9911796707
TMI Blog2022 (12) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... ates for R1 to 5 and 7. Mr. Arvind Nayar, Sr. Advocate with Mr. Lokesh Malik, Advocate for R6, 8 to 13. Ms Honey Satpal, Advocate for R15. JUDGEMENT JUSTICE RAKESH KUMAR , MEMBER ( JUDICIAL ) The present appeal has been preferred by the Union Bank of India (on behalf of Committee of Creditors of Krishna Knitwear Technology Ltd) against an order dated 06.04.2021 passed by National Company Law Tribunal, Ahmedabad Bench (hereinafter referred to as the NCLT) in I.A. No.953/2020 in CP(IB) No.279/2018 with I.A. No.13 of 2021. The final conclusion of the order dated 06.04.2021 passed by the Adjudicating Authority is quoted hereinbelow: a) None of the parties i.e. applicant financial creditors in both IAs are a related party of the Corporate Debtor. b) Claim amounts of all applicants in IA 953 of 2020 have wrongly been reduced having regard to the material on record and, therefore, such claims are to be re-verified after considering all source documents produced by applicants including Form-26AS for respective financial years. c) Since they are not a related party, they are entitled to be a member of COC. COC be re-constituted forthwith. Voting rights of each applicant would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2018 Andhra Bank (now Union Bank of India) filed an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the 'Code') against the Corporate Debtor namely Krishna Knitwear Technology Ltd which was numbered as CP(IB) 279/2018 and on 13.1.2020 the petition under Section 7 of the Code was admitted and CIRP was initiated against the Corporate Debtor. While initiating Corporate Insolvency Resolution Process (hereinafter referred to as "CIRP") one Mr. Brijesh Kumar Mishra was appointed as Interim Resolution Professional. Subsequently he was confirmed as Resolution Professional (hereinafter referred to as the 'RP'). Thereafter the RP published Form A inviting claim from the financial creditors by 13.02.2020 whereafter respondents herein submitted their claims. It is the case of the appellant that Respondent No.8 to 13 on 14.02.2020 lodged their claim with the RP. However, Respondent No. 5,6 and 7 subsequently received emails from the RP wherein RP had raised certain querries with respect to their claims. On 29.02.2020, RP invited Respondent No.1 to 4 to attend 1st Committee of Creditors (hereinafter referred to as 'CoC') Meeting in which R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed certain comments against earlier CoC also. Aggrieved with the impugned order the appellants has preferred the present appeal which was registered as Company Appeal (AT)(Ins) No.399 of 2021. At the time of hearing of the present appeal Mr. Abhijeet Sinha, learned counsel for the appellant while referring to certain paragraphs of the impugned order tried to persuade this Tribunal that the Learned Tribunal has seriously committed error in passing an order for including Respondents in the CoC of the Corporate Debtors. He emphasised that if the impugned order is not interfered with there is every possibility that considering the huge claims raised by the Respondents the appellant may not get its appropriate claim. Certainly if it is not interfered with considering the huge claims of the Respondents there is likelihood of reduction of the claim of appellants as Nil. He emphasised that under the Code it is the only CoC who is competent to appoint IRP or RP and in any event removal of the RP by the Adjudicating Authority was beyond its jurisdiction and competence. Mr. Abhijeet Sinha, learned counsel submitted that in the Transactional Audit Report it was found that Respondents were r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by its order dated 11.6.2021, while directing to list the appeal for admission on the next date directed that "in the meanwhile the impugned order dated 06.04.2021 and 08.04.2021 shall remain stayed till next day of hearing." Learned counsel appearing on behalf of the replaced RP was also directed not to proceed with CIRP till next date of hearing. The interim order passed earlier was further directed to continue till further orders by order dated 24.08.2022. Meaning thereby that the interim order till date is continuing. We partly heard the appeal on 1.11.2022 on which date learned counsel for the Appellants concluded his argument and on request of learned counsel for the Respondents hearing was deferred to 3rd November, 2022 on which date after hearing all the parties judgment was reserved. While giving reply Mr. P. Nagesh, learned senior counsel appearing on behalf of Respondent No.1 raised serious objection on the arguments of learned counsel for the appellant. He has drawn our attention to the relief sought for in the Memo of Appeal. He submitted that despite the fact that in the Memo of Appeal the appellant has mainly prayed to set aside the impugned order to the extent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, inter alia, that answering respondent is not a related party of the corporate debtor, thus, having right to participate, attend and vote in the meetings of the CoC of the Corporate Debtor. 