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TMI Blog2022 (12) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... without assailing the order on the point of reconstitution of CoC and induction of Respondents in CoC, the appellant was not authorised to assail the order in entirety even then it was earlier also argued on behalf of the appellant which is evident from the order dated 11.06.2021 passed by this Tribunal - 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. On examination of the impugned order in the present appeal it is evident that though some of the respondents were allowed to participate in 1st CoC Meeting subsequently without prior approval of the Adjudicating Authority they were restrained from participating in the proceeding. Similarly number of other irregularities were committed by the RP. In such situation it was imperative for the Adjudicating Authority to pass order for removal of the RP by the impugned order. Appeal dismissed. - COMPANY APPEAL ( AT ) ( INSOLVENCY ) NO. 399 OF 2021 - - - Dated:- 5-12-2022 - ( Justice Rakesh Kumar ) Member ( Judicial ) And ( Dr. Ashok Kumar Mishra ) M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Registry to provide copy of this order to new RP through email and by Speed Post forthwith on pronouncement of this order so that new RP can take over the charge within three days thereafter. g) We also direct the Registry to send a copy of this order to IBBI within seven days of our order so that appropriate action against the outgoing RP Mr. Brijendra Kumar Mishra can be taken by IBBI as per prescribed mechanism, if considered necessary. In the present appeal, the appellant has prayed for the following reliefs:- a) That this Hon ble Tribunal be pleased to set aside/quash the impugned order dated 6th April, 2021 passed by the Ld. NCLT, Ahmedabad Bench I.A. No.953 of 2020 and I.A. No.13 of 2021 in CP(IB) No.279 of 2018 titled Rajdeep Clothing and Advisory Pvt Ltd Ors Vs Brijesh Kumar Mishra, RP of Krishna Knitwear Technology Ltd and Abhinandan Multitrade Pvt Ltd Ors Vs Brijesh Kumar Mishra RP of Krishna Knitwear Technology Ltd respectively to the extent it directs suo motu replacement of the RP and makes certain adverse remarks against the CoC. b) That this Hon ble Tribunal be pleased to expunge the adverse remarks made by the Ld. Adjudicating Authority a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er appellant the Respondent No.1 to 7 replied to the contentions raised by the RP. Thereafter the Respondents filed an IA seeking direction from the Adjudicating Authority to the Resolution Professional to reconstitute CoC by including applicants (respondents herein) and assign voting rights to them in respect of CIRP of the Corporate Debtor namely M/s Krishna Knitwear Technology Ltd. From the materials available on record as well as reply filed by the Respondents it is evident that the Respondents herein prior to filing of application under Section 7 of the Code by the appellants herein had already filed an application under Section 7 of the Code for initiation of CIRP against the Corporate Debtor/Company namely Krishna Knitwear Technology Ltd. The Adjudicating Authority after hearing all the parties by a detailed order allowed the application for including Respondents herein in the CoC i.e. direction for reconstitution of the CoC. Besides allowing the relief sought for by the Respondents herein before the Adjudicating Authority, the Adjudicating Authority while examining the matter in detail noticed that the RP had proceeded completely erroneously and exceeded its jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emo of Appeal i.e. letter dated 29th August, 2020 sent by the Chartered Accountant containing its report to show that the Respondents were related parties to the corporate debtor. According to Mr. Sinha since Respondents were related party which has been substantiated in the Report of the Chartered Accountant the Learned Adjudicating Authority has committed serious error in allowing them to include in the CoC. Learned counsel for the Appellant has referred to Regulation 13 and 17 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2013 to substantiate as to how IRP or RP is required to verify the claim and deal with the CoC. In the argument in sum and substance it was submitted that the reconstitution of the CoC and inclusion of Respondents in CoC by the Adjudicating Authority was completely erroneous and liable to be set aside. After filing of the present appeal firstly on 11.06.2021 considering the submission of Learned Counsel for the appellant that Adjudicating Authority had exceeded jurisdiction while passing suo motu order of replacement of the IRP and erroneously gave a finding that the creditors were not relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CoC as well as RP was sufficient enough for the Adjudicating Authority to take stringent action of replacement of RP. He submits that from the impugned order which discusses each and every fact it is evident that the RP was proceeding beyond his brief and as such it was emergent situation for the Adjudicating Authority to take step for passing order of replacement of the RP. In the reply filed on behalf of the Respondent No.1 preliminary objection has been raised regarding suppression of fact by the appellant. It is appropriate to reproduce the written preliminary objections which are as follows:- 1. At the outset, it is submitted that the Appellant is guilty of suppressionveri and suggestion falsi. The appellant has filed the present appeal malafidely and has approached this Hon ble Tribunal with unclean hands. The Appellant has suppressed material facts from this Hon ble Tribunal. The present appeal is liable to be dismissed. 2. The present appeal has been preferred by the Union Bank of India who is the member of Committee of Creditors (hereinafter referred to as the CoC ) of the Corporate Debtor, limited to the extent of Suo-motu replacement of the Resolution Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by the answering respondent alongwith other respondents before the Hon ble NCLT. The Appellant has not filed the supporting annexures to the I.A. No.953/2020 which were crucial in deciding the IA No.953/2020 and on the basis of which the impugned order dated 06.04.2021 is passed. c. It is pertinent to note here that along with the IA No.953/2020, the answering respondent has filed the claim form filed by the respondents with the RP and also the emails as well as the Reply dated 29.10.2020 issued by the respondents in response to the RP s email dated 14.10.2020 alongwith the due-diligence report of the independent professional to the effect that the answering respondent alongwith other respondents is not a related party of the corporate debtor. d. The Appellant has also suppressed with this Hon ble Tribunal that the instant appeal filed by the Appellant is limited to the extent of Suo-motu replacement of the Resolution Professional by the Hon ble NCLT and to expunge the remarks made in the impugned order against the CoC. On the basis of this suppression, the Appellant travelled beyond its pleadings and an attempt has been made to challenge the findings of the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor as well as representatives of Bank of Maharashtra, the RP as well as other secured creditors proceeded to appoint Transactional Auditor for the purpose of verification of the claims of the creditors. Mr. Nagesh, learned senior counsel for the Respondent submits that in view of Section 18 of the IBC it was duty of the RP to receive and collate all the claims submitted by the creditors pursuant to the public announcement. The Circular of IBBI No.IP/033/2018 dated 3.1.2018 prohibits RP from outsourcing any dispute. The RP preferred to appoint M/s R. Chaudury Associates as Transactional Auditors. It has been argued that since very inception the RP was proceeding contrary to the statutory provisions and committing several errors, this was the reason that the Learned Adjudicating Authority has finally took a decision to replace the RP. He further submits that while passing order certain insignificant comments were also made by the Adjudicating Authority against the RP and CoC, which is not required to be looked into by this Tribunal. Mr. P. Nagesh, learned senior counsel appearing on behalf of Respondent No.1 has further raised objections to an Interlocutory Application whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d order. Besides hearing learned counsel for the parties we have minutely examined the impugned order as well as materials available on record. Since in the main appeal the appellant has confined his relief to the extent of assailing order of removal of RP and also for expunging remarks against CoC as well as RP, we are of the considered opinion that other issues are not required to be dealt with in the present appeal. It is true that IA was filed for amendment of the relief in the Memo of Appeal but fact remain that said IA was filed much after the expiry of the period of limitation as prescribed under Section 61 of the Code. Besides this it is admitted fact that such IA was filed after filing of the reply by the Respondent No.1. In reply filed by the Respondent No.1 as preliminary objection it has been stated that without assailing the order on the point of reconstitution of CoC and induction of Respondents in CoC, the appellant was not authorised to assail the order in entirety even then it was earlier also argued on behalf of the appellant which is evident from the order dated 11.06.2021 passed by this Tribunal. We consider it appropriate to reproduce order dated 11.06.2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond outer limit 45 days and as such being a statutory authority we are unable to entertain such application. For deciding as to whether the Adjudicating Authority has committed any error in replacing the RP and also passing some comments against RP and CoC, it would be appropriate to reproduce certain relevant portion of the order of the Adjudicating Authority, which are reproduced hereinbelow: 18. Now, we will deal with these questions in the following manner: (i)Whether Resolution Professional, after including Financial Creditors in Committee of Creditors, can remove them from COC for the reason that they are related parties, without prior approval of Adjudicating Authority? (ii)Whether Financial Creditors, though they may be a related party remain entitled to be a part of COC without having any voting rights or right to participate or represent in the COC meetings? In IA No. 953 of 2021, there are 7 applicants. Claims of applicant