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Confidentiality in Corporate Insolvency Resolution Process: An Analysis of Cross-Corporate Debtor Claims Computation Under the Insolvency and Bankruptcy Code
A case analysis of Mr. Somshankar Das Gupta Vs. Mr. Rakesh Kumar Agarwal (RP) & Ors., decided by the National Company Law Tribunal (NCLT) on 10.09.2023.
Introduction
The corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC) [1] operates within a framework of strict confidentiality and procedural independence for each corporate debtor. The landmark judgment delivered by the National Company Law Tribunal (NCLT), New Delhi Bench Court-III in the matter of Mr. Somshankar Das Gupta v. Mr. Rakesh Kumar Agarwal (Resolution Professional) & Others [2] has significantly clarified the boundaries of information sharing across different corporate insolvency resolution processes, even when they involve entities from the same group of companies.
This case establishes a crucial precedent regarding the autonomy of resolution processes and the confidentiality obligations that resolution professionals must maintain. The tribunal’s decision reinforces the principle that each corporate insolvency resolution process must be conducted independently, with its own set of documentation, claim computation, and resolution planning, regardless of any corporate relationships between debtors.
The significance of this judgment extends beyond the immediate parties involved, as it addresses fundamental questions about the scope of Section 60(5) of the IBC and the regulatory framework governing information memorandums under the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [3]. The decision provides clarity on the limitations of cross-pollination of information between different corporate insolvency resolution processes and reinforces the integrity of the insolvency resolution framework.
Factual Background and Procedural History
The case arose from circumstances involving two related corporate entities, M/s. Asis Logistics Limited and M/s. Asis Industries Limited, both belonging to the same group of companies but undergoing separate corporate insolvency resolution processes. Mr. Somshankar Das Gupta, who served as a suspended director of M/s. Asis Logistics Limited, found himself in a unique position where he sought to leverage information from the resolution process of one entity to support his claim as an operational creditor in another entity’s process.
Mr. Rakesh Kumar Agarwal had been appointed as the Resolution Professional for both corporate debtors, creating a situation where the same individual was managing separate insolvency processes for related entities. This dual appointment, while legally permissible, raised important questions about the segregation of information and the independence of each resolution process.
The appellant’s application was filed under Section 60(5) of the IBC, which provides the NCLT with jurisdiction to entertain any application or proceeding by or against a corporate debtor, corporate person, resolution professional, or liquidator [4]. Specifically, Mr. Das Gupta sought directions compelling the Resolution Professional to provide him with the information memorandum and approved resolution plan from M/s. Asis Industries Limited’s corporate insolvency resolution process.
The appellant’s rationale was apparently straightforward: he intended to use the computation of claims performed by the Resolution Professional for M/s. Asis Industries Limited as a reference point or template for filing his own claim as an operational creditor in the separate proceedings involving M/s. Asis Logistics Limited. This approach, while seemingly practical from the appellant’s perspective, raised fundamental questions about the confidentiality and independence of separate insolvency processes.
Legal Framework and Regulatory Provisions
Jurisdiction Under Section 60(5) of the IBC
Section 60(5) of the Insolvency and Bankruptcy Code provides the NCLT with broad jurisdictional powers, stating that “the Adjudicating Authority shall have jurisdiction to entertain or dispose of any application or proceeding by or against the corporate debtor or corporate person or resolution professional or liquidator, as the case may be” [5]. However, this expansive language has been subject to judicial interpretation to prevent misuse and ensure that the provision serves its intended purpose within the insolvency framework.
The Supreme Court of India, in various decisions, has emphasized that while Section 60(5) confers wide powers on the NCLT, these powers must be exercised within the boundaries established by the Code itself and its underlying principles. The provision does not create unlimited jurisdiction but rather provides a mechanism for addressing disputes and issues that arise within the context of insolvency proceedings.
Information Memorandum Under Section 29 of the IBC
Section 29 of the IBC mandates that the Resolution Professional shall prepare an information memorandum containing all relevant information about the corporate debtor for the purpose of formulating a resolution plan [6]. This document serves as the primary source of information for prospective resolution applicants and forms the foundation upon which resolution plans are developed and evaluated.
The information memorandum represents a critical component of the corporate insolvency resolution process, containing sensitive financial, operational, and strategic information about the corporate debtor. The preparation and dissemination of this document are governed by strict timelines and procedural requirements designed to ensure transparency while maintaining confidentiality.
IBBI Regulations on Information Memorandum Distribution
The regulatory framework governing the preparation and distribution of information memorandums is established through the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Regulation 36(1) specifically mandates that the Resolution Professional shall provide the information memorandum in electronic form to each member of the Committee of Creditors within two weeks of appointment, but not later than the fifty-fourth day from the insolvency commencement date [7].
Regulation 36A further elaborates on the process of inviting expressions of interest and distributing information memorandums to prospective resolution applicants. These regulations establish a controlled distribution mechanism that limits access to the information memorandum to specific categories of stakeholders who have legitimate interests in the resolution process.
The regulatory framework emphasizes the confidential nature of the information memorandum and establishes clear boundaries regarding who may access this document. The regulations do not provide for cross-sharing of information memorandums between different corporate insolvency resolution processes, even when they involve related entities or are managed by the same Resolution Professional.
Analysis of the NCLT Decision
Confidentiality Obligations and Statutory Restrictions
The NCLT’s analysis centered on the fundamental principle that information memorandums are confidential documents that cannot be shared beyond the specifically authorized recipients as defined by the IBC and its regulations. The tribunal recognized that Resolution Professionals enter into confidentiality agreements with Committees of Creditors and resolution applicants, creating binding legal obligations that prevent unauthorized disclosure of information. This reinforces the broader principle of confidentiality in corporate insolvency resolution process, which serves as a cornerstone of the IBC framework.
The court emphasized that the confidentiality framework serves multiple purposes within the insolvency resolution process. It protects sensitive commercial information from competitors and unauthorized parties, maintains the integrity of the bidding process, and ensures that resolution applicants can rely on the controlled nature of information dissemination when making their submissions and proposals.
Furthermore, the tribunal noted that breach of these confidentiality obligations could have serious consequences for the Resolution Professional, potentially exposing them to professional sanctions and legal liability. The court recognized that Resolution Professionals must balance their duties to various stakeholders while adhering to the statutory and regulatory framework that governs their conduct.
Independence of Resolution Processes
One of the most significant aspects of the NCLT’s decision was its emphasis on the independence of separate corporate insolvency resolution processes. The tribunal rejected the proposition that claims computation performed for one corporate debtor could serve as a binding precedent or reference point for a completely different corporate debtor, even when the entities are related and the same Resolution Professional is involved.
This principle of independence reflects the fundamental structure of the IBC, which treats each corporate debtor as a separate legal entity with its own assets, liabilities, creditors, and resolution requirements. The tribunal recognized that while corporate entities may be related through ownership structures or business relationships, their insolvency processes must be conducted separately and independently.
The decision reinforces the concept that each corporate insolvency resolution process must be based on the specific circumstances, financial position, and creditor relationships of the individual corporate debtor. Claims computation cannot be transplanted from one process to another, as each entity’s financial situation and creditor arrangements are unique and require independent analysis and verification.
Jurisdictional Limitations Under Section 60(5)
The NCLT’s decision also provides important guidance on the limitations of its jurisdiction under Section 60(5) of the IBC. While acknowledging the broad language of this provision, the tribunal emphasized that its jurisdiction cannot be used to circumvent the specific procedural requirements and confidentiality obligations established by the Code and its regulations.
The court noted that Section 60(5) does not create a general power to compel disclosure of information beyond what is specifically provided for in the statutory and regulatory framework. The provision must be interpreted and applied in harmony with the overall structure and objectives of the IBC, rather than as a standalone source of unlimited authority.
This approach aligns with evolving jurisprudence on Section 60(5), which has consistently emphasized that the NCLT’s residuary jurisdiction cannot be used to override the specific provisions of the Code or to create new rights and obligations not contemplated by the legislative framework [8].