3. It is submitted that it has been held in catena of cases now that the Hon'ble NCLT has power to replace the RP of the corporate debtor where the Hon'ble NCLT is of the opinion that the RP has failed to conduct the CIRP of the corporate debtor as per the provisions of the IBC or where the Hon'ble NCLT is not satisfied with the performance or conduct of the RP or where there is a dereliction of duties on the part of the RP. In the instant case, the Hon'ble NCLT vide its detailed order dated 06.04.2021, has taken into account the manner in which the CIRP of the corporate debtor was conducted by the RP and found it just and proper to replace the RP for smooth conduct of the CIRP. Therefore, the instant appeal filed by the appellant being a CoC member and on behalf of the CoC, is baseless and without any merits. Nor the CoC has any locus to challenge the decisions of the Hon'ble NCLT replacing the RP with any other RP. 4. As stated hereinabove, the scope of the present appeal is limited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal. Therefore the Appellant cannot be heard and challenge the findings of the Hon'ble NCLT in the order impugned dated 06.04.2021 against which no appeal has been preferred. By way of referring to fact disclosed in the reply it was submitted by Learned senior counsel for the Respondent No.1 that the Respondent No.1 alongwith Respondent No.2 to 7 had earlier filed an application under Section 7 of the Code against the Corporate Debtor i.e. Company which was numbered as CP(IB)No.281/7/NCLT/AHM/2018 on 1.6.2018 before the NCLT Ahmedabad Bench. According to him the said application was registered on 23.08.2019 and after hearing order was reserved. However, prior to the pronouncement of the order the appellant herein i.e. Andhra Bank filed an application under Section 7 of the Code against the same Corporate Debtor which was admitted on 13.01.2020 and Mr. Brijendra Kumar Mishra was appointed as IRP of the Corporate Debtor who was subsequently confirmed as RP. After IRP issued public announcement through publication in newspaper inviting claims from the creditors which was published on 31.01.2020, the Respondent No.1 filed its claim against the corporate debtor on 10.02.2020 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2021. Thereafter the present appeal i.e. Company Appeal (AT)(Ins) No.399/2021 was filed on 2.6.2021 wherein the appellant sought relief only against the removal of the RP and also for expunging remarks against RP as well as against CoC. Since the IA in the garb of amendment petition was filed much beyond the statutory period of limitation, the said IA may not be entertained at this juncture. He submits that as per Code against an order appeal can be preferred under Section 61 of the Code. But Section 61(2) prescribes a period of limitation of 30 days before NCLAT. However, under proviso to Section 61(2) within further 15 days if appellant is in a position to satisfy sufficient cause for not filing appeal within time, it can be condoned. He submits that after expiry of total 45 days this Tribunal may not entertain such application. According to Learned Counsel for the Respondent by way of filing IA in the garb of amendment the appellant may not be allowed to avoid period of limitation in assailing the said order. According to him the amendment petition is fit to be rejected on the ground of limitation itself. He further submits that even amendment petition i.e. IA has been filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd erroneously gave a finding that some of the Creditors are not related party and also directed to induct them in CoC by reconstitution of the CoC. He further submits that reconstituted CoC may take decision, which will create further complications, therefore, the CIRP may be stayed. We also heard Ld. Sr. Counsel Mr. Jayant Mehta in CA (AT) (Ins) No. 402-403 of 2021 for the Appellant. He submits that Ld. Adjudicating Authority passed some baseless stricture against the RP (Appellant) and without affording opportunity of hearing before IBBI directed to take action against the Appellant. He further submits that Appellant has also challenged the order dated 08.04.2021 whereby Learned Adjudicating Authority had given directions to the 'Corporate Debtor' (Kaushal Textiles Pvt. Ltd.) (R-15) Issue notice in both the Appeals. Learned Counsels Mr. Prateek Gupta and Mr. Vishal accept notice on behalf of R-1 & 15. Issue notice to other Respondents through Speed Post as well as email (both mode). Requisites alongwith process fee, be filed, if not filed within two days. If the Appellant provides the e-mail Address of the Respondents, let notice be also issued through e-mail. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes interest also. It is further noted that all supporting documents as required were attached with Form-C submitted by all applicants in both the applications. It is noteworthy that the basis for treating all the applicants as a related party is based upon the order of SAT dated 11.02.2014 and a report submitted by Transaction Auditor appointed by RP. 19. In this factual background, now, we have to look at the relevant provisions of the CODE as far as issue of admission, reduction or rejection of claims submitted by the Financial Creditors is concerned and their exclusion from COC, if they are found to be a related party of the Corporate Debtor within the meaning of the provision of Section 5(24) of CODE initially or subsequently. The commencement of Corporate Insolvency Resolution Process (CIRP) happens with the admission of Corporate Debtor into CIRP by the order of Adjudicating Authority to that effect. IRP is also appointed from this date only as there is amendment in law which earlier provided for an appointment of IRP within fourteen (14) days from the date of commencement of CIRP. The public announcement of the initiation of CIRP and request for submissions of claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n date. It is pertinent to note that under Section 19 of CODE, personnel of the corporate debtor or its promoters or any other person associated with the management of the corporate debtor have been assigned with the responsibility to extend the cooperation to IRP failing which under Section 19(2) of CODE, IRP can approach this Adjudicating Authority for appropriate direction/relief. 