Tribunal excludes related party from Creditors' Committee under Insolvency & Bankruptcy Code

The Tribunal affirmed the Adjudicating Authority's decision that the Appellant is a 'related party' under the Insolvency and Bankruptcy Code, excluding them from the Committee of Creditors. The Tribunal upheld the order directing the Resolution Professional to reconstitute the CoC without the Appellant, citing the potential for undue influence. The appeal was dismissed, and all related applications were closed.

---

---

Issues Involved:
1. Whether the Appellant is a 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code (I&B Code), 2016.
2. Whether the Appellant should be included in the Committee of Creditors (CoC).
3. The validity of the Adjudicating Authority's order directing the Resolution Professional to reconstitute the CoC treating the Appellant as a 'related party'.

Issue-wise Detailed Analysis:

1. Whether the Appellant is a 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code (I&B Code), 2016:
The Adjudicating Authority determined that the Appellant, holding an 11% voting share in the Corporate Debtor and having two nominee directors on the Board, fits the definition of a 'related party' under Section 5(24) (a), (h), (j), (l), and (m) of the I&B Code. The Tribunal observed that the nominee directors have significant influence in decision-making processes and are responsible for protecting the interests of the shareholders, including the Appellant. The Tribunal concluded that the Appellant's influence over the Corporate Debtor's policy decisions and the presence of its nominee directors on the Board align with the criteria for being classified as a 'related party.'

2. Whether the Appellant should be included in the Committee of Creditors (CoC):
The Adjudicating Authority found that the Appellant, being a 'related party,' should not be included in the CoC. The Tribunal emphasized that the purpose of excluding related parties from the CoC is to prevent them from influencing the decision-making process to the detriment of other creditors. The Tribunal referred to the Supreme Court's judgment in Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. & Ors., which highlighted the need to exclude related parties from the CoC to ensure fairness and prevent conflicts of interest.

3. The validity of the Adjudicating Authority's order directing the Resolution Professional to reconstitute the CoC treating the Appellant as a 'related party':
The Tribunal upheld the Adjudicating Authority's order directing the Resolution Professional to reconstitute the CoC by excluding the Appellant as a 'related party.' The Tribunal agreed with the Adjudicating Authority's view that the Appellant's nominee directors have a significant influence on the Corporate Debtor's decisions, thereby justifying their exclusion from the CoC. The Tribunal also noted that the Appellant's inclusion in the CoC would undermine the objective of the I&B Code to balance the interests of all stakeholders and maximize the value of the Corporate Debtor's assets.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision that the Appellant is a 'related party' under the I&B Code and should be excluded from the CoC. The Tribunal found no legal errors in the Adjudicating Authority's order and concluded that the Resolution Professional should reconstitute the CoC by treating the Appellant as a 'related party.' All connected interlocutory applications were also closed.

---