no. 1 to 7 have been admitted at principal amount. Applicants no. 1 to 4 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessional as well as Transaction Auditor that claims were neither genuine nor supported by the documentary evidence to the extent required as per their opinion. It is an established position of law that management of affairs of the Corporate Debtor gets vested in IRP from the date of appointment of IRP. The IRP has got twin role to play i.e., to run the affairs of the Corporate Debtor as a going concern as well as to conduct the CIRP as per the provisions of CODE r.w. IBBI (Insolvency Resolution Process for Corporate Person) Regulations, 2016. As per the provision of Section 17(2)(d) of CODE, IRP has authority to access books of account, records and other relevant documents of corporate debtor available with other government authorities, statutory auditors, accountants and such other persons as may be specified. Thus, IRP can have access or obtain information/details from various sources other than the corporate debtor itself. After stating out basic framework relating to the scope of functions to be discharged by the IRP, we reach to Section 18 of the CODE which provides for the duties of the IRP. As per Section 18{a)(iii) of CODE, it is the duty of the IRP to collect all inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his claim. However, as per proviso to said Regulation 12(3), any decisions taken by COC prior to such inclusion would remain valid. As per Regulation 13(1), it is the duty of the IRP/RP to verify every claim as on insolvency commencement date within seven days from the last date of receipt of claims and maintain a list of creditors containing names of creditors along with amount claimed, amount admitted and security interest, if any, in respect of such claims and update such list. This Regulation, thus, implements the mandate of Section 18(b) and Section 25(2)(e) of the CODE. Clause {a), (b), (c) and (ca) of Regulation 13(2) provide for availability and display of such list to various category of persons. Clause (d) of Regulation 13(2) provides for filing of list of creditors with the Adjudicating Authority. Clause 13(2){e) provides that such list of creditors be presented at the first meeting of COC. Regulation 14{1) and 14(2) provide for best estimation of the amount claimed by RP on the basis of information available with him and such estimate can also be revised when RP comes across additional information warranting such revision. 21. We need to look into some more aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of Section 21(2) of CODE, it is noted that such provision, in unambiguous terms, states that COC shall comprise of (all) Financial Creditors of the Corporate Debtor. The proviso thereto provides that if such Financial Creditor is a related party of the Corporate Debtor then it shall not have any right of representation, participation or voting in a meeting of COC. Thus, if Section 21(2) of CODE is read as a whole then it clearly emerges that even if a Financial Creditor is found to be a related party it shall remain constituent of COC but it shall not have any voting right. This position of law further gets substantiated from the contents of Form-C whereby Financial Creditors submit proof of claim. This Form-C has been revised two times Le. firstly w.e.f. 01.04.2018 and secondly w.e-t. 03.07.2018. The same are reproduced in the chronological order i.e., 30.11.2016, 01.04.2018 and 03.07.2018. For our purposes, the relevant part is affidavit to be made by a Financial Creditor as the concluding part of this form. Form-C introduced originally is reproduced as under. Thereafter, we would reproduce, for our purposes, the relevant part only as amended from time to time. FORM C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state as follows: 1. {Name of corporate debtor], the corporate debtor was, at the insolvency commencement date, being the______ day of__20 , justly and truly indebted to me in the 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 the documents specified below: {Please list the documents relied on as evidence of claim] 3 The said documents are true, valid and genuine to the best of my knowledge, information and belief. 4. In respect of the said sum or any part thereof, I have not nor has 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.) Amended part of Form-C w.e.f 01.04.2018 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a related party of the corporate debtor, as defined under section 5 (24) of the Code. 6. I am eligible to join committee of creditors by virtue of proviso to section 21 (2) of the Code even though I am a related party of the corporate debtor. As can be seen from the changes made from time to time, Clause-4 is amended by deleting the requirements of details as regard to mutual set-off as such information/details are to be given in column-7 of Form-C itself. It is important to note that w.e.f. 01.04.20218 a new clause (5) has been inserted to the effect that the creditor has to give a declaration that he is not a related party in relation to the Corporate Debtor as defined under Section 5(24) of the CODE. In this regard, it is important to note that Section 29A regarding ineligibility of a person to be a Resolution Applicant had been brought on statute w.r.e.f. 