2021 (11) TMI 464 - Tri - Insolvency and Bankruptcy

Bank of India's Applications Rejected; RP's Actions Upheld

Bank of India Versus Naren Sheth, RP of Jaybharat Textiles and Real Estate Limited and Ors.

Bank of India Versus Naren Sheth, RP of Jaybharat Textiles and Real Estate Limited and Ors. - TMI Issues Involved:1. Dissolution of the wrongfully constituted Committee of Creditors (CoC) of the Corporate Debtor.2. Removal and replacement of the Resolution Professional (RP).3. Validity of the claims admitted by the RP, particularly those of unsecured financial creditors.4. Determination of whether unsecured financial creditors are related parties to the Corporate Debtor.Issue-wise Detailed Analysis:1. Dissolution of the Wrongfully Constituted CoC:The applicant, Bank of India, contended that the RP admitted claims of unsecured financial creditors without proper verification, reducing the voting share of secured financial creditors. The applicant alleged that the unsecured financial creditors were related parties to the Corporate Debtor, which led to a biased CoC. The Tribunal, however, found that the RP had followed the provisions and regulations of the Insolvency and Bankruptcy Code (IBC) 2016 meticulously. The Tribunal held that the RP had correctly computed the claims of both secured and unsecured financial creditors, including interest, based on financial contracts and financial statements. The Tribunal concluded that the CoC was constituted correctly, and there was no need for reconstitution.2. Removal and Replacement of the RP:The applicant sought the removal of the current RP and the appointment of a new RP, alleging bias and failure to discharge duties independently. The Tribunal noted that the RP had complied with all the relevant provisions and regulations. The Tribunal also observed that the applicant had not provided any substantial evidence to support the allegations against the RP. Consequently, the Tribunal rejected the request for the RP's removal and replacement, stating that the RP's actions were correct in law.3. Validity of Claims Admitted by the RP:The applicant argued that the RP admitted claims amounting to Rs. 1587 crores against a principal amount of Rs. 249.5 crores, mainly comprising interest, which was not provided for in the financial statements. The Tribunal examined the financial statements and found that both secured and unsecured financial creditors' claims included interest based on loan agreements and financial statements. The Tribunal emphasized that the same methodology was used for both categories of creditors, ensuring parity. The Tribunal held that the RP had correctly admitted the claims, including interest, and there was no reason for the applicant to be aggrieved.4. Determination of Related Parties:The applicant claimed that the unsecured financial creditors were related parties to the Corporate Debtor, citing a due diligence report. The RP countered by presenting another independent report, which concluded that the unsecured financial creditors were not related parties. The Tribunal reviewed both reports and agreed with the RP's report, which elaborately examined the facts and legal provisions. The Tribunal held that the unsecured financial creditors were not related parties to the Corporate Debtor, as they did not meet the criteria under Section 5(24A) of the IBC, 2016. The Tribunal also noted that past relationships alone did not suffice to classify them as related parties unless it was shown that they severed their related party status to dominate the Corporate Insolvency Resolution Process (CIRP).Conclusion:The Tribunal rejected the applications filed by the applicant, Bank of India, on all issues. The Tribunal upheld the actions of the RP, stating that the claims were correctly admitted, the CoC was properly constituted, and the unsecured financial creditors were not related parties. The Tribunal found no merit in the applicant's contentions and dismissed the applications, affirming the RP's conduct and decisions throughout the CIRP.