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TMI Blog2019 (10) TMI 1359X X X X Extracts X X X X X X X X Extracts X X X X ..... matrix to decide whether the Respondent No. 2 is a related party of the Corporate Debtor or not is that what is its position or status as on the date when it stepped into the shoes of the creditor or when it was made a part of CoC. As on the date of Respondent No. 2 paying off the dues of the Corporate Debtor, it had already divested its shareholding in the Corporate Debtor. As on the date of it becoming a part of the CoC, Respondent No. 2 was purely a financial creditor of the Corporate Debtor and hence, it cannot be said that because it was a related party of the Corporate Debtor some one year prior to it becoming a CoC member, it is still a related party and cannot be a part of CoC. The Respondent No. 2 is a financial creditor of the Corporate Debtor and there is no illegality in constitution of CoC. Application dismissed. - MA 1524/2019 in CP No. 1202/IBC/NCLT/MB/MAH/2017 - - - Dated:- 15-10-2019 - M.K. Shrawat, Member (J) and Chandra Bhan Singh, Member (T) For the Appellant : Zal Andhyarujina, Advocate, Revati Desai and Vikrant Zunjarrao i/b Zunjarrao Co. For the Respondents : Jitendra Kumar, I.P.S. Oberoi, Advocates, Mustafa Doctor, Sr. Counsel, Mustafa Do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or liquidation of the Corporate Debtor, as approved by CoC. 5. The Applicant submits that as on the date of this Company Petition, the promoter of Respondent No. 2, Mr. L.N. Mittal of the Mittal Group of Companies, through one of his group companies, also exercised positive control, right to appoint directors and affirmative voting rights over KSS Global BV, which in turn held 100% shareholding in KSS Petron. Thus, on the insolvency commencement date i.e. 01.08.2017, Respondent No. 2 was a related person of the Corporate Debtor. 6. It is further submitted that respondent No. 2 on its own volition decided to acquire the outstanding debt payable to the financial creditors of the Corporate Debtor around October, 2018 pursuant to Hon'ble Supreme Court's direction in the case of Arcelor Mittal India Private Limited v. Satish Kumar Gupta Ors., (2019) 2 SCC 1, that Arcelor Mittal India Private Limited, being a Resolution Applicant in that case, should pay off the NPAs of their related corporate debtors within a period of two weeks..... to resubmit their resolution plans. 7. Pursuant to such acquisition, the Corporate Debtor was left with only two financial creditors - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of CIRP in respect of the Corporate Debtor, both Respondent No. 2 and the Corporate Debtor were entities under the control of Arcelor Mittal Group. The relevant extract of the judgement is reproduced herein below: 110. Insofar as the transaction with regard to KSS Petron is concerned, the facts are as follows:- on 3.3.2011, Fraseli, an entity registered and incorporated in Luxemburg, which is managed and controlled by Shri L.N. Mittal, held 32.22% of the shareholding of KSS Global, a company domiciled in the Netherlands. On 19.5.2011, by a Shareholders Agreement entered into between KSS Holding, KSS Infra EALQ, Fraseli and KSS Global, the first three companies were each given a right to appoint an equal number of directors on the board of directors of KSS Global, which in turn held 100% of the share capital of KSS Petron, a company incorporated in India. Fraseli was also granted affirmative voting rights on decisions regarding certain specified matters, both at the board and the shareholder level, in respect of KSS Global and all companies controlled by it, which would include KSS Petron. As has been stated hereinabove, KSS Petron was declared as an NPA on 30.9.2015. As i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her it was eligible to participate, represent or vote in the CoC as a financial creditor of the Corporate Debtor, shall be the date when the RP collated the claims and constituted the CoC under the I B Code. The Respondent No. 2 was a related-party in September 2017 and thus was not entitled to sit in CoC. In this regard, the Ld. Counsel for the Applicant has placed reliance on the findings of the Hon'ble Supreme Court in the matter of Arcelor Mittal (supra), wherein it was held that: 7. It then went on to hold: 19. Thus, the date on which a person stands disqualified would be the date of commencement of the Corporate Insolvency Resolution Process of the Corporate Debtor, i.e., ESIL. This date is 02.08.2017 on which date, Arcelor Mittal India Pvt. Ltd., is disqualified in view of the fact that its connected persons of AM Netherland and L.N. Mittal are disqualified as they have an account or an account of the corporate debtor under their management and control or of whom they are a promoter classified as NPA under the guidelines of the Reserve Bank of India and at least a period of one year has lapsed from the date of such classification till the date of commencement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor by virtue of assignment of debt of the earlier Financial Creditors. 18. It is further submitted that though the Hon'ble Supreme Court has held Respondent No. 2 to be ineligible under section 29A(c) of the Code for submitting a resolution plan in the matter of CIRP of Essar Steel India limited on account of its earlier association with the promoters of the Corporate Debtor, however, being considered as ineligible under section 29A(c) of the I B Code does not automatically make Respondent No. 2 a related party of the Corporate Debtor. The Respondent No. 2 was not a related party of the Corporate Debtor when it was inducted into CoC. Hence, the RP submits that in light of above said response, this application ought to be rejected. SUBMISSIONS BY RESPONDENTS No. 2 3 19. The Respondent No. 2 submits that this application is an obvious afterthought as it cannot be the case that the Applicant was unaware of Respondent No. 2 making payment of overdue NPA accounts of the Corporate Debtor on 17.10.2018 in accordance with the Supreme Court judgement (supra). 20. In this case, the Respondent No. 2 negates the applicability of 'reasonable proximity tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties and perused the documents produced on record. By and large, the major argument of the Applicant is that the rejection of its resolution plan by CoC is wrong in law because the majority stakeholder in CoC is the related-party of the Corporate Debtor. It is an unassailable contention that the CoC cannot consist of related-parties as financial creditors. It is also undisputed that as on CIRP commencement of the Corporate Debtor i.e. 01.08.2017, the Respondent No. 2 was a related-party of the Corporate Debtor. But this is also true that as on 01.08.2017, Respondent No. 2 was not a part of CoC. The Respondent No. 2 divested its shareholding in the Corporate Debtor pursuant to the Hon'ble Supreme Court's Order (supra). Pursuant thereto, Respondent No. 2 acquired the debts extended by other creditors of the Corporate Debtor and acquired a weighed voting share of 99.74% in the CoC. The question which arises here is that whether the related-party status of the Respondent No. 2 has to be seen on insolvency commencement date or the date when it became part of the CoC. If the answer supports former contention, then constitution of CoC having related-party is wrong in law. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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