23.11.2017 by Insolvency and Bankruptcy Code (Amendment) Act, 2018 dated 18.01.2018. The definition of related party in Section 5(24) was always there in the CODE. Further, provisions of Section 5(24A) defining a related party in relation to an individual were brought in w.e.f. 06.06.2018. Thus, such changes in Fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be eligible to submit a Resolution Plan, if such person, or any other person acting jointly or in concert with such person prohibited by SEBI from trading the securities or accessing the securities markets whereas provisions similar to main clause of Section 29A or clause(f) to Section 29A do not exist in Section 5(24) of the CODE for determining of status of a financial creditor as a related party. It is also to be noted that in Section 29A not only related but other categories of persons have also been made ineligible to submit Resolution Plan, hence, in that section wider definition has been given in respect of an ineligible person and in that context person acting in concert, in certain situations provided therein, have been barred from submitting Resolution Plan and for this purpose, the definition of such term as given in SEBI Act can be used in view of provisions of Section 3(37) of the CODE as the same has not been defined in the CODE. Thus, for the purpose of Section 29A, both persons acting jointly or in concert and a related party would be treated as connected person as defined in Explanation I of clause (j) of Section 29A of CODE. However, for the purpose of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suspended management or Operational Creditor. 23A.We have, thus, gone through the legal framework governing the process of admission, rejection or revision of claims submitted by creditors of the Corporate Debtors, determination of status of a creditor as a related party, voting rights Financial Creditors, constitution of COC and reporting compliance related thereto. Few important questions arise for our consideration. It has been observed that IRP/RP are primarily responsible for preparation and updating of list of creditors. First and foremost question which needs to be asked is whether in the garb of exercise of such duty IRP/RP can review the status of a creditor i.e., from Financial Creditor to Operational Creditor or vice-versa or a non-related Financial Creditor can be treated as related party without prior approval of Adjudicating Authority. From the perusal of all provisions as well as as regulations it is apparent that no such power exists either with RP or COC. As far as powers of COC, in this regard, are concerned, this scheme has been intentionally designed by legislature so that the Financial Creditors who only have voting rights cannot usurp the CIRP because a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of some External Expert has been taken by RP on its own or with the approval of COC. It may not be out of place to mention that this decision of the Adjudicating Authority cannot be challenged by RP though COC or the creditor can challenge the same before the Appellate Authority as they may be an aggrieved party. 23B.The other important question is whether constitution of COC can be changed by RP and if so, under what circumstances and to what extent. It is an admitted position of law that IRP is required to constitute COC in terms of provisions of Section 21(1) of the CODE. The RP is also entitled to determine the voting share to be assigned to each Financial Creditor, being a member of COC and who is not a related party as per the provisions of Section 24(6), 24(7) r.w. first proviso to Section 21(2) of the CODE. As per Regulation 12(3), if a claim of a Financial Creditor is admitted under Regulation 13(2), such Financial Creditor shall be included in COC from the date of admission of such claim. It is specifically provided in proviso to Regulation 12(3) that any decision taken prior to such inclusion would remain valid in spite of change of constitution of COC because of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Creditors in the liquidation process of Corporate Debtor. Further, even during CIRP there exists no provision in law that Committee of Creditors can take a final decision on the aspect of admission or rejection or reduction of claims of Financial Creditor or its status. It is not at all in dispute that Adjudicating Authority is the supervisory body for IRP/Resolution Professional. Though, Committee of Creditors is not under its superintendence, nevertheless, Committee of Creditors has been given final powers only as regard to approval of Resolution Plan or liquidation of Corporate Debtor and matters specified under Section 28 of the CODE or replacement of a Resolution Professional under Section 27 of CODE. Therefore, any irregularity or violation of principles of natural justice in other areas of CIRP can certainly be looked into by the Adjudicating Authority and if it is found that the actions/decisions of Committee of Creditors are also not in accordance with the provisions of law, then, in our considered view, the same can be reviewed for both violations and reversed by Adjudicating Authority. 