2024 (4) TMI 1216 - HC - IBC

Approval of the resolution plan - inadequate notice served to petitioner - violation of principles of natural justice - suspended director, was entitled to participate in the meetings of the Committee of Creditors or not - HELD THAT - The contention of the respondents is that it was only an adjourned meeting and there was nothing new for the petitioner to know and, therefore, there is no violation of the Code or the Regulations. The respondents have caught themselves in contradiction. The 5th respondent s plan is approved is a admitted fact. The 5th respondent files its statement of objections. In the statement of objections, the 5th respondent admits that it was an amended resolution plan. It is the candid admission on the part of the 5th respondent itself that it was amended and restated resolution plan. This would stand to reason, for the Resolution Professional issues a notice to the petitioner as required in law. While it is a short notice, but nonetheless, the notice is issued. If it were to be adjourned meeting there was no necessity for issuance of notice. It is, therefore, the respondents are caught in contradiction. Whether it is in tune with law or contrary is what is necessary to be noticed. What would emerge from Regulation 19 is mandatoriness of serving of notice of each and every meeting 5 days prior to the said intended date of meeting which is undoubtedly reducible, if the Committee of Creditors through the Resolution Professional, deems it fit to 24 hours. The issue is whether this mandate has been followed or otherwise - The 5th respondent itself admits that it is an amended and re-stated agenda. Therefore, it becomes a new agenda on the next day. The Resolution Professional also has thought that it is a new agenda and issues a notice. But, the notice falls completely foul of the Regulations and the Code, and his own mandate of 48 hours prior notice. Therefore, the Resolution Professional has acted contrary to what is the mandate under the statute and the resolution . The time limit for issuance of notice of meeting was also reducible to 24 hours. This, should be in the considered view of the Court, for reasons to be recorded in writing, as the words used are as it deems fit . The deeming fitness would only to be discerned in an order reducing the notice period from 5 days to 24 hours, if it is in writing. No document of that kind is placed on record for having reduced it from 5 days to 24 hours - This Court is not considering the illegality though, in the first blush it would seem so only on the ground that the challenge is only to the resolution dated 11-02-2020 and not to the resolution dated 10-02-2020. There is absolute violation of the rigour of the statute and the principles of natural justice. The genesis is the approval of the resolution plan of the 5th respondent and it being in violation of the principles of natural justice, the entire aftermath of 11-02-2020 resolution would become a nullity in law and the Committee of Creditors will have to reconsider the deliberations made on 10-02-2020, as from that stage this Court has noticed the violation of principles of natural justice - The Apex Court has time and again held that a suspended Director has every right to participate in the proceedings. Therefore, it cannot be said that the suspended Director can be taken for a ride, without him being put on notice and resolving things that are detrimental to the said suspended Director. The Apex Court in VIJAY KUMAR JAIN v. STANDARD CHARTERED BANK 2019 (2) TMI 97 - SUPREME COURT holds that in the statutory scheme of the Code, members of the erstwhile Board of Directors are not members of the Committee of Creditors, yet they have a right to participate in each and every meeting held by the Committee of Creditors and also have a right to discuss along with the members of the Committee of Creditors all resolution plans that are presented. Therefore, when the Apex Court had recognized the right of members of the erstwhile Board of Directors, it naturally includes a suspended Director. In the light of what is analyzed hereinabove, the petitioner has a right to participate in the deliberations of 11-02-2020. Though notice was issued, it has fallen foul of law. Therefore, it is here the proceedings cut at the root of the matter. Conclusion - There is no law that is brought to the notice of this Court in which it is laid down that natural justice need not be complied with in any proceeding. In the case at hand, the statute itself imbibes rigours of following the principles of natural justice and as observed hereinabove, it is violated, the violation of which, would lead to obliteration of proceedings. The Resolution plan approved in the second adjourned meeting of Committee of Creditors dated 11-02-2020 stands quashed - The matter is remitted back to the table of the Committee of Creditors, respondents 1 to 3 to redo the exercise from the stage of deliberations on 10-02-2020, bearing in mind the observations made in the course of the order - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment are:

• Whether the approval of the resolution plan on 11-02-2020 was in violation of the principles of natural justice due to inadequate notice to the petitioner.
• Whether the petitioner, as a suspended director, was entitled to participate in the meetings of the Committee of Creditors and whether his rights were violated.
• Whether the actions of the Resolution Professional were in compliance with the Insolvency and Bankruptcy Code, 2016, and the associated regulations.
• Whether the subsequent actions and decisions based on the resolution plan approved on 11-02-2020 are valid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Natural Justice

• Relevant legal framework and precedents: Section 24 of the Insolvency and Bankruptcy Code, 2016, and Regulation 19 of the Insolvency Resolution Process for Corporate Persons Regulations, 2016, mandate notice requirements for meetings of the Committee of Creditors.
• Court's interpretation and reasoning: The court found that the notice for the meeting on 11-02-2020 was inadequate as it was issued only two and a half hours before the meeting, contrary to the regulations requiring at least 24 hours notice.
• Key evidence and findings: The notice was sent via email at 12:31 PM for a meeting scheduled at 3:00 PM on the same day, which was insufficient and violated the statutory requirements.
• Application of law to facts: The court applied the principles of natural justice and found that the petitioner was not given a fair opportunity to participate in the meeting due to the short notice.
• Treatment of competing arguments: The respondents argued that it was an adjourned meeting and did not require a new notice. However, the court found this argument inconsistent with the issuance of a notice and the admission of an amended agenda.
• Conclusions: The court concluded that the resolution plan approved on 11-02-2020 was unsustainable due to the violation of natural justice.

Issue 2: Rights of the Suspended Director

• Relevant legal framework and precedents: The court referenced the Supreme Court's decision in Vijay Kumar Jain v. Standard Chartered Bank, which affirmed the rights of suspended directors to participate in meetings of the Committee of Creditors.
• Court's interpretation and reasoning: The court held that the petitioner, as a suspended director, had a right to participate in the meetings and discuss the resolution plans.
• Key evidence and findings: The court noted that the petitioner was not adequately notified, which infringed upon his right to participate.
• Application of law to facts: The court applied the principles from the Supreme Court's decision to affirm the petitioner's rights.
• Treatment of competing arguments: The respondents contended that the petitioner's rights were not infringed as he was notified. However, the court found the notice inadequate.
• Conclusions: The court concluded that the petitioner's rights as a suspended director were violated due to inadequate notice.

Issue 3: Compliance by the Resolution Professional

• Relevant legal framework and precedents: The court examined the duties of the Resolution Professional under the Code and Regulations.
• Court's interpretation and reasoning: The court found that the Resolution Professional failed to adhere to the statutory requirements for notice and acted in haste.
• Key evidence and findings: The Resolution Professional issued a notice that did not comply with the mandated notice period.
• Application of law to facts: The court found that the Resolution Professional's actions were not in compliance with the law.
• Treatment of competing arguments: The Resolution Professional argued that the notice was sufficient, but the court disagreed based on the statutory requirements.
• Conclusions: The court concluded that the Resolution Professional's actions were contrary to the law.

Issue 4: Validity of Subsequent Actions

• Relevant legal framework and precedents: The court considered the impact of the invalid resolution on subsequent actions.
• Court's interpretation and reasoning: The court held that the invalid resolution rendered all subsequent actions and decisions based on it null and void.
• Key evidence and findings: The court found that the resolution plan's approval was the genesis of subsequent actions.
• Application of law to facts: The court applied the principle of nullity to invalidate subsequent actions.
• Treatment of competing arguments: The respondents argued for the finality of subsequent actions, but the court found them void due to the initial invalid resolution.
• Conclusions: The court concluded that all actions stemming from the invalid resolution were nullified.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The resolution of the day, I mean, 11-02-2020, is undoubtedly unsustainable and non est in the eye of law."
• Core principles established: The principles of natural justice must be upheld in insolvency proceedings, and suspended directors have the right to participate in meetings of the Committee of Creditors.
• Final determinations on each issue: The court quashed the resolution plan approved on 11-02-2020 and remitted the matter back to the Committee of Creditors for reconsideration from the stage of deliberations on 10-02-2020.