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TMI Blog2020 (12) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... f the affairs of the Company. This Bench therefore concludes that the Applicants are Related Party in terms of Section 5(24)(a) and also in terms of Section 5(24)(m)(i) - The Applicants were not only the directors of the Company and covered squarely under Section 5(24)(a) of the Code but they were also managing the day-to-day affairs of the Company as per their own submissions and therefore, they are perfectly covered under Section 5(24)(m)(i) of the Code. The Bench has no doubt in its mind that the Applicants were aware of this fact and it is for this reason that the Applicant No. 2, as brought out by the Resolution Professional, has attended the CoC meeting held on 24.06.2020 (1st CoC meeting) as well as the 2nd CoC meeting held on 12.09.2020, as Suspended Director of the Company. The claim amount which the Applicants want to be treated as Financial Debt - HELD THAT:- The Bench is of the considered view that the payments given, as per MoU dated 10.12.2018, is only for acquisition of shares and not as financial debt - This Bench is aware of the fact that the sum of ₹ 50 Lakhs was paid by the Applicant on behalf of the Corporate Debtor to SIDBI. It has been paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein are mainly the investors and shareholders of the Corporate Debtor, i.e., E. G. Global Estates Limited, having 48% of the shareholding. Respondent No. 1 herein is Small Industrial Development Bank of India (hereinafter referred as SIDBI ) which had initiated insolvency proceedings against the Corporate Debtor under the I B Code. Respondent No. 2 is the Interim Resolution Professional of the Corporate Debtor. Respondent No. 3 is the elected representative of home buyers of Corporate Debtor in the 1st CoC meeting dated 24.07.2020. Respondent No. 4 is the Corporate Debtor. Respondents No. 5 to 9 are the promoters/ directors of the Corporate Debtor and personal guarantors to the financial loan of SIDBI. Respondent No. 10 is one of the alleged Financial Creditor of the Corporate Debtor who has filed his financial claim and the same is under verification. 3. The Applicant submits that the Respondents No. 3 to 7 approached the Applicants somewhere in 2018 and told that the Corporate Debtor was facing some financial issues. They mentioned to the Applicants that the Corporate Debtor was in dire need of funds to complete the construction of bungalows/ leisure resort project name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the Corporate Debtor were never disclosed to the Applicants and Respondents No. 5 to 9 were having access of the same. It is further submitted that the posts of Additional Director of the Applicants No. 2 3 were vacated automatically as per the provisions of the Companies Act, 2013 since Respondents No. 5 to 9 failed to conduct Annual General Meeting (AGM) of the Corporate Debtor in 2019. The said fact was also confirmed by the Respondents No. 5 to 9 in their notice dated 10.12.2019 sent to the Applicants. The Respondents No. 5 to 9 were having access for the compliance with the ROC and they did not updated in ROC portal about the Applicants No. 2 3 s vacating of post as Additional Directors, due to which the Applicants No. 2 3 reflect as Directors and not Additional Directors till date. The same was also reflected in earlier MA No. 3182 of 2019. 6. The Applicant then submits that the Applicants started following up with the Respondents No. 5 to 9 for implementation of the said MoU at the earliest since the condition precedent of the said MoU was to acquire 100% shares of the Corporate Debtor and the Applicants were infusing huge funds towards construction acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents No. 5 to 9 as well as SIDBI. Inspite of all the efforts of the Applicants, the said Company Petition was heard and admitted by this Tribunal on 24.06.2020 and the said M.A. was dismissed. The Applicants further submit that by virtue of the said order dated 24.06.2020 passed in the Company Petition, Interim Resolution Professional (IRP) started the Resolution Process as per the provisions of I B Code and sought claims through publication. The Applicants, being the Financial Creditor of the Corporate Debtor, submitted their claim by filing Form-C along with supporting documents to the IRP, but the IRP considered Applicants No. 2 3 as the Suspended Directors of the Corporate Debtor. The Applicants, through their written Representation dated 23.07.2020, illustrated to the IRP about why the Applicants deserve to be considered as Financial Creditors and not as Suspended Directors. The Applicants also submitted all the supporting documents and quoted latest case laws along with said Representation to the IRP, but the IRP did not even considered the said Representation. 