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TMI Blog2024 (4) TMI 1216X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner is before this Court seeking a slew of prayers and in effect seeking to quash minutes of the 22nd meeting of the Committee of Creditors of Associate Décor Limited held on 21-12-2022 as non est and illegal and other prayers are sequel to the said prayer. This Court, accepting certain of the prayers of the petitioner had allowed the writ petition in part, in terms of its order dated 21-11-2023. Subsequent developments took place and while answering review petitions, this Court recalled the order so passed on 21-11-2023 in Review Petition No. 573 of 2023 c/w 574 of 2023 in terms of its order dated 28-02-2024. Therefore, the matters are heard afresh, in the light of the order passed in the review petitions on 28-02-2024. 2. Heard Sri S. Basavaraj, learned senior counsel for Sri Sivaramakrishnan M.S., learned counsel for the petitioner; Sri S.S.Naganand, learned senior counsel for Sri Lomesh Kiran N., learned counsel for respondent Nos. 1 to 3; Smt. Lakshmy Iyengar, learned senior counsel for Sri Ajay Rao, learned counsel for respondent No. 4; Sri Sajjan Poovayya, learned senior counsel for Sri M. Nikilesh Rao, learned counsel for respondent No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany to the consortium of Banks. Pending the application, the NCLT appointed an Interim Resolution Professional for the Company under the Code and the petitioner then ceased to be the Director of the Company as respondent No. 4 who is appointed as Interim Resolution Professional took over the affairs of the Company. Thereafter, the 4th respondent made it public that the CIR process had commenced with regard to the Company. 6. Pursuant to all the aforesaid, a Committee of Creditors of the Company came to be constituted wherein the 1st respondent had 24.16% voting share and 2nd and 3rd respondents had 41.18% and 34.66% voting share respectively. The first meeting of the Committee of Creditors was held on 26-12-2018. The Committee of Creditors then appointed the 4th respondent as a Resolution Professional of the Corporate Debtor, him already being appointed as Interim Resolution Professional. The Resolution Professional issues Form-G through which he invites expression of interest for submission of resolution plans in respect of the Corporate Debtor. Things go on in this manner. 7. On 09-10-2019 the 4th respondent in the 11th meeting of the Committee of Creditors reveals th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the 5th respondent. The petitioner also offered to settle the dues of operation creditors in full amounting to Rs.60 crores as opposed to Rs.60 crores offered by the 5th respondent, as also, the dues of the workmen in full which was approximately Rs.1 crore which was the same offered by the 5th respondent. 10. The Committee of Creditors rejected the offer of the petitioner without any reason and notified the petitioner that since the offer of the 5th respondent had already been approved, no opportunity can be given for considering the proposal of the petitioner is the submission of the learned senior counsel. It is his emphatic submission that the proposal of the 5th respondent was approved in the meeting of the Committee of Creditors held on 11-02-2020 wherein only three hours notice was given to the petitioner in complete contravention of Section 24 of the Code and Regulation 19 of the IBBI Regulations. It is his submission that on 10-02-2020 deliberation on approval of a particular resolution plan of the 5th respondent was in place. Deliberations happened. The deliberations did not conclude on the said day. There was an amendment to the agenda. Therefore, the matter wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresenting the 5th respondent would toe the lines of the Committee of Creditors to contend that it is the commercial wisdom of the Committee of Creditors to approve the resolution plan of the 5th respondent. This Court in exercise of its jurisdiction under Article 226 of the Constitution of India would not entertain a petition, which is a commercial wisdom of approval of resolution plan. Insofar as the opportunity not being granted to the petitioner, the learned senior counsel would contend that the petitioner was represented on 10-02-2020 on which day the meeting was adjourned to 11-02-2020. It was not a meeting on a new agenda. The agenda was the same. Since the petitioner had already represented on 10-02-2020 and all the deliberations had happened on 10-02-2020 in the presence of the petitioner, the petitioner cannot complain of violation of principles of natural justice. On 11-02-2020 notice was given to the petitioner and he has also appeared through video conferencing which was always available to him. The learned senior counsel would struck to the stand that it was only an adjourned meeting and there can be no question of another notice being issued for an adjourned meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at he has lost. He would also seek dismissal of the petition. 