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TMI Blog2021 (2) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to note the fact that the CIRP against the Corporate Debtor was 'initiated by this Tribunal initially on 21.04.2017 and the IRP / Respondent herein was appointed as the IRP vide the said order dated 21.04.2017. 3. However, it is evident from the averments contained in the Application that thereafter the Hon'ble High Court of Madras had stayed the order of admission passed by this Tribunal dated 21.04.2017 vide its order dated 04.05.2017. 4. It is brought to the notice of this Tribunal in the Application that even before the stay granted by the Hon'ble High Court of Madras dated 04.05.2017, claims were called for by the IRP as against the Corporate Debtor and in answering to the same, claim was also submitted by the Applicant prior to the stay granted by the Hon'ble High Court of Madras. 5. The Respondent, at that time, did not choose to raise any objections in relation to the claim preferred by the Applicant. In the Application, it is also brought to the notice of this Tribunal that by way of averment the Hon'ble Division Bench of High Court of Madras passed a final order dated 05.09.2019 upholding the Insolvency Proceedings as against the Corporate Debtor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Applicant in a sum of Rs. 116,52,51,225/- in relation to ECL Loan I assigned to it. 10. The Applicant discloses in the Application and as reflected in the tabulation statement in paragraph No.7 of the instant order that they had obtained rights by way of Assignment of Loans from IndusInd Bank as well as ECL Finance by way of Assignment Agreements either dated 29" March 2017 or 26" September 2018 as the case may be. 11. The Applicant details in the Application as to how the IRP has fallen into an error in rejecting the claims which was initially accepted by the IRP in toto, however rejected subsequently, which will be dealt with at the appropriate place of the instant order. 12. While assailing the rejection of the claim to the extent of 73% of the claim, as originally made and aggrieved by the said action of the IRP, the Application has been filed seeking the following final reliefs viz., i) To direct the Resolution Professional to reinstate the claims of the Applicant in full to the extent of Rs. 507,88,68,502/-; and ii) To grant such other relief as this Tribunal may deem fit in the interest of justice. 13. On its part, the Respondent / IRP has filed a detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taking into consideration the above sequence of events, the IRP seeks to raise a question as to how the Assignment Agreement could have been executed on 29.03.2017, when the Authority for its execution was given only subsequently, both on the part of IndusInd Bank being the assignor and Edelweiss Asset Reconstruction Company Limited being the assignee. Further inconsistency in relation to Assignment Agreement and the details contained therein as compared to the charges registered with the RoC, Chennai are also highlighted, to all of which the Applicant it is pointed out, was not in a position to answer to the queries of the IRP/Respondent. The term loan as per the statement of accounts also reflects that the amount had been paid. 18. In relation to the Corporate Guarantee, based on which a portion of the claim has been preferred by the Applicant which was recat is the contention of the IRP that in the absence of any recognition of the debt owed by M/s. Vasan Dental Hospital! Pvt. Ltd. as on 31.03.2016, in its audited accounts, its being the principal debtor of the Corporate Debtor as to how the other Company, viz., M/s. Vasan Health Care Pvt. Limited could have given a guarantee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Debtor having intermingled with the Corporate loans advanced by the Applicant and the repayment made to the Applicant's Assignor viz., ECL Finance Loan-2. 22. It is further contended by the IRP that there are several transfers of funds by the Corporate Debtor to the Promoters personal account around the same time and for the same amount of disbursement made by ECL Finance Loan - 2 immediately after disbursement as these transfers seem to be not in the ordinary course of business and they have not been clearly explained and hence the IRP was forced to reject the claim made in connection with the ECL Finance Loan - 2. 23. The Applicant is also put to strict proof by the IRP in relation to the averment that the loan which was granted in October 2015 as to how can it become part of the audited financial statement for the financial year concerned in 2013-2014. Repeated assertion is made by the IRP that the minutes of the Board Meeting or the General Body Meeting of the Corporate Debtor cannot be relied upon as the same have not been maintained in accordance with the applicable law read with Secretarial Standards issued by ICSI. The IRP contends that he has adopted a very unbiased, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Applicant's claim Form, it is stated that subsequently the same was shared with the Respondent dated 22.01.2020 and in the circumstances the Corporate Guarantee having been not executed as a ground for rejection by the IRP cannot be considered and also called into question. 