TaxTMI 
TaxTMI 
TaxTMI 
2021 (6) TMI 722
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....titioner argues that the first notice dated February 26, 2021, addressed to the petitioner as guarantor of Duncans, was without jurisdiction inasmuch as it fails to satisfy the requirements of Clause 2.6 of the Reserve Bank of India Master Circular on Wilful Defaulters dated July 1, 2016 (hereinafter referred to as "the RBI Master Circular"). It is argued that the show-cause notice contained no allegation to the effect that the petitioner, as guarantor, refused to comply with the demands made by the respondent-Bank, despite having sufficient means to do so, which is a pre-requisite for such notice to a guarantor. 4. Regarding the second notice, sent to the petitioner 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. ....
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....ejoinder written note was filed on behalf of the SBI in view of additional judgments having been relied on by the writ petitioner in its notes, to which a further response in writing was given by the petitioner. 11. Learned counsel for the Bank argues that the writ petition is premature, being directed against show-cause notices, which do not create any cause of action or infringe any legal right of the petitioner. 12. In this context, learned counsel places reliance on State of Uttar Pradesh Vs. Brahm Dutt Sharma and Another, reported at (1987) 2 SCC 179 and Trade Tax Officer, Saharanpur Vs. Royal Trading Company, reported at (2005) 11 SCC 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 Chan....
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....er, the first of such is that of Ghanashyam Mishra and Sons Private Limited through the Authorized Signatory Vs. Edelweiss Asset Reconstruction Company Limited through the Director & Ors., reported at 2021 SCC OnLine SC 313, which approved the ratio laid down in Essar Steel (supra). 20. The petitioner also cites M/s Atlantic Projects Limited & Ors. Vs. The Allahabad Bank & Ors., reported at 2019 SCC OnLine Cal 611, to argue that a show-cause notice issued by the Deputy General Manager on behalf of the Identification Committee delegates the power of the IC, and, as such, is not valid. 21. Citing 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 couns....
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....6 of the RBI Master Circular. 29. The first impugned notice dated February 26, 2021 cannot be held to be vitiated merely by absence of specific mention of prior refusal by the petitioner, as guarantor, to honour his liability in such capacity. That apart, the legal fiction of dual capacity of the petitioner, that is, as a guarantor on the one hand and as a promoter/whole-time director on the other, ought to be pierced in view of the petitioner being in charge of the management of the defaulting company at the relevant period. A person at the helm of affairs during the period 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. ....
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....matically by the filing of an application under Section 7 of the IBC. 39. In Gaurav Dalmia (supra) this court considered the question as to the effect of approval of a resolution plan. If such a plan is approved and thereafter a show-cause notice is issued, the factual scenario would be entirely different from the present case, where no such resolution plan has been approved as yet and the CIRP is only at an initial stage. The declaration of a whole-time director/promoter or a guarantor as wilful defaulter cannot adversely affect the resolution process 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 ....