TaxTMI 
TaxTMI 
2021 (1) TMI 1158
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.... 9th CoC Meetings; to declare TSTPCL as a related party; to declare the actions of Resolution Professional in allowing the unauthorised representative of TSTPCL to file the claim and participate in CoC Meetings as illegal; and to exempt the time period lost in contesting this application for regaining its 67% voting right which has been unduly removed by the Resolution Professional. 2. The applicant has also claimed interim relief to order Resolution Professional not to open Resolution Applications received by him from the prospective Resolution Applicants and not to place respondent no. 1, i.e. Resolution Professional (sic.) not to (sic.) before the existing CoC with related party as one of its Members holding 67% voting rights; order the Resolution Professional not to convene any CoC Meeting with related party as one of its Members holding 67% voting rights. 3. This IA is filed against the decision of the Resolution Professional in admitting the promoter/related party/shareholder of the Corporate Debtor as a Member of CoC considering the claims of the related party arising from its equity ownership interest in the debt in the Corporate Debtor as 'Financial Debt' and....
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....n and interest accrued thereon was payable from the sale proceeds of the built up space of the project. Thus, though balance consideration of Rs. 11,58,91,125/-and interest thereon were payable to TSTPCL it did not become due as on date of CIRP. 11. The applicant has challenged the decision of the Resolution Professional in admitting TSTPCL as a Member of the CoC on the following grounds: (A) That the Resolution Professional had failed to note that TSTPCL is a related party. The applicant relied on the definition of 'related party' as provided under subsection 24 to section 5 of the I&B Code. Relevant part of the said subsection as relied on by the applicant is reproduced hereunder for ready perusal: "5(24) "related party", in relation to a corporate debtor, means-- (a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (j) any person who controls more than twenty per cent, of voting rights in the corpora....
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....efined. From the above the applicant contends that TSTPCL was a shareholder and investor in its joint venture/Special Purpose Vehicle. (G) The applicant has reproduced excerpts from Standalone Financial Statements for period 01.04.2014 to 31.03.2015 (ANNEXURE-III) to bring home the point that no tax (TDS) was deducted on the accrued interest to TSTPCL as it never became due or payable to TSTPCL. (H) The applicant further elaborately dealt with the provisions of the Memorandum of Understanding (MoU) entered into between the former APSTPCL and IOI Mauritius Limited and contended that no amount shown to be a contingent liability to TSTPCL was neither disbursed by the TSTPCL nor did the Corporate Debtor raise any fund in the form of money or price or consideration under the MoU or any contract or otherwise from it joint venture partner. (I) There was no debt and hence no actionable claim for TSTPCL. (J) The Resolution Professional failed to appreciate that no claim existed for TSTPCL as the Corporate Debtor has not breached any of its contract with TSTPCL. In this context the applicant referred to the following definitions und....
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.... and his spouse, Ms. Madhumati Chukkapalli. They were the first Directors of the Corporate Debtor and held 100% shares in the Corporate Debtor. Ms. Madhumati Chukkapalli and VBP Rao had incorporated the applicant/company, formerly known as Phoenix Motors Pvt. Ltd. and Phoenix Tech Park Pvt. Ltd.., on 21.03.2002. Ms. Madhumati Chukkapalli holds 99.99% shares in the applicant/company. Memorandum of Association (MoA) of the Corporate Debtor is at ANNEXURE-1. MoA of the applicant is at ANNEXURE-2. Directorship of Suresh Chukkapalli and Ms. Madhumati Chukkapalli is at ANNEXURE-3. 15. It is averred that the applicant had granted loans to the Corporate Debtor in 2007-08 and 2009-10. The applicant had granted loans to Corporate Debtor during 2005 to 2011 aggregating to Rs. 9 crores. In 2011, the applicant had sold its entire stake to Projects IOI Mauritius Limited. The applicant had executed a loan agreement on 29.01.2011 (ANNEXURE-6) pursuant to which the outstanding loan of Rs. 9 crores was to be repaid to the applicant by the Corporate Debtor within 18 months. Thus, the claim of the applicant arises out of loans given to the Corporate Debtor. 16. It is submitted that the applicant....
