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TMI Blog2024 (1) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Section 5(24) of the Code whereas it has in fact referred to Clause 5(24)(m) and also gave the detail of the name of the directors by way of a chart which also forms part of Para 11 of the impugned order but still there has been no finding in this regard. Further, the Adjudicating Authority has erred in making specific observation that no material has been brought on record except general observations given by the RP on the basis of the order of SAT whereas the Appellant has produced on record a detailed summary which has been prepared on the basis of MCA Data which though has been reproduced in the impugned order from pages 89 to 111 but it has not been referred to in the discussion part where it has been rather held that no material has been produced except for the order of the SAT - The argument raised by the Respondent that every provision of Section 5(24) has its own effect and impact which has to be assessed on the basis of the evidence may be attractive but even that part has not been seen by the Adjudicating Authority while passing the impugned order. This is a fit case for allowing the appeal for the purpose of its remand to the Adjudicating Authority to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 13 have thus filed this application under Section 60(5) of the Code before the Adjudicating Authority seeking direction to the IRP to admit their claim in full, not to treat them as a related party of the Corporate Debtor and assign voting rights in respect of Corporate Insolvency Resolution Process (in short CIRP ). The application has been allowed by the Adjudicating Authority after recording its findings in Para 10 to 15 of the impugned order. The findings recorded by the Adjudicating Authority in the aforesaid paragraphs needs to be highlighted and therefore, the same are reproduced as under:- 10. Having discussed the legal background, it is absolutely clear whether the applicant financial creditors are relative or not but they have got a right to join the meetings of COC. Thus, action of IRP in not allowing them to participate in COC meetings even after accepting their claims to the extent of principal amount is against the provisions of law and arbitrary. Thus, we reverse the same and direct IRP to include them into COC with immediate effect. 11. Now, coming to the aspect whether they are, in fact, relative or not, it is noted that originally RP relied on Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that such relationship, if any, has been converted into a situation of no relationship with this purpose or object. It is also noted that no material has been brought on record except general observations given by the RP on the basis of said order of SAT that these parties are related parties but no exercise has been done to substantiate its case. The letters from some of the ex-directors have been produced subsequent to our directions, however, in our opinion do not serve any purpose as far as related party issue is concerned. Further, legal aspects relating to application of SEBI Regulation vis-a-vis Section 5(24) of IBC, 2016 have already been dealt by us in IA 953 of 2020 and IA 13 of 2021 and those finding are squarely applicable here. In view of above discussion, we are of the view that even on facts and in the background of applicable legal position as narrated here-in-before, applicants cannot be considered as a related party. Accordingly, this decision of the RP is also reversed. Accordingly, we hold that these parties will get proportionate voting rights according debt owed by the corporate debtor to such applicant-financial creditors. 12. One issue which remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts of the secured financial creditors. 14. In view of above discussion and applicable legal position, this IA69 of 2021 in CP (IB) 625 of 2018 stands allowed in terms of directions given as above. 15. Urgent certified copy of this order, if applied for, be issued upon compliance with all requisite formalities. 6. Attacking the finding recorded in Para 10 of the impugned order, Counsel for the Appellant has submitted that the Adjudicating Authority has committed a patent error in law in making observation that whether or not the Respondent No. 1 to 13 (Financial Creditors) are related parties, they have got a right to join the meetings of the CoC and therefore, the action of the IRP for not allowing them to participate in CoC meeting even after accepting their claims to the extent of principal amount is against the provisions of law and arbitrary. On this premise, the IRP was directed to include them into CoC immediately. 