24 (5)

Resolution Professional shall give notice of each meeting of CoC as per CIRP Regulation 19(2) even in case of adjournment of meeting where agenda modified | Reasons should be recorded in writing in case any reduction of notice time limit – Mr. Farooq Ali Khan v. Punjab National Bank – Karnataka High Court

In this case, on 11-02-2020 at 12.20 pm an e-mail is sent communicating that the second meeting of 19th CoC 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.

Hon’ble High Court held that:
(i) Section 24(3) mandates that the Resolution professional shall give notice of each meeting of the CoC. 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 CoC. In the considered view of this Court, ‘each’ would mean each and every.
(ii) 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’.
(iii) This Court, in exercise of its jurisdiction under Article 226 of the Constitution of India would not enter into venturing a fact finding enquiry to examine whether the resolution professional has acted in accordance with the duties and responsibilities under the Act.
(iv) Reserve liberty to the petitioner to submit a representation/complaint before the Board within a fortnight from the date of receipt of the copy of this order and if such a complaint is received, the Board would decide the issue, in accordance with law.
(v) The CoC shall reconsider the restructuring proposal submitted on behalf of the petitioner in terms of Section 12A of the Code.

Resolution Professional shall give notice of each meeting of CoC as per CIRP Regulation 19(2) even in case of adjournment of meeting where agenda modified | Reasons should be recorded in writing in case any reduction of notice time limit – Mr. Farooq Ali Khan v. Punjab National Bank – Karnataka High Court Read Post »

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Limited & Ors. – Supreme Court

An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or if the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt. Thus, facially, it would appear that the use of the simple present tense in the first proviso to Section 21(2) indicates that the disqualification applies in praesenti. Furthermore, this interpretation would also be supported by a reading of the first proviso to Section 21(2), in light of the definition of ‘related party’ under Section 5(24), which uses phrases such as ‘is accustomed to act’ or ‘is associated’ to define a related party in the present tense.(p82 & 84).

While the default rule under the first proviso to Section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the CoC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder. Mr Kaul has argued, correctly in our opinion, that if this interpretation is not given to the first proviso of Section 21(2), then a related party financial creditor can devise a mechanism to remove its label of a ‘related party’ before the Corporate Debtor undergoes CIRP, so as to be able to enter the CoC and influence its decision making at the cost of other financial creditors. (p95)

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Limited & Ors. – Supreme Court Read Post »

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