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TMI Blog2022 (7) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... - direct disbursal of amount by ECL to the Corporate Debtor - Applicability of decision in the case of Anuj Jain [ 2020 (2) TMI 1259 - SUPREME COURT ], to the facts of the attendant case and holding that the Appellants are not Financial Creditors in view of the fact that there was no direct disbursal of amount to the Corporate Debtor/Guarantor - HELD THAT:- This Tribunal is of the considered view that ECL, being the original lender had disbursed the amount in terms of the Facility Agreement entered into and the disbursement of debt is essentially to the Issuer/Borrower and not to the Corporate Guarantor i.e., Palm Developers. By providing Corporate Guarantee, Palm Developers has agreed to incur the debt, if due and payable. A Guarantee is included as one of the illustrations which specifies the definition of Financial Debt under Section 5(8)(i) of the Code - despite the fact that there was no direct disbursal of amount to the Corporate Guarantor, any amounts released to the Issuer/Principal Borrower and not to the Corporate Guarantor does constitute Financial Debt as defined under Section 5(8) of the Code and it cannot be said that such amounts do not have consideration for Time V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nits to be sold in each of its Projects. The first part of the term Control refers to de jure control, which includes the right to appoint directors of the Company. The second part of the expression Control refers to de facto control, whereby, person/body corporate directly or indirectly can positively influence in any manner, the management or policy decisions. Any decision which has a long term effect, for formulation of Business Plans, comes within the purview of policy making. The argument that the Clauses with respect to Business Plans and any substantial/important charges requiring the approval of the Debenture Holders, is only restrictive and does not construe positive control is untenable. The irrevocable PoA executed in favour of the Debenture Holders suggests Positive and proactive control as the Appellants are in a position to take proactive decisions regarding the rights of the Corporate Debtor. The Appellants do have Positive Powers and are in a position to directly and indirectly Control the management and the policy decisions of the Corporate Debtor and hence there are no illegality in the Impugned Order passed by the Adjudicating Authority affirming the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Debtor having Claim of Rs.2,94,43,634/-; the second Respondent Mr. Krit Narayan Mishra is the RP of the Corporate Debtor , appointed vide letter dated 13/07/2021 in I.A. 1742/2021 replacing the erstwhile IRP, Mr. Manoj Kumar Singh. Appellant/M/s. ECL Finance Limited is the original Debenture Holder which has executed the Assignment Agreement dated 27/03/2020 whereby all rights in regard to the Financial Assistance were assigned in favour of Assets Care and Reconstruction Enterprise Limited ( ACRE ). While so, in June 2016, Saha Infratech with a view to augment their resources issued 110 Non-Convertible Debentures having a face value of Rs.1Crore/- each for an aggregate amount of Rs.110Crores/- and appointed the Appellant/IDBI to act as a Trustee for the Holders of the Debentures. At the request of the Issuer/ Palm Developers Private Limited (hereinafter referred to as the Corporate Debtor ) and their Promoters, Debenture Holders agreed to subscribe to the Debentures and a Debenture Trust Deed dated 01/07/2016 was executed amongst the Principal Borrower, the Corporate Debtor (Corporate Guarantor) and the Appellant (Debenture Trustee) including the promoters. As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y voting right in the CoC of the Corporate Debtor . While issuing Notice in I.A. 1610/2020, the Adjudicating Authority vide Order dated 28/02/2020 directed the erstwhile IRP to restrain from holding any Meeting of CoC till the constitution of CoC was ascertained. 5. The erstwhile IRP in his Reply to the Application I.A. 1610/2020 denied the allegation made by the first Respondent and challenge the said Application on maintainability and submitted that on seeking legal opinion from his Counsel M/s. Dua Associates, the Claims of the Appellants and the third Respondent were admitted in accordance with Section 21(1) of the Code. The Adjudicating Authority vide Order dated 07/09/2020 modified the earlier Order dated 28/02/2020 to the extent that the erstwhile IRP was allowed to proceed in the matter in accordance with the provisions of the Code but was restrained from declaring the status of the Appellants until further Orders. 6. While so, on an Application, filed by IDBI, bearing IA No. 1742/2021, the Adjudicating Authority appointed Mr. Krit Narayan Mishra new IRP on 13/07/2021. Based on the Reply filed by the new IRP, the Articles of Association (AoA) of the Corporate Deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arguments advances on behalf of the Ld. Counsels appearing for the Respondent no. 2 and 3 that the verification of the claims can be made by the IRP only and Adjudicating Authority is not required to interfere. 