Tribunal Excludes Related Parties from Creditors' Committee, Orders Claims Revision

The Tribunal found that the claims of Respondent Nos. 2 and 3 were not financial debts as the money was disbursed to a third party, contrary to the provisions of law. Respondent Nos. 2 and 3 were considered related parties and excluded from the Committee of Creditors (CoC). The application for substitution of a party was dismissed, and the issue of interest in the applicant's claim was directed to be examined further. The Insolvency Resolution Professional/Resolution Professional was instructed to revise the claims and reconstitute the CoC accordingly.

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Issues Involved:
1. Admission of claims by IRP based on corporate guarantee without default by the principal borrower.
2. Inclusion of related parties in the Committee of Creditors (CoC).
3. Exclusion of interest from the applicant’s claim.
4. Substitution of Asset Care and Reconstruction Enterprise Limited (ACRE) in place of ECL Finance Limited as Respondent No. 2.

Detailed Analysis:

Issue 1: Admission of Claims by IRP Based on Corporate Guarantee Without Default by the Principal Borrower
The applicant contended that the IRP erroneously accepted the claims of Respondent Nos. 2 and 3 as financial creditors, despite no default by the principal borrower. The Tribunal observed that the essential element for a debt to be considered a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code (IBC) is the disbursal of money against the consideration for the time value of money. Since the amount claimed was disbursed to a third party and not to the corporate debtor, the claims of Respondent Nos. 2 and 3 could not be treated as financial debts. The Tribunal referenced the Supreme Court’s decision in Anuj Jain’s case, which clarified that for the purpose of Part II of the IBC, disbursement of the amount by the creditor to the debtor is a prerequisite for a debt to be considered a financial debt. Therefore, the admission of claims by the IRP was found to be contrary to the provisions of law.

Issue 2: Inclusion of Related Parties in the Committee of Creditors (CoC)
The applicant argued that Respondent Nos. 2 and 3 were related parties of the corporate debtor and should not have been included in the CoC. The Tribunal examined the Articles of Association (AOA) of the corporate debtor, which indicated that the corporate debtor could not make any decisions without the prior written approval of the debenture holders. This demonstrated that the debenture holders had control over the policy decisions of the corporate debtor and the composition of its board of directors. Consequently, Respondent Nos. 2 and 3 were deemed related parties under Section 5(24) of the IBC and should not have been included in the CoC.

Issue 3: Exclusion of Interest from the Applicant’s Claim
The applicant sought the inclusion of interest in their claim. The Tribunal directed the IRP/RP to examine the issue on merit and in accordance with the provisions of law.

Issue 4: Substitution of Asset Care and Reconstruction Enterprise Limited (ACRE) in Place of ECL Finance Limited as Respondent No. 2
The Tribunal found that since ECL Finance Ltd. was not a financial creditor, the question of substituting ACRE in place of ECL Finance Ltd. did not arise. Consequently, the application for substitution was dismissed.

Conclusion:
The Tribunal directed the IRP/RP to revise the claims of Respondent Nos. 2 and 3 and reconstitute the CoC. The claims of Respondent Nos. 2 and 3 were not to be treated as financial debts, and they were considered related parties, thus excluded from the CoC. The application for substitution of ACRE was dismissed, and the issue of interest was directed to be examined on merit.

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