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TMI Blog2022 (11) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicating Authority having not set aside the decisions taken by the CoC in respect of Corporate Insolvency Resolution Process ( CIRP in short) initiated against the Corporate Debtor. 2. The brief facts of the case necessary to be noticed for deciding the appeal are: On a Section 9 application filed by the Operational Creditor-M/s Aadi Best Consortium Private Limited, the Corporate Debtor was admitted for CIRP vide orders of the Adjudicating Authority in CP(IB)-708 (ND) 2021 dated 31.03.2022. Vide this order, the Adjudicating Authority had appointed an IRP to take steps under IBC for completion of CIRP of the Corporate Debtor. In terms of Section 18(1) (c) of the IBC, the IRP made a public announcement under Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ( CIRP Regulations in short) and called for claims with the last date of submission as 15.04.2022. Edelweiss Asset Reconstruction Company Ltd., the Financial Creditor-present Appellant filed its claim in Form C on 21.04.2022. Thereafter, the IRP went ahead and constituted the CoC and the report certifying constitution of CoC was filed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding their claim, the IRP illegally constituted the CoC and filed a report before the Adjudicating Authority and convened the first meeting of the CoC on 28.04.2022 without including the Appellant in the CoC. The Learned Counsel for the Appellant referred to the minutes of the first CoC meeting on Agenda Item No. A3 at page 292 of the Appeal Paper Book ( APB in short) in which it is clearly recorded that the IRP had informed the CoC that all claims have been accepted provisionally as papers/documents from the Corporate Debtor are yet to be received. That being the case, the Learned Counsel for the Appellant expressed surprise as to why the Appellant was kept out of the CoC by the IRP on the ground that his claims were not yet verified at a time when none of the other claims were verified either. 5. Quite apart from the fact that the action of the IRP constituting the CoC without verification of claims was in violation of Regulation 17 of CIRP Regulations, it was further contended by the Learned Counsel for the Appellant that Section 21 of IBC provides that the CoC shall comprise of all financial creditors of the Corporate Debtor. However, the Appellant inspite of being a sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This Report was taken on record by Adjudicating Authority vide order dated 29.04.2022. Further in compliance of Regulation 19(3) of CIRP Regulations, the notice and agenda of the first CoC was circulated on 22.04.2022 and the first CoC meeting convened on 28.04.2022 and the meeting did not suffer from quorum infirmity in terms of Regulation 22 of CIRP Regulations. 8. Refuting the submissions made by the Appellant regarding their wrongful exclusion from CoC, it has been contended that the claim of the Appellant was received on 21.04.2022 and that on the date of filing of the Report under Regulation 17(1) before the Adjudicating Authority regarding constitution of the CoC, the IRP was not in receipt of the claim of the Appellant. Since the Appellant had submitted claim after a delay of 6 days from the last date of submission of claims and the CoC had already been constituted by then and the report in terms of the Regulation 17(1) of the CIRP Regulations had already been filed before the Respondent with the Adjudicating Authority, the Appellant could not be made a part of first CoC meeting. It has been argued by the Learned Counsel for the Respondent that the IRP could not have d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately after appointment of the IRP. Further, CIRP Regulation 6 prescribes that the IRP shall make a public announcement calling for claims not later than 3 days from the date of his appointment and shall provide the last date for submission of proof of claims, which shall be 14 days from the date of appointment of IRP. CIRP Regulation 12(1) enables the creditor to submit claim with proof on or before the last date mentioned in the public announcement. However, Regulation 12(2) permits a creditor to avail extended time period to submit such claims on or before the ninetieth day of the insolvency commencement date. Regulation 12(3) specifically provides that a financial creditor shall be included in the CoC from the date of admission of such claim. 13. The modalities of the constitution of CoC and holding of the first meeting is provided for in Section 21 of the IBC read with Regulation 17. Section 21(1) of the IBC imposes a pre-condition that the IRP shall only after collation of all claims received against the Corporate Debtor and after determination of the financial position of the Corporate Debtor constitute a CoC. The word collation ordinarily means verification of cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e root cause of the present dispute stems from the fact that the report sent by the IRP to the Adjudicating Authority certifying the constitution of CoC did not include the Appellant thereon. This exclusion has been challenged by the Learned Counsel for the Appellant holding it as illegal constitution of the CoC. We note the rebuttal from the submissions made by the Learned Counsel of the Respondent in that the Appellant was not made part of the CoC because he did not show due diligence in filing his claim on time. Secondly, the IRP having already completed the verification of claims received by him till the last date of submission of claims, he was under mandate of Regulation 17 to certify the constitution of COC within two days and hold the first meeting of the CoC within seven days of filing of the report. 17. A close scrutiny of the material on record however does not lend support to the aforesaid twin defence raised by the IRP. It is clear from the email sent by the Appellant to the IRP on 13.04.2022, which was before the last date of claim-submission that they were in the process of filing their claims as a financial lender. This was followed by another email reiterating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nally as papers/documents from the CD are yet to be received and will be revised accordingly if required. Thus, we find force in the contention of the Appellant that when the IRP had only accepted provisionally the claim of all creditors including that of the Appellant, then why the Appellant was kept out of the CoC inspite of being a secured financial creditor in the category of lenders. The argument of the Appellant gains more credibility as we find that the IRP was well aware that the Appellant had submitted his claim and was staking his inclusion in the COC since 21.04.2022 and this fact has been recorded by the IRP himself in the minutes of the first COC meeting held on 28.04.2022 in respect of agenda at item number A1, that The FC Edelweiss is sending email and calling IRP allowing him to be included in the first COC or postpone the COC . 19. 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al debts owed to such creditor. Section 21(2) of the IBC provides that the CoC shall comprise all financial creditors of the Corporate Debtor. 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. 21. We are also not inclined to agree with the Respondent that the decisions taken in the first CoC meeting were not substantive decisions. This meeting had taken decisions to confirm the appointment of the IRP as the Resolution Professional including determination of his fees as IRP (Item B16); appointment of other staff like Process Advisor, Project Manager and Legal Advisor including their fees (Items No. B17, 19, 21). More importantly, a decision was taken to raise interim finance of Rs.50 lakhs with an interest of 15% to meet the CIRP costs by the IRP alongwith authorization to negotiate terms and conditions (Item B20). Appointment of CIRP related functionaries and raising of finances have financial implications on the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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