Financial creditors' Section 7 application upheld but related party inclusion in Committee of Creditors remains challengeable under Section 60(5) IBC

NCLAT upheld Section 7 application admission filed by financial creditors as debt and default by corporate debtor remained unquestioned and admitted. However, appellant was granted liberty to file application under Section 60(5) IBC within one week to challenge inclusion of two related parties in Committee of Creditors and admission of their claims. IRP directed not to convene CoC meeting for two weeks, allowing adjudicating authority to decide on related party inclusion issue after hearing parties. Appeal disposed of with specific directions for further proceedings.

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Issues:
1. Challenge to the order admitting Section 7 Application by the National Company Law Tribunal.
2. Constitution of the Committee of Creditors and inclusion of related parties in the CoC.
3. Settlement between the suspended Director and Financial Creditors.
4. Impleadment applications filed by M/s Creta Infrastructure Pvt. Ltd. and M/s Proplarity Infratech Pvt. Ltd.

Detailed Analysis:
Issue 1:
The Appeal challenges the order dated 03.07.2024 by the National Company Law Tribunal admitting the Section 7 Application filed by Financial Creditors against the Corporate Debtor. The Appellant, the suspended Director of the Corporate Debtor, contests the order and seeks relief from the Appellate Tribunal.

Issue 2:
After the initiation of Corporate Insolvency Resolution Process (CIRP), the Interim Resolution Professional (IRP) constituted the Committee of Creditors (CoC) on 25.07.2024. The Appellant argues that the CoC was improperly constituted as it included related parties, M/s Creta Infrastructure Pvt. Ltd. and M/s Proplarity Infratech Pvt. Ltd., whose claims were allegedly time-barred. The Appellant asserts that settlement agreements had been reached with the Financial Creditors, questioning the inclusion of the related parties in the CoC.

Issue 3:
The Appellant claims to have settled with the Financial Creditors, including Respondent Nos.1 to 4, and another Financial Creditor, Mr. Kshitij Jain. However, the IRP proceeded with the constitution of the CoC without acknowledging these settlements. The Appellant argues that the CoC's formation was rushed and that the related parties should not have been included in the CoC due to their alleged status as related parties to the Corporate Debtor.

Issue 4:
Impleadment applications were filed by M/s Creta Infrastructure Pvt. Ltd. and M/s Proplarity Infratech Pvt. Ltd. seeking to intervene in the Appeal. The Appellant responded to these applications, and the Appellate Tribunal permitted the Applicants to intervene in the proceedings.

The judgment recognizes the settlement claims made by the Appellant but directs the Appellant to file an appropriate application under Section 60(5) of the IBC challenging the inclusion of related parties in the CoC. The Appellant is granted liberty to file the application within a week, and the IRP is restrained from convening the CoC meeting for two weeks. The Adjudicating Authority is tasked with deciding on the issues raised by the Appellant regarding the inclusion of related parties in the CoC after hearing all parties involved.

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