IBC| Resolution Professional Should Give Notice Of Each And Every CoC Meetings: Karnataka HC

The Karnataka High Court observed that it is mandatory to serve notice of each and every meeting of Committee of Creditors.

The court said that though the time limit (five days notice) for issuance of notice of meeting is reducible to 24 hours, this should be done for reasons to be recorded in writing.

The Bench of Justice M Nagaprasanna observed that, "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."

Pertinently, it was held that 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. 

Senior Advocate CK Nandakumar appeared for the petitioner, while Counsel Cyril Amarchand Mangaldas, among others, appeared for the respondents. 

In this case, between 2007 and 2011, Associate Décor Limited engaged in the manufacture of wood products and sought financial assistance from Punjab National Bank (PNB) between 2010 and 2015. Disputes arose in 2016 due to market changes, leading to irregular loan repayments and the company's classification as a Non-Performing Asset.

Subsequently, recovery proceedings and insolvency proceedings under the Insolvency and Bankruptcy Code were initiated by PNB. During negotiations for loan regularization, the National Company Law Tribunal (NCLT) appointed an Interim Resolution Professional, causing the petitioner, a company director, to cease control.

The Committee of Creditors, led by PNB, appointed a Resolution Professional, and the resolution process proceeded despite the petitioner's attempt to settle outstanding amounts. The petitioner challenged the hurried resolution process in court, alleging violations of the Insolvency and Bankruptcy Code.

The Court noted that the issue was whether the mandate under Regulation 19 had been followed or otherwise.

It was observed that, "The time limit for issuance of notice of meeting was 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."

Therefore, it was held that the resolution of the day was undoubtedly unsustainable the eyes of the law. 

Subsequently, the petition was allowed in part and the resolution plan was quashed.

Cause Title: Mr Farooq Ali Khan vs Punjab National Bank & Ors.

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