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Since its enactment in 2016, the Insolvency and Bankruptcy Code (IBC) has evolved through sustained judicial interpretation and practical application. A central objective of the code is balancing the interests of stakeholders in the corporate insolvency resolution process (CIRP), including creditors, resolution professionals and resolution applicants.

Although commencement of the CIRP results in suspension of the board of directors, suspended board members may attend meetings of the committee of creditors (CoC) without voting rights. This limited participation recognises their institutional knowledge while preserving creditor primacy.

In Vijay Kumar Jain v Standard Chartered Bank, the Supreme Court held that suspended board members are entitled to receive copies of the resolution plan placed before the CoC. However, a different issue arises in cases involving financial service providers (FSPs), such as non-banking financial companies (NBFCs) and housing finance companies (HFCs), where the board is often superseded by the Reserve Bank of India (RBI) prior to initiation of the CIRP. In Piramal Capital Housing Finance Ltd v 63 Moons Technologies Ltd, the Supreme Court held that superseded board members are not entitled to receive the resolution plan.

The question arises over whether the distinction between “suspension” and “supersession” is doctrinally justified within the IBC.

Suspended board rights in CIRP

On admission of an application under sections 7, 9 or 10 of the IBC, section 17 provides that the board’s powers are suspended and vested in the interim resolution professional or resolution professional. Suspension displaces managerial control but does not extinguish the board’s existence.

Section 24(3)(b) requires that notice of every CoC meeting be given to suspended board members. In Vijay Kumar Jain, the Supreme Court clarified that this right is substantive and includes access to agenda papers and relevant materials, including the resolution plan. Denial of such access would render participation illusory and undermine the principles of natural justice.

Superseded board rights in FSPs

The IBC adopts a distinct framework for FSP insolvency. Under section 227, the central government may notify classes of FSPs for insolvency proceedings with modifications. Under the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers) Rules (2019), the CIRP against large NBFCs and HFCs may be initiated only by the appropriate regulator, typically the RBI. In practice, the CIRP is often preceded by supersession of the board under section 45-IE of the Reserve Bank of India Act (1934), where an NBFC’s affairs are conducted in a manner prejudicial to public interest or depositors. The question arises of whether superseded board members enjoy the same participatory rights as suspended board members under the IBC.

Superseded board denied plan

In Piramal, the Supreme Court held that superseded board members are not entitled to receive copies of the resolution plan during the CIRP. The court relied on three considerations:

1. 1. Section 24(3)(b) confers participatory rights only on suspended board members;
   2. Suspension under the IBC and supersession under the RBI Act are legally distinct; and
   3. Where supersession precedes the CIRP, the statutory basis for invoking section 24 is absent.

Accordingly, superseded board members cannot claim parity with suspended board members.

Evolving rights of superseded boards

The distinction recognised in Piramal is grounded in statutory language and regulatory context. Supersession under section 45-IE of the RBI Act is an extraordinary regulatory measure invoked to protect public interest and depositors, whereas suspension under section 17 of the IBC follows automatically on commencement of the CIRP and does not necessarily imply misconduct.

However, some questions remain open. The functional reasoning in Vijay Kumar Jain that participation must be meaningful was not examined in the FSP context. Further, once the CIRP begins, both suspended and superseded boards are displaced from management, yet resolution outcomes may still affect former directors, particularly where personal guarantees exist. Finally, although the FSP Rules apply provisions of the IBC mutatis mutandis, they do not expressly modify section 24. These considerations suggest that the scope of participation by superseded boards in FSP insolvencies may continue to evolve.

Piramal opens door to judicial development

The Supreme Court’s decision in Piramal appropriately distinguishes between suspension under the IBC and supersession under the RBI Act, reflecting the heightened regulatory concerns associated with FSP insolvency. At the same time, the extent of participatory rights available to management in such proceedings remains an area open to further judicial development.

Misha is a partner and Charu Bansal is a principal associate at Shardul Amarchand Mangaldas & Co

Shardul Amarchand Mangaldas & Co
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