Judicial Precedents and Supporting Case Law
Supreme Court Guidance on IBC Implementation
The NCLT’s decision draws support from Supreme Court precedents that have emphasized the complete and self-contained nature of the IBC framework. In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Others, the Supreme Court held that the IBC is a complete code in itself and that all stakeholders involved in corporate insolvency resolution processes must strictly adhere to its provisions and regulations [9].
This principle of strict adherence to statutory provisions supports the NCLT’s conclusion that there are no provisions within the IBC framework that would permit the cross-utilization of claims computation or information memorandums between different corporate insolvency resolution processes. The Supreme Court’s emphasis on the complete nature of the Code reinforces the tribunal’s position that departures from established procedures require explicit statutory authority.
NCLAT Precedents on Information Memorandum Confidentiality
The decision also references important precedents established by the National Company Law Appellate Tribunal (NCLAT) regarding the confidential nature of information memorandums. These precedents establish that information memorandums cannot be shared with parties who are not members of the Committee of Creditors or prospective resolution applicants as specifically defined in the regulatory framework. This judicial approach further strengthens the principle of confidentiality in corporate insolvency resolution process under the IBC.
The NCLAT’s consistent position on this issue reflects the recognition that confidentiality is not merely a procedural requirement but a fundamental principle that underpins the integrity and effectiveness of the corporate insolvency resolution process. Unauthorized disclosure of information could compromise the resolution process and potentially harm the interests of creditors and the corporate debtor itself.
Implications for Resolution Professionals
Professional Conduct and Confidentiality Obligations
The NCLT’s decision has significant implications for Resolution Professionals, particularly those who may be appointed to manage multiple related corporate debtors simultaneously. The judgment clarifies that Resolution Professionals must maintain strict segregation between different insolvency processes, even when they involve related entities or present opportunities for apparent efficiency through information sharing.
Resolution Professionals must establish and maintain separate documentation, analysis, and decision-making processes for each corporate debtor under their management. This requirement extends to all aspects of the resolution process, including claims computation, asset valuation, information memorandum preparation, and stakeholder communication.
The decision also reinforces the importance of confidentiality agreements and the Resolution Professional’s obligation to protect sensitive information from unauthorized disclosure. Resolution Professionals must be particularly vigilant when managing multiple related cases to ensure that information from one process does not inadvertently influence or contaminate another process.
Risk Management and Professional Liability
From a risk management perspective, the judgment highlights the potential professional and legal consequences that Resolution Professionals may face if they fail to maintain appropriate boundaries between different insolvency processes. Unauthorized disclosure of information or inappropriate cross-utilization of analysis and documentation could expose Resolution Professionals to professional sanctions, legal liability, and potential removal from their positions.
Resolution Professionals should implement robust internal controls and information management systems to ensure compliance with confidentiality requirements and to prevent inadvertent breaches. These systems should include clear protocols for document management, stakeholder communication, and decision-making processes that maintain the independence of each resolution process.
Impact on Operational Creditors and Stakeholder Rights
Claim Filing Requirements and Evidentiary Standards
The NCLT’s decision has important implications for operational creditors and other stakeholders who may seek to file claims in corporate insolvency resolution processes. The judgment makes clear that each claim must be supported by independent documentation and evidence specific to the relationship between the claimant and the particular corporate debtor involved.
Operational creditors cannot rely on claims computation or analysis performed in relation to other corporate debtors, even when those entities are related or when the same Resolution Professional is involved. Each claim must be evaluated on its own merits, based on the specific contractual relationships, transaction history, and documentary evidence pertaining to the individual corporate debtor.
This requirement ensures that claims are properly substantiated and that the Committee of Creditors has access to accurate and relevant information when evaluating and voting on resolution plans. It also protects the interests of legitimate creditors by preventing the dilution of their rights through unsupported or improperly documented claims.
Due Process and Procedural Fairness
The decision reinforces important due process principles within the corporate insolvency resolution framework. By requiring independent analysis and documentation for each corporate debtor, the judgment ensures that all stakeholders receive fair treatment based on their actual relationships and dealings with the specific entity involved.
