Karnataka High Court
Mr. Farooq Ali Khan vs Punjab National Bank on 22 April, 2024
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
Reserved on : 14.03.2024
Pronounced on : 22.04.2024 R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF APRIL, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.483 OF 2023 (GM-RES)
BETWEEN:
MR. FAROOQ ALI KHAN
S/O GULZAR ALI KHAN
AGED ABOUT 56 YEARS
RESIDING AT: NO.21
BENSON 'A', CROSS ROAD
BENSON TOWN POST
BENGALURU - 560 046.
PROMOTER AND SUSPENDED DIRECTOR
ASSOCIATE DECOR LIMITED.
... PETITIONER
(BY SRI. S.BASAVARAJ, SENIOR ADVOCATE FOR
SRI. SIVARAMAKRISHNAN M. S., ADVOCATE)
AND:
1. PUNJAB NATIONAL BANK
(FORMERLY KNOWN AS
ORIENTAL BANK OF COMMERCE)
HAVING ITS CORPORATE BANKING
BRANCH AT: MAKER TOWER
'F' WING, CUFFE PARADE
MUMBAI - 400 005.
2
REPRESENTED BY ITS DGM.
2. UNION BANK OF INDIA
STRESSED ASSETS MANAGEMENT
VERTICAL BRANCH:
THE EAGLE'S FLIGHT
3RD FLOOR, 301-302
SUREN ROAD
ANDHERI-KURLA ROAD
ANDHERI (EAST)
MUMBAI - 400 093.
REPRESENTED BY ITS DGM.
3. BANK OF BARODA
STRESSED ASSETS
MANAGEMENT BRANCH
1ST FLOOR, 17/B
HORNIMAN CIRCLE
FORT, MUMBAI - 400 001.
REPRESENTED BY ITS DGM.
4. MR. ALOK KAILASH SAKSENA
RESOLUTION PROFESSIONAL OF
ASSOCIATE DECOR LIMITED
(COMPANY UNDER CORPORATE
INSOLVENCY RESOLUTION PROCESS)
C/O DESAI SAKSENA AND ASSOCIATES
CHARTERED ACCOUNTANTS
HAVING ITS OFFICE AT: 1ST FLOOR
LAXMI BUILDING, SIR PHIROZSHAH
MEHTA ROAD, FORT
MUMBAI - 400 001.
5. MOHAMMED ENTERPRISES
(TANZANIA ) LTD.,
SUCCESSFUL RESOLUTION APPLICANT (SRA)
OF ASSOCIATE DECOR LTD.,
HAVING ITS REGISTERED OFFICE AT:
3
TEXTILE HOUSE, MOROGORO
ROAD/INDIRA GANDHI STREET
GROUND FLOOR, ILALA DISTRICT
P.O BOX 20660, DAR ES SALAAM
TANZANIA, REP. BY ITS
AUTHORIZED SIGNATORY.
6. INSOLVENCY AND BANKRUPTCY
BOARD OF INDIA (IBBI)
HEAD OFFICE AT: 7TH FLOOR
MAYUR BHAWAN, SHANKAR MARKET
CONNAUGHT CIRCUS
NEW DELHI - 110 001.
REP. BY ITS CHAIRPERSON.
7. INDIAN INSTITUTE OF INSOLVENCY
PROFESSIONALS OF ICAI
HEAD OFFICE AT: ICAI BHAWAN
8TH FLOOR, HOSTEL BLOCK, A - 29
SECTOR - 62, NOIDA, U.P - 201 309.
REP. BY ITS CHIARMAN.
8. MINISTRY OF COMMERCE AND INDUSTRY
THROUGH DEPARTMENT FOR PROMOTION
OF INDUSTRY AND INTERNAL TRADE (DPIIT)
HEAD OFFICE AT: UDYOG BHAWAN
NEW DELHI - 110 011.