20. After having this over view, we come to the provisions of Section18(b) of CODE which provides that IRP shall receive and collate all claims submitted by creditors to him pursuant to the public announcement made under Section 13 and section 15 of CODE. Section 18({c) provides that IRP has to constitute a Committee of Creditors. Section 21(1) also provides for the same. In fact, Section 21(1) is the consolidated version of Section 18(a), 18(b) and 18(c) of the CODE. Under Section 25(2)(e) maintain an updated list of claims. Now, coming to CIRP Regulations in relation to claims of all kinds of creditors, Regulation 7, 8, 8A, 9 and 9A provide the procedure of filing of claims by such creditors. Under Regulation 10, the IRP or RP is authorised to call for such other evidence or clarification as he dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal. The procedure for replacement of IRP, if it is so resolved by COC, is prescribed under Section 27 of CODE. It is needless to mention that term "Resolution Professional" as defined in Section 5(27) of CODE provides that it includes IRP. Hence, where the term "Resolution Professional" has been used in a context indicated otherwise, it would include both IRP as well as RP. Now, the CIRP starts with speed and momentum. In this process meetings of COC are crucial as certain decisions can be taken by RP only with the approval of COC as provided in Section 28 of CODE. Section 24(2) provides that all meetings of COC shall be conducted by the Resolution Professional. As per Section 24(3)(a), it is provided that the Resolution Professional shall give notice of each meeting of COC to the members of COC including authorised representative. Further, as per Section 24(3)(b}, notice is also to be given to the members of suspended Board of Directors or the partners of the corporate persons, as the case may be. Section 24(3)(c) provides that notice is to be given to Operational Creditors or their representative, if their aggregate dues is not less than ten per cent (10%) of the total outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement] From [Name and address of the registered office and principal office of the financial creditor] Subject: Submission of proof of claim Madam/ Sir, [Name of the financial creditor], hereby submits this proof of claim in respect of the corporate insolvency resolution process in the case of (name of corporate debtor], The details for the same are set out below: ~~ PARTICULARS NAME OF FINANCIAL CREDITOR" IDENTIFICATION NUMBER OF FINANCIAL CREDITOR (IF AN INCORPORATED BODY, PROVIDE IDENTIFICATION NUMBER AND PROOF OF INCORPORATION. IF A PARTNERSHIP OR INDIVIDUAL PROVIDE IDENTIFICATION RECORDS* OF ALL THE PARTNERS OR THE INDIVIDUAL) ADDRESS AND EMAIL ADDRESS OF FINANCIAL CREDITOR FOR - CORRESPONDENCE. PARTICULARS TOTAL AMOUNT OF CLAIM INCLUDING ANY INTEREST AS AT THE INSOLVENCY COMMENCEMENT DATE) DETAILS OF DOCUMENTS BY REFERENCE TO WHICH THE DEBT, CAN BE SUBSTANTIATED DETAILS OF HOW AND WHEN DEBT INCURRED DETAILS OF ANY MUTUAL CREDIT, MUTUAL DEBTS, OR OTHER MUTUAL DEALINGS BETWEEN THE CORPORATE DEBTOR AND THE CREDITOR WHICH MAY BE SETOFF AGAINST THE CLAIM DETAILS OF ANY SECURITY HELD, THE VALUE OF THE SECURITY, AND THE DATE IT WAS GIVEN DETAILS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neither I, nor any person, by my order, to my knowledge or belief, for my use, had or received any manner of satisfaction or security whatsoever, save and except the following: [Please state details of any mutual credit, mutual debts, or other mutual dealings between the corporate debtor and the creditor which may be set-off against the claim]. I am not a related party in relation to the corporate debtor, as defined under section 5 (24) of the Code. It can be seen from the contents of revised Form-C, the word "Affidavit" has been substituted by word "Declaration". Note below clause-4 has been deleted. New Clause-5 has been added. This part (declaration) was again amended with w.ef. 03.07.2018 and a new Clause-6 was added. This amended part of Form-C is reproduced as under: DECLARATION I, [Name of claimant], currently residing at [insert address], do hereby declare and state as follows: - i [Name of corporate debtor], the corporate debtor was, at the insolvency commencement date, being the..........DAY OF ______20... , actually indebted to me for a sum of Rs. (insert amount of claim]. 