This approach prevents potential manipulation or gaming of the system through inappropriate cross-references or precedents that may not accurately reflect the true financial and legal position of the corporate debtor. It also maintains the integrity of the voting process within the Committee of Creditors by ensuring that decisions are based on accurate and relevant information specific to the entity under consideration.
Regulatory Framework Evolution and Future Considerations
IBBI Regulatory Response and Guidance
The NCLT’s decision may influence future regulatory developments and guidance issued by the Insolvency and Bankruptcy Board of India. The judgment identifies areas where additional clarification or specific provisions may be beneficial to provide greater certainty for Resolution Professionals and stakeholders operating within the corporate insolvency resolution framework.
The IBBI may consider issuing specific guidance or regulations addressing the management of multiple related corporate debtors by the same Resolution Professional, including requirements for information segregation, documentation standards, and professional conduct expectations. Such guidance could help prevent similar disputes and provide clearer direction for practitioners.
Legislative Considerations and Potential Amendments
The issues raised in this case may also inform future legislative considerations regarding the IBC framework. While the tribunal’s decision is based on the existing statutory and regulatory provisions, the practical challenges of managing related corporate debtors highlight areas where legislative clarification or enhancement might be beneficial.
Future amendments to the IBC or its regulations might consider providing more specific guidance on the management of related corporate debtors, the scope of information sharing in appropriate circumstances, and the boundaries of Resolution Professional authority and discretion. Such amendments would need to balance efficiency considerations with the fundamental principles of independence and confidentiality that underpin the current framework.
Conclusion
The NCLT’s decision in Mr. Somshankar Das Gupta v. Mr. Rakesh Kumar Agarwal (Resolution Professional) & Others represents a significant clarification of the boundaries and limitations governing confidentiality in corporate insolvency resolution process under the IBC. The judgment reinforces fundamental principles of independence, confidentiality, and procedural integrity that are essential to the effective functioning of the insolvency resolution framework.
The decision establishes clear limitations on the cross-utilization of information and analysis between different corporate insolvency resolution processes, even when they involve related entities or are managed by the same Resolution Professional. This principle protects the integrity of individual resolution processes and ensures that each corporate debtor receives independent consideration based on its specific circumstances and stakeholder relationships.
For Resolution Professionals, the judgment provides important guidance on professional conduct expectations and the need for strict segregation between different insolvency processes. The decision emphasizes the importance of confidentiality obligations and the potential consequences of unauthorized information disclosure or inappropriate cross-referencing between different cases.
The ruling also has significant implications for operational creditors and other stakeholders, clarifying that claims must be supported by independent documentation and evidence specific to each corporate debtor. This requirement ensures the accuracy and reliability of information used in resolution processes and protects the rights of legitimate creditors.
Looking forward, the decision may influence future regulatory and legislative developments within the IBC framework. The practical challenges highlighted in this case demonstrate the need for continued evolution and refinement of the corporate insolvency resolution process to address emerging issues while maintaining the fundamental principles established by the Code.
The judgment ultimately reinforces the IBC’s commitment to transparency, fairness, and confidentiality in corporate insolvency resolution process. By maintaining strict boundaries between different processes and upholding confidentiality obligations, the decision supports the long-term effectiveness and credibility of India’s insolvency resolution framework.
References
[1] The Insolvency and Bankruptcy Code, 2016, No. 31 of 2016.
[3] IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Available at: https://ibbi.gov.in/en/legal-framework/regulations
[4] Section 60(5), Insolvency and Bankruptcy Code, 2016. Available at: https://ibclaw.in/section-60-jurisdiction/
[5] Ibid.
[6] Section 29, Insolvency and Bankruptcy Code, 2016. Available at: https://ibclaw.in/section-29-preparation-of-information-memorandum/
[7] Regulation 36, IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Available at: https://ibclaw.in/cirp-regulation-36-of-ibbi-insolvency-resolution-process-for-corporate-persons-regulations-2016-information-memorandum/
[8] “Section 60(5) Of The IBC: An Unresolved Conundrum,” Global Law Experts, August 20, 2023. Available at: https://globallawexperts.com/section-60-5-of-the-ibc-an-unresolved-conundrum/
[9] Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Others, (2020) 8 SCC 531.