15. In reply to all these submissions, the learned senior counsel for the petitioner would again take this Court through the documents appended to the petition to demonstrate that, if it was not an amended agenda, there was no question of issuance of notice at all. But, notice is issued to the petitioner and if it is issued then they will have to follow the rigour of the Code and the Regulations. He would further contend that the Resolution Professional has shown interest more than what is necessary. The Resolution Professional ought to have been neutral, as the role of the Resolution Professional is limited to the conduct of proceedings and not to show any partisan attitude towards anybody. The submissions that are made by the Resolution Professional before this Court are clearly an act of overstepping the jurisdiction. 16. I have given my anxious consideration to the submissions made by the learned senior counsel for the respective parties, other counsel and have perused the material on record. 17. The afore-narrated facts are all a matter of record, they would require no reiteration. The Company - Associate D&ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of any property by an owner or lessor where such property is occupied by or in the possession of the Corporate Debtor. (e) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (f) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (g) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process. (h) The IRP should follow all extant provisions of IBC, 2016 and the rules including fees rules as framed by IBBI. The IRP is hereby directed to file his report in the Tribunal from time to time. 3) The Board of Directors and all the staff of Corporate Debtor are hereby directed to extend full co-operation to the IRP in carrying out his functions as prescribed under the Code and Rules made thereunder by IBBI. 4) IRP is further directed to strictly adhere to time schedule as mentioned under the Code. And he is directed to file progress report from time to time to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT. The matter was discussed, and the following resolution was put to vote. "RESOLVED THAT the Resolution Plan dated February 11, 2020 submitted by Mohammed Enterprises (Tanzania) Limited and that was placed by the Resolution Professional before the CoC meeting held on 11th February 2020 under Section 30(3) of the Insolvency and Bankruptcy Code, 2016 be and is hereby approved RESOLVED FURTHER that upon approval of the Resolution Plan dated February 11, 2020 submitted by Mohammed Enterprises (Tanzania) Limited. Mr. Alok K Saksena, the Resolution Professional of Associate Décor Limited is hereby authorized to file an application with the Hon'ble Adjudicating Authority in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016" Since the members decided to put the matter to vote through e-voting, the same shall be put to vote through e-voting." (Emphasis added) The summary of decision and voting that happened on 11-02-2020 what emerged was the resolution on 11-02-2020 which reads as follows: "The following resolution is therefore approved as 100% voted in favor "RESOLVED THAT the Resolution Plan dated February 11, 2020 submitted by M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hurchgate, Mumbai - 400 020 which was again adjourned to Tuesday, 11th February, 2020 at 3.00 P.M. at IMC Building, Bhagwandas Thakker Room, Third Floor, IMC Marg Churchgate, Mumbai - 400 020. The items listed for voting were put to vote through evoting. The voting period started on 13th February, 2020 at 4.00 PM and ended on 6th March 2020 at 6.00 PM. Please find enclosed record of summary of decision taken on a relevant agenda items along with names of the members who voted for or against the decision, or abstained from voting as per Regulation 26 (4) and (5) of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Sd/- Alok Saksena Resolution Professional In the matter of Associate Decor Limited Email: [email protected] Registration no. IBBI/IPA-001/IP-P00056/2017-18/10134 Date: 07th March, 2020 Place: Mumbai" (Emphasis added) The rejection does not record any reason. It only records that the items were put to vote; voting concluded on 11-02-2020 and the plan of the 5th respondent is approved and therefore, nothing could be done. Therefore, what would unmistakably emerges is that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the resolution professional. (3) The resolution professional shall give notice of each meeting of the committee of creditors to- (a) members of committee of creditors, including