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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 ..... kesh Kumar Jain This appeal is directed against the order dated 15.04.2021, passed by the Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench, Court No. I) by which an application bearing I.A. No. 69 of 2021 filed in CP (IB) No. 625/7/NCLT/AHM/2018 by thirteen Applicants (Respondents No. 1 to 13 herein) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (In short 'Code') has been allowed. 2. In brief, an application under Section 7 of the Code, filed by UCO Bank bearing CP (IB) No. 625/7/NCLT/AHM/2018 against M/s K-Life Style &Industries Limited (Corporate Debtor) was admitted on 05.02.2020 and the application filed under Section 7 of the Code by Respondents No. 1 to 13 against M/s K-Life Style & Industries Limited became infructuous but liberty was granted to lodge their claim before the Interim Resolution Professional (in short 'IRP'). 3. Ajit Kumar (Appellant herein) was appointed as IRP of the Corporate Debtor and was then confirmed as Resolution Professional (in short 'RP'). 4. It is alleged that pursuant to the publication of Form A in the newspaper by the IRP on 19.02.2020, inviting claims from the Financial Creditors by 03.03.2020, the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the basis for such action remains the order of SAT in the case of Tayal Industries vs. Securities and Exchange Board of India dated 11.02.2014. On the other hand, it has been strongly countered by the learned senior counsel Mr. Navin Pahwa appearing on behalf of the applicants. We have also noted that no reply by RP has been given on the report of External Expert dated 24.10.2020 submitted by the applicants to him on 29.10.2020 wherein it has been already stated that applicants are not a related party. The applicants-financial creditors have also placed reliance on the decision of Hon'ble Supreme Court in the case of Phoenix ARC Private Limited vs. Spade Financial Services Limited &Ors. dated 01.02.2021 wherein it has been categorically hold that if parties were a related party at the some point of time but thereafter they did not remain so in the normal course i.e. without having intention or design to alter or extinguish this relationship to dominate the CIRP or otherwise derail insolvency resolution of a corporate debtor then such parties could not be considered as a related party for all times. In the present case, there is nothing on record show that such relationship, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we direct RP as well as applicant-financial creditors to do the needful exercise in this regard within fifteen (15) days from the date of receipt of this order. In case, the applicant-financial creditors fail to submit necessary documentary evidences or otherwise justify their claim of interest, we hold that the claim of interest amount shall not be considered while calculating amount of debt owed by corporate debtor to the applicant-financial creditors. 13. Although, we are not very much convinced with the approach of IRP in not allowing the applicant-financial creditors to participate in the first COC meeting itself and the manner in which they have been not so allowed as evident from averments/minutes of meetings provided to us by RP, we are not replacing him because he has given opportunity of hearing to the applicant-financial creditors before declaring them as a related party and reply by them has not been given within the scheduled time. The reply of applicant-financial creditors has been given after lapse of three or four months. However, we advise him to act in a fair and balanced manner without getting influenced by the conflicting interests of the secured financial cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 5(24)(m) of the Code for that purpose. It is further submitted that the Adjudicating Authority has also referred to a table (chart) of the parties who fall in the category of related parties but without making any further reference to it in the impugned order and observed that no material has been brought on record by the Appellant except the order of the SAT without further doing the exercise to substantiate its case. It is further submitted that the Adjudicating Authority has followed the order passed in earlier litigation between other parties in I.A. No. 953 of 2020 and I.A. No. 13 of 2021 in relation to the application of SEBI Regulation vis a vis Section 5(24) of the Code. 12. Counsel for the Appellant while referring to the order of the Security Appellate Tribunal dated 11.02.2014 has submitted that 14 appeals were filed by 118 persons consisting of 9 public limited companies, 93 private companies and 16 individuals who are non-executive chairman/directors in some of above companies to challenge common adjudication order dated 14.02.2013 whereby penalties have been imposed against all those persons under various provisions of Securities and Exchange Board of India Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nking company to reduce its shareholding in that company to the extent specified there in. ii) Out of 44 entities in Silvassa group, 35 entities had addresses at various flats in Silver Park, Plot No. 5 ofsurvey no. 6, Vanmali Park, Silvassa Khanvel Main Road, Samarvani, Silvassa 396230. Investigation conducted by SEBI revealed that those flats in which 35 appellants are supposed to have their offices were residential premises of the employees of Krishna Mill which is owned by Krishna Knitwear Technologies Ltd., a Tayal group company (see para 22 of impugned order). This fact is not disputed by appellants. Moreover, in their reply to show cause notice, appellants have merely stated that they are unable to offer comments on the above issue. Since 35 out of 44 Silvassa group entities are situated at the residential premises of employees of entities controlled by Tayal group, conclusion drawn by AO that Silvassa group were connected with Promoter/Tayal group cannot be said to be without any basis. iii.) Out of remaining 9 Silvassa group companies 5 ofthem were found to be situated in different flats at Gurudev Complex, phase - I/II/III Silvassa - 396230. Investigation revealed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us, learned counsel for appellants fairly stated that facts speak for themselves and he cannot improve them. Apart from above, ledger accounts of various Silvassa group entities (at pages 1456 to 1769 in Appeal No. 83 of 2013) show that those entities had acquired BoR shares in off market from Promoter/Tayal/Yadav group entities during the investigation period at a price ranging from 8.50 per share to 277.09 per share and all entities paid consideration for such acquisition by way of book adjustment and not by actual payment. It is interesting to note that the ledger accounts of all Silvassa group entities show that they had sold fabrics from time to time without receiving payment and on purchasing BoR shares in off market from those entities to whom fabrics were sold accounts have been squared off by book adjustment. In majority of cases, it is seen that adjustment of alleged consideration brings about a nil balance because it corresponds perfectly to the amounts built up in the ledgers as alleged purchase/sale of fabrics. In these circumstances decision of AO (see para 43) that these are absurd and meaningless transactions and have been recorded in ledgers with a view to evad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority and whether the Financial Creditors though they may be a related party remain entitled to be a part of the CoC without having any voting rights or right to participate or represent in the CoC meetings. It is submitted that in so far as the first question is concerned, it has been observed that once the Financial Creditors is included in the CoC it cannot be removed on the ground that they are related parties without prior approval of the Adjudicating Authority which is not the issue involved in the present case. It is also submitted that the decision in I.A. No. 953 of 2020 and 13 of 2021 was challenged by Union Bank of India by way of an appeal i.e. CA (AT) (Ins) No.399 of 2021 which was dismissed on 05.12.2022 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. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n itself mentions that a person shall not 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough 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. It has also been found that even the order of SAT has been kept at bay only for the reason that SEBI Regulation and Section 5(24) have already been dealt with in some earlier litigation which is in I.A. No. 953 of 2020 and 13 of 2021 and did not refer to the order of the SAT which speaks volume about the manner in which the fake transactions have been carried out by Tayal Group and Silvassa Group and that there was interchangeable management. 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. 26. Thus, in view of the aforesaid facts and circumstances, we strongly feel that it is a fit case for allowing the appeal for the purpose of its remand to the Adjudicating Authority to decide it afresh after take into consideration the entire evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X
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