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2021 (2) TMI 879 - Tri - Insolvency and BankruptcyCIRP - Relating parties - right of representation, participation and voting at the meetings of the Committee of Creditors of the Corporate Debtor - whether the related party status of the Respondent No.2 has to be seen on the commencement date of insolvency process or from the date of initiating CIRP? - Sec.5(24) and 5(24A) of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - It is also pertinent to consider that as per Section 5 (12) the CIRP commencement date is to be taken from the date of admission of the application. It is true that Respondent No.2 had resigned from the position as a Director of the Corporate Debtor on 15.11.2019, that is after initiation of an application for CIRP. However, at that moment it cannot be said that the application will be admitted or rejected. So, this argument regarding eligibility as on the CIRP commencement cannot hold water. In this case, the Respondent No. 2 is participating in the CoC as a Financial Creditor with 45.60 voting percent along with his family members after resigning from the Directorship of the Corporate Debtor. The Respondent No. 2 herein is a Financial Creditor who is exercising its rights after stepping into the shoes of the creditors. Hence, saying that a creditor cannot be included in CoC, merely because the creditor was a related party of the Corporate Debtor before the commencement of CIRP, would be impractical and will prejudice the rights of the Financial Creditor. The matrix to decide whether the Respondent No. 2 is a related party of the Corporate Debtor or not is that what is the position or status of Respondent No.2 as on the date when it stepped into the shoes of the creditor or when he was made a part of CoC. As on the date of it becoming a part of the CoC, Respondent No. 2 was purely a Financial Creditor of the Corporate Debtor and hence, it cannot be said that because he was a related party of the Corporate Debtor prior to becoming a CoC member, Respondent No.2 is still a related party and cannot be a part of CoC. Since the Respondent No. 2 is a Financial Creditor of the Corporate Debtor and Respondent Nos.3 to 5 are his wife and Children, there is no illegality in constitution of CoC with Respondent Nos. 2 to 5. Hence Respondent Nos.3 to 5 will not come under the purview related party . Application dismissed.
Issues Involved:
1. Whether the respondents are "related parties" under Section 5(24) and 5(24A) of the Insolvency and Bankruptcy Code, 2016. 2. Whether the respondents should be disqualified from representation, participation, and voting in the Committee of Creditors (CoC) meetings. Issue-wise Detailed Analysis: 1. Determination of "Related Parties" under Section 5(24) and 5(24A) of the Insolvency and Bankruptcy Code, 2016: The applicant sought an order to set aside the inclusion of respondents 2 to 5 in the CoC, arguing they are related parties. The applicant contended that Respondent No.2, who resigned as a director on 15.11.2019, and his family members (Respondents 3 to 5) should be considered related parties, thus disqualifying them from CoC participation. The Tribunal examined the definition of "related party" under Section 5(24) and (24A) of the I&B Code. It was noted that Respondent No.2 resigned before the insolvency commencement date (20.12.2019) and thus was not a director at the time of CIRP initiation. The Tribunal emphasized that the status of related parties should be evaluated as of the CIRP commencement date, not the application filing date. As Respondent No.2 had resigned and was a financial creditor at the commencement date, he and his family members did not qualify as related parties under the Code. 2. Disqualification from Representation, Participation, and Voting in CoC Meetings: The applicant argued that the inclusion of Respondent No.2 and his family members in the CoC violated the proviso to Section 21(2) of the IBC, which restricts related parties from participating in CoC meetings. The applicant highlighted that Respondent No.2 had significant control over the Corporate Debtor, evidenced by his long tenure as a director and his involvement in the company's financial decisions. The Tribunal found that Respondent No.2, despite his previous directorship, was a financial creditor at the CIRP commencement date and not disqualified under Section 5(24)(a). Furthermore, Respondent Nos.3 to 5, being his family members, were also not disqualified. The Tribunal noted that the CoC was constituted following the law, and the respondents' inclusion did not violate the I&B Code provisions. Findings: The Tribunal concluded that the status of related parties should be assessed as of the CIRP commencement date. Since Respondent No.2 had resigned before this date and was a financial creditor, he and his family members were not disqualified from CoC membership. The Tribunal dismissed the applicant's contentions and upheld the respondents' rights to participate and vote in CoC meetings. Order: The application (IA/90/KOB/2020) was dismissed, affirming the inclusion of Respondent Nos.2 to 5 in the CoC as financial creditors, not related parties. Dated: 27th November 2020.
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