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....tion Professional is required to receive and collate all the claims submitted by creditors to him pursuant to the public announcement made under Section 13 r/w Section 15. The claim of the parties should be as on the date of initiation of the Corporate Insolvency Resolution Process (date of order of admission and moratorium). Any person who has right to claim payment, as defined under Section 3(6), is supposed to file the claim whether matured or unmatured. The question as to whether there is a default or not is not to be seen. 54. Therefore, stand taken by the respondents that the claim has not been matured cannot be ground to reject the claim. 55. Section 25 provides the duties of Resolution Professional. As per Section 25(2)(e), the Resolution Professional is required to maintain an updated list of all the claims. Aforesaid fact also suggests that the maturity of a claim or default of debt are not the guiding factors to be noticed for collating or updating the claims. The matter can be looked from another angle. It is only in case of 'debt' and 'default', a 'Financial Creditor' or 'Operational Creditor', may file appl....
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.... amount of Rs. 11,58,91,125/- shall be treated as unsecured loan payable with interest at 11% p.a. Even if it is assumed for the sake of argument that TSTPCL has sold its entire shareholding in the Corporate Debtor, the loan shall still be payable to TSTPCL. (paras 16 and 17) 27. The Resolution Professional denies the claim of the applicant that "there is no debt and hence there can be no actionable claim for TSTPCL." By virtue of loan agreement entered into between the TSTPCL and the Corporate Debtor dated 09.05.2006 (ANNEXURE-12) an amount of Rs. 11,58,91,125/- is payable by the Corporate Debtor to TSTPCL. Books of accounts of the Corporate Debtor reflects the said loan payable to TSTPCL. (para 18) 28. The Resolution Professional contends that the Resolution Professional has neither reduced the voting percentage of the applicant arbitrarily nor the applicant is aggrieved by inclusion of TSTPCL as a Member of CoC. TSTPCL was allowed to form part of CoC in accordance with the provisions of the Code and the applicant is not aggrieved by such inclusion. (Para 20) COUNTER DATED 01.09.2020/02.09.2020 FILED ON BEHALF OF RESPONDENT NO. 3/TSTPCL. 29. It is submitted in para 5 ....
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....res therein. She holds 99.99% stake in Phoenix Tech Tower Pvt. Ltd.. and she was its Director. She is classified as a related party in the financials of AP Gems. (iii) Phoenix Tech Tower Pvt. Ltd.. was incorporated on 21.03.2002 having authorised share capital of Rs. 5,00,000, while paid up capital is Rs. 1,00,000 held by Chukkpalli Madhumati and Chukkapalli Sunitha. (iv) Srikanth Badiga was Project Coordinator of AP Gems Park Project. He was Director of AP Gems and signatory of Financial and Board Report FY 2011 onwards. 34. It is submitted that respondent no. 3 is neither a shareholder not investor in the joint venture of Corporate Debtor. The Corporate Debtor has allotted shares for an amount of Rs. 1.20 crore, which is equivalent to 11% of the total shareholding of the Corporate Debtor. Balance amount was treated as a loan by respondent no. 3 to the Corporate Debtor and loan agreement has been executed to that effect. A loan cannot be treated as an investment. Hence it cannot be said that respondent no. 3 is an investor and a shareholder in the Corporate Debtor. 35. Respondent no. 3 dismisses as not true the allegation that the Resolution Pro....
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....fessional has rightly treated respondent no. 3/TSTPCL as a Financial Creditor with 67% voting rights and not a related party. 40. In para 14 of the Written Submissions TSTPCL contradicts the claim of the applicant that the Corporate Debtor does not owe any amount to TSTPCL as the Loan Agreement itself specifies that an amount of Rs. 5,93,23,625/- is payable to the respondent/Corporation from the sale proceeds of Gems & Jewellery park. 41. In para 18 of the Written Submissions it is contended that the Corporate Debtor has neither made any efforts to sell Gems & Jewellery-Park from the date of agreement, viz. 09.05.2006 nor Gems & Jewellery Park is made operational so far. The respondent/Corporation cannot wait endlessly for sale of Gems & Jewellery Park and repayment of loan. WRITTEN SUBMISSIONS DATED 21.11.2020/09.12.2020 FILED ON BEHALF OF THE APPLICANT. 42. It is contended that the applicant was the sole voting Member of the CoC with 100% voting right. However, in 7th CoC Meeting dated 15.06.2020, respondent no. 3/TSTPCL was included as a Financial Creditor with voting share of 67%. Consequently, the applicant's voting share came down to 33% and respondent no. 3 h....
