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2020 (9) TMI 947 - AT - Insolvency and BankruptcyProsecution proceedings against sleeping directors for failure to assist RP - Non supply of Documents / Account Books - Principles of Natural Justice - SCN not properly appreciated - Appellants submits that the Adjudicating Authority (NCLT, Chandigarh) while passing the impugned order dated 23.03.2020 had not considered the circular dated 02.03.2020 issued by the Government of India whereby a clarification was given in regard to the prosecution filed or internal adjudication proceedings initiated against the Independent Directors , Non-Promoters and Non-KMP , Non-Executive Directors and this had resulted in miscarriage of Justice. HELD THAT - It comes to be known that the 1st Respondent / Resolution Professional filed application under Section 19 of the I B Code r/w relevant Rules and Regulations seeking directions to the effect that the Members of the Suspended Board of Directors of the Corporate Debtor and their Associates be directed to submit / hand over all the requisite books, financial debtor, returns and assets to the Resolution Professional immediately and also provide necessary assistance/cooperation in smooth conduct of Corporate Insolvency Resolution Process - The 1st Respondent / Resolution Professional in CA 3/2019 before the Adjudicating Authority had stated that the Corporate Debtor is a public limited company with its shares closely held within family members and that sufficient time was given to the members suspended Board of Directors of the Corporate Debtor to provide all necessary Books, Financial Data, Information and Returns. However, they had failed to comply with the directions given by the 1st Respondent / Interim Resolution Professional in this regard and hence the said application was filed. I B Code - HELD THAT - It cannot be lost sight of that where any personnel of the Corporate Debtor does not render assistance or cooperation to the Interim Resolution Professional , the National Company Law Tribunal / Adjudicating Authority on the application projected by the Interim Resolution Professional is empowered to pass an order and direct the person(s) to comply with the instructions of the Interim Resolution Professional and cooperate with him in the collection of information and management of the Corporate Debtor - In so far as Section 236 of the I B Code is concerned, it speaks of Trial Of Offences by Special Court . In reality, no Court shall take cognisance of any offence punishable under this Act save on a complaint made by the IBBI or the Central Government or any person authorised by the Central Government in this behalf. To put it precisely, for prosecution of offences under the I B Code, lodging of complaint by the IBBI , the Central Government or any other officer authorised by the Central Government in this behalf is required. Independent Director - HELD THAT - The burden of proof to establish that act of commission or omission by a company which are contrary to Law was carried out without his knowledge lies on the Independent Director . Continuing further, an Independent Director and a non-executive Director other than promoter or key managerial personnel shall be held liable for such acts of commission(s) or omission(s) in relation to any actions of the company, which is within its knowledge and could be attributed to him through Board Processes - In the instant case on hand, it cannot be said that the Appellant(s) (in both the Appeals) were not provided with the opportunities relating to furnishing of information in respect of books and assets, financial data, returns etc. to the Resolution Professional . To put it succinctly, on 12.10.2019 a notice was issued by the 1st Respondent / Resolution Professional to the Directors of Corporate Debtor wherein specific information was sought for in respect of (i) all books of accounts, financial statements, returns w.e.f. 01.04.2014 till date (ii) computer systems containing accounting records along with software being used w.e.f. 01.04.2014 till date etc. A mere running of the eye of the ingredients of Section 19 of the Code latently and patently imposes an obligation on the personnel and promoters of the Corporate Debtor to extend all assistance and cooperation which the Interim Resolution Professional will require in running / managing the affairs of the CD. In fact, the term personnel is defined to mean the employees, directors, mangers, key managerial personnel etc., if any of the Corporate Debtor and this is meant to render assistance to the Interim Resolution Professional in carrying out his duties in an effective and efficacious manner. This Tribunal, on going through the Impugned Order dated 23.03.2020 passed by the Adjudicating Authority in CA No. 3/2019 in CP (IB) No. 70/Chd/Hry/2018 comes to a resultant conclusion that the Adjudicating Authority in Law, is well within its ambit to make a recommendation for considering the aspect of commencement of proceedings and not a recommendation for initiation of criminal proceedings and in this regard it is for the Insolvency Bankruptcy Board of India to take a final call, of course, after applying its independent overall assessment in an objective and dispassionate manner and to act accordingly, in the subject matter in issue - the Adjudicating Authority while passing the impugned order had not exceeded its jurisdiction. The impugned order passed by the Adjudicating Authority does not suffer from any patent illegality in the eye of Law - Appeal dismissed.
Issues Involved:
1. Compliance with Section 19 of the Insolvency and Bankruptcy Code (I&B Code). 2. Jurisdiction of the Adjudicating Authority (NCLT) to recommend prosecution under Section 70 read with Section 236 of the I&B Code. 3. Status and liability of Independent Directors and Non-Executive Directors. 4. Principles of Natural Justice and procedural fairness. Issue-wise Detailed Analysis: 1. Compliance with Section 19 of the I&B Code: The NCLT observed that the Respondents failed to comply with the provisions of Section 19 by not providing necessary documents and records to the Resolution Professional (RP). The Respondents claimed that the documents were in the administrative office taken over by the Union Bank of India, but failed to prove this assertion. The plea of being "sleeping directors" was not substantiated with evidence. The NCLT directed the Registry to send a copy of the order to the board for consideration of prosecution under Section 70 read with Section 236 of the Code. 2. Jurisdiction of the Adjudicating Authority (NCLT): The Appellants argued that the NCLT overstepped its jurisdiction by recommending prosecution. They contended that the I&B Code is silent on the jurisdiction of the Adjudicating Authority to pass such orders. However, the NCLT clarified that it only made a recommendation for considering the commencement of proceedings and not for initiating criminal proceedings. The final decision rests with the Insolvency and Bankruptcy Board of India (IBBI), which must independently assess the situation. 3. Status and Liability of Independent Directors and Non-Executive Directors: The Appellants argued that as Independent Directors and Non-Executive Directors, they should not be held liable under Section 149(12) of the Companies Act, 2013, unless specific criteria are met. They claimed they were not involved in the day-to-day affairs of the company. The NCLT, however, noted that the defence of not possessing knowledge of acts done in violation of law is available only under the Companies Act, 2013, and not under the I&B Code. The NCLT emphasized that Independent Directors are part of the Board and have similar duties and responsibilities as other directors. 4. Principles of Natural Justice and Procedural Fairness: The Appellants claimed that the impugned order violated the principles of natural justice as no specific allegations were made against them, and they were not contacted by the RP. The NCLT countered this by stating that the Appellants were given adequate opportunities to furnish the required information. Notices were issued, and the Appellants failed to provide the necessary documents. The NCLT concluded that the impugned order was passed after due consideration of all relevant material and providing due opportunity to the Appellants. Conclusion: The NCLT dismissed the appeals, affirming that the Adjudicating Authority acted within its jurisdiction and followed due process. The NCLT's recommendation for considering prosecution was deemed appropriate, leaving the final decision to the IBBI. The appeals were found to be devoid of merit, and the impugned order did not suffer from any patent illegality. The applications seeking to place on record the general circular 1/2020 and seeking exemption to file the certified copy of the circular were allowed and closed, respectively. Final Decision: The appeals were dismissed with no costs. The applications related to the general circular 1/2020 were allowed and closed.
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