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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 ..... ndent s plan is approved is a admitted fact. The 5th respondent files its statement of objections. In the statement of objections, the 5th respondent admits that it was an amended resolution plan. It is the candid admission on the part of the 5th respondent itself that it was amended and restated resolution plan. This would stand to reason, for the Resolution Professional issues a notice to the petitioner as required in law. While it is a short notice, but nonetheless, the notice is issued. If it were to be adjourned meeting there was no necessity for issuance of notice. It is, therefore, the respondents are caught in contradiction. Whether it is in tune with law or contrary is what is necessary to be noticed. What would emerge from Regulation 19 is mandatoriness of serving of notice of each and every meeting 5 days prior to the said intended date of meeting which is undoubtedly reducible, if the Committee of Creditors through the Resolution Professional, deems it fit to 24 hours. The issue is whether this mandate has been followed or otherwise - The 5th respondent itself admits that it is an amended and re-stated agenda. Therefore, it becomes a new agenda on the next day. The Reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s analyzed hereinabove, the petitioner has a right to participate in the deliberations of 11-02-2020. Though notice was issued, it has fallen foul of law. Therefore, it is here the proceedings cut at the root of the matter. Conclusion - There is no law that is brought to the notice of this Court in which it is laid down that natural justice need not be complied with in any proceeding. In the case at hand, the statute itself imbibes rigours of following the principles of natural justice and as observed hereinabove, it is violated, the violation of which, would lead to obliteration of proceedings. The Resolution plan approved in the second adjourned meeting of Committee of Creditors dated 11-02-2020 stands quashed - The matter is remitted back to the table of the Committee of Creditors, respondents 1 to 3 to redo the exercise from the stage of deliberations on 10-02-2020, bearing in mind the observations made in the course of the order - petition allowed by way of remand. - The Hon'ble Mr. Justice M. Nagaprasanna For the Petitioner : Sri. S. Basavaraj, Senior Advocate for Sri. Sivaramakrishnan M.S., Advocate. For the Petitioner : Sri. S.S. Naganand, Senior Advocate for Sri. Lom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arose inter se between the promoters of the Company on account of unexpected changes in the market and Company s operations resulting in irregular loan repayments and categorization of account of the Company in the Banks as a Non Performing Asset ( NPA for short). 4. The Banks then instituted recovery proceedings against the Company before the Debt Recovery Tribunal 1 2 at Bengaluru. Simultaneously, the 1st respondent/Punjab National Bank files a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code for short) before the National Company Law Tribunal ( NCLT for short) seeking initiation of Corporate Insolvency Resolution process ( CIR for short) against the Company on account of default in repaying the term loan. The application was entertained on the file of NCLT, Bengaluru Bench. 5. During the pendency of proceedings before the NCLT, the Company s operations had picked up significantly and monthly turnover in the range of ₹ 30/- crores was generated. Therefore, the Directors of the Company began to negotiate with the consortium of Banks for regularization and restructuring of the loan account of the Company. The Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheduled on the same day i.e., 11-02-2020 at 3.00 p.m. The mail was received at 12.20 p.m. Though the earlier resolution resulted in adjournment of proceedings, this was varied at and directed to be done on 11.02.2020 at 3.00 p.m. Respondents 1 to 3 on the said day approved the resolution plan dated 10-02-2020. On 13-02-2020 during the period of CIR process, the petitioner addresses a letter to respondents 1 to 4 expressing the intention to pay ₹ 250 crores to clear the outstanding loan amount of the Company if re-structuring or settlement proposal in order to revive the Company would be accepted. 8. Pending all the aforesaid process, the Resolution Professional marches ahead and seeks to recover the assets of the Company. It is then the petitioner knocks at the doors of this Court in the subject petition calling in question certain decision of the Resolution Professional and orders passed by the NCLT accepting the resolution process initiated by respondents 1 to 3 without reconsidering the case of the petitioner. SUBMISSIONS: PETITIONER : 9. The learned senior counsel appearing for the petitioner would urge the following contentions; that the petitioner had offered ₹ 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after the resolution plan of the 5th respondent was approved, one Svamitva Landmarks had approached the NCLT seeking its plan also to be taken into consideration. The NCLT had allowed the petition filed by Svamitva Landmarks. This was challenged by the Committee of Creditors before the National Company Law Appellate Tribunal ( Appellate Tribunal for short). The Appellate Tribunal sets the order aside and directs the resolution plan of the 5th respondent to be approved without any loss of time, but within 4 weeks. This was challenged by Svamitva Landmarks before the Apex Court in a civil appeal arising from the order of the Appellate Tribunal. The Apex Court rejected the civil appeal. Therefore, the learned senior counsel would submit that there is merger of the order passed by the Appellate Tribunal with the order of the Apex Court. How the petitioner is affected is that the petitioner had filed an application seeking to implead himself into the proceedings before the Appellate Tribunal. The said impleading application comes to be rejected. Therefore, the learned senior counsel would submit that there is tacit approval and tacit rejection of the claim of the petitioner. