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TMI Blog2025 (2) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... Hari Vitthal Mission' (Appellant) application challenging the Resolution Professional's (Respondent No. 1) decision to classify the Appellant as a "related party" of the Suasth Healthcare Foundation (Corporate Debtor), which led to the Appellant's removal from the Committee of Creditors (CoC) of Corporate Debtor (CD). 2. The brief facts of the case are as follows: (i) In October 2017, Suasth Healthcare Foundation (CD), approached Hari Vitthal Mission /Appellant to raise Rs. 44,20,00,000/-. The request was made to support the construction of a hospital aimed at providing free and affordable medical care to the public. This project was aligned with the charitable objectives of Appellant, which was engaged in providing healthcare relief to the poor. Consequently, an agreement was signed on 10th October 2017 between CD and Appellant. According to the agreement, Appellant committed to provide financial assistance of Rs. 44.2 crore to the CD. In return, the CD agreed to reserve 100 hospital beds for Appellant, to be used for treating underprivileged patients free of cost. The CD further committed to complete the hospital's construction by December 2018 and making it fully oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich purportedly had indirect control over the Corporate Debtor through a series of entities, including SREI Infrastructure Finance Limited (SIFL) and Trinity Alternative Investment Managers Limited (TAIML). The RP asserted that this connection made appellant a related party, as defined under the IBC. (vii) On 11th January 2022, after reviewing available information and documents, and relying on legal counsel, the RP formally declared appellant as a related party to the CD. The RP initially invoked Section 5(24)(i) of the IBC, which defines a related party as a holding, subsidiary, or associate company of the CD. Later, during the course of legal arguments, the RP also cited Sections 5(24)(h), (j), and (l), which cover entities that exert control over the CD or its management. The RP argued that Kanoria Foundation controlled CD through SREI and TAIML, and further appellant was a subsidiary of Kanoria Foundation, it was deemed a related party. (viii) The appellant submitted a detailed reply on 22nd January 2022, disputing the RP's declaration. The Appellant argued that Kanoria Foundation, being a trust, could not be classified as a holding company under corporate law. Further, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant submits that it is challenging the order dated September 23, 2022, passed by the National Company Law Tribunal (NCLT), Kolkata, which excluded the appellant from the Committee of Creditors (CoC) of the Corporate Debtor, Suasth Healthcare Foundation, on the grounds of being classified as a "related party." The appellant asserts that this classification, and its subsequent exclusion from CoC is erroneous both in fact and law. This exclusion has deprived the appellant of its legal right to participate in the resolution process and vote on crucial decisions, severely prejudicing its interests as a financial creditor. 4. The counsel for the appellant further submits that after the exclusion of SREI Infrastructure Finance Limited from the CoC, the appellant's voting share increased to 20.37% from an earlier 9.61%, on the strength of its admitted claim of Rs. 62.16 crores. The exclusion of the appellant from the CoC resulted in a significant reduction of its ability to influence the resolution process, despite the legitimate size of its claim. He submitted that the exclusion of the appellant from the CoC was unjustified and disproportionate, particularly given its substantial fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in control of the Corporate Debtor is misplaced. TAIML is merely an investment manager of SREI Alternate Investment Trust, which itself is governed by trustees. According to the well-established principles of trust law, only the trustees hold the legal control over the trust assets. In this regard he cited the Supreme Court's decision in W.O. Holdsworth & Ors v. The State of Uttar Pradesh [1958 (1) SCR 296], which categorically holds that trustees are the legal owners of trust property, and mere investment managers cannot be held as controllers of a trust's assets. Therefore, the appellant's relationship with TAIML or the Corporate Debtor, even if tenuous, does not meet the threshold of control as required to be classified as a related party under Section 5(24)(h) and (j) of the IBC. 9. The counsel for the appellant submits that the appellant's exclusion from the CoC has caused significant prejudice, both procedurally and substantively. Procedurally, the appellant was deprived of its right to participate in the decision- making process, including deliberations on the Resolution Plan. This exclusion mirrors the denial of notice to a creditor, which was deemed a fatal proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kanoria Foundation ("KF") controls the Appellant, which in turn is a 'Related Party' of the CD. 14. He submitted that the Organogram referred to at Para 12 of the Impugned Order (which has been reproduced below) reveals the following: * Kanoria Foundation, owned by Kanoria Family, owns 99.90% shareholding in the Appellant and another entity, namely Adisri Commercial Pvt Ltd ("Adisri"). * Adisri in turn owns 60.36% in SREI Infrastructure Finance Ltd ("SREI Infrastructure"). * SREI Infrastructure holds 50.76% in Trinity Alternate Investment Managers Lad ("TAIML") * TAIMI, is the Settlor Contributor/ Manager of a trust called SREI Alternate Investment Trust (SAIT) * SAIT in turn holds 99.99% each in SIPL and PCPL thereby clearly establishing the Appellant as a 'Related Party' of the CD. 15. He submitted that the AA passed the Admission Order against the CD on 31.08.2021. The Interim Resolution Professional was replaced by the present RP in the 2th COC Meeting dated 8.10.2021. The COC Members inquired from the present RP with regard to the Related Party status. 