29. It is also pointed out that the fact that the Corporate Guarantee has not been reflected in the Books of the Corporate wee will not in any way invalidate the guarantee as at the time of sanction of the loan by IndusInd Bank Ltd, the Assignor Bank, it had obtained requisite Board Resolutions from both the Corporate Debtor and the borrower (i.e.,) Vasan Health Care Pvt. Limited and Vasan Dental Hospitals Pvt. Ltd. 30. In relation to ECL Finance Loan - 2, it is pointed out in the rejoinder that in the audited financials for the year 2015-16, the Corporate Debtor has duly acknowledged the same. However, the Respondent has wrongly stated by reading the said financial statement for the year 2015-16, as 2014-15. 31. The Applicant also highlighted in the rejoinder in relation to the power of the Respondent and it is pointed out that the Respondent has to evaluate the claims of the Applicant on the basis of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only required to collate the claim of the claimants based on the documents filed and nothing more, this Tribunal has_ its reservation in view of the recent developments which had taken place in law established by judicial pronouncements of the Hon'ble Supreme Court, particularly in light of the recent judgement rendered by the Hon'ble Supreme Court in the matter of Phoenix ARC Private Limited -vs- Spade Financial Services Ltd and Ors in Civil Appeal No.2842 of 2020 wherein the Apex Court had an occasion to consider claims arising out of collusive transactions as between the claimant and the corporate debtor and where the IRP had rejected the claim made by the financial creditor applying his mind. While dealing with collusive transactions per se the Hon'ble Supreme Court at paragraph 46 and 48 of the above referred judgement has observed as follows: - 46. The above discussion shows that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eath of her husband but the 'aggregate of those amounts did not exceed, Rs. 13,000/-. Even if she was possessed of some jewellery and other funds it is difficult to believe that she would have 13 (1973) 2 SCC 366 PART G 33 advanced such a substantial amount of Rs. 25,000/- to the respondent [borrower] by means of two promissory notes on December 10, 1919 and on March 17, 1920. It would further appear and some stress has been laid on this aspect by Jagat Narain J., in his judgment that the financial , position of the respondent at the time the usufructuary mortgage deed was executed was fairly good considering the various articles like diamonds and the car which he had purchased apart from the shares. The house at Ajmer and the Vile Parle land had been mortgaged with possession for Rs. 25,000/- for a period of 60 years. It was difficult to believe that the respondent would have entered into such a transaction in view of his financial position in the year 1921. It was equally not likely that a person dealing in shares who would require ready money would lock up his assets like the property in dispute ina transaction which was such that the mortgage could not be redeemed before the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualifies a financial creditor or the authorised representative of the financial creditor under subsection (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor, from having any right of representation, participation or voting in a meeting of the committee of creditors. Report of the Insolvency Law Committee, March 2018, p 23, para 1.25. PART : 54 76. Since the IBC attempts to balance the interests of all stakeholders, such that some stakeholders are not able to benefit at the expense of others, related party financial creditors are disqualified from being represented, participating or voting in the CoC, so as to prevent them from controlling the CoC to unfairly benefit the corporate debtor. 77. It is pertinent to note that disqualification of related parties from being members of the CoC, has also been recommended in the UNCITRAL Legislative Guide on Insolvency law: "The insolvency law should specify the creditors that are eligible to be appointed to a committee. Creditors who may not be appointed to a creditor committee would include related persons and others who for any reason might not be impartial. The insolvency law sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial creditor had assigned or transferred its debts to a third party in bad faith or with a fraudulent intent to vitiate the proceedings under the Code, the assignee should be treated akin to a related party financial creditor under the first proviso to Section 21(2)." (emphasis supplied) PART /66 94. Thus, it has been clarified that the exciusion under the first proviso to Section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor. As such, the financial creditor who in praesenti is not a related party, would not be debarred from being a member of the CoC. However, in case where the related party financial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating the CoC and sabotage the CIRP, by diluting the vote share of other creditors or otherwise, it would be in keeping with the object and purpose of the first proviso to Section 21(2), to consider the former related party creditor, as one debarred under the first proviso. 