the authorised representatives referred to in sub-sections (6) and (6-A) of Section 21 and sub-section (5); (b) members of the suspended Board of Directors or the partners of the corporate persons, as the case may be; (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt. (4) The directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of committee of creditors, but shall not have any right to vote in such meetings: Provided that the absence of any such director, partner or representative of operational creditors, as the case may be, shall not invalidate proceedings of such meeting. (5) Subject to sub-sections (6), (6-A) and (6-B) of Section 21, any creditor who is a member of the committee of creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the committee of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand delivery or by post and can also be served by electronic means in terms of Regulation 20, which permits service of notice by electronic means. Sub-Regulation (2) of Regulation 19 mandates notice period to be 5 days prior to the said meeting which can also be reduced to 24 hours as it would deem fit. It further provides that the Committee may reduce the period to such other period of not less than 48 hours if there is any authorized representative. It is not that the Resolution Professional was not aware of the mandate of the statute as quoted supra, nor the Committee of Creditors. Certain issues were voted upon after discussion. One of the issues voted upon was, empowering the Resolution Professional to reduce the time of issuance of notice to 48 hours. The discussions voted upon is as follows: "B. List of issues to be voted upon after discussions 18. To authorize Resolution Professional to hold subsequent meetings at a shorter notice period of not less than two working days. The Chairman informed the members that as per Regulation 19, Notice for meetings of the committee, of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to what is the mandate under the statute and the resolution quoted supra. 22. 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. What has been done in the case at hand is, it is reduced to 2½ hours, which is on the face of it contrary to Regulation 19 of the Regulations r/w Section 24(3) of the Code. If the petitioner is not given adequate notice or the notice that is given is completely contrary to the Code and the Regulations, the resolution of the day would be rendered unsustainable. Therefore, the resolution of the day, I mean, 11-02-2020, is undoubtedly unsustainable and non est in the eye of law. Non estness of the resolution dated 11-02-2020 would lead to all consequential action taken becoming a nullity. Several contentions are urged qua the illegality of proceedings held on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with the provisions of section 60(5)(0) of I&B code read with Rule 11 of NCLT Rules 2016 this Adjudicating Authority passes the following orders and directs the Resolution Professional as under: (1) IA 85 of 2021 C.P. (IB) No. 51/BB/2018 is disposed of with the directions that the claim filed by the Applicant, the State of Karnataka, Department of Industries & Commerce as a Financial Creditor, in Form C, shall be put up by the RP to the CoC for its consideration/acceptance, in the light of our findings and decision in the foregoing paragraphs. Reconstitution of the CoC will also be considered by the RP. (2) IA 227 of 2020 C.P. (IB) No. 51/BB/2018 is disposed of with the directions that the Resolution Plan submitted by Swamitva Landmark, Shankeshwar Landmarks LLP and Shankeshwar Landmarks, shall be placed before the CoC along with the Resolution Plan filed by METL and submitted for our approval in IA 161, for the CoC's evaluation and approval, strictly keeping in mind the objects of the Code, and superior commercial viability. The Resolution Plan approved out of the two by the CoC shall be submitted to us for our consideration and approval. (3) IA 248 r/w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Authority' (National Company Law Tribunal, Bengaluru Bench). Directions: (i) I.A. No. 161 of 2020 in CP No. 51 of 2018 is restored to its original position on the file of the 'Adjudicating Authority', ('National Company Law Tribunal', Bengaluru Bench). (ii) The 'Adjudicating Authority' is hereby directed to consider the plan of the 'Successful Resolution Applicant' / '5th Respondent' herein, i.e. Mohammed Enterprises Ltd. (Tanzania Ltd.) (in short METL) whose plan has been approved by the 'CoC' with 100% voting share, within 4 weeks from the date of receipt of copy of this Judgment, in accordance with 'Law'. (iii) The interim order granted by this 'Tribunal' dated 03.08.2021 is made absolute. 