Promoters in charge of affairs of a defaulting Co. couldn’t escape from their liability arising due to wilful default

Case Details: Gouri Prasad Goenka v. State Bank of India - [2021] 131 taxmann.com 212 (Calcutta)

Judiciary and Counsel Details

• • Sabyasachi Bhattacharya, J.
  • Jishnu Saha, Ishaan Saha and Ms. Sananda Ganguli for the Petitoner. 
  • Om Narayan Rai and Saikat Ray Chowdhury for the Respondent.

Facts of the Case

In the instant case, the petitioner was promoter/director and guarantor of the company which had borrowed money from the bank and not repaid it. Consequently, notice had been issued by the bank to the petitioner to show cause as to why he could not be declared a wilful defaulter.

However, the petitioner filed instant writ challenging notice on the ground that Corporate Insolvency Resolution Process (CIRP) was initiated against Borrower Company and a moratorium was declared prohibiting, inter alia, institution or continuation of suits or proceedings against the company or its directors.

High Court Held

The HC noted that promoters and directors who were in charge of affairs of defaulting company during the relevant period, when the default was committed, could not be said to be absolved of their act of wilful default upon initiation of CIRP. Further, the moratorium envisaged in section 14 creates no hindrance to a wilful defaulter declaration proceeding.

In view of aforesaid, no fault could be found with the issuance of impugned show-cause notice to justify judicial interference therewith, and accordingly, instant writ petition challenging said notice was to be dismissed.

List of Cases Referred to

• • Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [2019] 111 taxmann.com 234 (SC) (para 6)
  • Gaurav Dalmia v. Reserve Bank of India [W.P. No. 24289 (W) of 2019, dated 18-3-2020] (para 7)
  • State of Uttar Pradesh v. Brahm Dutt Sharma [1987] 2 SCC 179 (para 12)
  • Trade Tax Officer, Saharanpur v. Royal Trading Co. [2005] 11 SCC 518 (para 12)
  • Secretary, Ministry of Defence v. Prabhash Chandra Mirdha [2012] 11 SCC 565 (para 13)
  • Kejriwal Mining (P.) Ltd. v. Allahabad Bank [2020] 117 taxmann.com 443/160 SCL 316 (Cal.) (para 14)
  • Union Bank of India v. Sudhir Kumar Patodia [CAN No. 5340 of 2019, dated 13-2-2020] (para 15)
  • Union Bank of India v. Pawan Kumar Patodia [CAN No. 5342 of 2019] (para 15)
  • Official Trustee, West Bengal v. Sachindra Nath Chatterjee AIR 1969 SC 823 (para 16)
  • Kotak Mahindra Bank Ltd. v. Hindustan National Glass & Industries Ltd. [2012] 28 taxmann.com 140/[2013] 117 SCL 521 (SC) (para 17)
  • Manish Kumar v. Union of India [2021] 123 taxmann.com 343 (SC) (para 18)
  • Ghanashyam Mishra & Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd. [2021] 126 taxmann.com 132/166 SCL 237 (SC) (para 19)
  • Atlantic Projects Ltd. v. Allahabad Bank [W.P. No. 7471 (W) of 2019, dated 3-5-2019] (para 20)
  • Whirlpool Corpn. v. Registrar of Trade Marks [1998] 1 SCC 1 (para 21)
  • State Bank of India v. Jah Developers (P.) Ltd. [2019] 105 taxmann.com 189/154 SCL 72 (SC) (para 22).