2023 (11) TMI 968 - AT - Insolvency and Bankruptcy

Financial creditor appeal dismissed due to res judicata and money laundering proceedings against appellant

Mahal Hotel Private Limited Versus Dr. Govindarajula Venkata Narasimha Rao Resolution Professional of Viceroy Hotels Limited

NCLAT Chennai dismissed an appeal seeking recognition as financial creditor and inclusion in creditor list. The tribunal found the matter barred by res ... Seeking a direction under Section 60 (5) of the Code to declare the Appellant as the ‘Financial Creditor’ and include the Appellant’s name in the list of Creditors of the Corporate Debtor. It is the case of the Respondent / RP of the Corporate Debtor Company that the Appeal is barred by the principle of Res Judicata as initially ARCIL had challenged the Order, on the ground that the Appellant is not a Financial Creditor. HE;D THAT:- While allowing C.A. (AT) (Ins) 633/2018, this Tribunal noted that there is a dispute as to whether Mahal Hotel Pvt. Ltd. comes within the meaning of ‘Financial Creditor’ or not, and has concluded that ‘further, once a decision was taken by the Committee of Creditors to call for a Meeting for removal of Mr. Koteswara Rao Karuchola as RP, it was improper for him to include Mahal Hotel Pvt. Ltd. as Financial Creditor of the Member of the Committee of Creditors. Further, money laundering case having been initiated against Mahal Hotel Pvt. Ltd., the said Hotel cannot be allowed to be Member of Committee of Creditors’. It was also observed in paras 11 and 12 that the Adjudicating Authority had failed to notice the aforesaid facts and circumstances and without going into the question of delay in inclusion of Mahal Hotel Pvt. Ltd. as Financial Creditor, has decided the Claim and this Tribunal has set aside the Order dated 04/10/2018, whereby the Adjudicating Authority has directed the RP to revise the Claim submitted by Mahal Hotel Pvt. Ltd.. Therefore, it is crystal clear that the Order of this Tribunal dated 18/11/2019 has set aside the finding of the Adjudicating Authority revising the Claim of the Appellant herein without granting any liberty to once again approach the Adjudicating Authority for adjudication of its Claim. The Hon’ble Apex Court in the matter of COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY VERSUS SATISH KUMAR GUPTA & OTHERS [2019 (11) TMI 731 - SUPREME COURT] has observed that the ‘clean slate’ theory is to prevent hydra heads popping up, preventing any past Claims from resurging and thereby leading to any uncertainty regarding the amounts payable by the Resolution Applicant who successfully takes over the business of the Corporate Debtor. Appeal dismissed. Issues Involved:1. Whether the appellant qualifies as a 'Financial Creditor'.2. Whether the appeal is barred by the principle of Res Judicata.3. Whether the Business Transfer Agreement (BTA) constitutes a 'Financial Debt'.Summary:1. Whether the appellant qualifies as a 'Financial Creditor':The appellant filed an appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, seeking to be declared a 'Financial Creditor' and included in the list of creditors of the Corporate Debtor. The Adjudicating Authority dismissed the application, noting that the NCLAT had previously observed a dispute regarding whether the appellant comes within the meaning of 'Financial Creditor'. The NCLAT had set aside the earlier order confirming the appellant's status as a Financial Creditor, indicating that the issue had not attained finality. The appellant argued that the status of being a Financial Creditor was not conclusively adjudicated, but the Adjudicating Authority concluded that the finding remained unchallenged and could not be revisited.2. Whether the appeal is barred by the principle of Res Judicata:The respondent contended that the appeal is barred by the principle of Res Judicata, as the issue had already been decided in a previous appeal (C.A. (AT) No. 633/2018) filed by ARCIL. The respondent cited the Supreme Court judgment in 'Satyadhyan Ghosal Vs. Deorajin Debi', emphasizing that once a matter is adjudicated, it cannot be re-litigated. The NCLAT had noted that there was a dispute regarding whether the appellant was a 'Financial Creditor' and concluded that the inclusion of the appellant as a Financial Creditor by the Resolution Professional was improper. The appellant did not challenge this finding, and thus, the principle of Res Judicata applied, preventing the re-argument of the issue.3. Whether the Business Transfer Agreement (BTA) constitutes a 'Financial Debt':The respondent argued that the BTA did not have the commercial effect of a borrowing and was intended for the transfer of a business division on a slump sale basis. The terms of the BTA did not indicate a borrowing with a time value of money, and therefore, it did not fall within the definition of 'Financial Debt'. The NCLAT's previous order had set aside the Adjudicating Authority's decision to revise the appellant's claim, and the appellant did not appeal this finding. Consequently, the appellant's claim could not be reargued at this stage.Conclusion:The NCLAT dismissed the appeal, concluding that the issue of whether the appellant is a 'Financial Creditor' had attained finality and could not be revisited. The appeal was barred by the principle of Res Judicata, and the BTA did not constitute a 'Financial Debt'. The NCLAT's previous order had set aside the Adjudicating Authority's decision to revise the appellant's claim without granting liberty to re-approach for adjudication. The appeal was dismissed with no order as to costs, and all connected pending interlocutory applications were closed.