10. The Applicant further submits that the IRP included various alleged Bungalow Owners in the COC and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without intimation or approval of SIDBI and as such any agreement without intimation or approval of SIDBI will not create any legal rights of whatsoever nature. 14. The Respondent No. 1 further submits that the Applicants have primarily relied upon the two documents to be considered as a Financial Creditor and those are MoU dated 10.12.2018 and Loan Agreement dated 12.02.2019. These two are the two distinct transactions and cannot be conjoined together to derive at one claim. A financial debt cannot be claimed through such a MoU as the same is for the purpose of investment in the Corporate Debtor, thereby obtaining a shareholder s capacity within the Corporate Debtor. 15. The Respondent No. 1 submits that the Applicants are the related party to the Corporate Debtor only through the Loan Agreement dated 12.02.2019 which was executed between the Applicants and the Corporate Debtor and as such cannot be made part of the COC. Moreover, by virtue of Proviso to Section 21 (2), a Financial Creditor being a related party as mentioned therein do not have any right of representation, participation or voting in the COC. It is also submitted that the Applicant No. 2 had also attended the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata of the Corporate Debtor as per the records of MCA website which showed his position as a Director of the Corporate Debtor. The Applicant No. 2 also had accepted the seat on the table as a Suspended Director during the two COC meetings and accepted the notices, agenda and minutes of the COC meetings in his capacity as a Suspended Director . d) The Applicants hold equity shares in the Corporate Debtor which categorizes them as Related Party in terms of the provisions of Section 5(24)(a) and 5(24)(d) of the Code, thereby no voting shares can be given to the Applicants in terms of provisions of the Code. e) On perusal of the Form C, i.e., the claim form, received from the Applicant No. 1, with it a Board Resolution dated 29.11.2018 of the Corporate Debtor was annexed which shows that any infusion of funds from the present Applicant into the Corporate Debtor was purely in the nature of takeover offer and not in the nature of financial disbursement with the time value of money which is a pre-requisite for a debt to be covered under Section 5(8) of the Code. 19. The Respondent No. 2 further submits that the Applicants relies on MoU dated 10.12.2018 entered into bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich stood rejected in the present case. So, the Respondent No. 2 reached out to some other forensic auditors and sought quotations below the limit of ₹ 4 lacs as it is well within his duties to appoint a forensic auditor in terms of provisions of Section 25(2)(d) of the Code. Thereafter, the Respondent No. 2 received a quotation of ₹ 3.75 lacs and the appointment of M/s. Mazars Business Advisors Pvt. Ltd. was finalized and the team would be able to submit its report sometime in next 2 months since the financial statements for the last 4 years are not available. 24. The Respondent No. 2 lastly submits that the prayers of the Applicants are not maintainable as the Application is frivolous and is only with and intention to stall the entire CIRP of the Corporate Debtor and the allegations amongst the suspended promoters/ directors interse show that the issue is more of oppression and mismanagement . Contentions of the Respondent No. 5: 25. The Respondent No. 5 submits that the Respondent No. 5 was neither the director nor received any notice regarding the said Board Meeting because the Respondent No. 5 had resigned from the Directorship on 11.02.2010. The copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Corporate Debtor towards the home buyers. It is then submitted that the Applicants have failed to perform their obligations under the said MoU. 29. The Respondent No. 5 further submits that when the Respondent No. 5 was in Board of the Corporate Debtor, there was no likelihood of the Corporate Debtor becoming NPA in the books of any lender. Later, the Applicants stepped in to protect the Corporate Debtor from becoming NPA. So, the allegations on the Respondent No. 5 for not attending the hearing of the Company Petition before this Tribunal, even after resigning from the post of Director, is self-explanatory. The Respondent No. 5 then had to appear during the hearing of the M.A. 3182 of 2019 because of the baseless allegations against the Respondent No. 5 by the Applicants. 