24A.Hence, we hold that final determination of claims of Financial Creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that none of the provisions which relate to admission or rejection or reduction of claims submitted by financial creditor except the declaration in Form C by such financial creditors itself, provide for determination of their status as a related party. Thus, the legislature has cast primarily obligation on the claimants to state that they are not a related party of Corporate Debtor. Thereafter, verification of their claims starts and list is updated by Resolution Professional on the basis of further information provided by such creditors. If RP during CIRP comes to know that such persons are related parties though this fact has not been disclosed by such persons, then, in our view, RP should, firstly, bring this material to the notice of such persons directly as well as in COC meeting where such persons are still members so that their position on this material can be obtained and matter can be decided. However, it has not been done so in the present case. 27.In the present case, report of external expert has been taken; hence, it becomes imperative for us to see whether such action of RP is justified as per the provisions of CODE. Before proceeding further, we may mention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not require any certificate from another person certifying eligibility of a Resolution Applicant. In the said Circular, it has been specifically directed that an Insolvency Professional! shall not outsource any of his duties and responsibilities under the CODE. Thus, the ultimate conclusion which appears to us by reading of such Circular that the action of RP in appointing External Transaction Auditor, though, it may be with the approval of COC is in violation of such directions given by IBBI in general and more particularly in the present case having regard to such report which we would consider in the later part of the order. Having stated so, we also took note of the Circulation No. IBBI/IP/013/2018 dated 12.06.2018 which relates to fee, other expenses to be incurred for CIRP. In the opening para of this Circular, IBBI has stated that the Insolvency Professional conducts the entire CIRP and such responsibility of an IRP require highest level of professional excellence, dexterity and integrity. It has also been mentioned that Insolvency Professional may pay the fee for the services obtained for conducting CIRP. It has also been mentioned that Insolvency Professional is obliged u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a Resolution Professional is only to examine and confirm that each resolution plan conforms to what is provided by Section 30(2). Under Section 25(2)(J, the Resolution Professional shall undertake to presert ail resolution plans at the meetings of the Committee of Creditors. This is followed by Section 30(3), which states that the Resolution Professional shall present to the Committee of Creditors, for its approval, such resolution plans which confirm the conditions referred to in sub-section (2). This provision has to be read in conjunction with Section 25(2)(), and with the second proviso to Section 30(4), which provides that where a resolution applicant is found to be ineligible under Section 29-A(c), the resolution applicant shall be allowed by the Committee of Creditors such period, not exceeding 30 days, to make payment of overdue amounts in accordance with the proviso to Section 29-A{c). A conspectus of all these provisions would show that the Resolution Professional is required to examine that the resolution plan submitted by various applicants is complete in all respects, before submitting it to the Committee of Creditors. The Resolution Professional is not requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Professional to give reasons while submitting a resolution plan to the Committee of Creditors, it would be in the fitness of things if he appends the due diligence report carried out by him with respect to each of the resolution plans under consideration, and to state briefly as to why it does or does not conform to the law. The above observations strongly support the view taken by us that RP should not or rather cannot outsource or delegate his responsibilities or functions in a casual manner or otherwise to draw support from such report for its arbitrary and unreasonable approach. 28.Further, no material has been brought on record by the Resolution Professional as to what prompted him to treat such applicant/financial creditor as a related party on the basis of the order of SAT by the RP as well as Transactional Auditor at a later stage although this order was already available in public domain including at the time of initiation of CIRP and submission of claims by applicants. 29.These facts have been taken into consideration in the peculiar circumstances of the case having regard to declaration made by the applicants in Form-C and if, before taking any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tially leads to the purpose of verification of preferential, undervalued, extortionate and fraudulent transactions where any related party other than the applicants could also be involved. 