NCLAT rejects appeal for Committee of Creditors inclusion after finding assignment deeds were sham transactions

NCLAT dismissed an appeal seeking reconstitution of Committee of Creditors to include appellant as financial creditor. The tribunal upheld the adjudicating authority's rejection of appellant's claims under three assignment deeds, finding them non-genuine and sham transactions. Key factors included non-reflection of dues in balance sheets of both assignor and assignee companies, and evidence suggesting assignments were created to manipulate the corporate insolvency resolution process. The tribunal directed that all related documents be forwarded to Ministry of Corporate Affairs for investigation to prevent forum misuse and protect the Code's objectives.

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Issues Involved:
1. Inclusion of Appellant as Financial Creditor in the Committee of Creditors (CoC).
2. Validity of Assignment Deeds and Claims submitted by the Appellant.
3. Treatment of Appellant as a related party.
4. Compliance with the Adjudicating Authority's order for submission of documents.
5. Examination of the claims by the Ministry of Corporate Affairs.

Summary:

1. Inclusion of Appellant as Financial Creditor in the Committee of Creditors (CoC):
The Appellant challenged the order dated 19.04.2023 by the Adjudicating Authority (NCLT, Jaipur Bench) rejecting I.A. No. 203/JPR/2022, which sought to include the Appellant as a Financial Creditor in the CoC. The Adjudicating Authority rejected the application, leading to this appeal.

2. Validity of Assignment Deeds and Claims submitted by the Appellant:
The Appellant submitted three financial claims based on Assignment Deeds from Modern Terry Towel, Pallavi Synthetics Pvt. Ltd., and Midas Powertech Pvt. Ltd. totaling Rs.12893,39,03,000/-. The Adjudicating Authority found these claims to be dubious and not backed by sufficient documentation. The Appellant failed to submit original Assignment Deeds and other required documents, leading to the rejection of the claims. The Tribunal found the transactions to be sham and directed further examination by the appropriate authority.

3. Treatment of Appellant as a related party:
The IRP treated the Appellant as a related party to the Corporate Debtor, thereby excluding them from the CoC. The Appellant argued against this classification, but the Tribunal upheld the IRP's decision, noting the suspicious nature of the transactions.

4. Compliance with the Adjudicating Authority's order for submission of documents:
The Adjudicating Authority had directed the Appellant to submit various documents, including bank statements and original Assignment Deeds, which the Appellant failed to provide. This non-compliance was a significant factor in the rejection of the Appellant's claims.

5. Examination of the claims by the Ministry of Corporate Affairs:
The Tribunal concurred with the Adjudicating Authority's decision to refer the matter to the Ministry of Corporate Affairs for investigation, citing the need to prevent misuse of the forum and ensure the objectives of the Insolvency and Bankruptcy Code are met.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the Appellant's arguments and upheld the Adjudicating Authority's decision to reject the claims and refer the matter for further investigation.

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