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2022 (7) TMI 833 - AT - Insolvency and BankruptcyCIRP proceedings - scope of related party - COC claims - whether Financial Creditor i.e. Respondent No. 2 to Appeal is a related party of the Corporate Debtor so as to be not part of the CoC? - HELD THAT - From the material on the record it is clear that Smt. Sunaina Singh, who is Director of the Financial Creditor at present was also Director of the Corporate Debtor but she resigned as Director of the Corporate Debtor on 25.03.2019 and w.e.f. 25.03.2019 Smt. Sunaina Singh has not been continuing as Director of the Corporate Debtor. Thus, there is no dispute that on the day when Section 7 Application was filed and the day when Section 7 Application was admitted Smt. Sunaina Singh was not Director of the Corporate Debtor, she having resigned six months prior to date of filing of the Section 7 Application. The fact that Smt. Sunaina Singh on 01.01.2019 requested the Corporate Debtor for redemption of non-convertible debentures and the fact that Smt. Sunaina Singh was a Director of the Corporate Debtor when non-convertible debentures were issued by the Corporate Debtor and held by Financial Creditor i.e. 13.01.2016, in view of the law laid down by the Hon ble Supreme Court in Phoenix ARC Pvt. Ltd. 2021 (2) TMI 91 - SUPREME COURT are not relevant criteria to hold Financial Creditor as related party to the Corporate Debtor. Thus, the present is a case where Smt. Sunaina Singh in praesenti was not a related party having resigned six months prior to filing of Section 7 Application. There is no averment or material on record to show that Smt. Sunaina Singh has resigned to cease to be Director of the Corporate Debtor with the sole intention of participating in the CoC and to sabotage the CIRP, by diluting the vote share of other creditors or otherwise - Appeal dismissed.
Issues Involved:
1. Whether the Financial Creditor is a related party to the Corporate Debtor under Section 5(24) of the Insolvency and Bankruptcy Code, 2016. 2. Whether the Financial Creditor should be excluded from the Committee of Creditors (CoC) under Section 21(2) of the Insolvency and Bankruptcy Code, 2016. 3. Whether the Appellant has the locus standi to challenge the constitution of the CoC. 4. Whether the earlier order dated 05.03.2021 operates as res judicata. Issue-wise Detailed Analysis: 1. Related Party Determination: The Appellant contended that the Financial Creditor should be considered a related party to the Corporate Debtor because Sunaina Singh, who was a Director in both entities, is related to Sita Chaudhary, a Director of the Corporate Debtor. The Appellant argued that Sunaina Singh, being the grand-daughter of Sita Chaudhary, makes the Financial Creditor a related party under Section 5(24) of the Insolvency and Bankruptcy Code, 2016. The Tribunal noted that Sunaina Singh resigned as Director of the Corporate Debtor on 25.03.2019, six months before the Section 7 application was filed. According to the Supreme Court's ruling in ‘Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. & Ors.', the related party status must be evaluated at the time of the debt's creation. However, the Tribunal found no evidence suggesting that Sunaina Singh's resignation was intended to manipulate the CoC or sabotage the Corporate Insolvency Resolution Process (CIRP). 2. Exclusion from CoC: The Appellant argued that the Financial Creditor should be excluded from the CoC as per the first proviso to Section 21(2) of the Insolvency and Bankruptcy Code, 2016, which states that a related party cannot be part of the CoC. The Tribunal referred to the Supreme Court's judgment in ‘Phoenix ARC Pvt. Ltd.', which clarified that a financial creditor who is not a related party in praesenti cannot be excluded from the CoC unless there is evidence of an intention to manipulate the CIRP. The Tribunal found no such intention or evidence in the present case. Therefore, the Financial Creditor was not excluded from the CoC. 3. Locus Standi of the Appellant: The Respondents argued that the Appellant, being an unsuccessful Prospective Resolution Applicant, has no locus standi to challenge the constitution of the CoC. The Tribunal noted that the Appellant was aware of all relevant details when submitting its Expression of Interest and Resolution Plan. The Appellant's plan was not put to vote, and another plan was approved by the CoC. The Tribunal held that the Appellant, not being a stakeholder in the CIRP process, lacks the standing to challenge the CoC's constitution. 4. Res Judicata: The Tribunal observed that a similar application (I.A. No. 344 of 2020) filed by an Operational Creditor was dismissed by the Adjudicating Authority on 05.03.2021. The Appellant's application (I.A. No. 728 of 2020) was disposed of in terms of this earlier order. The Tribunal held that the earlier order does not operate as res judicata, but the issues raised were similar and had been previously adjudicated. The Tribunal found no new grounds or evidence to reconsider the matter. Conclusion: The Tribunal concluded that the Financial Creditor is not a related party in praesenti and thus cannot be excluded from the CoC. The Appellant, lacking locus standi, cannot challenge the CoC's constitution. The earlier order dated 05.03.2021, while not res judicata, addressed similar issues, and no new grounds were presented. Consequently, the appeal was dismissed.
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