43. We are unable to accept this contention of the Respondent no. 2 and 3 as the duty of the IRP is only to verify the claims and in case, if any error has been committed by the IRP, the Adjudicating Authority is empowered under Section 60(5) of the IBC, 2016 to rectify such an error. 44. Apart from that, it is also an admitted fact that the Guarantee was invoked on 07.04.2020 i.e., after the initiation of the CIRP on 27.01.2020. 45. Therefore, the Ld. Counsel appearing for the Applicant has rightly submitted that the deed of guarantee was invoked after the initiation of CIRP. Therefore, in terms of the moratorium declared under Section 14 of the IBC, 2016, the amount claimed by the Respondent No. 3 is not liable to be admitted. 46. At this juncture, we would also like to refer to the contention of Respondent No. 2 and 3 that the Applicant has no locus standi to raise this issue. As we have also referred to the additionally reply filed by the IRP, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion wherein claim is filed against the Corporate Guarantor/Obligors when CIRP is already initiated and pending. It is strenuously contended by Dr. Singhvi that the Clauses in the Articles of Association (AoA) are restrictive covenants included as a means to protect and preserve the huge amount of loans. Clause 5.4 of the AoA demonstrates that the Appellant does not have any hold over the composition of the Board of Directors; the only restrictive Clause with respect to change in the Board of Directors is the Company showing a change in the composition of the Board of Company accept in accordance with the terms of the Articles of Debenture Trust Deed . It was submitted that the Appellants neither had power to appoint or alter the Directors of the Company. The power to appoint the nominee Director and an observer only arises on the occurrence of the event of default and that such power which is contingent upon occurrence of event of default, was never exercised by the Appellant. In order of the entity to be termed as a Related Party , actual participation in the policy making process of the Corporate Debtor ought to have been established. It was argued that Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt being a single allottee and not represented by an Authorised Representative ( AR ), had no locus standi to challenge the Claim of a separate Financial Creditor already verified and admitted by the erstwhile IRP. The Adjudicating Authority has no Suo Moto powers under Section 60(5) of the Code to reverse or recall the decision of the erstwhile IRP and the sole Application filed was by a sole allottee with vested interest. It was submitted that bestowing powers on stakeholders to challenge the claims of competing stakeholders will lead to flood gates being opened and defeat the finality and certainty to the decisions of the RP of verifying, collating and admitting Claims under Section 18(b) of the Code and Regulation 13(1) of the CIRP Regulations. The first Respondent has 4.43% of the Voting Shares in the CoC and not being represented by (AR) cannot challenge the Claims of the Appellants being Financial Creditors already verified and admitted by the erstwhile IRP. The Adjudicating Authority vide Order dated 21/10/2021, dismissed the Impleadment Application filed by Ashray Social Welfare Association bearing I.A. No. 2366/2021 in the pending I.A. No. 2275/2021 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. Aashray Social Welfare Society Order in IDBI Trusteeship Services Ltd. Vs. Saha Infratech Pvt. Ltd. , (IB) 1781 (ND)/2018. Paras 20-23 10. Phoenix ARC Pvt. Ltd. Vs. Spade Financial Services Ltd. Ors. , (2021) 3 SCC 475. Paras 103-104 11. Sai Peace and Prosperity Apartment Buyers Association Vs. ASK Investment Managers Pvt. Ltd. , Company Appeal (AT) (Ins) No. 252/2020. Para 34 8. Submissions of the Learned Counsel appearing on behalf of the first Respondent/Homebuyer: Learned Counsel Mr. Abhijit Sinha submitted that the first Respondent is a Financial Creditor as defined under Section 5 (8)(f), Explanation (i) of the Code and holds 4.43% of the Voting Shares in the CoC of the Corporate Debtor . It is strenuously argued that even a single Homebuyer in his role as a Financial Creditor has the locus to challenge the admission of claims by the RP. The AR has only a limited role of representing the Financial Creditor in class in the CoC Meetings and vote on their behalf, therein as per S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24.10.2019 25,00,000 Total 84,25,00,000 It is submitted that the Appellant and ECL are the alter egos of the Promoters of the Corporate Debtor and are hand in glove with the Promoters which is evident from the fact that the erstwhile RP had been suspended for two years by the IBBI for failing to proceed with the CIRP of the Corporate Debtor since he had refused to constitute the CoC and adhere to the timelines in the CIRP process till ECL and Appellant were made part of the CoC. This