2 In respect of my claim of the said sum or any part thereof, I have relied on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main part of COC which gets further fortified from this clause that financial creditor, even though being a related party, cannot be ousted from COC. 22. We further think it pertinent to mention that IBC is a complete CODE in itself and unless IBC, 2016 incorporates the provisions of other Acts, provisions of other Acts cannot be applied to IBC, 2016 as such although some assistance can be taken there-from in a given set of circumstances. As noted earlier, provisions of Section 5(24) of the CODE have been part of the statute since beginning which define who could be a related party in relation to a Corporate Debtor. This clause, in fact, uses the word "means" which further indicates the - legislative intent as to how to determine the nature relationship of related party in relation to a Corporate Debtor to find an answer to such issue which crops up during the course of CIRP of a Corporate Debtor. Provisions of Section 3(37) of the CODE also provide that "words and expression" used in the CODE and not defined in this CODE but defined in certain statutes shall have the meanings respectively assigned to them in those Acts. os, In the list of Acts mentioned in Section 3(37) of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible to submit a Resolution Plan but it would remain a member of COC having no voting rights. 23. Now, having discussed the broad features of relevant provisions of CODE, we also consider it pertinent to mention that we are conscious of the fact that errant promoters/management need not to be given an opportunity to derail the process of CIRP in any manner. We are also conscious of the fact that the legislature has provided statutory mechanism for achieving this purpose. However, at the same time, such provisions cannot be used in a manner so as to give unbridled or unfettered rights to RP /COC as well. Though, the structure of IBC gives the most crucial role to the COC but there is an apparent conflict of interests viz-a-viz their interests and the resolution of Corporate Debtor, in a sense, being a secured creditor if COC members prefer an opportunity to realize their amount if they have security interest without going through the process of resolution and in that situation they generally prefer liquidation as seen from the brief history of happenings under IBC. It is for this reason, number of instances of liquidation are more as compared to the resolutions. Thus, some che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permit for review of status of a creditor as all provisions focus only on the amount of claim. Thus, IRP /RP cannot, on its own, review and reverse his own earlier decision without approval of Adjudicating Authority. When we apply this general legal position to the facts of the case, it is noted that in the first meeting of COC itself the aspect of some of the Financial Creditors being a related party was raised in that meeting by some of the members and in spite of that the RP treated applicants no 1 to 4 as an unrelated party and allowed them to participate in first four meetings of the COC. Applicants no 5 to 6 did not participate as their claims had not been accepted itself and not because of the reason that they were a related party. This factual position also leads to a logical inference that there were sufficient documentary evidences as far as applicants no. 1 to 4 are concerned which were attached with Form-C. It is also noted that all such documentary evidences were also provided by applicants no 5 to 7 but no material on record is produced by RP to justify its decision in not admitting their claims which were subsequently admitted at the principal amount. Thus, arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of case demand so and an appropriate application is made by RP to this effect. We again state that decision of the Adjudicating Authority in this regard cannot be challenged by RP though it may be challenged by any member of COC who is aggrieved by such decision. Before leaving this issue we also consider it pertinent to mention that the power to constitute COC, as such, cannot include a power to re-constitute COC except as provided in the CODE or CIRP Regulations. Thus, the Financial Creditor who is a part of COC, cannot be removed by RP without prior approval of the Adjudicating Authority. 24. Although, we have already reached to a conclusion but we also consider it relevant to discuss the role and responsibilities of RP so that CIRP can be conducted in an efficient manner and desired results are obtained within the timelines prescribed under the CODE/Regulations made thereunder and _ that would not only guide the RP in the present case but would also be of great help to all Insolvency Professionals acting as IRP/RP. From the perusal of all substantive provisions of law as contained in the CODE itself, it is abundantly clear that Resolution Professional is only an Adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prior approval of this Authority, removed them from COC, hence, we direct RP to reconstitute the COC by including them in COC irrespective of the fact that whether they are a related party or not subject to limitation as contained in proviso to Section 21(2) of the CODE. 25A.Our views expressed hereinbefore also find support on some aspects involved in these application from the order of Hon'ble NCLAT in the case of Mr. Rajnish Jain vs Manoj Kumar Singh and Ors in Company Appeal (AT) (Insolvency) No. 519 of 2020 dated 18.12.2020. 