Appellant correctly classified as related party due to continuing shareholding, cannot vote in Committee of Creditors despite settlement agreement

NCLAT Principal Bench dismissed an appeal challenging rejection of a resolution plan application. The tribunal held that appellant was correctly classified as a related party due to continuing shareholding in the corporate debtor, despite a settlement agreement that could not be implemented. The appellant was therefore not entitled to vote in the Committee of Creditors. The tribunal found no error in allowing another entity's participation as it held only 16% shareholding, below the 20% threshold for related party classification. The resolution plan's differential treatment of affected and unaffected homebuyers was deemed rational based on mortgage clearance status. As a dissenting minority homebuyer, appellant could not challenge a plan approved by majority of the homebuyer class.

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Issues Involved:
1. Whether the Appellant is not a related party and was entitled to vote in the Committee of CreditorsRs.
2. Whether the Vira Group being related party consequently Respondent No.3 was also related party and as Director of Kalpataru Advisory Services Pvt. Ltd. could not be member of the Committee of Creditors or voted in the Committee of CreditorsRs.
3. Whether the Appellant is entitled to challenge the Resolution Plan which was approved by majority of creditors in class i.e. homebuyersRs.
4. Whether the categorization of the homebuyers in class as "˜Affected' and "˜Unaffected' homebuyers is violative of Section 30(2)(e) and the Resolution Plan deserve to be set aside on this ground aloneRs.

Summary:

Issue No. 1:
The Appellant holds 11.31% shareholding of the Corporate Debtor and declared itself as a related party in the claim form filed during the CIRP. The shareholding transfer as per the Share Purchase Agreement could not be implemented, resulting in the Appellant being classified as a related party. Consequently, the Appellant was not given a seat or voting share in the Committee of Creditors. The decision of the Resolution Professional to classify the Appellant as a related party was upheld.

Issue No. 2:
Kalpatru Advisory Services Pvt. Ltd. (KASPL), holding 16% shareholding of the Corporate Debtor, was contested as a related party by the Appellant. However, since Mr. Pratik Jayesh Vira, who was a Director of both the Corporate Debtor and KASPL, resigned on 19.02.2019, more than a year before the commencement of CIRP, KASPL could not be considered a related party under Section 5(24)(d) or 5(24)(j). Thus, KASPL's participation in voting was not faulted.

Issue No. 3:
The Appellant, being part of the class of homebuyers who approved the Resolution Plan, cannot challenge the Resolution Plan individually. The Adjudicating Authority relied on the Supreme Court's judgment in "Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Versus NBCC (India) Ltd. & Ors., (2022) 1 SCC 401," which held that individual homebuyers or associations cannot challenge a Resolution Plan approved by the homebuyers as a class.

Issue No. 4:
The Resolution Plan categorized homebuyers into "˜Affected' and "˜Unaffected' based on whether the allotment was made with or without the NOC from LIC Housing Finance Ltd. The distinction was justified as allotments without NOC were in breach of the mortgage conditions. The Resolution Plan provided for allotment to affected homebuyers, albeit of reduced area, and treated them differently due to the lack of NOC. This classification was found rational and not violative of Section 30(2)(e) of the I&B Code.

Conclusion:
The appeals challenging the orders dated 19.07.2023 approving the Resolution Plan and rejecting I.A. No. 533 of 2022 and I.A. No. 933 of 2022 were dismissed. The categorization of homebuyers and the classification of the Appellant as a related party were upheld.

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