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TMI Blog2021 (1) TMI 1158X X X X Extracts X X X X X X X X Extracts X X X X ..... related party; to declare the actions of Resolution Professional in allowing the unauthorised representative of TSTPCL to file the claim and participate in CoC Meetings as illegal; and to exempt the time period lost in contesting this application for regaining its 67% voting right which has been unduly removed by the Resolution Professional. 2. The applicant has also claimed interim relief to order Resolution Professional not to open Resolution Applications received by him from the prospective Resolution Applicants and not to place respondent no. 1, i.e. Resolution Professional (sic.) not to (sic.) before the existing CoC with related party as one of its Members holding 67% voting rights; order the Resolution Professional not to convene any CoC Meeting with related party as one of its Members holding 67% voting rights. 3. This IA is filed against the decision of the Resolution Professional in admitting the promoter/related party/shareholder of the Corporate Debtor as a Member of CoC considering the claims of the related party arising from its equity ownership interest in the debt in the Corporate Debtor as 'Financial Debt' and placed the same in priority over the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeds of the built up space of the project. Thus, though balance consideration of Rs. 11,58,91,125/-and interest thereon were payable to TSTPCL it did not become due as on date of CIRP. 11. The applicant has challenged the decision of the Resolution Professional in admitting TSTPCL as a Member of the CoC on the following grounds: (A) That the Resolution Professional had failed to note that TSTPCL is a related party. The applicant relied on the definition of 'related party' as provided under subsection 24 to section 5 of the I&B Code. Relevant part of the said subsection as relied on by the applicant is reproduced hereunder for ready perusal: "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; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (j) any person who controls more than twenty per cent, of voting rights in the corporate debtor on account of ownership or a voting agreement; (l) any person who can control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed excerpts from Standalone Financial Statements for period 01.04.2014 to 31.03.2015 (ANNEXURE-III) to bring home the point that no tax (TDS) was deducted on the accrued interest to TSTPCL as it never became due or payable to TSTPCL. (H) The applicant further elaborately dealt with the provisions of the Memorandum of Understanding (MoU) entered into between the former APSTPCL and IOI Mauritius Limited and contended that no amount shown to be a contingent liability to TSTPCL was neither disbursed by the TSTPCL nor did the Corporate Debtor raise any fund in the form of money or price or consideration under the MoU or any contract or otherwise from it joint venture partner. (I) There was no debt and hence no actionable claim for TSTPCL. (J) The Resolution Professional failed to appreciate that no claim existed for TSTPCL as the Corporate Debtor has not breached any of its contract with TSTPCL. In this context the applicant referred to the following definitions under section 3 of the I&B Code: Section 3(10) .. Creditor Section 3(11) .. Debt Section 3(6) .. Claim Further the applicant contended that there ought to be a liability in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Phoenix Tech Park Pvt. Ltd.., on 21.03.2002. Ms. Madhumati Chukkapalli holds 99.99% shares in the applicant/company. Memorandum of Association (MoA) of the Corporate Debtor is at ANNEXURE-1. MoA of the applicant is at ANNEXURE-2. Directorship of Suresh Chukkapalli and Ms. Madhumati Chukkapalli is at ANNEXURE-3. 15. It is averred that the applicant had granted loans to the Corporate Debtor in 2007-08 and 2009-10. The applicant had granted loans to Corporate Debtor during 2005 to 2011 aggregating to Rs. 9 crores. In 2011, the applicant had sold its entire stake to Projects IOI Mauritius Limited. The applicant had executed a loan agreement on 29.01.2011 (ANNEXURE-6) pursuant to which the outstanding loan of Rs. 9 crores was to be repaid to the applicant by the Corporate Debtor within 18 months. Thus, the claim of the applicant arises out of loans given to the Corporate Debtor. 16. It is submitted that the applicant was the sole members of the CoC. Subsequently, Resolution Professional had included TSTPCL as a member of CoC in 7th CoC Meeting held on 15.06.2020. TSTPCL filed its original claim in Form-C (ANNEXURE-7) before the Resolution Professional for an amount of Rs. 29,12,24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of order of admission and moratorium). Any person who has right to claim payment, as defined under Section 3(6), is supposed to file the claim whether matured or unmatured. The question as to whether there is a default or not is not to be seen. 54. Therefore, stand taken by the respondents that the claim has not been matured cannot be ground to reject the claim. 