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TMI Blog2021 (3) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... name of the petitioners, as well as by the guarantee of the petitioners. At the behest of the respondent no.1- bank, forensic audit was carried out into the affairs of the company in April, 2019. Pursuant to the forensic report placed before the members of the joint lenders' meeting held on May 10, 2019, the respondent no.1 declared the account of the company as a 'No Fraud Account'. 2. Subsequently, the company forwarded an One-Time Settlement proposal, which was accepted by the respondent no.1-bank. 3. In the interregnum, Corporate Insolvency Resolution Process (CIRP) was commenced in respect of the company by an order dated October 1, 2019 passed by the National Company Law Tribunal, Kolkata Bench. 4. During pendency of the CIRP, res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners were all issued in their capacity as Directors of the company, such notices were also not tenable in the eye of law. It is argued that, as per the scheme of the IBC, the 'unit' (here, the company), if the subject-matter of a CIRP, its Directors, acting in that capacity, would also not be prosecuted in any legal proceeding before any authority, including the Identification Committee. It is illogical, learned counsel submits, that if all proceedings against the company itself are arrested by virtue of Section 14 of the IBC, the Committee could continue to proceed against the petitioners in the capacity of Directors of the company. 9. By relying on the show-cause notice dated November 4, 2019, learned counsel appearing for the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e;-vis the RBI guidelines dated July 1, 2015. 14. Section 14 of the IBC lays down provisions regarding moratorium and cover, inter alia, 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, as well as 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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Sub-section (3) of Section 14 excludes the application of the provisions of Section 14(1) to transactions as may be not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision by a Review Committee. 18. Clause 2.4 of the RBI guidelines provides for a monitoring of the end-use of funds in respect of the borrower. Clause 2.5 provides for the penal measures which can be initiated by the banks and the financial institutions against the Wilful Defaulters. Such measures include debarment of the borrower (including their entrepreneurs/promoters) under certain circumstances, from institutional finance from scheduled commercial banks, financial institutions etc. for floating new ventures for a period of five years from the date of removal of their names from the list of Wilful Defaulters. Legal process against the borrowers/guarantors and foreclosure for recovery of dues should be initiated expeditiously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration is to interdict and conflict with the functioning of the resolution professional within the scope of the IBC. Thus, the continuance of proceedings for declaration of Wilful Defaulter in respect of the borrowing company must be construed to fall within the purview of the moratorium provided in Section 14 of the IBC. 23. The Directors of the company, however, stand on a different footing. 24. Section 17(1) clearly provides that the management of the affairs of the corporate debtor shall vest in the interim resolution professional and the powers of the Board of Directors of the said debtor shall stand suspended and be exercised by the interim resolution professional. The scope of functioning of the interim resolution professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be extended to Directors in view of their interference with the affairs of the company being negated by the provisions of the IBC itself during CIRP. 28. Hence, whatever may be the consequence of declaration of the Directors, even in the capacity of Directors of the company, as Wilful Defaulters, the same does not interfere with the CIRP in any manner in view of the prior dissociation of the Directors from the affairs of the company at the commencement of the CIRP. 29. Thus, the petitioners cannot claim immunity under Section 14 of the IBC, being not covered by the moratorium contemplated therein, although the company itself is covered by such moratorium for the reasons discussed above. 30. That apart, although neither the show-cau ..... X X X X Extracts X X X X X X X X Extracts X X X X
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