2024 (1) TMI 40 - AT - Insolvency and Bankruptcy

Seeking direction to the IRP to admit their claim in full - Seeking not to treated as a related party of the Corporate Debtor - assignment of voting rights in respect of Corporate Insolvency Resolution Process - HELD THAT - The Adjudicating Authority has committed a patent error in holding that a related party has a right to join the meeting of the CoC - Adjudicating Authority has further erred in observing that the Appellant did not refer to a specific sub clause of Section 5(24) of the Code whereas it has in fact referred to Clause 5(24)(m) and also gave the detail of the name of the directors by way of a chart which also forms part of Para 11 of the impugned order but still there has been no finding in this regard. Further, the Adjudicating Authority has erred in making specific observation that no material has been brought on record except general observations given by the RP on the basis of the order of SAT whereas the Appellant has produced on record a detailed summary which has been prepared on the basis of MCA Data which though has been reproduced in the impugned order from pages 89 to 111 but it has not been referred to in the discussion part where it has been rather held that no material has been produced except for the order of the SAT - The argument raised by the Respondent that every provision of Section 5(24) has its own effect and impact which has to be assessed on the basis of the evidence may be attractive but even that part has not been seen by the Adjudicating Authority while passing the impugned order. This is a fit case for allowing the appeal for the purpose of its remand to the Adjudicating Authority to decide it afresh after take into consideration the entire evidence brought on record by the Appellant and Respondent and then passing a speaking order - matter is remanded back to the Adjudicating Authority to decide it again by recording specific findings on the basis of material which has been brought on record - appeal allowed by way of remand.

Summary

Issues Involved:

1. Right of related parties to join the Committee of Creditors (CoC) meetings.
2. Determination of whether Respondents No. 1 to 13 are related parties under Section 5(24) of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Quantum of debt owed by the corporate debtor to the applicant-financial creditors.
4. Validity of the order of the Adjudicating Authority.

Summary:

1. Right of Related Parties to Join CoC Meetings:

The Appellate Tribunal held that the Adjudicating Authority committed a patent error in law by observing that whether or not Respondents No. 1 to 13 are related parties, they have a right to join the meetings of the CoC. This finding was deemed "patently illegal" and "contrary to the provisions of Section 21(2) proviso" of the IBC, which states that a related party of the corporate debtor shall not have any right of representation, participation, or voting in a meeting of the CoC. Consequently, the Tribunal set aside this finding.

2. Determination of Related Parties:

The Tribunal noted that the Adjudicating Authority erred in observing that the Appellant did not refer to a specific sub-clause of Section 5(24) of the IBC. The Appellant had, in fact, referred to Clause 5(24)(m) and provided detailed information about the directors, which was included in the impugned order but not addressed in the findings. The Tribunal emphasized that the Adjudicating Authority failed to consider the detailed summary prepared on the basis of MCA Data, which was reproduced in the impugned order but not discussed in the decision-making process. The Tribunal also highlighted that the Adjudicating Authority dismissed the order of the Securities Appellate Tribunal (SAT) without proper consideration, despite it detailing the fraudulent transactions and interchangeable management between Tayal Group and Silvassa Group.

3. Quantum of Debt:

The Tribunal acknowledged the Adjudicating Authority's direction to the RP and the applicant-financial creditors to verify the quantum of debt owed within fifteen days. The Tribunal noted that the RP had initially contradicted itself by admitting the principal amount while disputing the interest, and directed further verification to resolve this issue.

4. Validity of the Order of the Adjudicating Authority:

The Tribunal found that the Adjudicating Authority failed to properly evaluate the evidence presented by the Appellant, including the detailed summary based on MCA Data and the SAT order. The Tribunal concluded that the Adjudicating Authority's decision was flawed and required a fresh assessment. Consequently, the Tribunal allowed the appeal, set aside the impugned order, and remanded the matter back to the Adjudicating Authority for a fresh decision based on the entire evidence brought on record by both parties.

The parties were directed to appear before the Adjudicating Authority on 06th November, 2023.