16. At this stage, the COC consisted of (a) Yes Bank-19.87% (b) Axis Bank-19.45% (c) SREI-5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has 99.9% shares in the Appellant. It is therefore the Kanorias" who are controlling both the Appellant as well as the CD. This is further apparent from the fact that Mr. Sanjeev Kanoria (beneficiary of KF) was the director of the CD till 20.04.2019. Further, Mr. Hariprasad Kanoria (Trustee of KF) was also a director of the CD till 28.11.2019. 23. He further submitted that the Appellant's claim that "chain" is broken due to there being a trust in the middle (SREI Trust) also deserves to be rejected. He cited this Tribunal Judgment in the case of SREI Infrastructure Finance Ltd. v. Shri Ashish Chhawchharia (Company Appeal (AT)(Ins) No. 1407 of 2019 which has already dealt with the same issue and held in favour of the holding company of the "Investment Manager" of the Trust would be a related party to the companies held by the Trust. 24. The counsel stated that the Resolution Plan of CD was placed before the COC in the 15th COC Meeting dated 21.09.2022. The COC approved the Resolution Plan on 6.10.2022 with 100% majority. Consequently, IA 1381/KB/2022 was filed by the RP under Section 30(6) read with Section 31 of IBC, which was approved by the Ld. NCLT on 18.12.2023. The Succe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Kanoria Foundation holds 99.9% of the shares in the Appellant; (ii) Kanoria Foundation also holds around 99.9% shareholding of Adisri Commercial Private Limited (Adisri). (iii) Adisri, in turn, holds 60.36% of the shares in SREI Infrastructure Finance Limited (SIFL). SIFL, along with Sunil Kanoria (0.04%), Hari Prasad Kanoria (0.04%), and Hemant Kanoria (0.04%), holds 50.88% of the shares in Trinity Alternative Investment Managers Limited (TAIML). This multi-tier shareholding structure establishes a clear chain of control from the Kanoria Foundation down to the Corporate Debtor, with the Appellant falling within this chain of control. (b) Chain of Control Through Contractual Arrangements (i) Further, the counsel for Respondent No. 2 submits that in addition to the shareholding control, a chain of control through contractual arrangements also exists between the Appellant and the Corporate Debtor. The chain of control from TAIML to the CD by Contractual Arrangement can also be established. (ii) TAIML is the settlor and contributor of SREI ALternative Investment Trust ("SAIT") (a trust settled by Trinity Alternative Investment Managers Limited, erstwhile SREI Venture Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l (India) (P) (Ltd.) v Satish Kumar Gupta (2019) 2 SCC 1, (Para 47,48), that having the right to appoint directors in an entity, amounts to de facto control. Thus, by virtue of TAIML having the right to appoint trustees/ directors in SAIT and SIPL/PCPL respectively, evidently exercises de facto control in the same. Further, SIPL and PCPL in turn exercise control over the Corporate Debtor by having 99.99% shareholding in the same. Thus, a chain of control is evidently established from Kanoria Foundation to the Corporate Debtor. 29. In view thereof, the Appellant is a subsidiary of a holding company i.e. Kanoria Foundation, of which the Corporate Debtor is a subsidiary, attracting the provision of Section 5(24)(i) of the Code and warranting classification of the Appellant as a 'Related Party' in terms thereof. Kanoria Foundation is the entity on whose advice, directions or instructions, both the Appellant as well as the Corporate Debtor are accustomed to act and thus, Section 5(24)(h) of the Code clearly stands attracted. 30. The counsel stated that in view of the aforesaid shareholding pattern as well as contractual arrangements, it is evident that the Kanoria Foundation through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. We have heard the Counsels on behalf of the applicant as well as respondents and gone through their written submissions and documents on record in detail. 34. The key issue in this appeal is whether the appellant has been correctly identified as related party of CD. The RP has invoked Section 5(24) sub-Sections (h), (i), (j) and (l) of the code and held that the appellant is a related party of the CD. This decision of RP was upheld by the AA. 35. The appellant has also raised a question regarding the powers of RP to decide about the 'related party'. 36. Appellant has further raised a question about Kanoria Foundation which is a trust being held on par with a holding company and has stated that the same is not in accordance with Section 5(24)(i) of the Code and therefore such finding is liable to be set aside by this Tribunal. 37. We first examine whether the RP's competence to decide whether a party in CIRP proceeding is related party or not. The Section 21 of the Code gives the procedure as to how the committee of creditors would be constituted. The relevant sub-Sections (1) & (2) of the Section 21 are reproduced below: "21. Committee of Creditors. - (1) the interim re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of person that trust is defined as persons and when we look at the definition of a related party in Section 5(24)(h) and (j) in all such cases if the CD is controlled by a trust in the manner prescribed by aforesaid Sections of the Code, then the said trust would fall under the category of related party. 