of the total debts of the corporate debtor (hereinafter referred to as “CD”).
Often misinterpreted as: “notice to be given to only those OCs whose individual dues are at least 10% of total operational debt.
As defined in Section 3(11), debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt, hence when not expressly provided in the context of Section 24(3)(c), debt shall be interpreted as total debts of the CD.
Also decided by the Hon’ble NCLAT, in the case of Bhushan Shringarpure and Ors. v. Mr. B.K. Mishra RP of Lakeland Chemicals(India) Ltd. and Ors., the claim submitted by OCs was 34.19 crore and RP admitted OCs claims worth 24.98 crore, which accounted to be more than 10% of total debts of the CD i.e. 223.10 crore. RP didn’t served the notice of meeting to OCs even though their cumulative dues being more than 10% of the total debt of CD.
It was held that it is incumbent upon the RP to serve notice of each meeting of the CoC to the OCs or their representatives if the amount of the aggregate due is not less than 10% of the debt. Since in this case, RP didn’t issue the notice of the meeting of CoC to the OCs, it was considered as dereliction of duty on his part and was directed to bear appropriate costs.
Through the aforementioned provision and case law, it is clear that the intention of the legislature is to keep procedures of CoC transparent and promote participation of OCs in the meeting of CoC.
Though under Section 24(4) of the Code, erstwhile members of the management and OCs are not given any right to vote in the meeting and their absence shall not invalidate the proceedings of such meeting, they are still given right to participate in the meeting of CoC, as they are not considered as mere spectators but are also able to express their views to the CoC for conclusion of a decision.
Taking into consideration the above stated facts and provisions, the OCs are eligible to receive notice of the meeting of CoC when their aggregate (cumulative) dues are not less than 10% of the total debts of the CD.
This is a progressive step towards promoting good corporate governance in insolvency law, since OCs are not given voting rights in the meeting, their participation would promote transparency and interests of all stakeholders.
Author Bio