stand of the erstwhile RP only helped the Promoters of the Corporate Debtor to the detriment of the interest of the Homebuyers. Vide Order dated 17/01/2022, the Adjudicating Authority has held that the IRP was in contempt of the directions passed in the Order dated September 2020. In the Order dated 08/04/2022 passed by the IBBI it was observed that the erstwhile IRP has erroneously constituted the COC by including the guarantee holders i.e., ECL and Appellant whose guarantee has not yet been invoked. The Resolution Professional has appointed an Auditor for the performance of conducting the Forensi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of itself. ECL, the Debenture Holder is a selling partner of the Corporate Debtor as it has the controlling power to appoint Real Estate Agents, on behalf of the Corporate Debtor for sale of specific residential units/inventory totaling to 1,77,900 square fts. saleable areas in various projects of the Corporate Debtor . As per the requirements of Section 5(24)(i) of the Code what has to be seen is only whether the person is in a position to control and there is no requirement under the law to verify if that person has actually exercised any control or not. Any person who can control the composition of the Board of Directors or corresponding governing body of the Corporate Debtor will be a Related Party and therefore the Debenture Holder and the Lenders by virtue of such control are Related Parties of the Corporate Debtor . Clause 24(23) and Clause 24(24) of the sanctioned letter, Clauses 7.1, 7.2 of the AoA and Clause 6.8 of the Facility Agreement evidence the control which the Appellant and ECL had over the functioning of the Corporate Debtor . It is submitted that ECL had positive control over the Corporate Debtor and in support of his contention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratorium, or prior transactions entered into by the Corporate Debtor stand frozen and no fresh liability can be fastened. Hence it is argued that the Appellant cannot make a Claim in the CIRP on the basis of the Guarantee Deed which was never involved prior to the commencement of the CIRP of the Corporate Debtor on 27/01/2020. Admittedly no notice which was mandatory in terms of Clause 2.1(ii) of the Guarantee Deed was issued to the Corporate Debtor by the Appellant for the amount claimed in Form-C. Learned Counsel also fairly conceded that the ratio of Anuj Jain (IRP of Jaypee Infratech Ltd.) (Supra) may not be strictly applicable to the facts of this case as in the Guarantee Deed in almost all cases, the disbursement may not be directly to the Corporate Debtor . Even after the Admission Order was passed, the Appellants were in collusion with the IRP. The Adjudicating Authority had clearly directed the erstwhile IRP to proceed with the CIRP vide Order dated 07/09/2020, however the said IRP refused to proceed till the Appellants would be made part of the CoC. It was strenuously contended that since the Appellants are perpetuators of fraud and are Related Partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor/ Financial Creditor . Whether the filing of the said Application had to be done through the Authorized Representative (AR) only. (c) Whether the Appellant can make a Claim on the basis of the Guarantee Deed which was never invoked pre-commencement of the CIRP, and remained uninvoked even as on the date of filing of the Claim , thereby meaning that Right to Payment has not yet accrued. (d) Whether the Appellants are Related Parties of the Corporate Debtor . Whether the Appellants were in a position to control the affairs of the Corporate Debtor , to fall within the ambit of the definition of Related Party as defined under Section 5(24) of the Code. 11. At the outset, we address ourselves to the first issue raised by the Appellants that the Adjudicating Authority has erroneously relied on the Judgement of the Hon ble Supreme Court in Anuj Jain Case and held that there was no direct disbursal of amount by ECL to the Corporate Debtor and hence the amount involved is not a Financial Debt as defined under Section 5(8) of the Code. This Tribunal is of the considered view that ECL, being the original lender had disbursed the amount in terms of the Fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest and that any such challenge by a single Homebuyer would open the Pandora s Box. Learned Sr. Counsel for IDBI, Dr. Singhvi also submitted that a single Homebuyer constituting miniscule voting share filed I.A. 1610/2020 and the Adjudicating Authority has ordered that the Appellant IDBI is not a Financial Creditor and cannot be a member of the CoC. Learned Sr. Counsel Mr. Ramji Srinivasan appearing for ECL further contended that a single Homebuyer does not have the locus to challenge the constitution of the CoC. 14. Recently this Tribunal in Aashray Social Welfare Society Ors. Vs. Saha Infratech Pvt. Ltd. Ors. , Comp. (AT) (Ins) No. 904 of 2021 has discussed in detail the role of Authorized Representative ( AR ) and whether the Homebuyers/Welfare Society representing the Homebuyers have a right to be heard/impleaded and