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2019 (1) TMI 1800 - AT - Insolvency and BankruptcyCIRP process - related party - exclusion from participation in CoC - whether Appellants Spade Financial Services Limited, and it's wholly-owned subsidiary AAA Landmark Private limited are a related party to the corporate debtor AKME Projects Ltd.? - Section 5(24) and Section 21(2) Insolvency and Bankruptcy Code, 2016? - HELD THAT - The close relationship of the key managerial person of the Corporate Debtor (Mr Anil Nanda) and Appellant (Mr Arun Anand) is quintessential. Based on the claim forms of the appellants, signed by Mr Arun Anand and the documents filed before the Adjudicating Authority, it is evident that Mr Arun Anand (Director of the Appellants) worked for Mr Anil Nanda, Corporate Debtor) for over 25 years and purported transactions from 2010 to 2013 were entered into vide Mr Arun Anand, who had worked as an employee for Escorts Limited/Nanda Group of Companies specifically Mr Anil Nanda including AKME Projects Limited the Corporate Debtor, and also held Key Managerial roles in the companies. On perusal of the letter 25.10.2012, issued by Appellant No 2 to the corporate debtor, it is evident that Agreement Dt 25th Oct 2012 was merely a camouflage, and the Appellant No2 and corporate debtor AKME were partners in developing the project to be sold to third party for profit. Therefore the Appellant No 2 is Related Party to the corporate debtor in terms of Sec 5(24)(a) of the I B Code 2016 - Thus, Appellant, No 2 is a related party to the corporate debtor in terms of Sec 5(24)(a) of the Insolvency and Bankruptcy Code 2016. On perusal of the documents filed by the parties, it is also apparent that AKME Projects Ltd, i.e. Corporate Debtor, promoted by Sri Arun Anand and his son Mr Aditya Anand, being majority shareholder therein. The Arun Anand and his family members, i.e. his wife, his son and daughter are the majority shareholder in the Appellant SPADE Financial Services. The said Mr Arun Anand, Ms Renu Anand and Ms Gayatree Anand are the directors of the Appellant SPADE, while Appellant No 2, AAA Landmark is wholly owned subsidiary of it - Admittedly in the present case, ICD worth ₹ 26,55,00,000 was provided by Appellant No 1 SPADE to the corporate Debtor AKME bearing interest of 24%.No date is given when the ICD was given to the corporate debtor. It is mentioned that First ICD was given to the Corporate Debtor in mid of 2009, whereas MOU Dt 12.8.2001 shows that ICD were given by the Appellants when Appellant No 1 was a consultant to the corporate debtor. Thus it is clear that on the advice, directions or instructions of the Appellants, a director, partner or manager of the corporate debtor is accustomed to act. Therefore the Appellants are related party to the corporate debtor in terms of Sec 5(24)(h) of the Code. The Adjudicating Authority has rightly excluded the Spade Financial Services Private Limited and AAA Landmark Private Limited for participation in Committee of Creditors - there are no reason to interfere in the order passed by the Learned Adjudicating Authority - appeal dismissed.
Issues Involved:
1. Declaration of Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited. 2. Reduction of voting shares of Yes Bank Limited and Phoenix ARC Private Limited in the Committee of Creditors due to the inclusion of Spade and AAA Landmark. 3. Examination of the relationship and transactions between the appellants and the corporate debtor under Sections 5(24) and 21(2) of the Insolvency and Bankruptcy Code, 2016. Issue-wise Detailed Analysis: 1. Declaration of Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited: The primary issue under challenge was whether Spade Financial Services Limited and AAA Landmark Private Limited, promoted and managed by Mr. Arun Anand, were related parties to the corporate debtor, AKME Projects Limited (APL). The adjudicating authority had previously declared them as related parties based on their historical business relationships and the involvement of Mr. Arun Anand in both entities. The appellants contended that they were not related parties at the time of filing the application for the initiation of the Corporate Insolvency Resolution Process (CIRP). The tribunal examined the nature of transactions and the interrelationship among the parties from 2010 to 2013. It was found that Mr. Arun Anand, who had close ties with Mr. Anil Nanda (key managerial person of the corporate debtor), had worked for the Nanda Group of Companies, including AKME Projects Limited. Several transactions were highlighted, showing that Mr. Arun Anand and Mr. Sonal Anand (another key managerial person) acted in concert, benefiting the corporate debtor and its group companies. The tribunal concluded that the appellants were related parties under Section 5(24) of the Insolvency and Bankruptcy Code, 2016, due to the significant influence and interrelationship during the relevant period. 2. Reduction of voting shares of Yes Bank Limited and Phoenix ARC Private Limited in the Committee of Creditors due to the inclusion of Spade and AAA Landmark: Yes Bank Limited and Phoenix ARC Private Limited, financial creditors of the corporate debtor, argued that their voting shares in the Committee of Creditors (CoC) were unjustly reduced due to the inclusion of Spade and AAA Landmark. Yes Bank's voting share was reduced from 15.27% to 4.28%, and Phoenix ARC's share was reduced to 4.218%. The tribunal examined the claims and determined that the inclusion of Spade and AAA Landmark as financial creditors was based on transactions that were deeply intertwined with the corporate debtor's affairs. The tribunal noted that the accounts of the corporate debtor had not been finalized and audited since 2016, further complicating the matter. The tribunal upheld the adjudicating authority's decision to exclude Spade and AAA Landmark from the CoC, thereby restoring the original voting shares of Yes Bank and Phoenix ARC. 3. Examination of the relationship and transactions between the appellants and the corporate debtor under Sections 5(24) and 21(2) of the Insolvency and Bankruptcy Code, 2016: The tribunal scrutinized various documents and agreements to ascertain the relationship and transactions between the appellants and the corporate debtor. It was found that Mr. Arun Anand held key managerial positions in both the appellants and the corporate debtor during the relevant period. Several agreements, such as the Memorandum of Understanding and the Agreement to Sale, were executed between the parties, indicating a close business relationship. The tribunal also considered the appellants' involvement in policy-making processes and financial arrangements for the corporate debtor. It was evident that the appellants acted on the advice, directions, or instructions of the corporate debtor's directors and managers. Based on the evidence, the tribunal concluded that the appellants were related parties under Sections 5(24)(a), 5(24)(h), and 5(24)(m)(i) of the Insolvency and Bankruptcy Code, 2016. The tribunal affirmed the adjudicating authority's decision to exclude the appellants from the CoC, as their inclusion would have allowed the corporate debtor's promoters to gain undue influence in the insolvency resolution process. Conclusion: The tribunal upheld the adjudicating authority's decision to declare Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited. Consequently, the appellants were excluded from the Committee of Creditors, and the original voting shares of Yes Bank Limited and Phoenix ARC Private Limited were restored. The appeal was rejected, and the tribunal found no reason to interfere with the adjudicating authority's order.
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