2021 (11) TMI 464 - Tri - Insolvency and Bankruptcy

CIRP proceedings - Seeking dissolution of wrongfully constituted CoC of the Corporate Debtor - seeking removal of resolution professional of the Corporate Debtor - seeking grant of additional time to the new resolution professional for completion of verification of the claims of the creditors - amount of claim which is liable to be admitted - HELD THAT - It is clear that the Statutory Auditor and Management of the Corporate Debtor have disclosed the fact regarding non-provisioning of interest. It is also noted that in the case of secured financial creditors as well the same methodology has been adopted. Further, interest element has been considered in arriving at the debt owed to secured financial creditors as well as to unsecured financial creditors. The voting rights have also been ascertained accordingly. Thus, on the basis of parity being deployed by the RP in admitting claims of both category of financial creditors, there remains no reason to be aggrieved. It is a settled principle that one cannot approbate and reprobate at the same time. Thus, in case the interest element is to be excluded in computation of the claim amount of unsecured financial creditors, the same needs to be excluded from the claim amount of secured financial creditors as well. It may not out of place to mention that though secured financial creditors, on the basis of agreement include substantial amount of interest in their claims in spite of making provision for NPA and not claiming interest income in their books of account and their voting percentage is worked out accordingly and they control CIRP but in the end accept substantial haircuts and fraction of their outstanding amount and on the other hand, they do not wish to get claims of Unsecured Financial Creditors admitted in the same manner. This approach results into unfair advantage to secured financial creditors, i.e. Banks - the amount of claim of unsecured financial creditors has been correctly ascertained by the RP. Unsecured financial creditors, being a related party of the Corporate Debtor - HELD THAT - The contention of the RP that the applicant has relied on Report of 2016 and in such report relevant provisions of IBC have not been dealt with specifically, is agreed with. Hence, such report cannot be relied upon - the report obtained by RP has elaborately dealt with the aspect of the related party and taken into consideration the facts and legal provisions to hold that such financial creditors are not a related party of the Corporate Debtor - the report is agreed upon. The interchange of the managerial personal between various legal entities inter-se without any association with the Corporate Debtor is not a valid basis to hold that such parties fall under the category of related party of the Corporate Debtor, though they may be belonging to the same group - if on that basis it is established in a given case only then parties on the basis of past relations can be treated as related party. In the interest, none of the parties has served its connection with the Corporate Debtor after filing of application for initiation of insolvency proceedings against the Corporate Debtor and they were not a related party in recent years. Hence, this reason also they cannot be treated as a related party of the Corporate Debtor. Having held that action of the RP is correct in law in respect of both the issues raised by the applicant, there is no merit in the contention of the applicant for replacement of RP - there is no occasion to reconstitute the CoC. The application filed by the applicant stands rejected.

Summary

Issues Involved:
1. Dissolution of the wrongfully constituted Committee of Creditors (CoC) of the Corporate Debtor.
2. Removal and replacement of the Resolution Professional (RP).
3. Validity of the claims admitted by the RP, particularly those of unsecured financial creditors.
4. Determination of whether unsecured financial creditors are related parties to the Corporate Debtor.

Issue-wise Detailed Analysis:

1. Dissolution of the Wrongfully Constituted CoC:
The applicant, Bank of India, contended that the RP admitted claims of unsecured financial creditors without proper verification, reducing the voting share of secured financial creditors. The applicant alleged that the unsecured financial creditors were related parties to the Corporate Debtor, which led to a biased CoC. The Tribunal, however, found that the RP had followed the provisions and regulations of the Insolvency and Bankruptcy Code (IBC) 2016 meticulously. The Tribunal held that the RP had correctly computed the claims of both secured and unsecured financial creditors, including interest, based on financial contracts and financial statements. The Tribunal concluded that the CoC was constituted correctly, and there was no need for reconstitution.

2. Removal and Replacement of the RP:
The applicant sought the removal of the current RP and the appointment of a new RP, alleging bias and failure to discharge duties independently. The Tribunal noted that the RP had complied with all the relevant provisions and regulations. The Tribunal also observed that the applicant had not provided any substantial evidence to support the allegations against the RP. Consequently, the Tribunal rejected the request for the RP's removal and replacement, stating that the RP's actions were correct in law.

3. Validity of Claims Admitted by the RP:
The applicant argued that the RP admitted claims amounting to ?1587 crores against a principal amount of ?249.5 crores, mainly comprising interest, which was not provided for in the financial statements. The Tribunal examined the financial statements and found that both secured and unsecured financial creditors' claims included interest based on loan agreements and financial statements. The Tribunal emphasized that the same methodology was used for both categories of creditors, ensuring parity. The Tribunal held that the RP had correctly admitted the claims, including interest, and there was no reason for the applicant to be aggrieved.

4. Determination of Related Parties:
The applicant claimed that the unsecured financial creditors were related parties to the Corporate Debtor, citing a due diligence report. The RP countered by presenting another independent report, which concluded that the unsecured financial creditors were not related parties. The Tribunal reviewed both reports and agreed with the RP's report, which elaborately examined the facts and legal provisions. The Tribunal held that the unsecured financial creditors were not related parties to the Corporate Debtor, as they did not meet the criteria under Section 5(24A) of the IBC, 2016. The Tribunal also noted that past relationships alone did not suffice to classify them as related parties unless it was shown that they severed their related party status to dominate the Corporate Insolvency Resolution Process (CIRP).

Conclusion:
The Tribunal rejected the applications filed by the applicant, Bank of India, on all issues. The Tribunal upheld the actions of the RP, stating that the claims were correctly admitted, the CoC was properly constituted, and the unsecured financial creditors were not related parties. The Tribunal found no merit in the applicant's contentions and dismissed the applications, affirming the RP's conduct and decisions throughout the CIRP.