2022 (3) TMI 457 - AT - Insolvency and Bankruptcy

Removal of R3 to R7 form CoC - there is no debt own to them by the Corporate Debtor company - infusion of funds by each of these Respondent were retuned back to them through their related parties - transactions of purported creditors are vitiated by fraud - reconstitution of CoC after cancelling the entire voting rights - HELD THAT - It is clear that Adjudicating Authority has made observations against the Appellants and one of the premise on basis of which the order has passed recording finding against the Respondents (Appellants herein) that they have not filed any reply - the Adjudicating Authority from the observations in the impugned order noted in Para 22 indicate that Adjudicating Authority was under impression that the entire money invested by the Home Buyers have been rooted back to the relatives of Respondent No. 3 to 7, which is obviously not the position and the same ought to have been cleared by the Resolution Professional before the Adjudicating Authority. It is clear that we have not entered into the merits of the allegations made or claim made in the application of the Resolution Professional or Reply which was submitted by the Appellants before the Adjudicating Authority. At this stage, the Adjudicating Authority should reconsider the application after considering the reply submitted by the Appellants and after hearing them afresh. The order passed by the Adjudicating Authority which is also passed on the ground that no replies have been submitted by the Appellants deserves to be set aside and is hereby set aside. The matter is remitted to the Adjudicating Authority to pass fresh order after considering the replies filed by the Appellants as well as after giving fresh opportunity of hearing to both the parties - appeal allowed by way of remand.

Summary

Issues:
1. Removal of respondents from the Committee of Creditors (CoC) and as financial creditors/home-buyers due to alleged fraudulent transactions.
2. Adjudicating Authority's findings against the appellants for not filing a reply and the alleged circuitous transaction of a specific amount.
3. Locus standi of ex-directors to challenge the order and the need for reconsideration by the Adjudicating Authority after reviewing the replies filed by the appellants.

Issue 1: Removal of Respondents from CoC and as Financial Creditors/Home-Buyers

The Appeals were filed against a judgment of the Adjudicating Authority regarding the removal of certain respondents from the CoC and as financial creditors/home-buyers due to alleged fraudulent transactions. The Adjudicating Authority directed the Resolution Professional to reconstitute the CoC after canceling the voting rights of the respondents due to suspected fraud. The transactions of the purported creditors were deemed null and void, and the respondents were accused of attempting to defraud the Corporate Debtor company. The Appeals challenged this decision, highlighting discrepancies in the findings and the need for a fair consideration of the circumstances.

Issue 2: Adjudicating Authority's Findings Against the Appellants

The Adjudicating Authority's judgment raised concerns regarding the appellants' failure to file a reply and their involvement in a circuitous transaction involving a specific amount. The appellants contested these findings, arguing that they had indeed submitted replies and that the amount in question was part of a larger sum admitted by the Resolution Professional. The Authority's observations were criticized for not fully considering the appellants' submissions and for potentially misinterpreting the financial transactions involved. The Resolution Professional's role in clarifying the discrepancies before the Authority was also emphasized.

Issue 3: Locus Standi of Ex-Directors and Need for Reconsideration

In another Appeal, the locus standi of ex-directors to challenge the order was questioned, with the Resolution Professional arguing against their right to appeal. However, the Appeals Tribunal disagreed, stating that the ex-directors had a valid interest in contesting the allegations against them. The Tribunal emphasized the importance of a fair reconsideration by the Adjudicating Authority after reviewing the replies submitted by the appellants and providing both parties with a fresh opportunity to present their case. The Tribunal set aside the previous order and remitted the matter for a new decision, clarifying that their decision did not imply a judgment on the merits of the case, leaving it to the Adjudicating Authority to make an appropriate decision based on the revised considerations.

This detailed analysis of the judgment highlights the key issues raised in the Appeals and the Tribunal's decision to remit the matter for further consideration, emphasizing the importance of fair procedures and a comprehensive review of the submissions before reaching a final decision.