2019 (6) TMI 1457 - HC - Companies Law

Maintainability of petition - case of the petitioner is that the petitioner who is Time Sharing Member of the corporate debtor was initially treated as a class and financial creditor with total claim of ₹ 82,28,68,000/- with voting share at 5.90% by the IPR in its first report to COC dated 29.05.2019 - HELD THAT - When the IRP has considered petitioner as financial creditor, it was obligatory for the IRP to invite representation of the Time Sharing Members to the first meeting of COC, which from the minutes does not appear to have been done and with one opinion of the Advocate to consider Time Sharing Members as financial creditors, nothing is coming on record as to what necessitated the IRP to call for second opinion of the Advocate. The Court at this stage would not like to go elaborately into the issue when the application of the C/SCA/10629/2019 ORDER petitioner under Section 60 is filed. In the instant case, on one hand, application is filed and pending whereas on the other hand, if the COC is permitted to proceed further, it may amount to frustrating the legitimate right of a creditor, more so in the instant case where the IRP has itself in its report has treated Time Sharing Members as financial creditors and gave voting share. Thereafter, without giving opportunity of hearing to the petitioner, cannot suo motu treat them as corporate creditors to take away whatever right is available to them in their capacity as financial creditors. This issue which precisely is to be decided by the NCLT in the application filed by the petitioner - This Court is therefore of the opinion that the COC meeting cannot be permitted to be proceeded unless petitioner is given a fair chance to get his grievance adjudicated by the NCLT. It is appropriate to direct the petitioner to complete formalities in connection with application under Section 60 of the Code - petition disposed off.

Summary

Issues:
1. Maintainability of the petition before the High Court in light of jurisdiction of NCLT and NCALT.
2. Treatment of Time Sharing Members as financial creditors by the IRP and subsequent change to corporate creditors without notice.
3. Opposing party's argument based on the strict timeline specified by the Apex Court for resolution process.
4. The need for fair opportunity for the petitioner to have grievances adjudicated by the NCLT.

Issue 1: Maintainability of the petition before the High Court

The respondent contended that the High Court should not interfere in the resolution process as the jurisdiction to decide such matters lies with NCLT and NCALT. Reference was made to a judgment by the Apex Court emphasizing the importance of adhering to timelines set for resolution processes. However, the High Court noted that while the NCLT has jurisdiction to decide applications under the Code, it does not bar the High Court's jurisdiction under Article 226 when no decision has been taken by the NCLT. The High Court found that allowing the COC meeting to proceed without addressing the petitioner's grievances may frustrate the legitimate rights of a creditor. Therefore, the High Court concluded that the petitioner should be given a fair chance to have their grievances adjudicated by the NCLT before the COC meeting proceeds.

Issue 2: Treatment of Time Sharing Members as financial creditors

The petitioner sought direction to NCLT to hear their application on an urgent basis or before the COC meeting scheduled on a specific date. The petitioner, a Time Sharing Member of the corporate debtor, was initially treated as a financial creditor with voting share but was later categorized as a corporate creditor without notice. The High Court observed that the IRP report to COC classified the petitioner as a financial creditor with a voting share, but the minutes of the COC meeting did not reflect any invitation to Time Sharing Members. The High Court highlighted that the issue of the petitioner's classification precisely falls under the jurisdiction of the NCLT, emphasizing the need for a fair chance for the petitioner to address this issue before the NCLT.

Issue 3: Opposing party's argument based on strict timeline for resolution process

The respondent opposed the petition on grounds of maintainability, citing the strict timeline specified by the Apex Court for resolution processes. The respondent argued that any interference by the High Court would cause delays in following the specified timeline. However, the High Court balanced the need to adhere to the timeline with the petitioner's right to have their grievances addressed fairly. The High Court directed the petitioner to complete formalities for their application under the Code by a specified date and instructed the NCLT to decide on the application promptly, ensuring a balance between the timeline and the petitioner's rights.

Issue 4: Fair opportunity for the petitioner to have grievances adjudicated by the NCLT

The High Court emphasized the importance of providing the petitioner with a fair opportunity to have their grievances adjudicated by the NCLT before allowing the COC meeting to proceed. The High Court recognized the petitioner's right to address the issue of their classification as a financial creditor, which was initially acknowledged by the IRP. The High Court's decision aimed to balance the timeline requirements set by the Apex Court with the petitioner's right to seek resolution of their grievances through the appropriate legal channels.

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