55. Section 25 provides the duties of Resolution Professional. As per Section 25(2)(e), the Resolution Professional is required to maintain an updated list of all the claims. Aforesaid fact also suggests that the maturity of a claim or default of debt are not the guiding factors to be noticed for collating or updating the claims. The matter can be looked from another angle. It is only in case of 'debt' and 'default', a 'Financial Creditor' or 'Operational Creditor', may file applications under Section 7 or 9. The 'Corporate Applicant' has also right to file application under Section 10 for initiation of Corporate Insolvency Resolution Process against itself, if it has defaulted to pay the 'debt'. It does not mean that the persons whose debt has not been ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim of the applicant that "there is no debt and hence there can be no actionable claim for TSTPCL." By virtue of loan agreement entered into between the TSTPCL and the Corporate Debtor dated 09.05.2006 (ANNEXURE-12) an amount of Rs. 11,58,91,125/- is payable by the Corporate Debtor to TSTPCL. Books of accounts of the Corporate Debtor reflects the said loan payable to TSTPCL. (para 18) 28. The Resolution Professional contends that the Resolution Professional has neither reduced the voting percentage of the applicant arbitrarily nor the applicant is aggrieved by inclusion of TSTPCL as a Member of CoC. TSTPCL was allowed to form part of CoC in accordance with the provisions of the Code and the applicant is not aggrieved by such inclusion. (Para 20) COUNTER DATED 01.09.2020/02.09.2020 FILED ON BEHALF OF RESPONDENT NO. 3/TSTPCL. 29. It is submitted in para 5 of the Counter that the Government has alienated the subject property to AP Gems and Jeweller Park Pvt. Ltd. vide GO Ms. No. 481 on 12.04.2005 in respect of the property, viz. piece and parcel of land having TS No. 6/1/P of Ward No. 11 of Shaikpet Village and Mandal, situated at Road No. 10, Banjara Hills, Hyderabad admeasu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umati and Chukkapalli Sunitha. (iv) Srikanth Badiga was Project Coordinator of AP Gems Park Project. He was Director of AP Gems and signatory of Financial and Board Report FY 2011 onwards. 34. It is submitted that respondent no. 3 is neither a shareholder not investor in the joint venture of Corporate Debtor. The Corporate Debtor has allotted shares for an amount of Rs. 1.20 crore, which is equivalent to 11% of the total shareholding of the Corporate Debtor. Balance amount was treated as a loan by respondent no. 3 to the Corporate Debtor and loan agreement has been executed to that effect. A loan cannot be treated as an investment. Hence it cannot be said that respondent no. 3 is an investor and a shareholder in the Corporate Debtor. 35. Respondent no. 3 dismisses as not true the allegation that the Resolution Professional has capriciously allowed Venu Madhav, a retired employee under contractual employment with TSTPCL as General Manger to file the claim in Form-C on behalf of respondent no. 3 and unauthorisedly allowed him to represent in 7th, 8th and 9th CoC Meetings. WRITTEN SUBMISSIONS DATED 07.12.2020/08.12.2020 FILED ON BEHALF OF TSTPCL. 36. It is submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent/Corporation from the sale proceeds of Gems & Jewellery park. 41. In para 18 of the Written Submissions it is contended that the Corporate Debtor has neither made any efforts to sell Gems & Jewellery-Park from the date of agreement, viz. 09.05.2006 nor Gems & Jewellery Park is made operational so far. The respondent/Corporation cannot wait endlessly for sale of Gems & Jewellery Park and repayment of loan. WRITTEN SUBMISSIONS DATED 21.11.2020/09.12.2020 FILED ON BEHALF OF THE APPLICANT. 42. It is contended that the applicant was the sole voting Member of the CoC with 100% voting right. However, in 7th CoC Meeting dated 15.06.2020, respondent no. 3/TSTPCL was included as a Financial Creditor with voting share of 67%. Consequently, the applicant's voting share came down to 33% and respondent no. 3 has passed various resolutions, misusing its voting share, during 7th CoC Meeting dated 15.06.2020, 8th CoC Meeting dated 09.07.2020 and 9th CoC Meeting dated 27.07.2020. Copies of 7th and 8th CoC meetings (ANNEXURE V(g), and V(h), are at pages 190 and 204 respectively to the IA. 43. It is submitted in para 6 of the Written Submissions that TSTPCL had allotted land admeasuring ac. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and contended that from the last available Financial Statements of the Corporate Debtor, the applicant herein is neither promoter of the Corporate Debtor nor its shareholder. Hence the applicant does not fall within the meaning of 'related party' under the I&B Code. (Para 14) 49. As regards debt and due the applicant submits that as per agreement dated 03.07.2004 as amended by agreement dated 09.05.2006, the Corporate Debtor had to pay a sum of Rs. 5,93,23,625/-to respondent no. 3 out of sale proceeds of built up space of the project. However, as the said project had not been completed on the date of initiation of CIRP against the Corporate Debtor, the question of said amount of Rs. 5,93,23,625/- becoming due and payable does not arise. Thus, the Corporate Debtor does not owe any amount to respondent no. 3. 