Tribunal Invalidates Spade & AAA as Financial Creditors under IBC

The Tribunal concluded that the transactions between the corporate debtor and Spade Financial Services Ltd. and AAA Landmark P. Ltd. were collusive and did not qualify as financial debt under the IBC. As a result, Spade and AAA were not considered financial creditors. The applications challenging their inclusion in the CoC were allowed, and their participation was invalidated. The Tribunal highlighted the complex relationships involved, particularly with Arun Anand's companies, making it challenging to disentangle these connections in a summary jurisdiction.

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Issues Involved:
1. Inclusion of Spade Financial Services Ltd. and AAA Landmark P. Ltd. as financial creditors in the committee of creditors (CoC) of AKME Projects Ltd.
2. Nature of the transactions between the corporate debtor (CD) and Spade/AAA Landmark and whether they qualify as financial debt under section 5(8) of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Determination of the date on which the relationship between the parties should be considered for defining "related party."

Issue-wise Detailed Analysis:

1. Inclusion of Spade Financial Services Ltd. and AAA Landmark P. Ltd. as Financial Creditors in the CoC:
The applications filed by Yes Bank Ltd. and Phoenix ARC P. Ltd. challenged the inclusion of Spade Financial Services Ltd. and AAA Landmark P. Ltd. as financial creditors in the CoC of AKME Projects Ltd. The main ground for the challenge was that Spade and AAA were promoted and managed by Shri Arun Anand, who was a related party to the corporate debtor. Yes Bank and Phoenix ARC argued that their voting shares in the CoC were significantly reduced due to the inclusion of Spade and AAA, which they claimed were related parties under sections 5(24) and 21(2) of the IBC, 2016. They contended that Spade and AAA should not have been granted the right of representation, participation, or voting in the CoC meetings.

2. Nature of Transactions and Qualification as Financial Debt:
The Tribunal examined the transactions between the corporate debtor and Spade/AAA Landmark to determine if they qualified as financial debt under section 5(8) of the IBC, 2016. The transactions included inter-corporate deposits (ICDs) given by Spade to the corporate debtor and several agreements between the corporate debtor and AAA Landmark. The Tribunal found that the transactions appeared collusive, with inconsistencies in the memorandum of understanding, interest rates, and the disbursement of funds. Specifically, the MOU for the ICDs was signed more than two years after the transactions began, and a significant portion of the ICDs was credited to the account of Arun Anand. Similarly, multiple agreements regarding the same property between the corporate debtor and AAA Landmark, with varying values, indicated an attempt to divert the corporate debtor's properties to AAA Landmark. Consequently, the Tribunal held that these transactions did not qualify as financial debt under section 5(8) of the IBC, and therefore, Spade and AAA Landmark did not qualify as financial creditors.

3. Determination of the Date for Defining "Related Party":
The Tribunal noted that the term "related party" is defined under section 5(24) of the IBC, 2016. The applicants argued that Spade and AAA Landmark were related parties at the time of the transactions and should be considered as such for the purpose of the CIRP. However, the Tribunal found that Arun Anand and his companies ceased to be related parties to the corporate debtor after 2013, following Arun Anand's resignation from all companies of the Anil Nanda Group. Therefore, at the time of filing the CIRP application, Spade and AAA Landmark were no longer related parties to the corporate debtor.

Conclusion:
The Tribunal concluded that the transactions between the corporate debtor and Spade/AAA Landmark were collusive and did not qualify as financial debt under the IBC. Consequently, Spade and AAA Landmark were not considered financial creditors. The applications filed by Yes Bank Ltd. and Phoenix ARC P. Ltd. were allowed, and the inclusion of Spade and AAA Landmark in the CoC was invalidated. The Tribunal also noted the entangled affairs between the corporate debtor and Arun Anand's companies, emphasizing the difficulty in unraveling these relationships in a summary jurisdiction.

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