observed as follows: 12. The statutory scheme as is reflected from Section 21(6-A) and Section 25-A of the Code indicates that the Authorised Representative is chosen to represent the creditor in a class in the CoC. The Authorised Representative needs to attend the meeting of the CoC and vote on behalf of the Financial Creditor to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of their claim. The clarification as contained in Regulation 16A(5) has been read by the Adjudicating Authority to an extent which it never meant. The conclusion recorded by the Adjudicating Authority in paragraph 23 on the basis of erroneous interpretation of Regulation 16A(5) resulted in a wrong conclusion that the creditors in a class have no role in receipt or verification of claims of creditors. 15. The present is a case where the question for consideration is the right of impleadment of Appellants in Applications filed by Respondent No. 2 and 3 challenging the rejection of their claim as Financial Creditors. The Appellants are also Financial Creditors in a class and they represent majority of the Homebuyers in class, as has been pleaded by the Appellants. The Financial Creditors in a class, who at present consist of 99.85% of CoC, have every right to be heard in the Applications filed by Respondent No. 2 and 3 whose claim has been partly and fully rejected, respectively by the IRP. The Authorised Representative under the statutory scheme as noticed above is to represent the Financial Creditors i.e., Homebuyers in a class for a limited purpose i.e., for attending me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his argument that, on the coming into effect of the Order of Moratorium, all prior transactions entered into by the Corporate Debtor stand frozen and no liability can be fastened. It was also contended by the Counsel that the Appellants cannot have any valid claim in the CIRP of the Corporate Debtor as the liability of the Corporate Debtor /Corporate Guarantor can never be more than that of the Principal Borrower. In Column 4 of Form-C, the Appellant had filed a claim of Rs.1,26,96,88,698/-. The Appellant has also filed a claim of Rs.1,30,96,46,399.24/- in the CIRP of the Principal Borrower/M/s. Saha Infratech. It was also submitted that RP of Saha Infratech has not accepted the Claim of the Appellant and has held that the Appellant in fact owes Rs.12,60,77,970/- to Saha Infratech. Hence, even as per the Guarantee Deed, Palm Developers being the Corporate Guarantor cannot have any liability if the Principal Borrower itself has no liability towards the Appellant. It was further contended that as per the Appellant s own calculation the amounts due as on 28/01/2020 from the Principal Borrower is only Rs.9,16,66,666/-. As the CIRP commencement date of the Corporate Guarantor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n accordance with this Deed; (ii) If any amount paid under the Transaction Documents (including any payment on a Interest Payment Date and, or, a Redemption Date) cannot be remitted and is not paid at the place and in the currency in which it is expressed to be payable; (iii) Failure to redeem all and not less than all the Tranche 1 Debentures and, or, the Tranche 2 Debentures on the expiry of the respective Tenor by payment of the Redemption Amounts, in full, in accordance with this Deed; (iv) Non-payment of amounts reimbursements/ fees including the fees payable to the Debenture Trustee, the Debenture Holders' Representatives, the Depository and the depositories agent, the Utilization Escrow Agent and the Project Revenue Escrow Agents and the credit rating agency and reimbursements/ payments to be made to the Debenture Trustee under the terms of this Deed (including as set forth in Section 15.2 hereto); and, or, (v) Any shortfall or failure to maintain the requisite amounts towards the DSRA. 21. Default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the Debtor or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bentures were continued in good faith. On 16/05/2021 RP of Saha rejected the Appellants claims and demanded that the Appellants owed Rs.12,60,77,970/- to Saha, the Principal Borrower. On 13/07/2021, on an Application filed by IBBI, I.A. 1742/2021, Adjudicating Authority has appointed Mr. Mishra as the new IRP who published the Forensic Audit Report on 12/03/2022. 25. Learned Counsel Dr. Singhvi has placed reliance on the Judgement of this Tribunal in Axis Bank Limited Vs. Edu Smart Services Pvt. Ltd. , Comp. App. (AT) (Ins) No. 302 of 2017, wherein this Tribunal has held as follows: 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 111atter can be looked from another angle. It is only in case of debt' and default', a 'Financial Creditor' or 'Ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP. From the record placed before NCLT, it was clear that EARC had not invoked the corporate guarantee. NCLT therefore posed a question to itself, as to whether an uninvoked corporate guarantee could be considered as matured claim of the applicant. NCLT found that once the moratorium was applied under Section 14 of the I B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found that the OMML's guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found that there is no illegality or irregularity in not admitting the claim of EARC. .. 