The Karnataka High Court has observed that a Resolution Professional must give notice of every meeting of the Committee of Creditors even to the suspended members of the Board of Directors.

In that context, the Bench of Justice M Nagaprasanna observed that, "The Resolution Professional, in the case at hand, appears to have involved himself more than necessary. The Resolution Professional does not participate in the meetings of the Committee of Creditors. It is important that the Resolution Professional has to give notice of each and every meeting of the Committee of Creditors to the suspended members of the Board of Directors also."

Senior Counsel S Basavaraj and Counsel Sivaramakrishnan MS appeared for the petitioner, while Senior Counsel SS Naganand and Counsel Lomesh Kiran N appeared for the respondents.

The petitioner sought to nullify the minutes of the 22nd meeting of the Committee of Creditors of Associate Décor Limited held on 21-12-2022 and subsequent actions. Initially, the court partially granted relief, but this decision was later reversed in review proceedings. The case was reopened in light of the review order.

The company, Associate Décor Limited, faced financial troubles, leading to disputes with its creditors, including Punjab National Bank and other banks. Legal proceedings ensued, including recovery actions and an application under the Insolvency and Bankruptcy Code, 2016 (IBC).

Amidst negotiations for loan restructuring, the company's affairs were taken over by an Interim Resolution Professional appointed by the NCLT. The Committee of Creditors was formed, with significant voting shares held by the banks. Resolution plans were discussed, with one from the 5th respondent receiving approval despite objections from the petitioner.

The petitioner alleged procedural irregularities, including inadequate notice for meetings and unfair rejection of their settlement proposals. They sought to annul the resolution plan approval and subsequent actions.

The Committee of Creditors and the 5th respondent defended their decisions, arguing that due process was followed, and the petitioner's claims had been rejected in previous legal proceedings. They emphasized the finality of the approvals granted.

The Resolution Professional contended that the petitioner's application was an attempt to circumvent prior rejections and that judicial intervention in the approval process was unwarranted.

The Court observed that, "The notice that is given in the case at hand is only for the sake of giving notice. It is not in compliance with law. Therefore, the Resolution Professional has been in mortal hurry to conclude the proceedings without adhering to the rigour of the Code and the Regulations.. Therefore, the Resolution Professional has to be independent and need not be in a hurry to get any resolution plan concluded. His action should be just and fair, which does not appear to be the case in the case at hand."

Subsequently, the impugned resolution plan was quashed, and the matter was remitted back to the Committee of Creditors.

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

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