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal, which is affirmed by the Apex Court. She would reiterate the submission that it was only an adjourned meeting adjourned from 10-02-2020 to 11-02-2020 and if it is an adjourned meeting, there can be no question of grant of any opportunity to the petitioner. The learned senior counsel would submit that the resolution plan of the 5th respondent comes to be approved in the Committee of Creditors and such a decision is not amenable to judicial review under Article 226 of the Constitution of India and would seek dismissal of the petition. RESPONDENTS 6 TO 9/LEARNED SOLITICITOR GENERAL OF INDIA : 14. The learned Solicitor General of India representing respondents 6 to 9 would lend his support to the contentions of the Committee of Creditors/respondents 1 to 3 in reiterating that the agenda that approved the resolution plan of the 5th respondent was an extended meeting or an adjourned meeting at best and cannot by any way be construed to be a new meeting on a new agenda. Therefore, the requirement of issuance of notice to the petitioner, again for an adjourned agenda, would not be required. He would submit that the petitioner s rights have been determined to his de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons issued on 26-10-2018 read as follows: 15. In the result, by exercising powers conferred on this Adjudicating Authority, U/s 9(5) (a) IBC 2016, we hereby admitted C.P (IB) No. 51 of 2018, by initiating CIRP in respect of M/s. Associate D cor Limited, the Corporate Debtor, with the following consequential directions: 1) We hereby appointed Shri Alok K. Saksena, Insolvency Professional, having IBBI Registration No. IBBI/IPA-001/IP-P00056/2017-18/10134 as Interim Resolution Professional, in respect of the Corporate Debtor to carry on the functions as mentioned under the Insolvency Bankruptcy Code. 2) The following moratorium is declared prohibiting all of the following, namely: (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Total 100% 100% 0.00% 0.00% 0.00% The deliberations on 10-02-2020 did not get concluded. It was adjourned to 11-02-2020. The petitioner was issued notice on 11-02-2020 as well and the notice so issued reads as follows: From: Desai Saksena Sent: 11 February 2020 12:31 To: [email protected]; [email protected]; [email protected]; NOORUDDIN KHAN; himayath-ali Khan; manohar.agicha @ jawahar.in;[email protected]; [email protected]; Sidarrtha Agicha Subject: Second Adjourned 19 COC Meeting Associate Decor Ltd. Attachments: Second Adjourned_Notice and Agenda for 19 CoC Meeting - ADL.pdf Dear All Enclosed herewith notice of second adjourned 19th meeting of COC of Associate Decor Limited to be held on 11th February, 2020 at 3.00 PM at IMC Building, Bhagwandas Thakker Room, Third Floor, IMC Marg, Churchgate, Mumbai - 400 020. Kindly make it convenient to attend the meeting. Thanks Regards Alok Saksena (Emphasis added) The agenda for 11-02-2020, for voting reads as follows: B. List of Issues to be voted upon after discussions. 1. To approve the resolution plan of Mohammed Enterprises (Tanzania) Limited and direct RP to file the same before Hon'ble NCLT. The matter w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These are facts; stubborn facts. 18. What has happened on 11-02-2020 has led to the entire litigation later. After 11-02-2020, on 13-02-2020 the petitioner communicates a letter to respondents 1 to 4 expressing his intention to pay ₹ 250 crores and revive the Company. Again the petitioner revises the assurance of proposing payment of maximum amount towards discharge of the outstanding loan amount. The Committee of Creditors reject the said proposal on 07-03-2020. The rejection is as follows: RECORD OF SUMMARY OF DECISION OF E-VOTING The Nineteenth Meeting of Committee of Creditors of Associate Decor Limited (under Corporate Insolvency Resolution Process) under the provision of Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 was held on Friday, 07th February, 2020 at 2.30 P.M. at IMC Building. Bhagwandas Thakker Room, Third Floor, IMC Marg, Churchgate, Mumbai - 400 020 which was adjourned to Monday, 10th February, 2020 at 5.30 P.M. at IMC Building, Bhagwandas Thakker Room, Third Floor, IMC Marg, Churchgate, Mumbai - 400 020 which was again adjourned to Tuesday, 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t discussion was held on 10-02-2020. The 5th respondent submitted an amended and restated resolution plan on that day and it was taken up for deliberation on 11-02-2020. The plan was approved on the said date. Therefore, it is the candid admission on the part of the 5th respondent itself that it was amended and restated resolution plan. This would stand to reason, for the Resolution Professional issues a notice to the petitioner as required in law. While it is a short notice, but nonetheless, the notice supra is issued. If it were to be adjourned meeting there was no necessity for issuance of notice. It is, therefore, the respondents are caught in contradiction. Whether it is in tune with law or contrary is what is necessary to be noticed. 