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....fessional in his reply dated 08.08.2020 has stated the he had examined whether respondent no. 3 falls within the definition of 'related party' to the Corporate Debtor and satisfied that it is not, but has failed to provide reasons or explanations, (para 13) 48. The applicant has dismissed the argument of respondent no. 3 that the applicant is a related party to the Corporate Debtor and contended that from the last available Financial Statements of the Corporate Debtor, the applicant herein is neither promoter of the Corporate Debtor nor its shareholder. Hence the applicant does not fall within the meaning of 'related party' under the I&B Code. (Para 14) 49. As regards debt and due the applicant submits that as per agreement dated 03.07.2004 as amended by agreement dated 09.05.2006, the Corporate Debtor had to pay a sum of Rs. 5,93,23,625/-to respondent no. 3 out of sale proceeds of built up space of the project. However, as the said project had not been completed on the date of initiation of CIRP against the Corporate Debtor, the question of said amount of Rs. 5,93,23,625/- becoming due and payable does not arise. Thus, the Corporate Debtor does not owe any am....
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.... applicant further submitted that two of the Directors of the Corporate Debtor are non-executive Directors of TSTPCL and have been nominated by TSTPCL on the Board of Directors of the Corporate Debtor. Therefore, they submitted that TSTPCL had significant influence on the decision and functioning of the Corporate Debtor, which was evidenced from the signatures of the above Directors nominated though TSTPCL, on the financial documents of the Corporate Debtor. The applicant herein has claimed that respondent no. 3 herein clearly falls within the ambit of 'related party' as per clauses (a), (h), (j), (l) and (m) of section 5(24) of the I&B Code. It is also submitted that disclosures to that effect have also been made in the Books of Accounts of the Corporate Debtor and TSTPCL, which proves that respondents no. 3 and 4 are related parties as per the said definition provided in the I&B Code. 54. In response, the Resolution Professional has submitted that he had included TSTPCL as a Member of the CoC in its 7th Meeting held on 15.06.2020 based on various documents furnished by TSTPCL and in consonance with the provisions of the I&B Code. The Resolution Professional has further....
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.... issue to decide herein is whether TSTPCL is a related party as claimed by the applicant or not and its inclusion in the CoC as a Financial Creditor to the Corporate Debtor is as per the IBC. 56. To arrive at a decision in this regard we have relied on the Articles of Association of the Corporate Debtor as well as definition of 'related party' as defined under section 5(24) of the I&B Code. ARTICLES OF ASSOCIATION : Decision in the matters relating to (a) to (r) of Article 62 of the Articles of Association is to be taken by an affirmative vote of three or more directors, which must include one director nominated by respondent no. 3, which clearly shows that in all important matters of the Corporate Debtor, the nominee-directors have significant role to play in protecting the interests of the Corporate Debtor and shareholders. Said Article 62 is reproduced hereunder: "62. Action on the following matters should be taken only by affirmative vote of 3 (three) or more directors ("disqualified majority") but there must be included in the qualified majority at least one director nominate by APTPC. a. Approval, modification of the contract of ....
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.... companies' banks or financial institutions or any of the Directors may himself/herself advance money to the company on such interest as may be approved by the Board of Directors. All borrowings from Banks, Financial institutions and other agencies including issue of debentures and providing corporate guarantees." DEFINITION OF 'RELATED PARTY' UNDER SECTION 5(24) OF THE CODE: "5(24) "related party", in relation to a corporate debtor, means- (a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor; (h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act; (j) any person who controls more than twenty per cent, of voting rights in the corporate debtor on account of ownership or a voting agreement; (l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor; (m) any person who is associated with the corporate debtor on account of-- (i) participation in ....
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....ey are only nominee-directors and that they do not have much say in the functioning of the Corporate Debtor. Further on a close perusal of the Companies Act, Listing Regulations, it is evident that disentitling of a shareholder, who is a related party from exercising his voting rights in respect of any resolution relating to any contract or arrangement to which such a related party is a party. Therefore, we are not in a position to accept the contention of respondents no. 1 and 3 that nominee-director does not have significant influence on the functioning of the Corporate Debtor as untenable and not acceptable. Based on Article 62 of the Articles of Association, respondent no. 3 clearly falls into the definition of 'related party' as defined under clauses (a), (h), (j), (1) and (m) of section 5(24) of the Code. We, therefore, come to the conclusion that respondent no. 3 falls under the definition as aforesaid. 59. When we juxtapose and read the Articles of Association as well as the definition of 'related party' as given in the I&B Code, it is evident that two nominee-directors of respondent no. 3 have significant influence in decision making process of the Corpo....