31.Third meeting of COC was held on 03.07.2020. The discussion was held on the appointment of said firm as Transaction Auditor. Suspended Management specifically pointed out that Mr. R. D. Choudhary was engaged as RP who was already associated with CIRP of M/s K Life Style and Industries Ltd, a group company, hence, appointment of Mr. R. D. Choudhary would affect the independent working and confidentiality of information relating to the Corporate Debtor, hence, his appointment may be re-considered. Even one of the institutional financial creditors i.e., Bank of Maharashtra expressed same view and stated that there was a situation of conflict of interest in his appointment. However, their views were rejected but such discussion certainly raises the question as to why only this professional was appointed and no other independent professional entity could be appointed. According to us, cost factor, in such situation, is of secondary nature particularly when necessity of such appointment is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 6 as regard to transaction audit and matters incidental thereto that the Resolution Professional wrote an email to the Transaction Auditor on 08.12.2020 to provide the report on the basis of documents and information supplied to them for the time being which can be updated on the receipt of availability of desired information/documents. However, no updated repot as a consequence of this request or statement of fact that the report which had already been submitted by Transactional Auditor on 29.08.2020 was final, has been brought on record. Thus, this situation shows that report submitted by Transactional Auditor was based upon incomplete information and details available as on that date and even in that report, the Transaction Auditor has itself admitted this situation. Therefore, in our considered opinion, such report cannot be a proper basis to consider the applicants as related party and to reject or reduce their claims. 33. Generally, we do not go into the detail but facts of the present case demand that a proper analysis as regard to conduct of CIRP by RP. The appointment Transaction Auditor was made on 17.07.2020. The Scope of work is defined as under: SCOPE OF W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same has been conveyed to you vide email dated 25% July, 2020. AS per you request, we hereby providing the detailed final report on committee to be re-constituted based on information provided along with the claim, information provided by Resolution Professional and based on information gathered from public domains. We hereby provide the report containing the Jinancial creditors who shall be form part of the Committee of Creditors along with the amount of their claims admitted based on information available and their voting share in the committee of creditors and list of financial creditors who will not be form part of Committee of Creditors and amount of claims admitted/ not admitted based on records provided by RP along with the detailed Findings. The Transaction Audit report has been given in two parts. One parts relates to non-admission of claims pertaining to corporate guarantees which are subject matter of IA 13 of 2021, hence, will be dealt while disposing of that application in the later part of this order. In IA 953 of 2020 the claims of applicants/financial creditors who had given loans have been dealt in second part of such report. Out of nine (9) finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was filed by them along with their letter dated 29.10.2020 in case of all applicants. In this reply, it was also claimed that there are not a related party. We have also perused the contents of report submitted by the independent Practicing Company Secretary that reports have been given after taking into consideration of relevant provisions of the CODE, Companies Act, 2013 and Accounting Standards 18. As stated earlier, as the Transactional Auditor has relied only on the said order for examination of claims of unsecured financial creditors who granted loans and no other material has been brought on record. This fact also raises a question as to what was the necessity of appointing such Transactional Auditor as this information could not have been found by the RP itself with little efforts and perhaps in that situation the approach of RP could have been more reasonable because the Transactional Auditor has given a wrong finding of fact as regard to common directorship. Further, from the material on record, it is seen that no reply has been given RP to the letter of applicants dated 29.10.2020. From the minutes of meetings COC, it appears that this issue has never been conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also draw support from the provisions of section 30(4) and Section 30(5) of the CODE that in the event of a person who has filed Resolution Plan is found to be ineligible under Section 29A(c) and opportunity of hearing for rectifying the disability would be given for a limited period, hence, legislature has not intended that even a related party, if found to be violative of provisions of Section 29A of the CODE, can submit a Resolution Plan after removing such disability. Once it is so, it is highly desired that related party of the Corporate Debtor, if has got claims against the Corporate Debtor, should not be given such treatment and that too without giving an opportunity of hearing. Having stated so, we again reiterate that we do not wish to give leeway to errant and fraudulent managements in any way as far as their fake or fraudulent claims are concerned but in the present case this does not appear to be a fact situation. Further, where the Corporate Debtor has been subjected to any transaction as specified in Section 43, 45, 50 and 66 of CODE separate mechanism exists which can be invoked in that situation even in case of related parties. 