2024 (2) TMI 736 - AT - Insolvency and Bankruptcy

Rejection of application seeking a direction to the Resolution Professional to include the Appellant in the Committee of Creditors (CoC) and also to provide voting rights to the Applicant/ Appellant - The appellant, a foreign financial lender, extended loans to the Corporate Debtor - Appellant is a related party of the Corporate Debtor or not - HELD THAT - Appellant has nothing to do with day to day functions of the Corporate Debtor, appointment of staff and employees of the Corporate Debtor or any of the day to day functions. The Adjudicating Authority again committed error in treating actions of Rembert Biemond as actions of Appellant. The Adjudicating Authority observed that Rembert Biemond is Managing Director of the Appellant - It is already noticed that when there are more than one Managing Director, functions on behalf of the Appellant can be carried out at least by two Managing Directors. Present is not a case that there is any evidence that two Managing Directors did any action which may suggest or indicate participation in the policy making process of the Corporate Debtor, therefore, finding of the Adjudicating Authority with regard to Section 5(24)(m)(i) is without any basis and cannot be sustained. The Adjudicating Authority failed to notice that Rembert Biemond is in the Board of Director of the Corporate Debtor since 2017 when he was nominated by a foreign investor of the Corporate Debtor and Rembert Biemond was not nominated by the Appellant in the Board of Corporate Debtor. Hence, the whole observation is fallacious. In spite of pleading of the Appellant that there was no material to suggest essential technical information were received by the Appellant or were given by the Appellant to the Corporate Debtor. No finding has been returned referring to any material. Appellant was only Financial Creditor who has extended loan to the Corporate Debtor. There being neither any pleading regarding provision of essential technical information to, or from, the Corporate Debtor nor any proof, there was no occasion to come to the conclusion that condition under Section 5(24)(m) were fulfilled - The conclusion of the Adjudicating Authority were wholly baseless. The Adjudicating Authority having not accepted the Appellant being related party on the basis of Section 5(24)(d) and holding of related party only on the basis of Section 5(24)(h) and (m), which already found that Section 5(24)(h) and (m) are not attracted, there are no substance in submission of learned counsel for the IRP that Appellant is a related party. The Adjudicating Authority committed error in holding the Appellant as a related party and rejecting application filed by the Appellant - the impugned order set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the Appellant should be included in the Committee of Creditors (CoC) with voting rights.
2. Whether the Appellant is a "related party" under Section 5(24)(h) and 5(24)(m) of the Insolvency and Bankruptcy Code.

Summary:

Issue 1: Inclusion in CoC with Voting Rights
The Appellant, a foreign financial lender, sought inclusion in the CoC and voting rights. The application was initially rejected by the Adjudicating Authority. The Appellant argued that it should be included in the CoC with voting rights as it had extended a Reserve Bank of India-approved external commercial borrowing to the Corporate Debtor. The Tribunal concluded that the Adjudicating Authority erred in rejecting the Appellant's application and directed the IRP to include the Appellant in the CoC with voting rights proportionate to the admitted claim.

Issue 2: Related Party Status under Section 5(24)(h) and 5(24)(m)
The Adjudicating Authority had held that the Appellant was a related party under Section 5(24)(h) and 5(24)(m) due to the involvement of Rembert Biemond, a common Director in both the Appellant and the Corporate Debtor. The Tribunal found that:
- Section 5(24)(h): There was no evidence that the Corporate Debtor acted on the advice, directions, or instructions of the Appellant. The actions of Rembert Biemond as a Director of the Corporate Debtor were not attributable to the Appellant.
- Section 5(24)(m): There was no material evidence to prove that the Appellant participated in the policy-making processes of the Corporate Debtor or provided essential technical information. The Adjudicating Authority's conclusion was based on erroneous assumptions.

The Tribunal concluded that the Adjudicating Authority committed an error in holding the Appellant as a related party and set aside the impugned order, allowing the Appellant's inclusion in the CoC with voting rights.