REP. BY ITS SECRETARY
9. COMPETITION COMMISSION OF INDIA (CCI)
HEAD OFFICE AT: 9TH FLOOR
OFFICE BLOCK - 1, KIDWAI NAGAR
(EAST) NEW DELHI - 110 023.
REP. BY ITS CHAIRPERSON.
... RESPONDENTS
(BY SRI. S.S.NAGANAND, SENIOR ADVOCATE FOR
SRI. LOMESH KIRAN N., ADVOCATE FOR R1 TO R3;
4
SMT. LAKSHMY IYENGAR, SENIOR ADVOCATE FOR
SRI. AJAY RAO, ADVOCATE FOR R4;
SRI. SAJJAN POOVAYYA, SENIOR ADVOCATE FOR
SRI. M.NIKILESH RAO, ADVOCATE FOR R5;
SRI. TUSHAR MEHTA, SOLICITOR GENERAL OF INDIA
REPRESENTING THE UNION OF INDIA)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH AND
SET ASIDE THE MINUTES OF THE 2ND (SECOND) ADJOURNED 19TH
(NINETEENTH) MEETING OF THE COMMITTEE OF CREDITORS OF
ASSOCIATE DECOR LIMITED HELD ON 11.02.2020 AT MUMBAI,
MAHARASHTRA (AT ANNEXURE-F) AS NON-EST AND ILLEGAL IN
EYES OF LAW AND ETC.,
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 14.03.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The 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 and
Sri Tushar Mehta, learned Solicitor General of India for respondent
Nos.6 to 9.
3. The facts, in brief, adumbrated are as follows:-
Between 2007 and 2011 a Company in the name and style of
Associate Décor Limited (hereinafter referred to as 'the Company'
for short) is established to be in the business of manufacture of
wood products, particle boards, laminates and other wood panel
products. Between 2010 and 2015 the Company requested the 1st
respondent/Punjab National Bank to grant a term loan and other
several credit facilities for the purpose of meeting its capital
expenses and working capital requirement. The consortium of
Banks i.e., respondents 1, 2 and 3/Punjab National Bank, Union of
Bank of India and Bank of Baroda granted about 582 crores to the
Company to which the petitioner had executed further term loan
agreements by offering huge collaterals as security in favour
consortium of Banks. In the year 2016 various disputes 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 Corporate Debtor i.e., the Company
filed an interlocutory application seeking adjournment of
proceedings before the NCLT on the ground that certain amounts
had to be realized by the Company which would far exceed the
liabilities of the Company 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 that about 22 prospective
resolution applicants had confirmed their interest and draws a
provisional list of resolution applicants. Thereafter the 4th
respondent issues a request for resolution plan along with updated
information memorandum to the prospective resolution applicants.
The resolution plans submitted by two of the resolution applicants
were discussed and further negotiated in the 19th meeting of the
Committee of Creditors. The 19th meeting was originally convened
to be held on 07-02-2020. The agenda for the said meeting was
also set out for discussion. On 10-02-2022 resolution plans of both
resolution applicants were discussed and further negotiated. The
resolution plans were scored on evaluation matrix with Archidplay
receiving a total score of 57.20 and respondent No.5 receiving
72.64. The next day i.e., 11-02-2020 an e-mail is sent
communicating that the 2nd meeting of 19th Committee of Creditors
which was sought to be adjourned on 10-02-2020 is scheduled 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 `280 cores as payment to the Committee of Creditors as
opposed to `243 crores by the 5th respondent. The petitioner later
offered to settle the statutory dues in full amounting to `40 crores
as opposed to `40 crores offered by the 5th respondent. The
petitioner also offered to settle the dues of operation creditors in
full amounting to `60 crores as opposed to `60 crores offered by
the 5th respondent, as also, the dues of the workmen in full which
was approximately `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 was taken up on
the next day i.e., 11-02-2020 at 3.00 p.m. to discuss the amended
agenda. Therefore notice was issued to the petitioner three hours
before the said time of the meeting. This is contrary to the Code
and the Regulations. It is here the learned senior counsel for the
petitioner would submit that there is violation of the principles of
natural justice. He would therefore, contend that the said resolution
dated 11-02-2020 must be annulled and all the subsequent actions
taken must be set at naught, as everything has sprung from the
approval of the resolution plan of the 5th respondent.