30. The Respondent No. 5 lastly submits that the Applicants had not shown any proof of the amount and to what extent the Applicants are the financial creditor of the Corporate Debtor. Secondly, the prayers sought are, in the nature of setting the entire process in motion again from the beginning and rejecting the decisions of the CoC taken so far in the matter, nothing but the technique to delay the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said MoU only in the capacity of shareholder though the designation as Director was wrongly mentioned in the MoU. Rejoinder filed by the Applicants against the Replies of the Respondents: 34. The Applicants submit that the contention raised by SIDBI regarding related party is factually incorrect and misleading. As per the provision of Section 161(1) of the Companies Act, 2013, the post of the Additional Director will be automatically vacated if the AGM of the company is not conducted within 6 months from the end of the respective financial year. Section 96 of the Companies Act, 2013 compels any company to hold AGM within 6 months from the date of closing if the financial year. The said fact was also confirmed by way of a notice dated 10.12.2019 sent by promoters of the Corporate Debtor to the Applicant. With the said facts, it proves beyond doubt that the Applicants No. 2 3 cannot be dragged under the tag of the related party . 35. It was then submitted by the Applicants that since the shareholding of Applicants No. 2 3 is 4.09% and 7.48% respectively which is below 20% and therefore, the bar provided by the Code under Section 5(24)(j) does not apply. In addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor on 11.02.2019 and since they were additional director, as per the provisions of Section 161 of the Companies Act, 2013, additional director have to automatically vacate if the AGM of the Company is not conducted within six months from the end of the respective financial year. The Applicant mentions that as per the Section 96 of the Companies Act, 2013, the Company necessarily have to hold the AGM in six months time from the closing of the financial year and holding the AGM was the responsibility of other Directors. Resultantly, commencing September 2019, they cease to be Additional Director and therefore are not related party. This Bench, in order to formalize its views on the subject, has also relied on MA 3182/2019 filed by the same set of Applicants before the final consideration of Admission of the Corporate Debtor under CIRP wherein the Bench notes the following two facts as mentioned by the same set of Applicants. These facts as reproduced from the MA are as under: a. .. Applicant No. 2 and 3 herein, i.e., Mr. Sushil Govindrao Uttarwar and Mrs. Kalpana Govindrao Uttarwar are the Directors of the Corporate Debtor along with its erstwhile Directors. Hereto annexed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 5(24)(a) and also in terms of Section 5(24)(m)(i) which reads as under: 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; . . . (m) any person who is associated with the corporate debtor on account of- (i) participation in policy making processes of the corporate debtor; or The Applicants were not only the directors of the Company and covered squarely under Section 5(24)(a) of the Code but they were also managing the day-to-day affairs of the Company as per their own submissions and therefore, they are perfectly covered under Section 5(24)(m)(i) of the Code. The Bench has no doubt in its mind that the Applicants were aware of this fact and it is for this reason that the Applicant No. 2, as brought out by the Resolution Professional, has attended the CoC meeting held on 24.06.2020 (1st CoC meeting) as well as the 2nd CoC meeting held on 12.09.2020, as Suspended Director of the Company. The claim amount which the Applicants want to be treated as Financial Debt : 41. The Applicants has submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quiring 22% in the shareholding in the Corporate Debtor. In addition to the said, ₹ 9 Lakhs was paid to Respondent No. 6 towards purchase of shareholding thereby acquiring 7% shareholding in the Corporate Debtor. The Bench notes that whatever payments have been made by the Applicants are not as financial debt but for acquisition of shares which finally has resulted into about 48% shareholding with the Applicants in the Corporate Debtor Company. Therefore, the Bench is of the considered view that the payments given, as per MoU dated 10.12.2018, is only for acquisition of shares and not as financial debt. 45. Before this Bench, the Applicant has submitted an Agreement dated 12.02.2019 wherein it has been mentioned that an amount of ₹ 1.6 crores is being given as loan to the Corporate Debtor at an interest of 12% p.a. Therefore, the Applicants claim that ₹ 1.6 cores should be considered as a financial debt and not as a payment towards equity contribution. The Bench, however, notes that the Applicants very cleverly have avoided clause 4 of the same loan agreement whereby the Company has the option of converting this loan of ₹ 1.6 crores into equity in A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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