Appellants' Related Party Status Upheld; Infused Funds Not Financial Debt

The tribunal determined that the appellants qualified as 'Related Parties' under Section 5(24) of the Insolvency and Bankruptcy Code due to their roles as Directors, involvement in company affairs, and significant shareholding. Additionally, the tribunal ruled that the appellants' claim for their infused funds to be considered 'Financial Debt' was not valid as the payment lacked the necessary characteristics of a financial disbursement. Consequently, the appeal was dismissed, affirming the Adjudicating Authority's decision.

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Issues Involved:

1. Whether the appellants fall within the definition of 'Related Parties'.
2. Whether the appellants' claims can be considered as 'Financial Debt' under Section 5(8) of the Insolvency and Bankruptcy Code, 2016.

Issue-Wise Detailed Analysis:

1. Whether the appellants fall within the definition of 'Related Parties':

The appellants, who are investors and shareholders of the Corporate Debtor, infused funds into the company and were subsequently inducted as Additional Directors. They argued that they were not 'Related Parties' as their designation as Directors ceased when the Annual General Meeting (AGM) was not conducted. However, the tribunal found that the appellants continued to be listed as Directors in the Master Data of the Corporate Debtor. The tribunal referenced the Supreme Court's interpretation of 'Related Party' in "Phoenix Arc Private Limited Vs. Spade Financial Services Limited and Ors.," emphasizing the broad definition intended to capture all inter-relationships that could affect the insolvency process.

The tribunal concluded that the appellants were 'Related Parties' under Section 5(24) of the Code for several reasons:
- The appellants were Directors and managed the day-to-day affairs of the company.
- The second appellant accepted notices and participated in CoC meetings, which is against Section 21(1) of the Code.
- The appellants had a significant shareholding and control in the Corporate Debtor.

2. Whether the appellants' claims can be considered as 'Financial Debt':

The appellants contended that the funds infused should be treated as 'Financial Debt'. They had paid Rs.50 Lakhs directly to SIDBI to discharge the loan of the Corporate Debtor, intending to enhance their equity. However, the tribunal found that this payment was not a financial disbursement with 'Time Value of Money', a prerequisite for a debt to be considered 'Financial Debt' under Section 5(8) of the Code.

The tribunal also noted that a Board Resolution approved the conversion of the loan into equity, and the appellants had previously claimed to be Directors in another application. The documentary evidence showed that the loan was converted into equity, and the appellants' role in managing the company's affairs further supported this conclusion.

Conclusion:

The tribunal held that the appellants are 'Related Parties' and their claim to treat the infused amount as 'Financial Debt' is not maintainable. The appeal was dismissed, and the order of the Adjudicating Authority was upheld.

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