124. Shri Bhushan, learned counsel appearing on behalf of EARC, strongly relying on the judgment of NCLAT dated 14-8-2018 passed in Export Import Bank of India v. JEKPL (P) Ltd. Resolution Professional, submits that NCLAT itself in the said case had held that invocation of corporate guarantee has no nexus with filing of the claim pursuant to public announcement made under Section 13(1)(b) read with Section 15(1)(c) of the I B Code and also for collating the claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the considered view that the appeal deserves to be allowed by expunging SCC OnLine NCLAT paras 28, 42, 43, 51 and 52 from the judgement of NCLAT dated 23-4-2019. It is ordered accordingly. The judgement and order passed by NCLT dated 22-6-2018 is upheld. No costs. (Emphasis Supplied) 27. It is seen from the aforenoted Judgement that an uninvoked Corporate Guarantee cannot be considered as a Matured Claim . In para 133 of the aforenoted Judgement the Hon ble Supreme Court has upheld the finding of the Adjudicating Authority that once the moratorium was applied under Section 14 of the Code, a Corporate Guarantee cannot be invoked. Though this is a case where the Resolution Plan has been approved, the fact remains that the Principle that a Corporate Guarantee cannot be invoked once the CIRP has commenced and that an uninvoked Corporate Guarantee as on date of filing of the Claim, cannot be considered as Matured Claim has been laid down by the Hon ble Supreme Court. 28. We also place reliance on the observations of the Hon ble Supreme Court in para 38 of Swiss Ribbons Pvt. Ltd. Anr. Vs. Union of India Ors. , (2019) 4 SCC 17, in which it is stated as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antee was invoked on 07/04/2020. The claims were filed by the Appellants on 10/02/2020. This Tribunal is of the earnest view that the Appellants cannot Claim the amounts in the CIRP of the Corporate Debtor who is a Corporate Guarantor on the basis of the Deed of Guarantee which was never invoked as on the date of filing of the Claims. The record also does not show that any Notice in terms of Clause 2.1(ii) of the Deed of Guarantee was ever issued to the Corporate Debtor . We do not find any substance in the argument of the Appellant Counsel that no such Notice is required to be issued as invocation of Guarantee is not a pre-condition to file a Claim . The Deed of Guarantee stipulates such a notice to be issued which was never sent as the Deed was never invoked prior to CIRP filing of Form C. 30. In SBI Vs. Orrisa Manganese Minerals Ltd. dated 22/06/2018, EARC (Edelweiss Asset Reconstruction Co. Ltd.) filed an Application before the Adjudicating Authority, (NCLT) Kolkata in CA(IB) 470/KB/2018 in CP (IB) No. 371/KB/2017 challenging the decision of the RP in not admitting the claim of the Applicant. In this case, the Corporate Debtor had executed a guarantee securing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to IDBI shows rejection of the Claim of IDBI on the ground of being a Related Party and that an amount of Rs.12,60,77,970/- is recoverable from them. When the Appellants Claim has been rejected in the CIRP of the Principal Borrower, the onus is on the Appellants to substantiate how their claims can be admitted in the CIRP of the Corporate Guarantor when they have not even invoked the Guarantee prior to CIRP commencement, or as on the date of filing of Form C, which they have failed to discharge. Issue of Related Party : 33. Now we address to the contention raised by the Learned Counsel Mr. Sinha that the Appellants are related Parties of the Corporate Debtor as defined under Section 5(24) of the Code. 34. It is submitted by Dr. Singhvi that the power contingent upon occurrence of Event of Default was never exercised by the Appellant in the present case and as such the Appellant could not in any manner be said to be a Related Party under Section 5(24) of the Code. Learned Counsel placed reliance on the ratio of the Hon ble Supreme Court in in Arcelor Mittal India Pvt. Ltd. (Supra), to buttress his contention that control would only include posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective customers and registration of units before the Registrar. Control over all revenue and other accounts of the Corporate Debtor . Selling partner of the Corporate Debtor . 