39.It is also noted that even in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on corporate guarantee agreement was also under cloud. At this stage, as far as this aspect is concerned, we are unable to understand how this report could be given by a person who is not handwriting expert, and therefore, it does not have any validity in law. Apart from that it has been alleged that guarantees were back dated because in case of M/s. Bridge Infra Pvt. Ltd. the registered office mentioned in the corporate guarantee deed was not the registered office as the same had been changed in the year 2015. It has also been stated that the stamp papers for loan agreements as well as corporate guarantee were having serial no in a sequence, hence, both agreements were executed at the same time. Thus, on these grounds, legitimacy and authenticity of the documents have been challenged and it has been concluded that legitimacy of such documents needed a further investigation and substantiation. As far as ground of non-disclosure is concerned, it is noted that the disclosure made is with reference to loan guarantees given in respect of loan taken from public financial institutions or from other Banks, hence, it does not relate to unsecured financial creditors which are not a pubic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation a former related party would be considered as one falling under the first proviso. Accordingly, when we apply this ratio of the decision, we have to see whether a device has been used by the so-called related parties to cease as related party to sabotage CIRP. No material has been brought on record by the RP to this effect. Further, no material has also been brought on record even to conclude that whatever material was there on that basis these parties could be considered as a related party at any stage for the purposes of Section 5(24) or Section 21(2) of the CODE. 43.Whether opportunity of hearing to the affected parties is to be given before taking such action? It is a legitimate expectation, both in equity and in law that person who is going to be punished or again whom some adverse action is being taken or his rights are prejudiced or adversely impacted because of some action of the other person, such affected person should get an opportunity to present his case. This principle is called Audi Altrem Partem which requires hearing the view point of a person before taking a decision against such person. In the present case, this principle has grossly been violated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-constitution of COC, which are under our consideration in the present applications, do not fall into that category. Thus, till such mechanism is brought on the statute or even otherwise, we humbly advise the COC to work in a fashion which meets the objects and scheme of the CODE so that interests of all stakeholders are taken care of. The Adjudicating authority in its order has framed certain issues involved in the case which were to be adjudicated in the following manner:- 17. Both these matters were heard together. Now, these are being disposed of through common order. In both applications the following issues are involved: (i) Whether Resolution Professional, after including Financial Creditors in Committee of Creditors, can remove them from COC for the reason that they are related parties, without prior approval of Adjudicating Authority? (ii) Whether Financial Creditors, though they may be a related party remain entitled to be a part of COC without having any voting rights or right to participate or represent in the COC meetings? (iii) whether such financial creditors, in view of evidence brought on record, are a related party of the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t act only as a spectator or he may shut his eyes. In such situation the Adjudicating Authority is entitled to exercise inherent jurisdiction under Rule 11 of NCLT Rules, 2016. Moreover, the said exercise by the Adjudicating Authority has already been approved in a case by this Appellate Tribunal in Company Appeal (AT)(Ins) No.786 of 2020 in Anil Kumar Vs Allahabad Bank and others. It would be appropriate to reproduce paragraph 11 of the said order as follows:- 11.FINDINGS (i) After hearing the Learned Counsel for the Parties, after going through the Status Report submitted by Respondent No. 2 and after going through the Written Submissions filed on behalf of the Parties, we are of the considered view that so far statutory provision as contained in Section 22 of the I B Code which contemplates appointment of Resolution Professional and further replacement is concerned, this power can only be used when the ingredients of Section 22 is met. (ii) (ii) Further, so far as the provision of Section 27 of IB Code is concerned it contemplates with the Replacement of Resolution Professional by CoC. This power can only be used when the ingredients of Section is met. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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