42. We now have a look at the determination of appellant as related party of the CD in terms of various clauses of Section 5(24) of the Code. 43. Regarding Section 5(24)(h), it is seen that Kanoria Foundation at the apex of the organogram shown earlier held 99.9% shares of appellant (Hari Vitthal Mission) which is a Section 8 company. Similarly, Kanoria Foundation controls the CD through a chain of entities. The shareholding of Kanoria Foundation in the CD is approximately 31%. It has also been seen that Dr. Sanjeev Kanoria (beneficiary of the Kanoria Foundation) was the director of the Corporate Debtor till April 20, 2019 and Mr. Hari Prasad Kanoria (trustee of the Kanoria Foundation) was a director at the Corporate Debtor till November 28, 2019. The AA found that Suasth Healthcare Foundation had historically been accustomed to acting on the advice, directions, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of shares in SIPL and PCPL. The contention of the appellant is that the chain is broken on this side of organogram due to presence of a Trust- SAIT in between. However, we have seen, how TAIML as Investment Manager, controls both the subsidiaries of SAIT viz. SIPL and PCPL. SIPL in turn holds 51% in CD and PCPL holds 49% in CD. The investment Manager for SAIT is TAIML which exercises control over CD through SIPL and PCPL. This multi-tier shareholding structure establishes a clear chain of control from the Kanoria Foundation down to the Corporate Debtor, with the Appellant falling within this chain of control. 46. This network of shareholding establishes a clear connection between the Corporate Debtor and Hari Vitthal Mission, with both entities being subsidiaries or affiliates under the broader umbrella of Kanoria Foundation. Given this relationship, Hari Vitthal Mission is not only indirectly linked to the Corporate Debtor, but is effectively part of the same corporate group. Therefore, under Section 5(24)(i), Hari Vitthal Mission qualifies as a related party by virtue of its position as a subsidiary of Kanoria Foundation, the holding company/trust that controls the Corporate D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement between SAIT and TAIML dated 10.03.2021 wherein SAIT is defined as the 'Trust' and TAIML is referred to as the 'Investment Manager'. The relevant Clauses 8 of the agreement and Clauses 26, 28 and 29 of Schedule A of the agreement- Powers of the Investment Manager are reproduced below: "Clause 8: PORTFOLIO ADMINISTRATION The investment manager shall supervise the investment activities of the Trust in accordance with the following principles: (a) the Investment Manager shall exercise all rights of nomination, voting, veto, inspection, exit mechanisms etc. as may be available, to the extent necessary, granted to the Scheme under the provisions of the investment / shareholder agreements with the Portfolio Companies; (b) the Investment Manager shall require each Portfolio Company to provide quarterly reports of operating results, financial position and marketing prospects, as well as audited annual statement of accounts from reputable auditing firms; And (c) the investment manager shall ensure that the portfolio Companies take all secretarial steps including issue of share certificates, appointment of nominee non-executive directors, amendment of articles of associatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Greater Noida Supra is not applicable in the present case, as in the aforesaid matter the resolution plan was set aside due to procedural lapses, specifically the failure to notify the creditor about critical meetings, which violated the principles of natural justice. The creditor in that case was a statutory body and was not a related party; and therefore, its exclusion was a procedural irregularity. 54. The appellant has further cited Hon'ble SC's Judgement in Sri Parmeshwari Prasad Gupta Vs. Union of India (1973 (2) SCC 543) and argued that their exclusion from the COC without sufficient notice or proper consideration is similar to the invalidation of a board resolution in Parmeshwari Prasad Gupta (supra), where a resolution was passed without notifying a director. We have seen that in Parmeshwari Prasad Gupta, the Supreme Court dealt with a case where a board resolution was invalidated, because a director was not notified, violating the principle of due process. The case focused on the importance of giving notice to all relevant parties before taking decisions that affect their rights. However, in our case, the exclusion from the COC is not a result of a failure to provide not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocedure in the cited case. The aforesaid case dealt with the retrospective application of procedural rules under the Criminal Procedure Code. The Judgment in Bharat Damodar Kale (supra) had no connection to insolvency law or the substantive classification of parties under the IBC. By no stetch of imagination the ratio of the aforesaid criminal matter can be applied to the present case which is covered by IBC, which is a self-contained comprehensive code for insolvency matters.
58. We have seen that the judgments cited by the appellant primarily involve procedural issues or questions of eligibility that do not apply to the facts of present case. law and does not address the issue of related party exclusion under the IBC.
59. Based on the discussion in preceding paras, we hold that RP is empowered to decide about the status of a creditor as related party. We endorse the findings of RP and AA wherein the appellant has been held as related party in terms of provisions of Section 5 (24) of the Code. We, therefore, find no infirmity in the order of AA. Accordingly, the appeal is dismissed. Pending I.As if any are closed. There would be no order as to costs. X X X X Extracts X X X X X X X X Extracts X X X X
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