7. In this respect, Counsel for the Appellant drew our attention to Section 21(2) proviso of the Code which is reproduced as under:- (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us provisions of Securities and Exchange Board of India Act, 1992. It is submitted that some time in November, 2009, SEBI received a reference from RBI wherein the observations were made that:- a. There were incorrect disclosures made by Bank of Rajasthan('BOR' for short) regarding its shareholding held By Promoters group led by Mr. Pravin Kumar Tayal and Others. b. Though promoters of BoR reported certain reduction in their stake in BoR as mandated by RBI in its Guidelines dated February 28, 2005, it appeared that they had increased their stake in BoR simultaneously through surrogate acquisition. c. There were inter-corporate transfer of funds to the accounts of other corporate bodies who had purchased the stake in BOR. d. Most of those companies have contact details same as that of various Tayal group companies. e. Some of the directors were common in the said corporate bodies and Tayal group companies. 13. Thereafter, he has referred to Para 11 of the said order in which it has been observed that:- 11. Based on evidence on record, AO has held that above four group entities were inter-connected with each other by having common addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent flats at Gurudev Complex, phase - I/II/III Silvassa - 396230. Investigation revealed these flats were residential flats used as Guest House of Krishna Mill, owned by Krishna Knitwear Technologies Ltd., a Tayal group company. This fact further supports conclusion drawn by AO that Silvassa group companies were connected with Promoter/Tayal group. b) Investigation carried out by SEBI reveals that during the investigation period, Promoter group entities had transferred by way of off market transaction 166.35 lac shares of BoR (see para 26) to various Silvassa group entities (71.05 lac shares by Sovotex Textile Pvt. Ltd.+ 60 lac shares by Ginger Clothing Pvt. Ltd.+ 35.30 lac shares by other Promoter group entities). Similarly Tayal group entities had transferred 31.13 lac BoR shares in off market (see para27) and Yadav group entities had transferred 231.18 lac BoR shares to various Silvassa group entities in off market. Thus during the investigation period Silvassa group entities had acquired 428.66 lac shares of BOR in off market transactions from Promoter/Tayal/Yadav group entities. Although it is contended that above off market transfers were genuine business transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese are absurd and meaningless transactions and have been recorded in ledgers with a view to evade detection and togive an impression of legitimacy cannot be faulted. 15. It is submitted that some of Respondents herein were the parties before the SAT, namely, Respondents No. 1, 2, 3, 5 6. 16. Counsel for the Appellant has further argued that though the Adjudicating Authority has noticed the argument of the Appellant in regard to the various directors who are related parties but failed to discuss about them subsequently in the order. The table produced in Para 11 of the said directors is also reproduced as under:- Sr. No. NAME OF THE DIRECTOR PAGE NO. APPLICANT COMPANY SR. NO. (Commonality in the entities) 17. Kulwinder Kumar Nayyar 178 CD, TG** AND 10 20. Farindra Bihari Bhuneshwar Rai 187 CD, TG, 8 29. Mahendra kumar Gopikrishna Aggarwal 204 TG**, 3, 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2022 by this Tribunal and further the appeal filed by the Union Bank of India to the Hon ble Supreme Court bearing CA No. 508 of 2023 was also dismissed on 29.03.2023 but the issue involved is not applicability of Clause 2(q) of the SEBI Regulations vis a vis Section 5(24) of the Code rather the finding of the SAT which has not been challenged was brought to the notice of the Tribunal highlighting the modus operandi of the Corporate Debtor with Respondents No. 1 to 13. Counsel for the Appellant has relied upon a decision of this Tribunal rendered in CA (AT) (Ins) No. 1022 of 2021 Bank of India Vs. Naresh Seth decided on 05.07.2023 in which in similar circumstance the Adjudicating Authority did not take into consideration the material on record, the order was set aside and matter was remanded back to decide after referring to the material on record. 19. On the other hand, Counsels appearing on behalf of the Respondents No. 1 to 13 have submitted that they are not the related parties to the Corporate Debtor and the order of SAT cannot be applied for this purpose. They have also relied upon the order passed in I.A. No. 953 of 2020 and 13 of 2021 and referred to Para 22 which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Section 29A also, in our view, the provisions of Section 5(24) or 5(29A) of CODE will also have to be applied to find out the meaning of the term related party as these terms have not defined in Section 29A separately. Thus, for different purposes, the legislature has provided distinct provisions i.e., Section 21(2) for constitution of COC and Section 29A as regards to ineligibility of certain persons including a related party to submit a Resolution Plan and this mechanism further confirms ourview that related party even though it may not be eligible to submit a Resolution Plan but it would remain a member of COC having no voting rights. 20. It is further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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