Improper Identification of Related Party in CoC Leads to Ineligibility Ruling

The National Company Law Tribunal, Chennai Bench determined that the 1st Respondent was a related party to the Corporate Debtor, rendering them ineligible to be part of the Committee of Creditors (CoC). The Tribunal found that the Resolution Professional failed to identify related parties properly when constituting the CoC, leading to the inclusion of a related party in violation of the Insolvency and Bankruptcy Code. As a result, the Tribunal directed the RP to remove the 1st Respondent from the CoC, highlighting the importance of adhering to statutory definitions and conducting due diligence in insolvency proceedings.

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Issues:
1) Whether the 1st Respondent is a related party to the Corporate Debtor.
2) Whether the Resolution Professional has fulfilled the duties in constituting the Committee of Creditors (CoC).

Issue 1: Related Party Status
The Applicant sought to dissolve the CoC due to the involvement of the 1st Respondent, who was alleged to be a related party to the Corporate Debtor. The Applicant argued that the 1st Respondent and Ms. Deepthi Vinod Bansal, a 49% shareholder of the Corporate Debtor, were uncle and niece, falling within the definition of a related party under Section 5(24) of the Insolvency and Bankruptcy Code, 2016. The Respondent contended that this relationship did not meet the statutory definition of a relative. The Tribunal, after considering relevant provisions and case law, concluded that the 1st Respondent and Ms. Deepthi Vinod Bansal indeed qualified as related parties, and as such, the 1st Respondent was ineligible to be part of the CoC.

Issue 2: Resolution Professional's Duties
The Resolution Professional's duty includes collecting information on the Corporate Debtor's assets, finances, and operations before constituting the CoC. The Applicant argued that the RP failed to conduct due diligence in identifying related parties in the CoC. The Tribunal referred to relevant sections of the Insolvency and Bankruptcy Code and IBBI Regulations, emphasizing the RP's responsibility to verify if a financial creditor is a related party. It was observed that the CoC was constituted with a related party, contravening the Code. Consequently, the Tribunal directed the RP to remove the 1st Respondent from the CoC due to their related party status, highlighting the negligence in identifying related parties during the constitution of the CoC.

This judgment from the National Company Law Tribunal, Chennai Bench addressed the Applicant's concerns regarding the CoC's composition and the initiation of the Corporate Insolvency Resolution Process, emphasizing the importance of adhering to statutory definitions and fulfilling duties diligently in insolvency proceedings.

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