RESPONDENTS 1 TO 3/COMMITTEE OF CREDITORS:
11. Respondents 1 to 3 would vehemently contend that what
the petitioner is now wanting is putting the clock back, which
cannot be allowed, as much water has flown beneath the bridge
after declaration of the 5th respondent's plan to be an approved
resolution plan. The learned senior counsel would submit 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. Therefore, he would submit that going back to the date
of the resolution is impermissible in the light of the proceedings
having attained finality by the dismissal of the civil appeal before
the Apex court.
5th RESPONDENT:
12. The learned counsel representing 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.
THE 4TH RESPONDENT / THE RESOLUTION PROFESSIONAL:
13. The learned senior counsel representing 4th
respondent/Resolution Professional would vehemently contend that
the writ petition is not maintainable against the proceedings upnder
the Code. The petitioner is trading on two jurisdictions. On the
ground that the petitioner is not being afforded an opportunity inter
alia had filed an application to implead himself before Appellate
Tribunal. He fails. He keeps quiet and files I.A.No.10 before the
NCLT, Bangalore. During the pendency of hearing on I.A.No.10 he
approaches this Court in the subject petition suppressing the fact
that he had preferred an application before the NCLT in I.A.No.10.
She would further contend that the petitioner should not be shown
any sympathy on imaginary violation of principles of natural justice
and would also contend that any order passed in favour of the
petitioner would straight away run foul of the order passed by 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
detriment by the Tribunal, while it rejected the impleading
application on whatsoever ground it could be. The whole hog of the
proceedings are affirmed by the Apex Court and therefore, the
petitioner cannot now iterate the contentions that 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 Décor
Limited was established between 2007 and 2011; it consisted of a
Board with 9 Directors. The 9 Directors which form the Board of
Directors are as follows:
"Members of the Board of Directors (Suspended) of
Associate Décor Limited (Corporate Debtor)
1. Mohamed Farouk Suleman Darvesh
2. Srichand Satramdas Agicha
3. Ebrahim Suleman Darvesh
4. Manoharlal Satramdas Agicha
5. Sidarrtha Agicha
6. Farooq Ali Khan
7. Nooruddin Khan
8. Himayath Ali Khan
9. Yahya Mohamed Farouk Darvesh"
(Emphasis added)
The petitioner is at Sl.No.6. The Company went into default.
Proceedings were brought against the Company as observed
hereinabove, by filing a petition under Section 7 of the Code before
the NCLT, Bengaluru in C.P.(IB)No.51 of 2018. Several directions
were sought in the prayer of the Application. Admitting the
Application of the Financial Creditor, the NCLT appoints an interim
Resolution Professional, the 4th respondent, in terms of its order
dated 26-10-2018. The directions 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 Décor 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 including any action under the
Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002;
(d) The 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
the Tribunal.
5) 1.A No. 335/2018 in C.P (IB) No.51/2018 is
rejected.
6) Post the case on 03.12.2018 for submission of
report of IRP."
