2022 (10) TMI 265 - Tri - Insolvency and Bankruptcy

Resignation of Bama from Nominee Director of Corporate Debtor - related party or not - Whether the resignation of Bama came into effect? - whether the said resignation would exclude them from the category of related party and whether they can be members of COC? - HELD THAT - There is no denial of the fact that Bafna has been the nominee director in the CD Company and at the instance of Bafna, the CD was taken into CIRP by considering that Bama is an FC. Bama infact became the nominal director of the CD Company by entering as an investor by making an investment. The agreement between the Bama and the CD with regard to the amendment of AoA was not fulfilled - due to the Bama recalling the ICD which is the Intercorporate Debt, it became entitled for recovering the amount from the CD and due to the default in discharging the said debt, it moved this Tribunal by way of an application under Section 7 of the IBC, which was admitted and the CD was taken into CIRP. However, there is no dispute that Mr. Praful Bama and Mr. Yogesh Bafna would continue to be nominal directors till their resignation comes into effect. Section 27 of the General Clauses Act, 1897 under which the notice has to be served by post cannot be applied to a service by courier. Apart from that, the Counsel for the FC submits that the pin code number mentioned in the track record and the one mentioned in the address shown in the application are different. The resignation notice was sent to an address with pin code number 53016 as reflected in the track record of the courier service, whereas the pin code pertaining to the registered address of the FC is 532016 as per the application. Obviously notice is served in the application, which shows that the pin code in the application is the correct one. By virtue of the notice of the resignation not reaching the Company, Bafna continues to be nominee director in the CD and hence his status as related party does not cease - Inspite of the differences, disputes and the breaches which took place much prior to the moving of the Application under Section 7 of IBC by the Bafna they continued as nominee directors till 11.02.2022. Though may not be with a mala fide intention, in their own interest Bafna appears to have considered it appropriate to tender their resignation in order to safeguard their financial interest by taking part in the COC. Hence the intention for resignation apparently seems to be to become part of COC. Though Bafna is an FC as held in section 7 petition filed by it and though it became entitled to recall the ICD due to the breaches committed by the CD, the agreements nevertheless, show that Bafna had good control over the affairs of the CD and it continued to have the control. Hence it taking part in the COC meetings would be against the intent of the provisions of IBC. Bona fides of the Resolution Professional - allegations against the Resolution Professional are that he has failed to diligently carry out his duties and is merely relying on a legal opinion furnished to him for determining whether Bafna is a related party of the CD or not - HELD THAT - Since the date of resignation is being reflected as 11.02.2022 in the letter of resignation, there is a possibility of the IRP understanding the date of resignation as 11.02.2022, Though little due diligence might have revealed the truth, it cannot be said that the IRP, apart from being negligent, had conspired with Bafna and allowed them into the Coc. However, apart from the said mistaken understanding by the IRP, there is no material which would suggest that the IRP had done so with any mala fide intention of helping Mr. Praful Bafna and Mr. Yogesh Bama in becoming part of COC. IRP is hereby cautioned to be vigilant hereafter. This would be a stricture when his performance comes into question in future - When Bafna decides to become part of COC, they would, by all means, endeavour to serve the notice in compliance of section 168. But however, due to non-service of the resignation letter on the Company, section 168 of the Companies Act stands un-compiled with and Mr. Praful Bafna and Mr. Yogesh Bafna continue to be nominee directors and therefore PP Bafna Ventures Private Limited becomes disentitled to be a part of CoC. Mr. Praful Prakash Bafna, Mr. Yogesh Prakash Bafna and PP Bafna Ventures Private Limited be declared as related parties to the CD and shall not be continued in the CoC. The IRP shall reconstitute the COC accordingly - the applications are partly allowed.

Summary

Issues Involved:
1. Classification of Respondent No. 3 as an unrelated financial creditor (FC) and its inclusion in the Committee of Creditors (CoC).
2. Validity of the resignation of directors from Respondent No. 3 and its impact on their status as related parties.
3. Allegations against the Interim Resolution Professional (IRP) regarding diligence and potential misconduct.

Detailed Analysis:

1. Classification of Respondent No. 3 as an Unrelated Financial Creditor (FC) and its Inclusion in the CoC:
The primary issue arose when the IRP classified Respondent No. 3 as an unrelated FC and assigned it 53.87% voting rights in the CoC, thereby diluting the voting rights of the original FC to 46.13%. The IRP's decision was based on the resignation of two directors from Respondent No. 3 before the Insolvency Commencement Date (ICD). However, the Tribunal found that the resignation letters were not served on the Corporate Debtor (CD) as mandated by Section 168 of the Companies Act, 2013. The Tribunal emphasized that the resignation letters, although sent by courier, were not delivered due to an incorrect pin code. Consequently, the resignation was deemed ineffective, and Respondent No. 3 remained a related party, disqualifying it from participating in the CoC as per Section 21(2) of the Insolvency and Bankruptcy Code (IBC).

2. Validity of the Resignation of Directors from Respondent No. 3 and its Impact on Their Status as Related Parties:
The Tribunal scrutinized whether the resignation of directors from Respondent No. 3 was valid and if it excluded them from being categorized as related parties. The resignation letters dated 11.02.2022 were sent via courier but were not delivered to the CD due to an incorrect pin code. The Tribunal held that the resignation did not comply with Section 168 of the Companies Act, 2013, which requires proper service to the company. Additionally, the Tribunal referred to the Supreme Court's judgment in Phoenix ARC Private Limited vs. Spade Financial Services Limited, which held that if a related party FC ceases to be a related party with the sole intention of participating in the CoC, it should still be considered a related party. The Tribunal concluded that the resignation was intended to allow Respondent No. 3 to participate in the CoC, thus maintaining their status as related parties.

3. Allegations Against the Interim Resolution Professional (IRP) Regarding Diligence and Potential Misconduct:
The Tribunal addressed allegations against the IRP for not diligently performing his duties and for relying on a legal opinion to determine the related party status of Respondent No. 3. The IRP had sought a legal opinion and verified the MCA records, which showed the directors' resignation. The Tribunal acknowledged that the IRP might have misunderstood the date of resignation due to the information provided but found no evidence of mala fide intention or conspiracy. The IRP was cautioned to exercise greater vigilance in the future, but no disciplinary action was recommended.

Conclusion:
The Tribunal concluded that Respondent No. 3, represented by Mr. Praful Prakash Bafna and Mr. Yogesh Prakash Bafna, should be considered a related party and thus excluded from the CoC. The IRP was directed to reconstitute the CoC accordingly. The applications IA (IBC) No. 53/2022 and IA (IBC) No. 54/2022 were partly allowed, affirming the related party status of Respondent No. 3 and its disqualification from the CoC.