20. Section 24 of the Code deals with meetings of Committee of Creditors. It reads as follows: 24. Meeting of committee of creditors . (1) The members of the committee of creditors may meet in person or by such electronic means as may be specified. (2) All meetings of the committee of creditors shall be conducted by the resolution professional. (3) The resolution professional shall give notice of each meeting of the committee of creditors to (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 19. (1) Subject to this Regulation, a meeting of the committee shall be called by giving not less than five days' notice in writing to every participant, at the address it has provided to the interim resolution professional or the resolution professional, as the case may be, and such notice may be sent by hand delivery, or by post but in any event, be served on every participant by electronic means in accordance with Regulation 20. (2) The committee may reduce the notice period from five days to such other period of not less than twenty-four hours, as it deems fit: Provided that the committee may reduce the period to such other period of not less than forty-eight hours if there is any authorised representative. (Emphasis supplied) Regulation 19 mandates that subject to the Regulations, a meeting of the Committee shall be called by giving not less than 5 days notice in writing to every participant at the address it has provided to the Resolution Professional and such notice may be sent by 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 mandate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said intended date of meeting which is undoubtedly reducible, if the Committee of Creditors through the Resolution Professional, deems it fit to 24 hours. The issue is whether this mandate has been followed or otherwise. As observed hereinabove, on 10-02-2020 the meeting had been adjourned with a specific agenda. On 11-02- 2020 the meeting is scheduled to be held at 3.00 p.m. This is the notice received by the petitioner on electronic mail. It is a matter of record and not in dispute. The hue and cry of the respondents is that it is a carried forward meeting from 10-02-2020. The 5th respondent itself admits that it is an amended and re-stated agenda. Therefore, it becomes a new agenda on the next day. The Resolution Professional also has thought that it is a new agenda and issues a notice. But, the notice falls completely foul of the Regulations and the Code, and his own mandate of 48 hours prior notice supra . Therefore, the Resolution Professional has acted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Professional to condone the delay and place the resolution plan submitted by Svamitva Landmarks before the Committee of Creditors. According to the NCLT, the Resolution Professional had acted in breach of Regulation 36(2)(b) of the Regulations and therefore, the application was to be allowed. 24. In respect of I.A.No.161 of 2020 which was filed by the Resolution Professional, the NCLT observes that it is deemed to be disposed of and restored to the Resolution Professional for being reconsidered by the Committee of Creditors along with the resolution plan submitted by Svamitva Landmarks. It is in this petition, the petitioner had preferred I.A.No.248 of 2020 to implead himself contending that he also has an offer or a proposal. The said application comes to be disposed of as having become infructuous in the light of the order dated 28-05-2021. The order passed by the NCLT is as follows: V. Directions 1. In view of the foregoing, in accordance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellate Tribunal by three separate appeals one by the Committee of Creditors, the second by the 5th respondent and the other by the Resolution Professional. The appeal was allowed by the Appellate Tribunal by restoring I.A.No.161 of 2020 before the NCLT. I.A.No.161 of 2020 was the one filed by the Resolution Professional placing on record the approval of the resolution plan of the 5th respondent. The Appellate Tribunal passes the following order: Conclusion 43. Having analysed the facts, legal position and the precedents and viewed in that perspective, this Tribunal' unequivocally comes to a resultant conclusion that the impugned order', passed in I.A. No. 161 of 2020 in CP No. 51 of 2018 dated 28.05.2021 is per se illegal', 'without application of mind', the same is set aside, with the following directions to be complied with by the 'Adjudicating 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On 7-12-2022 the petitioner communicates a letter for full and final restructuring of settlement proposal proposing to pay ₹ 280 crores as full and final settlement, as against the offer of the 5th respondent. The communication was in detail with the prayer sought in the communication reading: i. The Resolution Professional of the Corporate Debtor convening and holding the meeting of CoC members within 7 (seven) days from the date of receipt of this letter; and ii. The CoC member unanimously agreeing to accept the settlement proposal submitted hereunder and deciding to submit an application of withdrawal under Section 12 A in C.P(IB) No. 51/BB/2018 pending before the Hon'ble NCLT, Bengaluru Bench; and iii. The Hon'ble NCLT accepting and approving the Section 12A application and 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 Escr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... humbly prays for acceptance of this proposal in its entirety. 