2022 (11) TMI 1074 - AT - Insolvency and Bankruptcy

Tribunal affirms 'related party' status based on joint venture in MoU, dismisses appeal.

Revolution Infocom Private Limited Versus Sandwoods Infratech Projects (P) Limited

Revolution Infocom Private Limited Versus Sandwoods Infratech Projects (P) Limited - TMI Issues Involved:1. Whether the Appellant is a 'related party' of the Corporate Debtor.2. Whether the Interim Resolution Professional (IRP) had the jurisdiction to review the claim of the Appellant.3. Whether the IRP's decision to change the category of the Appellant from Financial Creditor to related Financial Creditor was valid.Detailed Analysis:Issue 1: Whether the Appellant is a 'related party' of the Corporate Debtor.The central question in this appeal is whether the Appellant qualifies as a 'related party' under Section 5(24) of the Insolvency and Bankruptcy Code, 2016 (the 'Code'). Section 5(24)(i) defines 'related party' to include 'a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary.' The Appellant argued that it has no control over the Corporate Debtor, is not a shareholder or Director, and therefore does not meet the definition of 'related party' under Section 5(24) of the Code.The Respondent countered that the Appellant is an associate company of the Corporate Debtor based on a Memorandum of Understanding (MoU) dated 26.11.2012, which indicates that the Appellant has control over the Corporate Debtor. The MoU terms, especially paragraphs 5, 6, and 7, suggest that the Appellant has a significant influence over the Corporate Debtor, thus fitting the definition of 'associate company' under Section 2(6) of the Companies Act, 2013, which includes a joint venture company.The Tribunal found that the MoU between the parties on 26.11.2012, which involved the Appellant bringing funds into a project, indicates a joint venture. The clauses of the MoU, such as mutual consent for pricing and revenue sharing, demonstrate sufficient control and influence, qualifying the Appellant as a 'related party'.Issue 2: Whether the Interim Resolution Professional (IRP) had the jurisdiction to review the claim of the Appellant.The Appellant contended that the IRP, having initially admitted its claim as a Financial Creditor, lacked the jurisdiction to review and change the claim to that of a 'related party'. The Respondent argued that the IRP's decision was based on new information provided by Punjab National Bank during the Committee of Creditors (CoC) meeting.The Tribunal noted that the IRP did not act suo-moto but responded to an objection raised by a CoC member. The IRP sought clarification from the Appellant, which was not provided, and subsequently communicated the decision to categorize the Appellant as a 'related party'. The IRP's actions were thus seen as a correction based on new evidence rather than an arbitrary review.Issue 3: Whether the IRP's decision to change the category of the Appellant from Financial Creditor to related Financial Creditor was valid.The Appellant argued that the IRP's decision to change its status was arbitrary and should have been brought before the Adjudicating Authority. The Tribunal referred to a precedent in Rajesh Jain vs. Manoj Kumar Singh-IRP & Ors, where it was held that the IRP cannot change the status of a creditor on its own but must maintain an updated list of claims.In this case, the Tribunal found that the IRP acted on an objection raised by a CoC member and not on his own initiative. The IRP's decision to change the category was based on the new information and was communicated to the Appellant. The Tribunal concluded that the IRP's actions were appropriate and upheld by the Adjudicating Authority.Conclusion:The Tribunal dismissed the appeal, affirming the IRP's decision to categorize the Appellant as a 'related party'. The Tribunal found no error in the Adjudicating Authority's order, thereby validating the IRP's actions and the subsequent rejection of the Appellant's IA No.2325 of 2022. The appeal was dismissed with no costs.