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TMI Blog2021 (2) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... the CoC as a Financial Creditor with 45.60 voting percent along with his family members after resigning from the Directorship of the Corporate Debtor. The Respondent No. 2 herein is a Financial Creditor who is exercising its rights after stepping into the shoes of the creditors. Hence, saying that a creditor cannot be included in CoC, merely because the creditor was a related party of the Corporate Debtor before the commencement of CIRP, would be impractical and will prejudice the rights of the Financial Creditor. The matrix to decide whether the Respondent No. 2 is a related party of the Corporate Debtor or not is that what is the position or status of Respondent No.2 as on the date when it stepped into the shoes of the creditor or when he was made a part of CoC. 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 he was a related party of the Corporate Debtor prior to becoming a CoC member, Respondent No.2 is still a related party and cannot be a part of CoC. Since the Respondent No. 2 is a Financial Creditor of the Corporate Debtor and Respondent Nos.3 to 5 are his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inant groups and the group members are closely related to each other. The voting shares of the Persons are as under: - Respondents Name of Financial Creditor Voting Share Respondent No.2 Jose T Polachira 45.60% Respondent No.3 Mercy K I 27.17% Respondent No.4 Donia Ann Jose 0.41% Respondent No.5 Shaniya Mar Jose 6.10% Thomas Varghese M 10.68% Elizabeth Varghese 0.88% Bejoy Varghese 1.04% 3. The applicant submitted that during the first meeting of CoC the applicant raised objection to the extent that Respondent No.2 and his relatives shall not have any right of representation, participation or voting in the meeting of the CoC in terms of proviso to Section 21(2) of the IBC, as they are related parties. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolvency Proceedings, and he is trying to evade accountability in the proceedings and escape disqualification to be a member of the CoC and with malice intention to get into the CoC as a member with a dominant voting share in its meetings. For the aforesaid reasons, the applicant prayed that the reliefs sought for may be allowed. SUBMISSIONS BY THE RESOLUTION PROFESSIONAL 8. The learned Resolution Professional in his reply submitted that Respondent No.2 has resigned from the Directorship on 15.11.2019, which is prior to the insolvency commencement date on 20.12.2019. Therefore Respondent No.2 cannot be considered as a Director. Section 5 (24) (a) does not bar a former Director who is also a Financial Creditor, from participating and voting in the meeting of CoC. It is further stated that the Respondent No.2 s resignation from the Directorship is not disputed by the applicant. Since Respondent No.2 does not disqualify under Section 5 (24) (a) his relatives are not barred from participating in the meeting of the CoC. Respondent No.3 and 4 are not shareholders of the Corporate Debtor. 9. It is further submitted by the Resolution Professional that none of the members of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rming Assets (NPA) and accordingly had been subjected to recovery proceedings could be settled utilizing the loan so raised through the Directors of the Company. The loans so brought in by Sri P.M.Mathen Panicker, Thoms Varghese (who later resigned from the Board) Varghese Thomas, Jose T. Polachiara and Thomas Abraham/family members were classified as secured loans in the books of the Company within the overall limit of ₹ 450 lakhs. If such a wise and prudent step was not initiated by the Board, the Company would have fallen totally sick very earlier. Hypothecation agreement and supplementary agreements with respect to the loans were executed jointly by Sri P.M. Mathen Panicker and Jose T Polachira on 29.06.2010 and 31.03.2016, duly affixing the common seal in the presence of another director of the Company. The agreements so entered into with the creditors who advanced new loans were filed in time with the Registrar of Companies, Ernakulam, creating charge against the assets of the Company. Amount of loans brought in by them over and above the approved limit of ₹ 450 lakhs were treated as unsecured loans and shown in the books of accounts of the Company. The Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the mobile number of the Respondent No.2 while preparing Annual Return, that could only be by way of an omission and that cannot be construed even to contend that the resignation of the Respondent No.2 was only a ruse to defeat the process of law and that he was still having control of the Company. The further averment that the 2nd Respondent resigned from the Board of the Company on the eve of the insolvency commencement date, after receipt of the notice from this Tribunal is absolutely false. The mere fact that he had signed the financial statements of the Company for few years does not enable anybody to draw any such conclusions and these are not the criteria for establishing that the Respondent No.2 is involved in the Company even after his resignation. 12. It is further stated that the CoC is already constituted in accordance with law, independent of any unfair or unreasonable influence from the present or past Corporate Debtor. These Respondents have denied the averments against them as false and baseless. The Respondents 2 to 5 are secured creditors and they are entitled to be members of the CoC and exercise the voting power. The apprehension of the applicant that such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the CIRP commencement cannot hold water. In this case, the Respondent No. 2 is participating in the CoC as a Financial Creditor with 45.60 voting percent along with his family members after resigning from the Directorship of the Corporate Debtor. The Respondent No. 2 herein is a Financial Creditor who is exercising its rights after stepping into the shoes of the creditors. Hence, saying that a creditor cannot be included in CoC, merely because the creditor was a related party of the Corporate Debtor before the commencement of CIRP, would be impractical and will prejudice the rights of the Financial Creditor. 17. In this connection this Tribunal refers to the definition related party under Section 5 (24) and (24-A) of the I B Code which is reproduced below: - Section 5 (24) related party , in relation to a corporate debtor, means- a. a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; b. key managerial personnel of the corporate debtor or a relative of key managerial personnel of the corporate debtor; c. a limited liability partnership or a partnership firm in which a director, partner, or manager ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l is a partner; c. a person who is a trustee of a trust in which the beneficiary of the trust includes the individual, or the terms of the trust confers a power on the trustee which may be exercised for the benefit of the individual; d. a private Company in which the individual is a director and holds along with his relatives, more than two per cent. of its share capital; e. a public Company in which the individual is a director and holds along with relatives, more than two per cent. of its paid-up share capital; f. a body corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of the individual; g. a limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, act on the advice, directions or instructions of the individual; h. a person on whose advice, directions or instructions, the individual is accustomed to act; i. a Company, where the individual or the individual along with its related party, own more than fifty per cent. of the share capital of the Company or controls the appointment of the boar ..... 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