Tribunal disqualifies related parties from Creditors' Committee, mandates reconstitution.

The Tribunal partially allowed the applications by declaring two individuals as related parties to the Corporate Debtor and disqualifying them from participating in the Committee of Creditors. The Interim Resolution Professional was directed to reconstitute the Committee of Creditors based on this decision.

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Issues Involved:
1. Classification of Respondent No. 3 as an unrelated Financial Creditor (FC) and its inclusion in the Committee of Creditors (CoC).
2. Validity and effect of the resignation of directors from the Corporate Debtor (CD).
3. Allegations against the Interim Resolution Professional (IRP) regarding diligence and potential misconduct.

Issue-wise Detailed Analysis:

1. Classification of Respondent No. 3 as an Unrelated Financial Creditor (FC):
The Tribunal examined whether Respondent No. 3 (Bafha) should be classified as a related party under Section 5(24) of the Insolvency and Bankruptcy Code (IBC). The IRP had classified Bafha as an unrelated FC, giving it a 53.87% voting share in the CoC, which diluted the Applicants' voting rights to 46.13%. The Tribunal found that Bafha had substantial rights in the operations and management of the CD and had common directors with the CD, making it a related party. The Tribunal referenced the Supreme Court ruling in Phoenix ARC Private Limited vs. Spade Financial Services Limited, which held that a related party FC ceasing to be a related party solely to participate in the CoC should still be considered a related party under Section 21(2) of the IBC.

2. Validity and Effect of the Resignation of Directors:
The Tribunal scrutinized whether the resignation of Bafha's directors from the CD was effective and excluded them from being related parties. The resignation letters dated 11.02.2022 were sent via courier but were not delivered due to a locked door, and the correct pin code was not used. The Tribunal held that the resignation did not come into effect as it was not served on the CD in accordance with Section 168 of the Companies Act, 2013. Consequently, Bafha's directors continued to be nominee directors and related parties. The Tribunal also noted that the resignation appeared to be a strategic move to participate in the CoC, which aligns with the Supreme Court's ruling in Phoenix ARC.

3. Allegations Against the Interim Resolution Professional (IRP):
The Tribunal addressed allegations that the IRP failed to diligently perform his duties by relying on a legal opinion to determine Bafha's status as a related party. The IRP had sought an opinion from an independent law firm and verified the resignation details on the MCA portal. The Tribunal found that while the IRP might have been negligent, there was no evidence of malafide intention or conspiracy with Bafha. The IRP was cautioned to be more vigilant in the future, and this caution would be considered in future performance evaluations.

Conclusion:
The Tribunal partly allowed the applications, declaring Mr. Praful Prakash Bafha and Mr. Yogesh Prakash Bafna as related parties to the CD and disqualifying them from participating in the CoC. The IRP was directed to reconstitute the CoC accordingly.

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