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TMI Blog2022 (11) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to related party transactions. The Code has given ample power to the CoC and one of the powers as provided under Section 28(1) (f) includes to take commercial decision to undertake or not to undertake related party transactions during the CIRP of the Corporate Debtor. Accordingly, the Resolution Professional in various CoC meetings had placed a resolution for payment of salary to the Applicants but the CoC in its commercial decision has rejected the resolution - the decision of COC should not be interfered with, since the Resolution Professional had time and again placed proposal before CoC for payment of salaries to the Applicants and CoC after detailed deliberations rejected the proposal. If in commercial wisdom the CoC has rejected the resolution for payment of salary to the Applicants, the question of reversing the decision cannot be considered. It is noted from the master data available on MCA portal that Applicant No. 1 was holding position of director since 30.11.2018 and Applicant No. 2 Applicant No. 3 had held position of directors since 07.07.2019. In addition to the post of directors, the Applicant No. 2 3 were also holding the post of General Manager-Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of Applicant No. 2 for the months of September 2020 and October 2020 towards salary during the CIRP period along with interest at the rate of 18% p.a. from the date when the payment was due till payment and/or realization. iv) As regards, Applicant No. 3, direct the Resolution Professional of AMW Autocomponent Limited i.e., the Corporate Debtor herein, to release the lawful dues of the Applicant No. 1 amounting to Rs. 7,85,224/- (Rupees Seven Lakhs Eighty-Five Thousand Two Hundred and Twenty-Four Only) and credit/make payment of TDS of Rs. 2,69,710/- (Rupees Two Lakhs Sixty-Nine Thousand Seven Hundred and Ten Only), PT amount of Rs. 400/- (Rupees Four Hundred Only) and Provident Fund contribution of Rs. 36,122/- (Rupees Thirty-Six Thousand One Hundred and Twenty-Two Only) in respect of Applicant No. 3 for the months of September 2020 and October 2020 towards salary during the CIRP period along with interest at the rate of 18% p.a. from the date when the payment was due till payment and/or realization. v) Such further reliefs as this Hon'ble Tribunal be pleased to grant as are necessary in the facts and circumstances of the present case. vi) For costs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being the directors are the related party of the Corporate Debtor and any payment to them would fall under related party transactions as per Section 28(f) of the Code. In the 1st CoC meeting, resolution with respect to approval to undertake related party transactions was rejected as it did not receive requisite votes i.e. 66%. ii) The agenda with respect to the payment of the salaries of the Applicants was placed before the CoC during the 2nd CoC Meeting held on 19th October 2020, 3rd CoC Meeting held on 27th November 2020, 7th CoC Meeting held on 12th March 2021, 8th CoC Meeting held on 30th March 2021, 9th CoC Meeting held 20th April 2021, 11th CoC Meeting held on 3rd May 2021 and 15th CoC Meeting held on 9th July 2021. In the 8th, 9th and 15th CoC meetings it was deliberated that 50% of the dues should be paid during the CIRP and the balance 50% be paid as part of CIRP Cost under the Resolution Plan but no resolution was passed. iii) In the meantime, instant Application was filed on 23.07.2021 and thereafter in 19th CoC meeting held on 21.09.2021 once again the agendas with respect to salaries of Applicants were placed before CoC, which was deliberated and it was conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its written submissions and reiterated the submissions already made in its pleadings. 9. The Respondent No. 1 CoC filed written submissions and made following submissions: i) The Applicant No. 2 3 has admitted in Form DIR- 12 filed by the Corporate Debtor that they are promoters. Form DIR-12 is annexed with the Application. ii) The CoC has on at least five occasions, after deliberations, rejected the proposal for payment of salaries to the Applicants. Once the CoC has rejected or approved a related party transaction, the same is not justiciable before court of law. iii) The payment sought by the Applicants in the present Application is towards work done for Corporate Debtor, which the Applicant are statutorily bound to do. 10. The Respondent No. 2 Resolution Professional filed written submission and reiterated the contentions made in its pleadings. 11. Heard submissions and considered the arguments of the parties and also perused the documents placed on record. It is necessary to understand who falls under the category of related party under the Code. Section 5(24) which defines the term 'related party in relation to a corporate debtor' is reproduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate debtor and such person; or (iv) provision of essential technical information to, or from, the corporate debtor; 12. It is an admitted fact that the Applicants were part of suspended board of directors of the Corporate Debtor on the date of initiation of CIRP of the Corporate Debtor and even after initiation of CIRP as they had resigned from the post of directors on 28.10.2021. Thus, in view of Section 5(24) (a) the Applicants fall under the category of related party of the Corporate Debtor. 13. Section 188 of the Companies Act, 2013 is reproduced below: Section 188. Related party transactions. -- (1) Except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with a related party with respect to-- (a) sale, purchase or supply of any goods or materials; (b) selling or otherwise disposing of, or buying, property of any kind; (c) leasing of property of any kind; (d) availing or rendering of any services; (e) appointment of any agent for purchase or sale of goods, materials, serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no conflict of interest. (2) Every contract or arrangement entered into under sub-section (1) shall be referred to in the Board's report to the shareholders along with the justification for entering into such contract or arrangement. (3) Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution in the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it. (4) Without prejudice to anything contained in sub-section (3), it shall be open to the company to proceed against a director or any other employee who had entered into such contract or arrangement in contravention of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as specified by the committee of creditors; or (m) make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor. (2) The resolution professional shall convene a meeting of the committee of creditors and seek the vote of the creditors prior to taking any of the actions under sub-section (1). (3) No action under sub-section (1) shall be approved by the committee of creditors unless approved by a vote of sixty-six percent of the voting shares. (4) Where any action under sub-section (1) is taken by the resolution professional without seeking the approval of the committee of creditors in the manner as required in this section, such action shall be void. (5) The committee of creditors may report the actions of the resolution professional under sub-section (4) to the Board for taking necessary actions against him under this Code. 15. It is the contention of the Applicants that the Resolution Professional had asked the Applicants to render services and assured that the salaries which they were drawing before the initiation of CIRP will be paid. The Applicants being the related parties had agreed and ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on cannot be considered. Moreover, the Applicants being the promoters and persons associated with the management of the Corporate Debtor are statutorily obligated to extend all assistance to the Resolution Professional in managing the affairs of the Corporate Debtor. 19. Section 19 of the Code provides as under: Section 19. Personnel to extend co-operation to interim resolution professional.- (1) The personnel of the corporate debtor, its promoters or any other person associated with the management of the corporate debtor shall extend all assistance and cooperation to the interim resolution professional as may be required by him in managing the affairs of the corporate debtor. (2) Where any personnel of the corporate debtor, its promoter or any other person required to assist or cooperate with the interim resolution professional does not assist or cooperate, the interim resolution professional may make an application to the Adjudicating Authority for necessary directions. (3) The Adjudicating Authority, on receiving an application under sub-section (2), shall by an order, direct such personnel or other person to comply with the instructions of the resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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