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2022 (9) TMI 1164 - Tri - Insolvency and BankruptcySeeking inclusion of applicant bank into the CoC - Financial Creditor has been declared a related party to the Corporate Debtor (Corporate applicant) and has been ousted from the CoC - HELD THAT - The relationship of the Financial creditor (herein ) and the corporate debtor is that the Kanodia foundation controls 31% of voting rights or a general control over the corporate debtor and by virtue of the fact that the HVM is owned to the extent of 99.9% by KF, it also controls crosses the bar of holding more than the 20% voting rights stipulated in Section 5(24)(j). Thus KF-HVM- SUASTH are related parties. What has already been said regarding 5(24) (i) and is appropriately depicted in the organogram to conclude that the stipulations are evidently matching the current configuration of the parties/entities. Thus, in terms of the stipulations of the code, HVM is a body corporate of a holding company (KF) to which the corporate debtor is a subsidiary (to the extent of 31%) applicable and, therefore, there is no infirmity or contradiction in the letters of the RP given at page 57 of the application - Examining the status of the parties on the last postulate of Section 5(24)(h), it would be na ve to think that a director or a manager of the Suasth Healthcare would not be accustomed to act on the advice, directions or instructions of Kanodia Foundation, which would be synonymous with HVM being a 99.9% ownership of KF. Thus even on this count also the present case crosses the bar of 5(24)(h). There are no hesitation in holding that HVM is a related party of the Corporate Debtor i.e. Suasth Healthcare Foundation and that the RP has not erred in holding the same - application dismissed.
Issues Involved:
1. Determination of whether Hari Vitthal Mission (HVM) is a related party to Suasth Healthcare Foundation (Corporate Debtor) under Section 5(24) of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Authority of the Resolution Professional (RP) to adjudicate the status of a financial creditor as a related party. Issue-wise Detailed Analysis: 1. Determination of Related Party Status: The application was filed by HVM, a financial creditor, seeking inclusion back into the Committee of Creditors (CoC) after being ousted on the grounds of being a related party to the Corporate Debtor. The applicant argued that it had provided significant financial assistance to the Corporate Debtor and had initially been accepted into the CoC. However, the RP later categorized HVM as a related party based on legal opinions, which led to HVM's exclusion from CoC meetings. The applicant contended that the RP's determination was flawed and lacked legal backing. It asserted that none of the components of Section 5(24) of the IBC applied to its relationship with the Corporate Debtor. Specifically, the applicant argued that the definition of 'control' under the Companies Act, 2013, did not apply, and there was no basis for lifting the corporate veil in this case. The respondent, representing the RP, presented an organogram demonstrating the shareholding and control structure, showing that Kanoria Foundation (KF) held significant control over both HVM and the Corporate Debtor through various layers of subsidiary companies. This control was evidenced by the shareholding percentages and the organizational structure, indicating that KF, which owned 99.9% of HVM, also controlled the Corporate Debtor. The Tribunal examined the relationship under the touchstones of Section 5(24)(h), (i), and (j) of the IBC. It concluded that KF's control over the Corporate Debtor and HVM, through its significant shareholding and influence, established HVM as a related party. The Tribunal found that HVM, being a Section 8 company, fell within the ambit of Section 5(24)(i), which includes holding or subsidiary companies. Additionally, the Tribunal noted that KF's control over 31% of the Corporate Debtor's voting rights and its 99.9% ownership of HVM satisfied the criteria under Section 5(24)(j). 2. Authority of the Resolution Professional: The applicant argued that the RP lacked adjudicatory powers to declare it a related party, citing the Swiss Ribbons case, which emphasized that the RP's role is to collate and compile information, not adjudicate. The applicant contended that the RP should have sought the Tribunal's intervention instead of making a unilateral determination. The respondent countered this argument by citing Section 18(c) of the IBC, which mandates the RP to constitute the CoC, and Section 21(2), which outlines the composition of the CoC and excludes related parties from representation, participation, or voting. The respondent argued that the RP was within his rights to determine the related party status of a financial creditor. Analysis and Findings: The Tribunal analyzed the relationship between HVM and the Corporate Debtor, considering the shareholding patterns and control structures presented. It concluded that KF's substantial control over both entities established HVM as a related party under Sections 5(24)(h), (i), and (j) of the IBC. The Tribunal found no infirmity in the RP's determination and upheld the exclusion of HVM from the CoC. The Tribunal also addressed the RP's authority, affirming that the RP was empowered to determine the related party status of financial creditors as part of the CoC constitution process. The Tribunal rejected the applicant's contention that the RP had overstepped his authority. Conclusion: The application was rejected, and the Tribunal upheld the RP's decision to classify HVM as a related party to the Corporate Debtor, thereby excluding it from the CoC. The Tribunal found that the RP acted within his authority and that the relationship between HVM and the Corporate Debtor met the criteria for related party status under the IBC.
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