(Emphasis added)
It appoints the 4th respondent as Resolution Professional among
other directions supra. The Resolution Professional invites
expression of interest for submission of resolution plans. Two
entities come forward - one Archidply Industry and the 5th
respondent. The resolution process then steps into deliberation. On
10-02-2020 the proposals submitted by the 5th respondent and the
other entity were taken up for deliberations by the Committee of
Creditors and the petitioner being a suspended Director was entitled
to be present and was represented. The agenda for the meeting on
10-02-2020 is as follows:
"To approve the resolution plan of Mohammed Enterprises
(Tanzania) Limited and direct RP to file the same before
Hon'ble NCLT
Abstained
Sl. Name of Voting Voted Voted By By not
No. Member Share For Against Voting Voting
1 Corporation 41.18% 41.18% - - -
Bank
2 Bank of 34.67% 34.67% - - -
Baroda
3 Oriental Bank 24.16% 24.16% - - -
of Commerce
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 <[email protected]>
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 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 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"
(Emphasis added)
Thus, the resolution plan of the 5th respondent was approved on
11-02-2020. The said deliberation which approves the resolution
plan on 11-02-2020 is projected to be an adjourned meeting and
nothing new in the meeting. This would be belied by two
circumstances. If it were to be an adjourned meeting, there was no
warrant for issuance of notice to the petitioner, as notice is
contemplated on every agenda brought before it. But, notice is
issued. The notice is quoted supra. The notice is sent through e-
mail at 12.31 p.m. and the meeting was slated to be held at 3.00
p.m. Therefore, the time is two hours and thirty minutes. 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, 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 e-
voting. 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
the meeting of 11-02-2020 the petitioner was not notified as
required in law.
19. The contention of the respondents is that it was only an
adjourned meeting and there was nothing new for the petitioner to
know and, therefore, there is no violation of the Code or the
Regulations. The respondents have caught themselves in
contradiction. The 5th respondent'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. The averment of the 5th respondent in
the statement of objections is as follows:
"6.5. Pursuant to the discussions held with the members of the
CoC at the 19th CoC meeting on 10 February 2020,
Respondent No.5 submitted the Amended and
Restated Resolution Plan dated 11 February 2020.
At the 19th CoC Meeting, as adjourned to 11
February 2020, the members of the CoC assessed
the feasibility and viability of the resolution plan
submitted by one Archidply Décor Limited and the
METL Resolution Plan. Thereafter, the resolution plans
were put up for e-voting wherein METL Resolution Plan
was approved by the members of the CoC with 100%
voting share upon conclusion of the e-voting on 6 March
2020."
(Emphasis added)
The 5th respondent categorically avers that discussion was held on
10-02-2020. The 5th respondent submitted an amended and re-
stated 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) 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 creditors:
Provided that the fees payable to such insolvency
professional representing any individual creditor will be borne by
such creditor.
(6) Each creditor shall vote in accordance with the voting
share assigned to him based on the financial debts owed to such
creditor.
(7) The resolution professional shall determine the voting
share to be assigned to each creditor in the manner specified by
the Board.
(8) The meetings of the committee of creditors shall be
conducted in such manner as may be specified."
(Emphasis supplied)
Sub-section (2) of Section 24 deals with all meetings of the
Committee of Creditors shall be conducted by the Resolution
Professional. Sub-section (3) mandates that the Resolution
professional shall give notice of each meeting of the Committee of
Creditors. The obligation does not end here. The section does not
depict the manner in which notice should be given. It only indicates
that notice shall be given of each meeting to the Committee of
Creditors. In the considered view of this Court, 'each' would mean
each and every. The notice to be given is regulated under Chapter-
VI of the Insolvency and Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 ('the
Regulations' for short) which is notified in furtherance of the
provisions of the Code. Regulation 19 reads as follows:
"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 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 Persons) Regulations,
2016-
(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 resolution professional
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
(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
The following resolution was proposed:
"RESOLVED THAT pursuant to Regulation 19 and other
applicable provisions, if any, of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016 and in accordance with rules and
regulations made there-under, approval of committee of
creditors be and is hereby accorded for reduction in the notice
period of not less than two working days for holding all future
meetings of the CoC."
Since the members decided to put the matter to vote through
e-voting the same shall be put vote through e-voting."
21. 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. 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 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 10-
02-2020 as well. This Court is not considering the illegality though,
in the first blush it would seem so only on the ground that the
challenge is only to the resolution dated 11-02-2020 and not to the
resolution dated 10-02-2020. There is absolute violation of the
rigour of the statute and the principles of natural justice.