38. It is strenuously contended that as per the requirements of Section 5(24) of the Code, what has to be seen is only whether the person is in a position to control and there is no requirement under the law to verify if that person has actually exercised control or not. Learned Counsel argued that the observations made by the Hon ble Supreme Court in Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta Ors. (2019) 2 SCC 1 that so long as a person or persons acting in concert, directly or indirectly, can positively influence, in any manner, management or policy decisions, they could said to be in control is applicable to the facts of this case and hence it is not necessary to show whether or not the entity exercised actual control or not. 39. It is contended that the Appellant was not merely a lender, but also the Debenture Holder and a selling partner of the Corporate Debtor having the controlling power to appoint Real Estate Agents/Distribution Agents on behalf of the Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on account of ownership or a voting agreement; (k) any person in whom the corporate debtor controls more than twenty per cent. of voting rights 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; .. (Emphasis Supplied) 41. The Hon ble Supreme Court in Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta Ors. , (2019) 2 SCC 1 has discussed in detail and made the following observations with respect to control and the power to direct the management and policies of a person or entity, whether through ownership of Voting Securities, by contract, or otherwise: 48. The expression management woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 6) 6 The term control has been defined in Regulation 2(1)(c) of the Takeover Code to include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their Shareholding or management rights or Shareholders agreements or voting agreements or in any other manner . This definition is an inclusive one and not exhaustive and it has two distinct and separate features: (i) the right to appoint majority of Directors or, (ii) the ability to control the management or policy decisions by various means referred to in the definition. This control of management or policy decisions could be by virtue of shareholding or management rights or shareholders agreement or voting agreements or in any other manner. This definition appears to be similar to the one as given in Black's Law Dictionary (Eighth Edn.) at p. 353 where this term has been defined as under: Control--The direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso be held to apply. Thus viewed, what is referred to in clauses (c) and (g) is de jure or de facto proactive or positive control, and not mere negative control which may Now from an expansive reading of the definition of the word *control contained in Section 2(27) of the Companies Act, 2013, which is inclusive and not exhaustive in nature. 54. In a recent judgment delivered by one of us (Nariman, J.) in Chintalapati Srinivasa Raju v. SEBI, this Court after referring to the definition of control in the SEBI Regulations, held on facts that an executive Director, on a fixed monthly salary, post-resignation, cannot be held to be a person exercising control within the meaning of the SEBI Regulations. This Court referred to with approval the following test laid down in SEBI v. Kishore R. Ajmera: (SCC p. 383. para 26) 26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g necessary resolutions at the Board and Shareholder meetings and filing necessary forms with the RoC, to enable the Debenture Holders and/or the lenders to exercise the aforesaid right. Notwithstanding anything contained in these Articles and, or, in the Transaction Documents, the Promoters and the Company shall in the event there is a deadlock on any matter/decision at a board meeting and, or, at a shareholders meeting amongst the directors or the Promoters, such matter/decision shall be referred to the nominee director of the Debenture Holders and/or the lenders and, or, to the Debenture Holders or the lenders for final decision. Any decision by such director of the Debenture Holders and/or the lenders and, or, the Debenture Holders and/or the lenders shall be final and binding on the Promoters of the Company. 45. Regarding the contention of Learned Counsel Mr. Sinha that ECL had complete control over the appointment and removal of Key Managerial personnel, it is pertinent to see the relevant clauses of the Facility Agreement which are detailed as hereunder: 6.8 MANAGEMENT 6.8.12 Unless the Lender otherwise agree in writing the Borrower and the Obligors shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Agent ( Approved Quarterly Construction Budget ) shall be applicable to for the quarter for which the same is approved and the amount from the Escrow Account to meet the construction cost shall during such quarter will be released as per the Approved Quarterly Construction Budget subject to availability of the amount in the Escrow Accounts. The Debenture Trustee/ Monitoring Agent may in suitable circumstances and at the request of the Issuer and/or Security Providers approve such modification/ revisions in the respective Approved Quarterly Construction Budget as may be deemed necessary by the Debenture Trustee/ Monitoring Agent. 