44. In fine, the Company Appeal (AT) (CH) (Ins.) No. 172 of 2021 is 'allowed'. No order as to costs. The connected pending 'Applications', if any, stand 'closed'." (Emphasis added) This was challenged by Svamitva Landmarks before the Apex Court. The Apex Court rejects the civil appeal. After rejection of the civil appeal, the petitioner prefers I.A.No.10 of 2021 before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd passing necessary orders thereto as prayed for by the CoC/Applicant; and iv. Submission of the certified copy of the order of withdrawal of the Section 7 petition with the Escrow bank within 7 (seven) days from the date of release of the said order; and v. issuing letter of satisfaction / full and final discharge towards all the charges / securities created by the Corporate Debtor with the Escrow bank within 7 (seven) days from the date of the Order of Hon'ble NCLT approving the Section 12A IB Code Application; and vi. issuing letter of satisfaction / No-due Certificate / full and final discharge of the personal guarantee furnished by the undersigned with the Escrow Bank within 7 (Seven) days from the date of the certified copy of Order of Hon'ble NCLT approving the Section 12A IB Code Application; and vii. production of the certified copy of the order of withdrawal of legal proceedings filed against Corporate Debtor as well as the undersigned, pending before various fora including pending legal proceedings against the Corporate Debtor before the Debt Recovery Tribunal 1 & 2, Bengaluru; legal proceedings filed against the undersigned pending before the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um Banks in good faith and to enable the undersigned to comply with and arrange for the said consideration of Rs. 275 (Rupees Two Hundred and Seventy- Five Crores) crores as stated above. Thanking you." (Emphasis added) What happens then is the 22nd meeting of Committee of Creditors on 23-12-2022 in which it rejects the restructuring proposal of the petitioner. The rejection reads as follows: "MINUTES OF TWENTY SECOND MEETING OF COMMITTEE OF CREDITORS OF ASSOCIATE DECOR LIMITED ("CORPORATE DEBTOR") As per section 24 of Insolvency and Bankruptcy Code, 2016 read with Regulation 17(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Twenty Second Meeting of the Committee of Creditors of Associate Decor Limited was held on Wednesday, 21st December, 2022 at 4.00 P.M. via video conferencing. Please find the enclosed minutes of the proceedings of the Twenty Second meeting of Committee of Creditors of Associate Decor Limited as per Regulation 24 (7) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016." (Emphasis added) 25. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any other writ(s), order(s), rule(s) or direction(s) to the Respondent No. 4 / Resolution Professional of Associate Décor Ltd., to file an appropriate and necessary application under Section 12-A of the IB Code, 2016 and the regulations framed thereunder in C.P (IB) No. 51 / BB / 2018 pending on the file of the NCLT, Bengaluru Bench, to withdraw the entire proceedings in C.P (IB) No. 51/BB/2018, upon the approval and acceptance of the restructuring / settlement proposal offered by the Petitioner herein vide Letter dated 07.12.2022 by the Respondents No. 1-3 / Committee of Creditors and consequentially, direct the Respondent No. 3 / Bank of Baroda to file a separate appropriate and necessary application/s in C.P (IB) No. 139 of 2022 pending on the file of the NCLT, Bengaluru Bench, to withdraw the entire proceedings in C.P (IB) No. 139/BB/2022 and viii. Pass such other orders as this Hon'ble Court may deem just and expedient in the facts and circumstances of the present case including costs of the proceedings, in the interest of justice and equity." What is called in question is the resolution dated 11-02-2020 and the subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FOR INSOLVENCY PROFESSIONALS *** 21. Confidentiality.-An insolvency professional must ensure that confidentiality of the information relating to the insolvency resolution process, liquidation or bankruptcy process, as the case may be, is maintained at all times. However, this shall not prevent him from disclosing any information with the consent of the relevant parties or required by law." (emphasis supplied) 15. The statutory scheme of the Code, insofar as the former members of the Board of Directors are concerned, is as follows : A Committee of Creditors is first constituted under Section 21 consisting only of all the financial creditors of the corporate debtor. Under Section 24, all meetings of this committee are to be conducted by the resolution professional who, however, does not happen to be part of this committee. Section 24(3)(b) is important in that, the resolution professional has to give notice of each and every meeting of the Committee of Creditors, inter alia, to members of the suspended Board of Directors. Like operational creditors