23. Several submissions are made with regard to the
proceedings ending before the Apex Court. What went before the
Apex Court is not what the petitioner had initiated. What went
before the Apex Court was of the Svamitva Landmarks. After the
plan of the 5th respondent was approved by the Committee of
Creditors the same was placed before the NCLT by the Resolution
Professional by way of I.A.No.161 of 2020. Svamitva Landmarks
also preferred an application in I.A.No.227 of 2020 before the NCLT
venting out several grievances and the main grievance of Svamitva
Landmarks was non-consideration of the resolution plan submitted
by it. The delay in submitting the plan was explained on account of
failure of the Resolution Professional to provide Svamitva
Landmarks audited balance sheets of the Corporate Debtor, the
Company for the financial year 2015-19. Svamitva Landmarks has
averred in the application that those balance sheets would have
played a crucial role. NCLT accepted the plea of Svamitva
Landmarks and in terms of its order dated 28-05-2021 allowed
I.A.No.227 of 2020 and directed the Resolution 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 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 IA 225 C.P. (IB) No.51/BB/2018 is disposed
as infructuous as IA 225 has already been disposed of.
However, the issues raised by the erstwhile Promoters
shall be kept in view by the RP so as to attain the
objects of the Code.
(4) IA 134 of 2020 is disposed with directions to the
Commercial Taxes Dept to place before the RP only
ascertained, crystalllised demand that may have arisen
from a regular assessment for the period under
consideration. The RP shall place the same before the
CoC/reconstituted CoC, for its consideration.
(5) IA 161 of 2020 is deemed to be disposed of and restored
to the RP, for being re-considered by the CoC along with
the Resolution Plan submitted by Swamitva Landmark,
Shankeshwar Landmarks LLP and Shankeshwar
Landmarks.
(6) The directions at sl nos. 1), 2) and 4) shall be carried
out within a period of 12 weeks from the
receipt/uploading of this order. This period is considered
appropriate considering the present Covid 19 pandemic
situation and the ensuing lockdown in several states.
The RP is granted liberty to bring an Application before
this Adjudicating Authority for any further exclusion of
time, if the same is for exceptional and justifiable
reasons, and in the interest of completing the process
and achieving the objects of the Code.
2. All IAs in C.P. (IB) No.51/BB/2018 are disposed of as above.
No order as to cost
3. Post the case for report of the RP on 30th June 2021."
This was called in question before the 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' 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 the NCLT
with the following prayer:
"VII. RELIEFS SOUGHT:
WHEREFORE in light of the afore-mentioned facts and
circumstances, it is most humbly prayed that this Hon'ble
Adjudicating Authority may be pleased to:
a. Declare that the Respondent No 1, ie, Mr. Alok Kailash
Saksena as a Resolution Professional of the Corporate
Debtor has acted in gross violation of law and refer to
IBBI. Respondent No 7 and IIPCICAI, Respondent No
8 for initiation of action for Professional Misconduct
for his act of violation of law and consequently to
direct the Respondent No. 3, 4 and 5 to consider the
replacement of Resciution Professional in the place of
Respondent No. 1;
b. Declare that the decision of COC, Respondent Nos 3, 4 and 5
in approving the Resolution Plan of the sole Resolution
Applicant is not in accordance with law;
c. Reject the Resolution Plan submitted by the Respondent No 6
as not in accordance with law
d. Direct the 1st Respondent to suitably revise the
Information Memorandum and the consequential
Expression of Interest in the corporate insolvency
resolution process of the 2nd Respondent company
after taking into account the VAT Loan eligibility
amount and to conduct a fresh valuation of the
Corporate Debtor.
and
e. Pass any other/further order(s) as this Hon'ble Adjudicating
Authority may deem fit and proper to secure the ends of
justice."