10. The present communication is being issued by the undersigned promoter /suspended director/guarantor of the Corporate Debtor in absolute good faith and in bonafide. Nothing contained in the present communication should be deemed to be an admission of liability of the undersigned promoter /suspended director /guarantor of the Corporate Debtor, whether in terms of the personal guarantee so executed or otherwise. The undersigned promoter/suspended director/guarantor of the Corporate Debtor herein expressly denies any personal liability or any legally subsisting debt towards any of the creditors of the Corporate Debtor. 11. Looking forward to the pleasure of unanimous decision of the CoC/Consortium 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 COM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applicant, as Non-Est and illegal in the eyes of law; v. Issue a writ of mandamus or any other writ(s), order(s), rule(s) or direction(s) to the Respondents No. 1-4 herein to de novo consider the restructuring / settlement proposal of the Petitioner made vide Letter dated 07.12.2022 (at ANNEXURE 'W' ), in accordance with law; vi. Issue a writ of mandamus or any other writ(s), order(s), rule(s) or direction(s) to the Respondents No. 1-4 herein to convene a Committee of Creditors Meeting within 14 days to consider the restructuring / settlement proposal of the Petitioner made vide Letter dated 07.12.2022 (at ANNEXURE 'W' ); vii. Further issue a writ of mandamus or any other writ(s), order(s), rule(s) or direction(s) to the Respondent No. 4 / Resolution Professional of Associate D cor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g things that are detrimental to the said suspended Director. The Apex Court in the case of VIJAY KUMAR JAIN v. STANDARD CHARTERED BANK [(2019) 20 SCC 455], has held as follows: 14. The relevant provisions of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 read as under: 7. Certificate of registration . (1) *** (2) The registration shall be subject to the conditions that the insolvency professional shall *** (h) abide by the Code of Conduct specified in the First Schedule to these Regulations; and *** FIRST SCHEDULE [Under Regulation 7(2)(h)] CODE OF CONDUCT 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution plan qua them on which they must comment. So the first important thing to notice is that even though persons such as operational creditors have no right to vote but are only participants in meetings of the Committee of Creditors, yet, they would certainly have a right to be given a copy of the resolution plans before such meetings are held so that they may effectively comment on the same to safeguard their interest. 17. However, it was argued before us that the Notes on Clauses to Section 24 make it clear that the erstwhile members of the Board of Directors are participants 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 30 of the Code. The Committee of Creditors, in turn, gets information so that they can assess the financial position of the corporate debtor from various sources before they meet. It is, therefore, difficult to understand the Notes on Clause 24. 19.3. Even assuming that the Notes on Clause 24 may be read as being a one-way street by which erstwhile members of the Board of Directors are only to provide information, we find that Section 31(1) of the Code would make it clear that such members of the erstwhile Board of Directors, who are often guarantors, 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 poten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly, resolution plans are matters to be discussed at such meetings, and the erstwhile Board of Directors are participants who will discuss these issues. The expression documents is a wide expression which would certainly include resolution plans. 21. Under Regulation 24(2)(e), the resolution professional has to take a roll call of every participant attending through videoconferencing or other audio and visual means, and must state for the record that such person has received the agenda and all relevant material 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... participate in the deliberations of 11-02-2020. Though notice was issued, it has fallen foul of law. Therefore, it is here the proceedings cut at the root of the matter. 29. The Resolution Professional, in the case at hand, appears to have involved himself more than necessary. The Resolution Professional does not participate in the meetings of the Committee of Creditors. It is important that the Resolution Professional has to give notice of each and every meeting of the Committee of Creditors 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 doe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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