95. Hence, while the default rule under the first proviso to Section 21(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted within a period of 30 days and within which he has to perform the duties as provided of him under IBC, 2016 including those prescribed under Section 18 of the Code, for all of which co-operation of the Corporate Debtor and its personnel as well as the claimants who have lodged their claims are required all of which are taken for granted being an ideal situation contemplated under the law, however experiences with the implementation of the law suggests that the conditions are not so idealistic as invariably the IRP is not even being handed over with the books of accounts and records of a corporate debtor by its management and personnel, leave alone taking possession of the assets, which leads the IRP to classify the claims in accordance with documents filed in support of the claim by the creditors and of his best estimate. A combined reading of Regulation 7 to Regulation 14 falling under Chapter IV of IRCP Regulations, 2016 dealing with proof of claims makes this position clear, particularly in relation to the role of IRPs and the claimants Regulation 10, 12 and Regulation 14 of the IRCP Regulations, 2016 which for ready reference are extracted below:- 10. Substantiation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange in the constitution of the COC, if the IRP according to his best estimate comes to a decision that a particular claimant can be admitted to the COC, but subsequently upon obtaining additional information, which may come from any source, shall revise the amounts of claim admitted including the estimates of claim as soon as practicable. The power of revision provided to the IRP/RP it must be noted is not only confined when the claim came to be admitted on best estimate as provided under Regulation 14(1), but is also available to claims admitted even otherwise as well, as the term which has been used in Regulation 14(2) is to the effect that "shall revise the amounts, including the estimates of claim made under sub-regulation(1)" . Thus from the above regulations it is seen that the IRP is having a power ta re-constitute the COC based on his decisions, including by way of addition of claims as well as by revision of claims admitted previously based on additional information thereby connoting that he has the power to revise the claimant from one class to another class for example, from a4 financial creditor as originally admitted to an Operational creditor or vice versa or even ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of the term 'collate' in the Code, the action of collation on the part of the IRP is neither a mere Post Office job nor is it a mere mechanical exercise of collection and processing of the claim on the part of the IRP, but also requires verification which within its ambit will include and encompass much more activity on the part of the IRP including to ascertain the antecedent of the transactions of the claim submitted with a view to subserve the fulfilment of the objects of the Code. Thus, if the submission of the Applicant is subscribed to, it will in effect defeat the very provisions of the IBC as pointed out by the Apex Court in weeding out collusive transaction, related party transaction or third party assignments calculated to gain a seat in the COC by a related party through indirect means. The regulations as framed by the IBBI also do not subscribe to such a view as brought forth in Dugar's case (supra) as the term used, is to the satisfaction of the Resolution Professional. Thus, taking into consideration the above discussions we are unable to subscribe to the submissions of the Applicant that the IRP has exceeded in the exercise of his duties as given under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in April 2017. We are not impressed by such contentions put forth by the IRP in this regard. 43. It is required to be noted that the underlying debt availed by the Corporate Debtor cannot be denied by the Corporate Debtor as the documents submitted in relation to availment of Medium Term Loan of Rs. 110 Crore from IndusInd Bank Ltd. as well as the loan availed from ECL Finance Limited in two tranches to the extent of Rs. 50 Crore and Rs. 55 Crore cannot be assailed, if these two Bank / Financial Institution had approached the IRP as a 'Financial Creditor' directly. If that were so, the question which arises is as to whether the IRP can reject the claim of the Applicant on the ground that assignment agreements have been manipulated by the parties to foist an unsustainable claim taking into consideration the impasse in the CIRP of the Corporate Debtor initiated by this Tribunal on 21.04.2017 which due to the intervention of the Hon'ble High Court came to be stayed vide its order dated 04.05.2017 and which came to be vacated only on 05.09.2019. In the meanwhile, it is the contention of the IRP that making use of the impasse, the parties to the assignment agreements have mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial assets from the Assignor. Thus the IRP cannot raise an issue about the timing of the Assignment Agreement being entered, as to whether it is prior to or during the CIRP process as long as the debt due by the Corporate Debtor is bonafide or the assignment has not been made with a view to solely get over or circumvent the clause relating to 'related party' which would have effectively shut out such Assignor in terms of Section 21 of IBC, 2016 and as interpreted by the Hon'ble Supreme Court in Phoenix ARC case cited supra. Since such an issue, namely that of 'related party' has not been raised before us we are not venturing into the said aspect in the instant order. 