(Emphasis added)
The said application was preferred during the pendency of
proceedings before the Apex Court. The Apex Court rejects the
appeal filed by Svamitva Landmarks on 25-11-2022. 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 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'ble NCLT, Bengaluru Bench in C.P (IB) No.
139/BB/2022 with the Escrow bank within 15 days of
such respective order;
viii. production of letter of withdrawal of the communication
dated 07.03.2022 issued by the Bank of Baroda regarding
intimation given by the said bank to the Bureau of
Immigration, Ministry of Home Affairs, Government of
India, to the Escrow bank within 15 days of the Order of
the NCLT approving the Section 12A IB Code Application;
and
ix. production of letter of intimation both to CIBIL and
CRILC authority regarding the full and final settlement of
the dues of the Corporate Debtor as well as the full and
final discharge of the personal guarantee given by the
undersigned, to the Escrow bank within 15 days of the
Order of NCLT approving the Section 12A IB Code
Application.
9. The undersigned earnestly hopes notwithstanding the
lapses on part of the Resolution Professional of the Corporate
Debtor in finalising the Information Memorandum ("IM") and
other lapses in not following and adhering to the IB Code and its
regulation thereof and notwithstanding the successful
applicant's proposal keeping in view of that the undersigned is
prepared and agreeing to undertake the interest of all the
stakeholders of the Corporate Debtor including the dues of the
operational Creditors, statutory dues of the Corporate Debtor
and other financial obligations of the Corporate Debtor [other
than the allege dues to the promoters and the transactions with
the related parties of the directors], in full, which will be more
beneficial to protect the interest of all stakeholders and
undersigned 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
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 petitioner immediately rushes to this Court in the
subject writ petition filing it on 04-01-2023. The prayers sought for
by the petitioner in the subject petition are as follows:
i "Issue a writ of certiorari or any other writ(s), order(s),
rule(s) or direction(s) to quash and set aside the Minutes
of the 2nd (Second) Adjourned 19th (Nineteenth) Meeting
of the Committee of Creditors of Associate Decor Limited
held on 11.02.2020 at Mumbai, Maharashtra (at
ANNEXURE 'F') as Non-Est and illegal in eyes of law;
ii. Issue a writ of certiorari or any other writ(s), order(s),
rule(s) or direction(s) to quash and set aside the approval
illegally and erroneously given by Respondent No. 1-3 /
Committee of Creditors in its 2nd (Second) Adjourned 19th
(Nineteenth) Committee of Creditors Meeting dated
11.02.2020 (at ANNEXURE 'F'), approving the illegal and
erroneous resolution plan of Respondent No. 5 as Non-Est
and illegal in eyes of law;
iii. Issue a writ of certiorari or any other writ(s), order(s),
rule(s) or direction(s) to quash and set aside the Minutes
of the 22nd (Twenty-Second) Meeting of the Committee of
Creditors of Associate Decor Limited held on 21.12.2022
through video conference (at ANNEXURE 'X') as Non-Est
and illegal in eyes of law;
iv. Issue a writ of certiorari or any other writ(s), order(s),
rule(s) or direction(s) to quash and set aside the Letter of
Intent dated 09.03.2020 (at ANNEXURE 'K') issued by
the Respondent No. 4 / Resolution Professional to the
Respondent No. 5, wherein the Respondent No. 4 as
illegally and fraudulently declared the Respondent No. 5
as the Successful Resolution 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 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 rejection on 21-12-2022 as communicated on
23-12-2022 and other incidental reliefs.
26. In the entire narration what would unmistakably emerge
is, no right of the petitioner is determined by any fora. The
application of the petitioner initially filed was held to be infructuous
as the application filed by Svamitva Landmarks was allowed. This
was challenged by all the respondents before the Appellate
Tribunal. The Appellate Tribunal allows the appeal, sets aside
allowing of Svamitva Landmarks application. It is this that is
confirmed by the Apex Court. It cannot be said that the impleading
application filed by the petitioner having been rejected and in the
impleading application all the narration now made in the petition
having been made, would not become an order against the
petitioner. At best the impleading application is rejected; that
cannot mean that the rights of the petitioner have been determined
to his detriment before any fora.