26. Now, we have to decide question no 3 i.e. whether such financial creditors, in view of evidence brought on record, are a related party of the corporate debtor or not. In this regard, it is an admitted position that the source of such classification is the order of SAT dated 11.02.2014 which was passed under provisions of SEBI Act, 1992 based upon the definition of person acting in concert and that too for the purposes of prohibiting such persons from trading in securities markets. It is to be noted that even the Transaction Auditor has relied on such order in a substantial manner. Said order was admittedly passed in the year 2014. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority to appoint accountants, legal or other professionals as may be necessary. In other clause of Section 20(2) of CODE, reference has been made to keep the corporate debtor as a going concern. Similar provisions have been made in Section 25 of CODE. However, as per Section 25(2}(d) of CODE, the Resolution Professional can appoint accountants, legal or other professionals in the manner as specified by the Board. The word "specified" has been defined in Section 3(82) of CODE which refers to regulations made by the Board under this CODE. The IBBI has specified CIRP Regulations. However, in such regulations, it has not been provided whether for the purpose of verification of claims submitted by the financial creditors or other creditors, under what circumstances an external agencies can be appointed by the RP. Having stated so, Regulation 10 of CIRP Regulation, 2016, however, cast duty only on IRP to call for such other evidence or clarification as it deems fit from a creditor for substantiating the whole or parts of its claim. As per Regulation 11 of CIRP Regulations, 2016, the creditor is liable to bear the cost of proving the debt due to such creditor. However, in case of rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outsource his responsibilities at the first stage in a liberal manner and if need arises then it can do so but that should be very prudent and reasonable. From the minutes of meetings of COC, contents of appointment letter appears that main object of such appointment was to obtain Forensic Audit Report to ascertain the transactions of the nature as specified in Section 43,45,50 or 66 of the CODE and verification of claims and status of such applicants as a related party was an additional job. However, as noted from the minute of 6t meeting of COC held on 21.12.2020, no report on the preferential, undervalued, extortionate and fraudulent transactions has been given by Transaction Auditor. Further, no application, in this regard, appears to have been filed with this Authority as yet. No material has been brought on record to show that time for submission of such report had been extended. Thus, such appointment, in our opinion, has not served the main purpose. Accordingly, we are of the view that such appointment is not in accordance with the provisions of CODE, CIRP Regulations and aforesaid Circulars particularly when Transaction Auditor has relied on the documents which were in pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essional to "decide" whether the resolution plan does or does not contravene the provisions of law. Regulation 36-A of the CIRP Regulations specifically provides as follows:- "36-A(8) The resolution professional shall conduct due diligence based on the material on record in order to satisfy that the prospective resolution applicant complies with- (a) the provisions of clause (h) of sub-section (2) of section 25; (b) the applicable provisions of section 29A, and (c} other requirements, as specified in the invitation for expression of interest. (9) The resolution professional may seek any clarification or additional information or document from the prospective resolution applicant for conducting due diligence under subregulation (8). (10)The resolution professional shall issue a provisional list of eligible prospective resolution applicants within ten days of the last date for submission of expression of interest to the committee and to all prospective resolution applicants who submitted the expression of interest. (11) Any objection to inclusion or exclusion of a prospective resolution applicant in the provisional list referred to in subreguiation (10) may be made with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly arose in first COC meeting held on 29.02.2020. From discussion on agenda item no. 10, it is noted that some lenders opined that some claims received belonged to related parties so it was advisable to have a clear opinion on the same. However, the basis for such view has not been disclosed in the minutes. It was also specifically submitted that such Transaction Auditor should be independent and should not have any strings connected with Corporate Debtor or any other interested party. It was also discussed that as per Regulation 35A of CIRP Regulations, 2016, RP was obliged to form an opinion whether corporate debtor had been subjected to any transaction covered under Section 43,45,50 or 66 and for that purpose also it was imperative to determine whether any of such transactions were with related parties. In second meeting of Committee of Creditors held on 02.06.2020 firstly the minutes of first COC held on 29.02.2020 were taken note of and, thereafter, discussions were held