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2022 (11) TMI 507 - AT - Insolvency and BankruptcyCommittee of Creditors - including the Appellant as member of CoC - whether in the facts of the present case, the decision of the IRP to constitute the CoC without including the Appellant and holding the first CoC meeting without the Appellant is sustainable in terms of the IBC and CIRP regulations framed thereunder? - whether the decisions taken in the first CoC meeting are substantive decisions and, if so, whether they deserve to be set aside as they were taken without the presence of the Appellant in the CoC? HELD THAT - The need to have a properly constituted CoC needs no special emphasis for the CoC plays a pivotal role in the insolvency regime being the supreme decision making body in the CIRP of the Corporate Debtor. In the IBC scheme of 2016, the creditors of the corporate debtor have been granted vast powers, and responsibilities and have in fact been put in the driver s seat. The creditors are to take absolute control of the management of the corporate debtor and have been endowed with the authority to take key decisions. With a creditor-in-control management, the CoC is expected to apply their commercial wisdom for the benefit of the corporate debtor - In the present case, the IRP constituted the CoC on the basis of provisional list of claims and yet chose to exclude the Appellant/Financial creditor from the CoC on the ground that there was a need to verify the provisional claims submitted by him. This conduct is unjustified in that the exclusion of Financial Creditor from the CoC or delayed inclusion of the Financial Creditor on the CoC is prejudicial to the best interests of the Corporate Debtor. The undue haste shown by the IRP in certifying the constitution of the CoC; excluding a secured financial creditor therefrom on a flimsy pretext and also proceeding ahead with a meeting of an invalidly constituted CoC is not in sync with the form and spirit of the IBC and therefore cannot be countenanced. Whether the decisions taken by this CoC which was not validly constituted deserves to be set aside? - HELD THAT - Under the IBC, the role assigned to the CoC is of critical significance. Section 28(1) of the IBC clearly enunciates that the Resolution Professional, prior to taking various actions in the CIRP process, needs the prior approval of the CoC and is required to seek the vote of the creditors - In the present case, the non-inclusion of the Appellant/Financial Creditor on the CoC before holding the first meeting was thus an infraction of the IBC. The CoC, therefore not having been validly constituted, the logical corollary is that decisions taken in the first meeting of the CoC stood vitiated. The Adjudicating Authority has grossly erred in overlooking the fact that allowing membership of the Appellant on the CoC post the first CoC meeting does not wipe out the deliberations and decisions taken in the first CoC meeting - the Appellant was justified in moving an application before the Adjudicating Authority for setting aside the decisions of the first CoC and staying their implementation. However, the Adjudicating Authority has erred in holding this application as one having become infructuous on the provisional acceptance of the Appellant s claims by the IRP and by providing him membership on the CoC with effect from 27.04.2022. Appeal allowed.
Issues Involved:
1. Whether the decision of the IRP to constitute the CoC without including the Appellant and holding the first CoC meeting without the Appellant is sustainable in terms of the IBC and CIRP regulations. 2. Whether the decisions taken in the first CoC meeting are substantive decisions and, if so, whether they deserve to be set aside as they were taken without the presence of the Appellant in the CoC. Detailed Analysis: Issue 1: Constitution of CoC Without the Appellant The appeal arises from the exclusion of the Appellant, a Financial Creditor, from the Committee of Creditors (CoC) by the Interim Resolution Professional (IRP). The IRP constituted the CoC and held its first meeting without including the Appellant, who had filed their claim six days after the last date for submission. The IRP justified the exclusion by citing adherence to the timelines provided by the CIRP Regulations. The Appellant argued that the IRP's action violated Section 21 of the IBC and Regulation 17 of the CIRP Regulations, which mandate the inclusion of all financial creditors in the CoC. The tribunal noted that the IRP had issued a public announcement on 03.04.2022, inviting claims with a last submission date of 15.04.2022. The Appellant sent emails on 13.04.2022 and 16.04.2022 indicating their intention to file claims, which the IRP did not acknowledge but did not deny receiving. The IRP filed a report certifying the constitution of the CoC on 19.04.2022, excluding the Appellant, who submitted their claim on 21.04.2022. The tribunal found that the IRP's exclusion of the Appellant was unjustified as the Appellant had communicated their intent to file claims before the last date and had submitted their claim within a reasonable time frame. The IRP's provisional acceptance of claims, including the Appellant's, indicated that the verification process was incomplete. The tribunal held that the IRP's undue haste in constituting the CoC and excluding the Appellant was not in sync with the IBC's form and spirit. Issue 2: Substantive Decisions Taken in the First CoC Meeting The tribunal examined whether the decisions taken in the first CoC meeting, held without the Appellant, were substantive and should be set aside. The decisions included confirming the appointment of the IRP as the Resolution Professional, determining his fees, appointing other staff, and raising interim finance of Rs.50 lakhs. The tribunal noted that these decisions had significant financial implications for the corporate debtor and should have been taken under the guidance of a properly constituted CoC. The exclusion of the Appellant, a secured financial creditor, from the CoC invalidated the decisions taken in the first meeting. The tribunal disagreed with the Respondent's assertion that the decisions were not substantive and found that the Appellant's exclusion deprived them of participation in crucial decisions. Conclusion and Directions The tribunal allowed the appeal and set aside the impugned order with the following directions: 1. The decisions taken in the CoC meeting dated 28.04.2022 shall not be implemented unless ratified or modified in the next CoC meeting. 2. The directions were issued considering the peculiar facts and circumstances of the case. 3. The intervention application No.3054/2022 was disposed of with the liberty for the applicants to file an appropriate application before the Adjudicating Authority. 4. No order as to costs. The tribunal emphasized the importance of including all financial creditors in the CoC and ensuring that the CoC is properly constituted to make decisions in the best interests of the corporate debtor.
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