27. All the aforesaid observations are made, as elaborate
submissions are made on the issue. But what would cut at the root
of the matter is the genesis of the problem. The genesis is the
approval of the resolution plan of the 5th respondent and it being in
violation of the principles of natural justice, the entire aftermath of
11-02-2020 resolution would become a nullity in law and the
Committee of Creditors will have to reconsider the deliberations
made on 10-02-2020, as from that stage this Court has noticed the
violation of principles of natural justice.
28. The Apex Court has time and again held that a suspended
Director has every right to participate in the proceedings.
Therefore, it cannot be said that the suspended Director can be
taken for a ride, without him being put on notice and resolving
things that are detrimental to the said suspended Director. The
Apex Court in the case of VIJAY KUMAR JAIN v. STANDARD
CHARTERED BANK1, has held as follows:
"14. The relevant provisions of the Insolvency and
Bankruptcy Board of India (Insolvency Professionals)
Regulations, 2016 read as under:
(2019) 20 SCC 455
"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
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 total debt, both
such operational creditors and erstwhile members of the
Board of Directors have no vote. Sections 25(2)(f) and (i)
are also important in that, once the resolution
professional convenes meetings of the Committee of
Creditors, he is to present all resolution plans at these
meetings. Under Section 30, the resolution professional shall
examine each resolution plan received by him in which he must
confirm, inter alia, that such plan provides for the repayment of
the debts of operational creditors which shall not be less than
the amount to be paid to them in the event of liquidation of the
corporate debtor. This plan is then submitted to the adjudicating
authority if it is approved by the requisite majority of the
Committee of Creditors. The adjudicating authority under
Section 31(1), if satisfied that the plan passes muster, shall
then, by order, approve such plan, which shall be binding on all
stakeholders involved in the resolution plan, including
guarantors.
16. This statutory scheme, therefore, makes it clear
that though the erstwhile Board of Directors are not
members of the Committee of Creditors, yet, they have a
right to participate in each and every meeting held by the
Committee of Creditors, and also have a right to discuss
along with members of the Committee of Creditors all
resolution plans that are presented at such meetings
under Section 25(2)(i). It cannot be gainsaid that
operational creditors, who may participate in such
meetings but have no right to vote, are vitally interested
in such resolution plans, and must be furnished copies of
such plans beforehand if they are to participate
effectively in the meeting of the Committee of Creditors.
This is for the reason that under Section 30(2)(b), repayment of
their debts is an important part of 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 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 must be delivered in the prescribed
form. The corporate debtor is then given a period of 10 days
from the receipt of the demand notice or copy of the invoice
to bring to the notice of the operational creditor the
existence of a dispute, if any. We have also seen the notes
on clauses annexed to the Insolvency and Bankruptcy Bill of
2015, in which "the existence of a dispute" alone is
mentioned. Even otherwise, the word "and" occurring in
Section 8(2)(a) must be read as "or" keeping in mind the
legislative intent and the fact that an anomalous situation
would arise if it is not read as "or"."
19. There is no doubt whatsoever that Notes on Clauses
are an important aid to the construction of sections of the Code
as they show what the Drafting Committee had in mind when
such provisions were drafted. However, a closer look at the
Notes on Clause 24 makes it clear that the third sentence of the
Notes on Clause 24 is itself problematic.
19.1. First and foremost, it speaks of the resolution
professional seeking information. The resolution professional
does not seek information at a meeting of the Committee of
Creditors, which is what Section 24 is all about. The resolution
professional only seeks information from the erstwhile Board of
Directors under Section 29 before preparing an information
memorandum, which then includes the financial position of the
corporate debtor and information relating to disputes by or
against the corporate debtor, etc. All this has nothing to do with
Section 24 of the Code which deals with meetings of the
Committee of Creditors.