to the issue relating to the verification of claims as well as appointment of Transactional Auditor. It was informed by RP that certain quotations had been received from same professional for the purpose of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this meeting none of the applicants was present because after 4th meeting held on 19.08.2020, the RP excluded them from COC and mail had been sent to them to that effect on 14.10.2020. It is worthwhile to mention that in the 4" meeting of COC no discussion happened as to what would happen if financial creditors were considered as related party and in that situation what action should be taken by RP/COC. Further, no material has been brought on record to show that any communication apart from discussion in COC mneeting was exchanged between RP and COC members to that effect. In this meeting only discussion on this aspect happened in item no. 7 and COC took note of these facts. In item no 16, the issue of identification of immovable properties belonging to the Corporate Debtor arose. It was requested by RP to COC members to provide details if they had anything in their possession. Indian Bank, one the financial creditors and member of COC informed that Indian Bank was also member of COC of another group company i.e. K Life Style Ltd and the Resolution Professional of that corporate debtor informed to them that he had identified certain properties which belonged to this corporate d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and professional opinion on the amount, security interest and admissibility of claims received or to be received from various creditors including but not limited to giving professional advice on the re-constitution of the Committee of Creditors pursuant to such claim verification or re-verification upon analyzing the relevant provisions of the Code and the Regulations made thereunder, From the perusal of above para, it is noted that transaction audit has to be completed by Transactional Auditor as per the time-line given in the appointment letter which is thirty (30) working days from the receipt of this letter which could be extended mutually, if required. Thus, prima facie the facts are on two things. However, even as on date, no application under Section 43, 45, 50 and 66 has been filed or from progress reports up to 21.12.2020 nothing is mentioned therein as far as this part of scope of work is concerned. 34.Now, we come to the covering letter of the report given by the Transactional Auditor on 29.08.2020. As per subject of this letter, this is their final report. In this letter, it is mentioned that additional scope of work was to verify the claims and giving a profession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s company is not established. We have also gone through the details enclosed in Annexure-II of the report showing common directorship of individuals but on careful perusal of such details which are placed in the paper book from page no. 45 to 72, we have not found any director which is or was director of the corporate debtor though there is a common directorship between applicants themselves. Thus, the conclusions arrived by the External Transaction Auditor are without any basis and, therefore, required to be reversed. Further, the report is in explicit contravention of the provisions of Section 21 r.w. the contents of Form-C which shows lack of understanding of law on the part of the External Transactional Auditor as well as a determined approach to exclude the applicants from COC. Further, merely if some person's name or entities names have appeared in the said order of SAT, in our opinion, one more issue which arise for our consideration is whether relationship at any point of time prior to two years period from the commencement of CIRP, can declare them as a related party for all times to come. In the present case, SAT order of 2014 which is more than six year prior to commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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: (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; From the perusal of above Clauses, it is apparent that these clauses deal with different situations for deciding the issue where a party is a related party or not. Hence, without meeting the specific requirements of these clauses a party cannot be declared as a related party by applying all clauses in an arbitrary manner like this. Further, no material has been brought on record to support such findings except the working which has been given for this purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AS had been submitted and which fact has not been taken into consideration by the Transaction Auditor. 