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TMI Blog2022 (7) TMI 833X X X X Extracts X X X X X X X X Extracts X X X X ..... tor of the Corporate Debtor when non-convertible debentures were issued by the Corporate Debtor and held by Financial Creditor i.e. 13.01.2016, in view of the law laid down by the Hon ble Supreme Court in Phoenix ARC Pvt. Ltd. [ 2021 (2) TMI 91 - SUPREME COURT ] are not relevant criteria to hold Financial Creditor as related party to the Corporate Debtor. Thus, the present is a case where Smt. Sunaina Singh in praesenti was not a related party having resigned six months prior to filing of Section 7 Application. There is no averment or material on record to show that Smt. Sunaina Singh has resigned to cease to be Director of the Corporate Debtor with the sole intention of participating in the CoC and to sabotage the CIRP, by diluting the vote share of other creditors or otherwise - Appeal dismissed. - Company Appeal ( AT ) ( Insolvency ) No. 1065 of 2021 - - - Dated:- 14-7-2022 - [ Justice Ashok Bhushan ] Chairperson And [ Naresh Salecha ] Member ( Technical ) For the Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Nitin Pandey, Mr. Adish Sharma, Advocates For the Respondents : Mr. Abhishek Anand, Mr. Karan Kohli, Advocates for Respondent No.1 (RP). Mr. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) The offer given by H-3 was 50% of the offer given by other Resolution Applicants. In the 9th CoC meeting, one Resolution Plan was approved. The Resolution Plan of the Appellant was not even put to vote. (viii) The Appellant, on 19.10.2020, filed an application being I.A. No. 728 of 2020 before the Adjudicating Authority making various prayers. One of the prayer was to reconstitute the CoC of the Corporate Debtor. A reply was filed tot eh I.A. No. 728 of 2020 by the Corporate Debtor and before the Adjudicating Authority it was submitted by the Corporate Debtor that similar application I.A. No. 344 of 2020 was dismissed by the Adjudicating Authority vide its order dated 05.03.2021. Learned counsel for the Appellant thereafter submitted before the Adjudicating Authority that Application 728 of 2020 be disposed of with in terms of the order dated 05.03.2021. The Adjudicating Authority, thus, disposed of I.A. No. 728 of 2020 in terms of the order dated 05.03.2021. The Appellant aggrieved by the said order has come up in this Appeal. 2. We have heard Shri Krishnendu Datta, learned senior counsel appearing for the Appellant, Shri Abhishek Anand, learned counsel for Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CoC. It is submitted that Smt. Sunaina Singh cannot be said to be related party to the Corporate Debtor. Smt. Sunaina Singh has resigned from the Board of Corporate Debtor on 25.03.2019 whereas Application under Section 7 was filed six months thereafter and was admitted on 07.02.2020 only. Smt. Sunaina Singh being not related party there was no error in the constitution of the CoC with Financial Creditor as the only member of the CoC. The same issues were raised by Rajiv Babbar Operational Creditor of the Corporate Debtor, which was considered by the Adjudicating Authority, after hearing all the parties, by order dated 05.03.2021, I.A. No. 344 of 2020 filed by Rajiv Babbar was dismissed. The Appellant cannot be allowed to agitate same issues when the order dated 05.03.2021 rejected such plea, which was never challenged. It is submitted that Smt. Sunaina Singh cannot be held to be related party on plea of an unsuccessful Resolution Applicant, who is neither a stakeholder nor a creditor. 5. We have heard submissions of learned counsel for the parties and perused the record. 6. Learned counsel for both the parties have placed reliance on the judgment of Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution applicant. The contrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvency resolution process is only relevant for the purpose of calculating whether one year has lapsed from the date of classification of a person as a non-performing asset. Further, the expression used is has , which as Dr Singhvi has correctly argued, is in praesenti. This is to be contrasted with the expression has been , which is used in clauses (d) and (g), which refers to an anterior point of time. Consequently, the amendment of 2018 introducing the words at the time of submission of the resolution plan is clarificatory, as this was always the correct interpretation as to the point of time at which the disqualification in clause (c) of Section 29-A will attach. 90. Thus, facially, it would appear that the use of the simple present tense in the first proviso to Section 21(2) indicates that the disqualification applies in praesenti. Furthermore, this interpretation would also be supported by a reading of the first proviso to Section 21(2), in light of the definition of related party under Section 5(24), which uses phrases such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor) over these entities is clear, and allowing them in the CoC would definitely affect the other independent financial creditors. 