48. It is seen from Clause 21 of the Sanction Letter that ECL had the controlling power to appoint Real Estate Agent/Distribution Agent on behalf of the Corporate Debtor for sale of specific residential units/inventory totaling to 1,77,9000 sq. ft. saleable area in various projects of the promoters. Clause 21 of the Sanction Letter reads as follows: 21 Pre-disbursement Conditions x The Borrower and Security Providers shall have executed distribution agreement for appointment of real estate agent/distribution agent with an entity recommended by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, the Attorney deems fit, for giving effect to these presents; 14. To apply for and obtain Income Tax Certificate under the provisions of the Income Tax Act for registration of any document(s) executed by the said Attorney pursuant to these presents if required; 15. To commence and prosecute or appear in and defend all suits, actions and proceedings arising out of or in respect of all or any of the matters aforesaid and if the said Attorney shall think fit to compromise, conclude and submit to Arbitration all and every or any differences or disputes which shall or may arise in reference to the mater aforesaid; 16. To do or cause to be done or execute or cause to be executed all other acts, deeds and things which may be deemed to be necessary or proper or expedient for purposes of the said flats; 17. To appoint from time to time one or more Attorneys or Attorney under him with the same or limited powers and remove such substitute or substitutes at our discretion; and 18. To sub-delegate the power given to them by this Power of Attorney to any individual or organization as may deem fit. (Emphasis Supplied) 50. It is vehemently contended by Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for its related parties. (Rs. 16000.00 Lakhs relates to IDBI Trusteeship Services Limited and Rs. 9000.00 Lakhs relates to ECL Finance Limited). So, RP should file application in NCLT totaling Rs. 28322.50 Lakhs under section 66 Fraudulent Trading and Wrongful doing as per IBC 2016. (Emphasis Supplied) 51. In the terms and conditions of the Facility Agreement, under the caption Special Conditions Clause 24(4) it is clearly stated that The Borrower shall execute irrevocable Power of Attorney authorizing representatives of Lender to execute the sale deed and represent on behalf of the Borrower and Security Providers before the Registrar on its behalf to register the Sale Deed for units to be sold in each of its Projects . 52. On a pointed query from the bench, Learned Sr. Counsel Dr. Singhvi submitted that the Appellant had never exercised this power and was never a participant in the execution of Sale Deeds of the Homebuyers. Be that as it may, the fact to be seen is whether the Appellants have the ability to control and are in a position to Control . 53. Clause 4.1 of the AoA shows that the Project revenue including the payments made by the allottees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y contract, or otherwise. The power or authority to manage, direct or oversee. 56. The first part of the term Control refers to de jure control, which includes the right to appoint directors of the Company. The second part of the expression Control refers to de facto control, whereby, person/body corporate directly or indirectly can positively influence in any manner, the management or policy decisions. Any decision which has a long term effect, for formulation of Business Plans, comes within the purview of policy making. The argument that the Clauses with respect to Business Plans and any substantial/important charges requiring the approval of the Debenture Holders, is only restrictive and does not construe positive control is untenable. We are of the view that the irrevocable PoA executed in favour of the Debenture Holders suggests Positive and proactive control as the Appellants are in a position to take proactive decisions regarding the rights of the Corporate Debtor . 57. Additionally, Clause 7.2 of the Articles of Association specifies that all decisions of the Board of Directors of the Corporate Debtor are subject to the approval of the Debenture Hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director or Manager cannot take any decision without the written approval of the Debenture Holders which construes that they have a role in the policy making process and that whether the nominee Director was actually appointed or not (the Appellants have the power to appoint a Nominee Director) is immaterial, as the definitions of Related Party is only to see whether a person is in a position to control the composition of Board of Directors and is not necessary that he/she/they are actually the directors of the Corporate Debtor . 60. We are of the view that the Articles of Association point out that decisions regarding important matters ought to be taken only by the affirmative role of the Appellants. The Adjudicating Authority has gone through the Articles of Association as well as the conduct of the management of the Corporate Debtor and held that the ECL and IDBI are related parties of the Corporate Debtor by virtue of their inter se management participation. Examining the influence and inter-relationship between the parties, we are of the considered view that the Appellants have the trappings of Related Party on account of the various clauses of the Agreements and A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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