45. In relation to the Assignment Agreements dated 29.03.2017 and 26.09.2018, both the Assignment Agreements, it is also required to be seen that they have also been entered into for a valuable consideration as reflected in the respective Assignment Agreements itself. The post facto authorisation by way of resolution in relation to Assignment Agreement dated 29.03.2017 cannot also be considered as an issue in view of the resolution produced in any case pointing out that the acts of the agent, even if it be without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 281 - 282 2 03.03.2016 Copy of the Board Resolution of the Corporate Debtor 290 3 03.03.2016 Copy of the Debt Servicing Reserve Agreement between IndusInd Bank and the Corporate Debtor 292 -307 4 03.03.2016 Copy of the Deed of Guarantee executed by Dr. A. M. Arun and Mrs. Meera Arun 308 - 323 5 03.03.2016 Master General Terms Agreement between IndusInd Bank and the Corporate Debtor 324 - 347 6 03.03.2016 Term Loan Agreement between IndusInd Bank and the Corporate Debtor 348 - 354 7 03.03.2016 Agreement for Cash Credit / Overdraft between IndusInd Bank and the Corporate Debtor 355 - 360 8 03.03.2016 Deed of Hypothecation by the Corporate Debtor in favour of IndusInd Bank 361 - 379 9 03.03.2016 Deed of Hypothecation by the Corporate Debtor in favour of IndusInd Bank 380 - 397 10 25.04.2016 Request for sanction of facilities by the Corporate Debtor to the IndusInd Bank 398 - 399 11 01.05.2016 To 28.02.2017 Statement of Account maintained with the IndusInd Bank from 01.05.2016 to 28.02.2017 400 - 403 12 15 Nos. of Post dated cheques issued by the Corporate Debtor in favour of IndusInd Bank including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 572 20 26.09.2018 Deed of Assignment executed between the Applicant and ECL Finance 574 - 598 21 28.09.2018 Notice of Assignment issued by the Applicant to Corporate Debtor 599 - 600 49. It is evident from the above tabulation that the underlying loan documents which had been executed by the Corporate Debtor with the Assignors, being the Financial Creditors precedes much prior to the debts being assigned to the Applicant by virtue of the Assignment Agreement and the said loan availed from IndusInd Bank Ltd as well as ECL Finance Limited have also been acknowledged by the Corporate Debtor, either by issue of post dated cheques in relation to the former, namely IndusInd Bank Ltd and by way of balance confirmation letter duly signed by the Corporate Debtor in relation to the latter, namely ECL Finance Ltd vide confirmation letter dated 12.03.2018. The loan from IndusInd Bank Ltd seems to have been availed only in the year May 2016. Thus, the question of applicability of limitation to the claim will not be an issue as it is required to be noted that the applicant in relation to the claim arising out of IndusInd Bank Limited assigned to it had lodged the claim with the IRP duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the accounts of VDPHL reflects as on 31.03.2016, the availment of the loan not even the amounts as a contingent liability in the financial statements of the Corporate Debtor. Additionally, it is also required to be seen that during the first round soon after the initiation of the CIRP by this Tribunal in the month of April 2017, the applicant herein had chosen to file a claim statement before the IRP, wherein the claim in relation to the corporate guarantee presently made in relation to IndusInd Bank facilities had been omitted. A comparative chart brings forth the difference in relation to the claims submitted as follows: - COMPARATIVE CHART OF THE CLAIM STATEMENT FILED BY THE APPLICANT ON 17.10.2019 (After the vacation of the stay of the CIRP by the High Court AND 04.05.2017 (prior to stay order passed by the High Court) BEFORE THE IRP. Page 165 of Vol I Petitioner Page 132 - Respondent Consolidated Type set Claim Form dated 17.10.2019 Claim Form dated 04.05.2017 SI.No.1 P.165 -166 Assignment of both IndusInd Bank Limited and ECL Finance Ltd. mentioned SI. No.1 Assignment of only IndusInd Bank Ltd. mentioned SI.No.3 P.166 E-mail ID (8 Nos. given) of claimant -Comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the year 2017. Since as between the parties there is no issue in relation to ECL Finance Loan I of Rs. 116,52,51,225/- as the said claim has been admitted by the IRP Ay this Tribunal is refraining from dwelling upon the same. 54. ECL Finance Loan II the communication of rejection of the claim dated 06.02.2020 sent by the IRP to the applicant in Annexure B of In relation to the claim made by the Applicant in relation to the said letter contains the reasons for rejection as follows:- ANNEXURE - B 1. ECL Finance Ltd. has sanctioned a Loan of Rs. 55 Crs. vide their Sanction Letter dated 12.10.2015 via disbursements done on 12.10.2015, 27.11.2015, 31.12.2015, 27.01.2016 and 25.02.2016 totalling to Rs. 55 Crs/-. These amounts have been almost completely stood transferred and taken back by the Loan provider himself on the respective days as per the records made available to us and found during our examination of Books of accounts for due collation, confirmation and verification of Claims. 2. The IRP has not got any satisfactory reply from EARC as to this observation. These Loans stand assigned to EARC from ECL on 28.09.2018 by way of another Assignment Deed along with earlier Lo ..... 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