40.Now, coming to IA 13 of 2021, it is noted that in this case amounts relating to corporate guarantees are only involved and there is no unsecured loan. RP initially rejected its claims for the reason that these corporate guarantees remained unsubstantiated. Transaction Auditor in its report held that the provisions of Section 186 of Companies Act, 2013 and Section 372(A) of Companies Act, 2013 were violated. It is also noted that in the said report that as per provision of Section 186{(4) of the Companies Act, 2013, the company was liable to be disclose the details of guarantee given by the company in the financial statements and it was also to be disclosed that for what purposes such guarantee had been given. There is a categorical finding that in Financial Statements commencing from 2013 till Financial Year 2016-2017 such details have not been given. The reference to the notes given in the financial statements on these points has also been made. From the perusal of said disclosure, it is noted that the company had not given any guaranties for loans taken by others from Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were not a related party or connected with the Corporate Debtor at any point of time in terms of provisions of Section 5(24) of CODE and Section 2(76), Section 2 (77) of the Corporate Debtor. Specific claim has been made in such affidavit that clauses i.e., (f), (h) () and (m) of Section 5(24) of CODE were also not applicable. 42.The applicant has also made contention that the financial creditors were not a public financial institutions, hence, such observation of Transactional Auditor were not having any strength. This aspect has already been dealt with by us. The applicants have also raised a legal contention that related party should be in present and for this proposition, reliance has been placed on the decision of Hon'ble Supreme Court in the case of Phonix Arc Private Limited vs. Spade Financial Services Limited & Ors dated 01.02.2021. However, in Para 91 it has been held that the definition of related party could be applied at the time when debt was created. Further, in Para 92, it has been held that if this view was taken as a standard rule then an absurd conclusion may arise because entities which had legitimately taken over the debt of the related party or wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of CIRP is not in accordance with the object and scheme of CODE, Regulations made thereunder. We also find that the news item taken in support by the RP appeared on a web platform on 23.12.2020 much after the exclusion of these parties from COC, hence, such item, on the face of it, does not support the approach of the RP. Further, RP has to conduct CIRP as per provisions of law and is not supposed to form an opinion based upon such news item. Even otherwise, the contents of this news item indicate that it is an instance of sponsored news. Thus, we hold that principles of natural justice have been violated both by RP as well as COC. 44.In the facts of the case and the manner in which CIRP is being conducted, as evident from the proceedings which have taken place as regard to rejection of claims and re-constitution of COC by excluding the applicants from COC, we are of the considered view that some accountability mechanism for the authorised representatives of members of COC is also required on lines of provisions of Section 70(2) of CODE wherein Insolvency Professional can be questioned for its deliberate contravention of the provisions relating to CIRP/Liquidation of the Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have participated in first four COC meetings whereas applicants no 5 to 7 were never informed about COC meeting nor any communication was made by RP as regard to status of claims submitted by them. It is further claimed that RP issued certain queries, which according to the applicants were of arbitrary nature and the sole object was to not to invite applicants no 5 to 7 for participation in COC meetings. In IA 13 of 2021, the claims pertain to amount of corporate guarantees which were invoked and such amount includes interest also. It is further noted that all supporting documents as required were attached with Form-C submitted by all applicants in both the applications. It is noteworthy that the basis for treating all the applicants as a related party is based upon the order of SAT dated 11.02.2014 and a report submitted by Transaction Auditor appointed by RP." On going through the aforesaid order we are of the considered opinion that while passing order for replacement of RP, the Learned Adjudicating Authority has not committed any error rather the situation warranted the Adjudicating Authority which has been dealt with in the order to take such stringent step. Similarly while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Secured and Unsecured Creditors and no commencement reached by majority of voting share to appoint the Appellant herein as IRP/RP invoked thereunder part in Rule 11 and rightly have passed the Impugned order. (vii) Further, from the perusal of the Status Report submitted by the Respondent No. 2- M/s LSL & Industries Ltd., through Mr. Kiran Shah on 29.06.2021, which has been discussed in detail, it reveals that substantial progress in the CIRP proceedings had been made. (viii) Taking all these circumstances and also the fact that the Appellant has only argued on one question of law which was formulated by this Tribunal under this Order dated by 17.09.2020, is only about the exercise of power of Rule 11 of NCLT by the Learned Adjudicating Authority in the facts of this case. (ix) We are of the considered that the Learned Adjudicating Authority have rightly exercise this power and there is no merit in the Appeal and is accordingly dismissed. (x) It appears from the perusal of the record that this Instant Appeal was filed on 03.09.2020 before this Tribunal and Notices were issued on 17.09.2020 and being disposed off by Judgement dated 20.07.2021." On examination of the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
