2022 (5) TMI 80 - Tri - Insolvency and Bankruptcy

Legality of Committee of Creditors - Committee of Creditors allegedly formed with just two creditors - validity of first meeting of COC and its minutes - HELD THAT - It is important to appreciate the significance of the timeline. The Corporate Debtor was not in pink of its health when it defaulted and hence the resolution was initiated. During the CIRP period, an insolvency professional exercises the powers of the Board of Directors and manages the operations of the Corporate Debtor as a going concern and there is uncertainty about ownership and control of the corporate, post-resolution. If such a state of affairs continues too long, it is likely that organizational capital will diminish making the resolution difficult. A very long CIRP period is likely to push the Corporate Debtor towards liquidation while reducing its liquidation value. The claim of the applicant/Corporate Debtor in this application is that no sufficient period was granted for the public announcement in view of Covid-19 pandemic and without considering the spread of Covid-19 and the situation of national lockdown, the date to accept the claims of the creditors should have been extended. This application has been filed by the applicant Corporate Debtor on 07.02.2021 seeking the aforesaid reliefs. The applicant herein is exploiting the benefit under Covid-19 pandemic and trying to destroy the very purpose of the I B Code,2016. 180 days is a long period now with all the advantages of modern technology and well-informed brains. Going forward, a CIRP could possibly be completed in a few days or even hours, particularly with the use of artificial intelligence. Considering the present stage of the CIRP and the Resolution Professional had already given ample opportunity to the claimants to file the claims, if any, and updated the list of creditors vide order dated 26th November 2021 as on 28.10.2021 and that a Resolution Plan has already been under the consideration of the CoC, there are no reason to entertain this application and grant any relief to the applicant. Application disposed off.

Issues:
1. Premature and invalid formation of Committee of Creditors.
2. Invalidity of the first meeting of the Committee of Creditors.
3. Voidance of the minutes of the meeting of CoC on 19th May 2021.

Issue 1: Premature and invalid formation of Committee of Creditors

The applicant, a Suspended Director of the Corporate Debtor, filed an application seeking to declare the Committee of Creditors (CoC) allegedly formed with just two creditors as premature and invalid. The applicant argued that due to the lockdown in many states during the COVID-19 pandemic, creditors faced difficulties in lodging their claims on time. The CoC was constituted with only two creditors, depriving numerous other creditors of their opportunity to recover debts. The Resolution Professional countered, stating that claims were received from State Bank of India, Dhanalaxmi Bank, and KSEB, and that the CoC meeting was conducted as per regulations. The State Bank of India held 86% voting share and did not consent to the withdrawal application, making it impossible to withdraw the Corporate Insolvency Resolution Process (CIRP). The Tribunal found no reason to entertain the application, directing the applicant to cooperate with the Resolution Professional for an early resolution.

Issue 2: Invalidity of the first meeting of the Committee of Creditors

The applicant sought to invalidate the first meeting of the CoC held on 19th May 2021. The Resolution Professional had made public announcements calling for claims, and the CoC was constituted with two financial creditors and one operational creditor. The Dhanalaxmi Bank's claim was settled after the CoC constitution, making withdrawal of the CIRP without 90% consent impossible. The applicant argued that the last date for claim submission should have been extended due to the pandemic, but the Tribunal noted that ample opportunities were provided for claim submission. The Tribunal found no grounds to grant relief and directed the applicant to cooperate for an early resolution, as a Resolution Plan was already under consideration.

Issue 3: Voidance of the minutes of the meeting of CoC on 19th May 2021

The applicant sought to declare the minutes of the CoC meeting on 19th May 2021 void for all legal purposes under CIRP. The Resolution Professional had served notices for the meeting and followed regulatory procedures. The State Bank of India, holding a significant voting share, did not consent to the withdrawal application. The Tribunal emphasized the importance of timely resolution in CIRP and dismissed the applicant's contentions, directing cooperation with the Resolution Professional for the ongoing resolution process. The Tribunal disposed of the application and extended the CIRP period to facilitate resolution.

This detailed analysis of the judgment highlights the key issues raised by the parties involved and the Tribunal's findings and directives regarding the premature formation of the CoC, invalidity of the first CoC meeting, and voidance of the meeting minutes.

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