Family members not disqualified as related parties under Insolvency Code. Eligible for Committee of Creditors.

The Tribunal held that Respondent No.2 and his family members were not related parties under the Insolvency and Bankruptcy Code as of the CIRP commencement date. Therefore, they were not disqualified from participating in the Committee of Creditors meetings. The application seeking their disqualification was dismissed, confirming their status as financial creditors eligible for CoC membership.

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Issues Involved:
1. Whether the respondents are "related parties" under Section 5(24) and 5(24A) of the Insolvency and Bankruptcy Code, 2016.
2. Whether the respondents should be disqualified from representation, participation, and voting in the Committee of Creditors (CoC) meetings.

Issue-wise Detailed Analysis:

1. Determination of "Related Parties" under Section 5(24) and 5(24A) of the Insolvency and Bankruptcy Code, 2016:

The applicant sought an order to set aside the inclusion of respondents 2 to 5 in the CoC, arguing they are related parties. The applicant contended that Respondent No.2, who resigned as a director on 15.11.2019, and his family members (Respondents 3 to 5) should be considered related parties, thus disqualifying them from CoC participation.

The Tribunal examined the definition of "related party" under Section 5(24) and (24A) of the I&B Code. It was noted that Respondent No.2 resigned before the insolvency commencement date (20.12.2019) and thus was not a director at the time of CIRP initiation. The Tribunal emphasized that the status of related parties should be evaluated as of the CIRP commencement date, not the application filing date. As Respondent No.2 had resigned and was a financial creditor at the commencement date, he and his family members did not qualify as related parties under the Code.

2. Disqualification from Representation, Participation, and Voting in CoC Meetings:

The applicant argued that the inclusion of Respondent No.2 and his family members in the CoC violated the proviso to Section 21(2) of the IBC, which restricts related parties from participating in CoC meetings. The applicant highlighted that Respondent No.2 had significant control over the Corporate Debtor, evidenced by his long tenure as a director and his involvement in the company's financial decisions.

The Tribunal found that Respondent No.2, despite his previous directorship, was a financial creditor at the CIRP commencement date and not disqualified under Section 5(24)(a). Furthermore, Respondent Nos.3 to 5, being his family members, were also not disqualified. The Tribunal noted that the CoC was constituted following the law, and the respondents' inclusion did not violate the I&B Code provisions.

Findings:

The Tribunal concluded that the status of related parties should be assessed as of the CIRP commencement date. Since Respondent No.2 had resigned before this date and was a financial creditor, he and his family members were not disqualified from CoC membership. The Tribunal dismissed the applicant's contentions and upheld the respondents' rights to participate and vote in CoC meetings.

Order:

The application (IA/90/KOB/2020) was dismissed, affirming the inclusion of Respondent Nos.2 to 5 in the CoC as financial creditors, not related parties.

Dated: 27th November 2020.

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