2020 (1) TMI 1711 - AT - Insolvency and Bankruptcy

Tribunal confirms related party status, excludes appellants from Committee of Creditors.

Spade Financial Services Limited, AAA Landmark Private Limited Versus Hari Krishan Sharma, AKME Projects Limited, Anil Nanda Ex-Director M/s AKME Projects Limited, Yes Bank Limited, Phoenix ARC Private Limited

Spade Financial Services Limited, AAA Landmark Private Limited Versus Hari Krishan Sharma, AKME Projects Limited, Anil Nanda Ex-Director M/s AKME Projects ... Issues Involved:1. Declaration of Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited.2. Reduction of voting shares of Yes Bank Limited and Phoenix ARC Private Limited in the Committee of Creditors due to the inclusion of Spade and AAA Landmark.3. Examination of the relationship and transactions between the appellants and the corporate debtor under Sections 5(24) and 21(2) of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Declaration of Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited:The primary issue under challenge was whether Spade Financial Services Limited and AAA Landmark Private Limited, promoted and managed by Mr. Arun Anand, were related parties to the corporate debtor, AKME Projects Limited (APL). The adjudicating authority had previously declared them as related parties based on their historical business relationships and the involvement of Mr. Arun Anand in both entities. The appellants contended that they were not related parties at the time of filing the application for the initiation of the Corporate Insolvency Resolution Process (CIRP).The tribunal examined the nature of transactions and the interrelationship among the parties from 2010 to 2013. It was found that Mr. Arun Anand, who had close ties with Mr. Anil Nanda (key managerial person of the corporate debtor), had worked for the Nanda Group of Companies, including AKME Projects Limited. Several transactions were highlighted, showing that Mr. Arun Anand and Mr. Sonal Anand (another key managerial person) acted in concert, benefiting the corporate debtor and its group companies.The tribunal concluded that the appellants were related parties under Section 5(24) of the Insolvency and Bankruptcy Code, 2016, due to the significant influence and interrelationship during the relevant period.2. Reduction of voting shares of Yes Bank Limited and Phoenix ARC Private Limited in the Committee of Creditors due to the inclusion of Spade and AAA Landmark:Yes Bank Limited and Phoenix ARC Private Limited, financial creditors of the corporate debtor, argued that their voting shares in the Committee of Creditors (CoC) were unjustly reduced due to the inclusion of Spade and AAA Landmark. Yes Bank's voting share was reduced from 15.27% to 4.28%, and Phoenix ARC's share was reduced to 4.218%.The tribunal examined the claims and determined that the inclusion of Spade and AAA Landmark as financial creditors was based on transactions that were deeply intertwined with the corporate debtor's affairs. The tribunal noted that the accounts of the corporate debtor had not been finalized and audited since 2016, further complicating the matter.The tribunal upheld the adjudicating authority's decision to exclude Spade and AAA Landmark from the CoC, thereby restoring the original voting shares of Yes Bank and Phoenix ARC.3. Examination of the relationship and transactions between the appellants and the corporate debtor under Sections 5(24) and 21(2) of the Insolvency and Bankruptcy Code, 2016:The tribunal scrutinized various documents and agreements to ascertain the relationship and transactions between the appellants and the corporate debtor. It was found that Mr. Arun Anand held key managerial positions in both the appellants and the corporate debtor during the relevant period. Several agreements, such as the Memorandum of Understanding and the Agreement to Sale, were executed between the parties, indicating a close business relationship.The tribunal also considered the appellants' involvement in policy-making processes and financial arrangements for the corporate debtor. It was evident that the appellants acted on the advice, directions, or instructions of the corporate debtor's directors and managers.Based on the evidence, the tribunal concluded that the appellants were related parties under Sections 5(24)(a), 5(24)(h), and 5(24)(m)(i) of the Insolvency and Bankruptcy Code, 2016. The tribunal affirmed the adjudicating authority's decision to exclude the appellants from the CoC, as their inclusion would have allowed the corporate debtor's promoters to gain undue influence in the insolvency resolution process.Conclusion:The tribunal upheld the adjudicating authority's decision to declare Spade Financial Services Limited and AAA Landmark Private Limited as related parties to the corporate debtor, AKME Projects Limited. Consequently, the appellants were excluded from the Committee of Creditors, and the original voting shares of Yes Bank Limited and Phoenix ARC Private Limited were restored. The appeal was rejected, and the tribunal found no reason to interfere with the adjudicating authority's order.