50. The applicant relied on decision of the Hon'ble NCLAT in NIKHIL MEHTA & SONS Vs. AMR INFRASTRUCTURE LIMITED, Company Appeal (AT) (Insolvency) No. 07 of 2017, wherein the Hon'ble Appellate Tribunal held: " .. .. Merely because some "assured amount" of return has been promised and it stands breached, such transaction would not acquire the status of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments of the Corporate Debtor. The applicant herein has claimed that respondent no. 3 herein clearly falls within the ambit of 'related party' as per clauses (a), (h), (j), (l) and (m) of section 5(24) of the I&B Code. It is also submitted that disclosures to that effect have also been made in the Books of Accounts of the Corporate Debtor and TSTPCL, which proves that respondents no. 3 and 4 are related parties as per the said definition provided in the I&B Code. 54. In response, the Resolution Professional has submitted that he had included TSTPCL as a Member of the CoC in its 7th Meeting held on 15.06.2020 based on various documents furnished by TSTPCL and in consonance with the provisions of the I&B Code. The Resolution Professional has further submitted that initially he had not included TSTPCL as part of CoC as it was being examined by him whether TSTPCL would fall within the meaning of 'related party' as defined u/s 5(24) of I&B Code. However, based on the documents provided by TSTPCL and having satisfied that it falls within the said definition had included it as a Member in its 7th CoC meeting dated 15.06.2020. The Resolution Professional further averred th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the matters relating to (a) to (r) of Article 62 of the Articles of Association is to be taken by an affirmative vote of three or more directors, which must include one director nominated by respondent no. 3, which clearly shows that in all important matters of the Corporate Debtor, the nominee-directors have significant role to play in protecting the interests of the Corporate Debtor and shareholders. Said Article 62 is reproduced hereunder: "62. Action on the following matters should be taken only by affirmative vote of 3 (three) or more directors ("disqualified majority") but there must be included in the qualified majority at least one director nominate by APTPC. a. Approval, modification of the contract of employment of the Managing Director. b. A decision to recommend to the general meeting appointment or change of statutory auditors; c. All transactions regarding buildings, land and other fixed assets, including the lease, purchase, sale, transfer and mortgage of these assets, d. Providing loans, guarantees or other extensions of credit, other than the ordinary course of business; e. Acquisition, creation permitting to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the corporate debtor; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (j) any person who controls more than twenty per cent, of voting rights in the corporate debtor on account of ownership or a voting agreement; (l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor; (m) any person who is associated with the corporate debtor on account of-- (i) participation in policy making processes of the corporate debtor; or (ii) having more than two directors in common between the corporate debtor and such person; or (iii) interchange of managerial personnel between the corporate debtor and such person; or (iv) provision of essential technical information to, or from, the corporate debtor," 57. It is the case of the applicant the respondent no. 3 is having 11% voting share in the Corporate Debtor and it is also the fact that balance amount of Rs. 5,93,23,625/- is payable by Corporate Debtor to respondent no. 3 vide loan agreement dated 09.05.2006. It is a fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of Association, respondent no. 3 clearly falls into the definition of 'related party' as defined under clauses (a), (h), (j), (1) and (m) of section 5(24) of the Code. We, therefore, come to the conclusion that respondent no. 3 falls under the definition as aforesaid. 59. When we juxtapose and read the Articles of Association as well as the definition of 'related party' as given in the I&B Code, it is evident that two nominee-directors of respondent no. 3 have significant influence in decision making process of the Corporate Debtor. The Articles of Association clearly mention that action on important matters should be taken only by affirmative vote of 3 (three) or more directors, but there must be included in the qualified majority at least one director nominate by APTPCL. 60. Article 62 plays vital role in deciding the subject matter in this case. From reading of Article 62 it is clearly evident that nominee-directors of respondent no. 3 have significant influence in the functioning of the Corporate Debtor and they cannot now claim that they are only nominee-directors and they do not have much role in the Corporate Debtor. Such a claim is untenable. 61. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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