In a recent decision, the Delhi High Court held that the parties must be provided with requisite documents that form basis of the show cause notice ( SCN ) for proceedings under the Insolvency and Bankruptcy Code, 2016 ( IBC ).
The present petition has been filed, inter alia, seeking quashing and setting aside of the Show Cause Notices ( “SCNs” ) issued by the respondents for declaring account of M/s Educomp Solution Limited (“The Company”) as Fraud. The petitioner is an ex-director and guarantor of the Company, which had availed various credit facilities from the consortium of banks, of which the respondent-banks are members, with respondent no. 1-SBI being the lead bank.
The Senior Counsel appearing for the petitioner submitted that the aforesaid SCNs have been issued to the petitioner, without supply of the requisite documents, on account of which the said SCNs are bad in law and are thus, liable to be quashed.
It was submitted that the petitioner does not have information pertaining to the banking transactions, bank loans and other documents of the company, since the same are under the control of the RP. In the absence of the documents on the basis of which SCNs have been issued, it is not possible for the petitioner to give a proper reply to the said SCNs.
The counsel for the respondent banks submitted that requisite documents have already been provided to the petitioner. Further, learned counsel appearing for respondent no. 1-SBI, the lead bank, submits that the said bank is ready to give an inspection to the petitioner, of the records of the company available with it.
On the other hand, the counsel appearing for respondent no. 6- IDBI Bank submits that no final decision has been taken by the respective banks as yet, and that only SCNs have been issued at this stage and further submitted that the process, as regards declaration of an account as Fraud, must be completed within a period of six months.
A Single Bench of Justice Mini Pushkarna observed that “In view of the aforesaid, it is imperative that the relevant documents that form the basis of issuance of a SCN, ought to be provided to the concerned party in order to enable such a party to raise its defense effectively. Such fundamental right of a party cannot be taken away by denying a proper opportunity to submit an efficacious reply, which would not be feasible in the absence of requisite documents that form the core foundation of a SCN. This assumes all the more importance, as on the basis of the defense raised by such a party, proceedings thereto, against the said party, may be dropped in appropriate cases.”
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