who may attend and participate in such meetings, provided the aggregate dues owing to them are not less than ten per cent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in these meetings only so that the Committee of Creditors and the resolution professional may seek information from them. The Notes on Clauses, heavily relied upon by the learned counsel for the respondents, read as follows: "Clause 24 prescribes the modalities for the meeting of the Committee of Creditors. The meetings are conducted by the resolution professional and may be attended by the members of the Board of Directors or partners of the corporate debtor. This gives an opportunity for the Committee of Creditors and the resolution professional to seek information that they may require to assess the financial position of the corporate debtor and prepare a resolution plan." (emphasis supplied) 18. This Court in Mobilox Innovations [Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311] stated : (SCC pp. 380 & 396, paras 27 & 38) "27. The notes on clauses annexed to the Bill are extremely important and read as follows: (28)-(37) *** 38. It is, thus, clear that so far as an operational creditor is concerned, a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantors, are vitally interested in a resolution plan as such resolution plan then binds them. Such plan may scale down the debt of the principal debtor, resulting in scaling down the debt of the guarantor as well, or it may not. The resolution plan may also scale down certain debts and not others, leaving guarantors of the latter kind of debts exposed for the entire amount of the debt. 19.4. The Regulations also make it clear that these persons are vitally interested in resolution plans as they affect them. Thus, under Regulation 36 of the CIRP Regulations, the information memorandum that is given to each member of the CoC and to any potential resolution applicant, will contain details of guarantees that have been given in relation to the debts of the corporate debtor [see Regulation 36(2)(f) of the CIRP Regulations]. Also, under Regulation 37(d) of the CIRP Regulations, a resolution plan may provide for satisfaction or modification of any security interest. "Security interest" is defined by Section 3(31) of the Code as follows: "3. Definitions.-In this Code, unless the context otherwise requires- *** (31) "security interest" means right, title or interest or a claim to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial for the meeting which would include the resolution plan to be discussed at such meeting. Regulation 35 makes it clear that the resolution professional shall provide fair value and liquidation value to every member of the committee only after receipt of resolution plans in accordance with the Code [see Regulation 35(2)]. Also, under Regulation 38(1-A), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-regulation (3)(a), a resolution plan shall demonstrate that it addresses the cause of default. This Regulation also, therefore, recognises the vital interest of the erstwhile Board of Directors in a resolution plan together with the cause of default. It is here that the erstwhile Directors can represent to the Committee of Creditors that the cause of default is not due to the erstwhile management, but due to other factors which may be beyond their control, which have led to non-payment of the debt. Therefore, a combined reading of the Code as well as the Regulations leads to the conclusion that members of the erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to the suspended members of the Board of Directors also. This is also what is observed by the Apex Court in VIJAY KUMAR JAIN (supra). The notice that is given in the case at hand is only for the sake of giving notice. It is not in compliance with law. Therefore, the Resolution Professional has been in mortal hurry to conclude the proceedings without adhering to the rigour of the Code and the Regulations quoted hereinabove. The Apex Court clearly holds that rigours under the Code or the Regulations cannot be given a go-bye. Therefore, the Resolution Professional has to be independent and need not be in a hurry to get any resolution plan concluded. His action should be just and fair, which does not appear to be the case in the case at hand. Be that as it may, the aforesaid observation is made only for the purpose that the matter is being sent back to the table of the Committee of Creditors in which the Resolution Professional will again play a role in issuance of notice to the suspended Director. Therefore, the 4th respondent/Resolution Professional shall strictly adhere to the afore-quoted mandate of the statute and the judgment of the Apex Court in the case of VIJAY KUMAR JAIN s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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