19.2. Secondly, the resolution professional does not
prepare a resolution plan as is mentioned in the Notes on Clause
24; he only prepares an information memorandum which is to
be given to the resolution applicants who then submit their
resolution plans under Section 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 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 property, created in favour of, or
provided for a secured creditor by a transaction which
secures payment or performance of an obligation and
includes mortgage, charge, hypothecation, assignment and
encumbrance or any other agreement or arrangement
securing payment or performance of any obligation of any
person:
Provided that security interest shall not include a
performance guarantee;"
This would certainly include a guarantor who may be a member
of the erstwhile Board of Directors.
19.5. Further, under Regulation 37(1)(f), a
resolution plan may provide for reduction in the amount
payable to the creditors, which again vitally impacts the
rights of a guarantor. Last but not the least, a resolution
plan which has been approved or rejected by an order of
the adjudicating authority, has to be sent to
"participants" which would include members of the
erstwhile Board of Directors -- vide Regulation 39(5) of
the CIRP Regulations. Obviously, such copy can only be
sent to participants because they are vitally interested in
the outcome of such resolution plan, and may, as persons
aggrieved, file an appeal from the adjudicating
authority's order to the Appellate Tribunal under Section
61 of the Code. Quite apart from this, Section 60(5)(c) is
also very wide, and a member of the erstwhile Board of
Directors also has an independent right to approach the
adjudicating authority, which must then hear such person
before it is satisfied that such resolution plan can pass
muster under Section 31 of the Code.
20. It is also important to note that every participant is
entitled to a notice of every meeting of the Committee of
Creditors. Such notice of meeting must contain an agenda of the
meeting, together with the copies of all documents relevant for
matters to be discussed and the issues to be voted upon at the
meeting vide Regulation 21(3)(iii). Obviously, 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 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 meetings of the
Committee of Creditors, must be given a copy of such
plans as part of "documents" that have to be furnished
along with the notice of such meetings.
22. As a result of the aforesaid discussion, the arguments
of the respondents that "committee" and "participant" are used
differently, which would lead to the result that resolution plans
need not be furnished to the erstwhile members of the Board of
Directors, must be rejected. Equally, the Regulations, far from
going beyond the Code, flesh out the true intention of the Code
that is achieved by reading the plain language of the sections
that have already been adverted to. So far as confidential
information is concerned, it is clear that the resolution
professional can take an undertaking from members of the
erstwhile Board of Directors, as has been taken in the facts of
the present case, to maintain confidentiality. The source of this
power is Regulation 7(2)(h) of the Insolvency and Bankruptcy
Board of India (Insolvency Professionals) Regulations, 2016,
read with Para 21 of the First Schedule thereto. This can be in
the form of a non-disclosure agreement in which the resolution
professional can be indemnified in case information is not kept
strictly confidential."
(Emphasis supplied)
The Apex Court in the judgment quoted supra holds that in the
statutory scheme of the Code, members of the erstwhile Board of
Directors are not members of the Committee of Creditors, yet they
have a right to participate in each and every meeting held by the
Committee of Creditors and also have a right to discuss along with
the members of the Committee of Creditors all resolution plans that
are presented. Therefore, when the Apex Court had recognized the
right of members of the erstwhile Board of Directors, it naturally
includes a suspended Director. In the light of what is 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.
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 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 supra.
30. Several judgments are quoted at the bar by the learned
counsel for the petitioner and the learned counsel representing the
respondents. All of them need not bear consideration in the case at
hand, as what is found fault with is violation of principles of natural
justice. 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.
31. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed in part.
(ii) The Resolution plan approved in the second adjourned
meeting of Committee of Creditors dated 11-02-2020
stands quashed.
(iii) 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.
(iv) The petitioner shall be entitled to all consequential
benefits that would flow from quashment of the
approval of the Resolution plan of the 5th respondent.
Sd/-
JUDGE
Bkp/CT:SS
