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2022 (12) TMI 499 - AT - Insolvency and BankruptcyRemoval of RP - expunging remarks against CoC as well as RP - HELD THAT - It is true that IA was filed for amendment of the relief in the Memo of Appeal but fact remain that said IA was filed much after the expiry of the period of limitation as prescribed under Section 61 of the Code. Besides this it is admitted fact that such IA was filed after filing of the reply by the Respondent No.1. In reply filed by the Respondent No.1 as preliminary objection it has been stated that without assailing the order on the point of reconstitution of CoC and induction of Respondents in CoC, the appellant was not authorised to assail the order in entirety even then it was earlier also argued on behalf of the appellant which is evident from the order dated 11.06.2021 passed by this Tribunal - while passing order for replacement of RP, the Learned Adjudicating Authority has not committed any error rather the situation warranted the Adjudicating Authority which has been dealt with in the order to take such stringent step. On examination of the impugned order in the present appeal it is evident that though some of the respondents were allowed to participate in 1st CoC Meeting subsequently without prior approval of the Adjudicating Authority they were restrained from participating in the proceeding. Similarly number of other irregularities were committed by the RP. In such situation it was imperative for the Adjudicating Authority to pass order for removal of the RP by the impugned order. Appeal dismissed.
Issues Involved:
1. Whether the Resolution Professional (RP) can remove financial creditors from the Committee of Creditors (CoC) for being related parties without prior approval of the Adjudicating Authority. 2. Whether related party financial creditors are entitled to be a part of the CoC without voting rights. 3. Whether the financial creditors in question were related parties to the corporate debtor. 4. Whether the affected parties should be given an opportunity of hearing before taking adverse actions against them. Issue-wise Detailed Analysis: 1. Removal of Financial Creditors from CoC Without Prior Approval: The Tribunal examined if the RP could remove financial creditors from the CoC for being related parties without prior approval from the Adjudicating Authority. It was concluded that no such power exists with the RP or CoC to review and reverse the status of a creditor without the Adjudicating Authority's approval. The RP had initially included certain financial creditors in the CoC and later excluded them without such approval, which was deemed arbitrary and beyond the RP's jurisdiction. 2. Entitlement of Related Party Financial Creditors in CoC: The Tribunal discussed whether related party financial creditors remain entitled to be part of the CoC without voting rights. It was clarified that even if a financial creditor is a related party, they remain a constituent of the CoC but without voting rights, as per Section 21(2) of the Insolvency and Bankruptcy Code (IBC). The RP's action of excluding these creditors was found to be contrary to the statutory provisions. 3. Status of Financial Creditors as Related Parties: The Tribunal analyzed whether the financial creditors in question were related parties to the corporate debtor. The RP had relied on a Securities Appellate Tribunal (SAT) order and a Transactional Auditor's report, which was found to be inconclusive and based on outdated information. The Tribunal held that the RP's determination of related party status was erroneous and not supported by substantial evidence. 4. Opportunity of Hearing to Affected Parties: The Tribunal emphasized the principle of 'audi alteram partem,' which requires that affected parties must be given an opportunity of hearing before any adverse action is taken against them. It was found that the RP had violated this principle by excluding financial creditors from the CoC without prior notice or hearing, thus breaching the principles of natural justice. Conclusion: The Tribunal upheld the Adjudicating Authority's decision to replace the RP and reconstitute the CoC, including the related party financial creditors without voting rights. The RP's actions were found to be arbitrary, biased, and in violation of statutory provisions and principles of natural justice. The appeal was dismissed, and the interim order was vacated.
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