106. In conclusion, we hold that: 106.1. The decision of the NCLAT, in as much as it referred to Spade and AAA as financial creditors, is set aside. Due to the collusive nature of their transactions alleged to be a financial debt under Section 5(8), Spade and AAA cannot be labelled as financial creditors under Section 5(7); 106.2. The decision of the NCLAT, in as much as it referred to Spade and AAA as related parties of the Corporate Debtor under Section 5(24), is affirmed; and 106.3. The decision of the NCLAT, in as much as it excluded Spade and AAA from the CoC in accordance with the first proviso of Section 21(2), is affirmed but for the reasons mentioned above. 9. The ratio which can be culled out from the above judgment is that the Financial Creditor who is praesenti is not related party cannot be debarred from being a member of the CoC. The exception to the above preposition is that in case where the related party Financial Creditor divests itself of its shareholding or ceases to become a related party in a business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the corporate debtor; (g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager 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; (i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary; (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; (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 (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd daughter, (xv) sister s son and daughter, (xvi) father s father and mother, (xvii) mother s father and mother, (xviii) father s brother and sister, (xix) mother s brother and sister, and (b) wherever the relation is that of a son, daughter, sister or brother, their spouses shall also be included;] 11. Section 21(2) is as follows:- (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a 1[financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the committee of creditors: 2[Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 3[or completion of such transactions as may be prescribed], prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot prefer the present Application as it does not have any vested right for consideration of its resolution plan and the same has been confirmed by the Hon ble National Company Law Appellate Tribunal in multiple cases. The Hon ble National Company Law Appellate Tribunal has in Arcelor Mittal India Pvt. Ltd. v. Abhijit Guhatkahurta, Resolution Professional of EPC Constructions India Ltd. Ors., Company Appeal (AT) (Insolvency) No. 524/2019 relying upon the Hon ble Supreme Court s decision in Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta Ors, (2019) 2 SCC 1 held: 14. Financial Creditor has also filed Reply to the Application, where following facts with regard to Financial Creditor were mentioned in Para 33:- 33. In this regard, Respondent 2 states the following facts: A. Respondent 2 is a company incorporated under the Companies Act, 1956 on 04.02.1991, having its registered office at S.C.O. No.21 ICL Road Madhuban Colony, Rajpura, Patiala, Punjab. The authorized capital of the Respondent 3 is Rs.31,200,000.00p and the paid-up capital is Rs.100,000.00p. B. Ms. Sunaina Singh and Mr. Rajeev Pandey are directors of Respondent 2. C. Sunaina Si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted above and noted by us is that where the 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. When we look into the Application I.A. No. 728 of 2020 and even rejoinder filed in the said Application, there is no averment that one of the Director of the Financial Creditor, Smt. Sunaina Singh 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. There being no foundation in the I.A. No. 728 of 2020 making any averment which can be looked into to find out whether present is a case which can be said to be an exception to related party being in praesenti as laid down by the Hon ble Supreme Court in Para 103 of the judgment in Phoenix ARC Pvt. Ltd. . 17. At this stage, we may also refer to order dated 05.03.2021 passed by the Adjudicating Authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating in the COC and to sabotage the CIRP, by diluting the vote share of other creditors or otherwise, can be debarred from the COC, though the said financial creditor was not a related party as on the date of filing of the CP. But in the present case, since the applicant failed to establish any such intention on the part of the third respondent, the decision of the Hon ble Apex Court is also not applicable. 19. Although order dated 02.11.2021 rejecting the I.A. No. 728 of 2020 is not an elaborate order, the elaborate order having been passed earlier on 05.03.2021, the reasoning given in order dated 05.03.2021 can be looked into to find out the reason given by the Adjudicating Authority for rejecting application filed by the Appellant. We are, thus, satisfied that present is a case where Smt. Sunaina Singh in praesenti was not a related party having resigned six months prior to filing of Section 7 Application. There is no averment or material on record to show that Smt. Sunaina Singh has resigned to cease to be Director of the Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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