MR. FAROOQ ALI KHAN vs PNB & ORS
WRIT PETITION No.483 OF 2023 (GM – RES)
Facts:
1.A Company namely Associate Décor Limited was engaged 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.
2.During the year 2016 disputes aroused between the promoters of the Company and the account was declared as NPA. An Application was filed by the PNB under section 7 of the Code for initiating CIRP before NCLT Bengaluru Bench. CD 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.
3.COC 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 who appointed RP in place of IRP. 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 10-02-2020 resolution plans of both resolution applicants were discussed and further negotiated.
4.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.
5.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.
Issue: Whether the petition can be allowed?
Arguments:
Petitioner:
1.Counsel submitted that conduct of the Resolution Professional in hurrying the resolution process contrary to the spirit of the Code. It is his contention that the Resolution Professional had convened the second adjourned 19th meeting of the Committee of Creditors in a hasty manner as he had issued notice on 11-02-2020, which was served upon the petitioner at 12.31 p.m., convening the meeting at 3.00 p.m. on the very day.
2.It further submitted that it is contrary to the mandatory requirement of Section 24 of the Code r/w Regulation 19(1) & (2) of the Insolvency and Bankruptcy Board of India Regulations as the duration was less than 5 days or even 24 hours prior to the meeting. It is for this reason, he would submit that all proceedings attached to the said notice issued by the Resolution Professional would become a nullity in law and this process having been accepted by the NCLT the same is unsustainable.
Respondents:
1.Counsel submitted that borrower who has lost all rights cannot now contend that the resolution process has been erroneously conducted or the Resolution Professional has re-scheduled the dates to his convenience. It is his submission that it was only an adjournment notice of the previous day and it was perfectly justified and permissible for the Resolution Professional to have re-scheduled the date and time of the meeting.
Decision: HC allowed the petition in part.
Rationale:
1.Court noted that On 11-02-2020 at about 12.31 p.m. electronic mail is communicated to the petitioner fixing the meeting of the Committee of Creditors which had stood adjourned on the previous day, to be held at 3 p.m. on the same day. What is surprising is that it is termed to be an adjourned meeting and fixing of a date of adjourned meeting. If it were to be an adjournment simpliciter, the petitioner could not have any grievance. It is adjourned with modified agenda. Though the petitioner was heard when the agenda was drawn on 10-02-2020 and the meeting held on 11-02-2020 had been adjourned, the meeting could not have been re-scheduled contrary to the Code.
2.It held that 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. It held that 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
3.It asked the petitioner to approach the board and submit a complaint under Section 196 of the Code to the Board within 15 days from the date of receipt of the copy of the order.
Order Copy:
