2017 (7) TMI 1262 - HC - Indian Laws

Importance of Comprehensive Legal Analysis in Quashing Orders: NCLT Jurisdiction, Directors' Duties

The court emphasized the importance of a comprehensive analysis of the issues raised by the petitioners regarding the quashing of the Debt Recovery ... Recovery proceedings - petitioners are the guarantors of M/s LML Limited, Kanpur, which was declared as sick industrial company by the Board of Industrial and Financial Reconstruction on 8.5.2007 - Section 60 (1) of the Insolvency and Bankruptcy Code, 2016 - Held that:- Section 60 (1) of the Insolvency and Bankruptcy Code, 2016 stipulates that the adjudicating authority even in relation to personal guarantors would only be NCLT and the petitioners are entitled to approach the NCLT under Section 60 (2) relating to their insolvency resolution under Section 94 of the IB Code. The petitioners are unable to do so as the said provisions of the IB Code have not yet been notified by the Central Government. The DRT has failed to take notice of Part-III of IB Code and the provisions of IB Code, 2016 will prevail over the provisions of the Act of 1993. Since the petitioners are the directors of the company (in liquidation), they are statutorily bound to provide their assistance to the resolution professional appointed under the IB Code for the company (in liquidation) by the NCLT. The DRT has completely erred in understanding the objects of the IB Code while deciding the application in question - matter requires consideration. Issues:1. Quashing of order passed by Debt Recovery Tribunal, Allahabad.2. Jurisdiction of NCLT under Insolvency and Bankruptcy Code, 2016.3. Statutory obligations of directors in a company in liquidation.Analysis:1. The petitioners sought the quashing of the order dated 6.7.2017 passed by the Debt Recovery Tribunal, Allahabad, in O.A. No.238/2017. The tribunal had directed the continuation of proceedings against the petitioners as guarantors while keeping the proceedings against the company (in liquidation) in abeyance until further orders from NCLT. The petitioners argued that the DRT's decision was erroneous as it did not consider the provisions of the Insolvency and Bankruptcy Code, 2016, specifically Section 60(1) relating to the adjudicating authority for personal guarantors. They contended that the IB Code provisions should prevail over those of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The court noted the need for a detailed examination of the matter.2. The petitioners highlighted Section 60(1) of the Insolvency and Bankruptcy Code, 2016, which designates NCLT as the adjudicating authority for personal guarantors. They argued that they were unable to approach NCLT under Section 60(2) for insolvency resolution due to the non-notification of relevant provisions by the Central Government. The petitioners, being directors of the company in liquidation, emphasized their statutory obligation to assist the resolution professional appointed under the IB Code by NCLT. They contended that the DRT's failure to consider Part-III of the IB Code and the prevailing nature of IB Code provisions over the Act of 1993 was a critical error in the decision-making process.3. The petitioners underscored their statutory duty as directors of the company in liquidation to provide assistance to the resolution professional appointed under the IB Code by NCLT. They argued that the DRT's decision failed to acknowledge this obligation and misinterpreted the objectives of the IB Code. The court acknowledged the necessity for a thorough review of the matter to address the complexities surrounding the statutory obligations of directors in a company undergoing insolvency proceedings.In conclusion, the judgment highlighted the need for a comprehensive analysis of the issues raised by the petitioners regarding the quashing of the DRT order, the jurisdiction of NCLT under the IB Code, and the statutory duties of directors in a company in liquidation. The court emphasized the importance of considering the interplay between the relevant legal provisions to ensure a just and informed decision.