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2022 (11) TMI 1074 - AT - Insolvency and BankruptcyWhether the Appellant is a related party of the Corporate Debtor? - Section 5(24) of IBC - objection was raised by a Member of CoC that Appellant being related party cannot be part of the CoC. HELD THAT - Memorandum of Understanding, which is admittedly executed between the parties on 26.11.2012, i.e., between the Appellant and the Corporate Debtor. The MoU provides AND WHEREAS the Second Party has offered to participate in development of the said project by way of bringing in funds into the said project . Under the MoU, the Second Party is Appellant before us - the clauses of the MoU clearly indicate that the MoU was nothing but a Joint Venture between the parties. Further, the only project of the Corporate Debtor is the project referred to in MoU dated 26.11.2012. The control as envisaged under Section 2(27), participation in the policy decision is also indica of control. The expression control came to be considered by the Hon ble Supreme Court in ARCELORMITTAL INDIA PRIVATE LIMITED VERSUS SATISH KUMAR GUPTA ORS. 2018 (10) TMI 312 - SUPREME COURT - the Hon ble Supreme Court in the above judgment while discussing the policy decision observed that policy decision would be that decision that would be beyond running day-to-day decisions, i.e., long term decisions. From the clauses of the MoU as noted above, it is clear that decision pertaining to pricing has to be taken with the mutual consent. Thus, there is sufficient control of the Appellant as envisaged in provisions of law. The Appellant being Joint Venture Company of the Corporate Debtor was clearly related party and no error has been committed by IRP in declaring the Appellant as related party . The present is a case, which cannot be said to be a case where IRP has suo-moto changed its decision. The IRP has corrected its earlier decision of admitting the claim of Financial Creditor by changing the category of Appellant as related Financial Creditor. What was held by this Tribunal was that RP cannot change the status of existing creditor on his own. The RP has to maintain an updated list of claims and is entitled to correct the errors, if any, in accepting or rejecting the claim. Further, it is not a case that IRP on his own has changed the category of Appellant. Rather, it was done on the objection of the Punjab National Bank, the Member of CoC, which objection was raised in the very First Meeting of the CoC held on 24.11.2021. Thus, present is not a case where IRP has reviewed its decision - there is no error in the decision of the IRP, changing the category of the Appellant from Financial Creditor to related Financial Creditor. The decision of the IRP has correctly been analysed by the Adjudicating Authority and has received its approval. Appeal dismissed.
Issues Involved:
1. Whether the Appellant is a 'related party' of the Corporate Debtor. 2. Whether the Interim Resolution Professional (IRP) had the jurisdiction to review the claim of the Appellant. 3. Whether the IRP's decision to change the category of the Appellant from Financial Creditor to related Financial Creditor was valid. Detailed Analysis: Issue 1: Whether the Appellant is a 'related party' of the Corporate Debtor. The central question in this appeal is whether the Appellant qualifies as a 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code, 2016 (the "Code"). Section 5(24)(i) defines 'related party' to include "a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary." The Appellant argued that it has no control over the Corporate Debtor, is not a shareholder or Director, and therefore does not meet the definition of 'related party' under Section 5(24) of the Code. The Respondent countered that the Appellant is an associate company of the Corporate Debtor based on a Memorandum of Understanding (MoU) dated 26.11.2012, which indicates that the Appellant has control over the Corporate Debtor. The MoU terms, especially paragraphs 5, 6, and 7, suggest that the Appellant has a significant influence over the Corporate Debtor, thus fitting the definition of 'associate company' under Section 2(6) of the Companies Act, 2013, which includes a joint venture company. The Tribunal found that the MoU between the parties on 26.11.2012, which involved the Appellant bringing funds into a project, indicates a joint venture. The clauses of the MoU, such as mutual consent for pricing and revenue sharing, demonstrate sufficient control and influence, qualifying the Appellant as a 'related party'. Issue 2: Whether the Interim Resolution Professional (IRP) had the jurisdiction to review the claim of the Appellant. The Appellant contended that the IRP, having initially admitted its claim as a Financial Creditor, lacked the jurisdiction to review and change the claim to that of a 'related party'. The Respondent argued that the IRP's decision was based on new information provided by Punjab National Bank during the Committee of Creditors (CoC) meeting. The Tribunal noted that the IRP did not act suo-moto but responded to an objection raised by a CoC member. The IRP sought clarification from the Appellant, which was not provided, and subsequently communicated the decision to categorize the Appellant as a 'related party'. The IRP's actions were thus seen as a correction based on new evidence rather than an arbitrary review. Issue 3: Whether the IRP's decision to change the category of the Appellant from Financial Creditor to related Financial Creditor was valid. The Appellant argued that the IRP's decision to change its status was arbitrary and should have been brought before the Adjudicating Authority. The Tribunal referred to a precedent in Rajesh Jain vs. Manoj Kumar Singh-IRP & Ors, where it was held that the IRP cannot change the status of a creditor on its own but must maintain an updated list of claims. In this case, the Tribunal found that the IRP acted on an objection raised by a CoC member and not on his own initiative. The IRP's decision to change the category was based on the new information and was communicated to the Appellant. The Tribunal concluded that the IRP's actions were appropriate and upheld by the Adjudicating Authority. Conclusion: The Tribunal dismissed the appeal, affirming the IRP's decision to categorize the Appellant as a 'related party'. The Tribunal found no error in the Adjudicating Authority's order, thereby validating the IRP's actions and the subsequent rejection of the Appellant's IA No.2325 of 2022. The appeal was dismissed with no costs.
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