TMI Blog2021 (6) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged default was committed is squarely an officer who is in default, as provided in Section 2(60) of the Companies Act, 2013 - The language of Section 14 of the IBC is very clear as to its object and purpose, which is to attract resolution applicants to make offers to facilitate corporate resolution of the insolvency. Initiation or continuation of recovery proceeding against the corporate debtor itself during such resolution would prove counter-productive to such purpose. A wilful defaulter proceeding does not come within the contemplation of Section 14 of the IBC, which primarily pertains to legal actions to foreclose, recover or enforce security interest, or recovery of any property or the debt-in-question - An act of wilful default, if committed by a promoter/whole-time director/guarantor of the corporate debtor who was in charge at the relevant period, is not obliterated automatically by the filing of an application under Section 7 of the IBC. Section 32A had not been inserted by amendment in the IBC on the date when hearing was concluded in the matter of Gaurav Dalmia (supra). Section 32A, which has been held to be intra vires by the Supreme Court, clearly stipulates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner in the capacity of whole-time director and promoter, learned counsel argues that a petition was filed against the Duncans Industries Ltd. under Section 7 of the Insolvency and Bankruptcy code, 2016 (IBC), which resulted in commencement of a Corporate Insolvency Resolution Process (CIRP) of the company, which is still pending. An Interim Resolution Professional (IRP) was appointed over the company on and from March 5, 2020 and the power of its Board of Directors stood suspended in terms of Section 17(1)(b) of the IBC. A moratorium was also declared under Section 14 of the IBC prohibiting, inter alia, the institution or continuation of suits or proceedings against the corporate debtor-company. Hence, no proceeding could be instituted or continued for declaration of wilful defaulter in respect of the company itself, for which no notice was served on it. 5. Broadly arguing that the object and purpose of the IBC is resolution of corporate insolvency, learned counsel for the petitioner argues that, since no notice of wilful default was or could, in law, be served on the company itself, by the same logic, no such notice could also be served on its suspended promoter/director. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 518. The ratio laid down in the said judgments is that there ought not to be interference by High Courts under Article 226 of the Constitution of India at the show cause stage. 13. In support of the argument that issuance of a show-cause notice does not infringe any right of the petitioner, since the Identification Committee (IC) can always drop the proceedings if the same is without merits after considering the representation of the alleged defaulter, learned counsel for the bank cites Secretary, Ministry of Defence and Ors. Vs. Prakash Chandra Mirdha, reported at (2012) 11 SCC 565. 14. Learned counsel for the respondent-Bank next cites Kejriwal Mining Pvt. Ltd and Ors. Vs. Allahabad bank and Anr., reported at 2020 SCC OnLine Cal 1250 , to argue that the IC order does not attain finality until the same is scrutinised by the Review Committee (RC). 15. By placing reliance on Union Bank of India Vs. Sudhir Kumar Patodia (CAN 5340 of 2019 in MAT 787 of 2019) and Union of India Vs. Pawan Kumar Patodia (CAN 5342 of 2019 in MAT 788 of 2019) , both unreported Division Bench judgments of this Court, learned counsel contends that the Division Bench clearly found that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whirlpool Corpn. Vs. Registrar of Trade Marks, reported at (1998) 1 SCC 1, the petitioner contends that issuance of show-cause notice itself without authority of law or jurisdiction justifies interference by the writ court and there is no question of alternative remedy being a bar. 22. Next relying on State Bank of India Vs. M/s Jah Developers Pvt. Ltd. Ors, reported at (2019) 6 SCC 787, the petitioner argues that the revised Circular of the RBI was issued in public interest and ought to be read reasonably. 23. Such additional contentions are sought to be distinguished by learned counsel for the respondent in the context of the present case. 24. As far as the first question is concerned, it is ex facie clear from the materials-on-record that the writ petition is premature, since no right of the petitioner has been infringed by issuance of the show-cause notice. The grounds for such notices were clearly enumerated in both the impugned notices and the petitioner was given sufficient opportunity as per the RBI Master Circular to give representation against the notice. 25. That apart, it is evident from the impugned notices that those were merely communications as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od when the alleged default was committed is squarely an officer who is in default, as provided in Section 2(60) of the Companies Act, 2013. 30. Mere apprehension of a future resolution of the corporate insolvency, by way of a prospective Resolution Plan which is yet to materialize, cannot absolve the petitioner, in the capacity of either guarantor or promoter/whole-time director, from the liability for such default. 31. The language of Section 14 of the IBC is very clear as to its object and purpose, which is to attract resolution applicants to make offers to facilitate corporate resolution of the insolvency. Initiation or continuation of recovery proceeding against the corporate debtor itself during such resolution would prove counter-productive to such purpose. 32. However, whole-time directors and promoters who were in charge of the affairs of the defaulting company during the relevant period, when the default was committed, cannot be said to be absolved of their act of wilful default committed prior to final approval and acceptance of a resolution plan. 33. Moreover, Section 14(3)(b) of the IBC clearly carves out an exception for a surety in a contract of guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner whatsoever. Rather, the purpose of such declaration of wilful defaulter, as indicated in the RBI Master Circular itself, is to disseminate credit information for cautioning banks and financial institutions and has no nexus with recovery of the debt. 40. Moreover, Section 32A had not been inserted by amendment in the IBC on the date when hearing was concluded in the matter of Gaurav Dalmia (supra). Section 32A, which has been held to be intra vires by the Supreme Court, clearly stipulates that the Corporate Debtor shall not be prosecuted for an offence committed prior to commencement of CIRP once a Resolution Plan has been approved by the Adjudicating Authority. The said provision, according to the Supreme Court, was important to attract bidders who must also be granted protection from any misdeeds of the past since they had nothing to do with it. Hence, the purpose of introduction of Section 32A clearly indicates that the officers of the defaulting company in charge of its management and affairs at the relevant juncture are not absolved thereby. Such provision, which is now in force, has, thus, a relevant bearing on the present adjudication. 41. Similarly, an OT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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