TaxTMI 
TaxTMI 
2022 (5) TMI 924
X X X X Extracts X X X X
X X X X Extracts X X X X
....er, the Adjudicating Authority has dismissed the Application filed by the Appellants/Applicants on the ground that the Appellants were 'Related Parties' and cannot be treated as 'Financial Creditors' within the meaning of Section 5(7) of the Code. 2. Facts in brief are that the Appellants are the Investors and Shareholders of 'M/s. E&G Global Estates Limited' (hereinafter referred to as the 'Corporate Debtor') having 48% of the shareholding of the Company. It is stated that the 'Corporate Debtor' was in dire need of funds to complete the construction of the 'Resort Project' and therefore the Appellants have infused funds into the Company on the understanding that 100% shares would be transferred to them. Accordingly, an MoU dated 10/12/2018 was entered into between the parties, whereby the Appellants paid Rs.75 Lakhs/- to SIDBI towards part payment of the loan amount, thereby saving the Company from becoming an NPA. A Loan Agreement dated 12/02/2019 was also executed between the 'Corporate Debtor' and the Appellants, whereunder it was agreed that out of the total loan amount of Rs.1,60,00,000/-, Rs.1,00,00,000 would be utilised for repayment of overdue instalments of SIDBI. It w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision of Section 161(1) of the Companies Act, 2013, (hereinafter referred to as 'The Act'), the post of the Additional Director would be automatically vacated if the AGM of the Company is not conducted within six months from the end of the respective Financial Year; that Section 96 of the Act compels any Company to hold an AGM within six months from the date of closing of the Financial Year and the said fact was also confirmed by way of a Notice dated 10/12/2019 and therefore it cannot be said that they are 'Related Parties' as the AGM never took place and hence they were never made Directors of the Company. * The shareholding of two of the Appellants is only 4.09% and 7.48% which is below 20% and therefore the bar provided by the Code under Section 5(24)(j) does not apply. * It was strenuously contended that as substantial sum of money was infused by the Appellants amounting to Rs.8,00,00,000/-, not giving them an opportunity to file their 'Claim' vitiates the process of law. * I.A.1148 of 2020 was preferred by the Appellants seeking following reliefs:- (a) That they have not been made part of the COC as they have been considered as a 'Relate....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Master Data of the 'Corporate Debtor' was not updated in the Ministry of Corporate Affairs 'MCA' Website and that they were never Directors of the Company and were only Additional Directors, which designation, also ceased as the Annual General Meeting contemplated under Section 161(1) of the Act was never conducted inducting them as Directors. The Hon'ble Apex Court in 'Phoenix Arc Private Limited' Vs. 'Spade Financial Services Limited and Ors.', (2021) 3 SCC 475, has described the term 'Related Party' in detail in paras 62 & 63 as hereunder: "62. The definition describes a commutative relationship, meaning that X can be a related party of Y, if either X is related to Y, or Y is related to X. The definition of 'related party' under the IBC is significantly broad. The intention of the legislature in adopting such a broad definition was to capture all kinds of inter-relationships between the financial creditor and the corporate debtor. 63. The term 'related party' has also been defined by Parliament in the Companies Act, 2013 for all corporations. The definition of the expression has also been expanded for listed entities by the Securities Exchange Board of India b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....artner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital; (e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital; (f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor; (g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager 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; (i) 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; (j) any person who controls more than twenty per ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have any right of representation, participation and voting in the meeting of the CoC, if it is a related party of the Corporate Debtor. * It is not in dispute that Rs.50 Lakhs/- was directly paid by the Appellant herein to SIDBI to discharge the loan seeking to enhance their equity in the 'Corporate Debtor Company'. This establishes that the amount infused was not in the nature of financial disbursement with 'Time Value of Money' which is a pre-requisite for a 'Debt' to be covered under Section 5(8) of the Code. * The Appellants being Shareholders of the Company chose to file an Application before the Adjudicating Authority claiming to be 'Directors' and now again preferred this I.A.1148 of 2020 stating that they are 'not Directors' which is completely contrary to their own stand taken in the earlier MA. * The documentary evidence on record shows that on 22/02/2019, a Board Resolution was passed approving the conversion of loan to equity. A Notice for holding an AGM and Board Resolution dated 11/02/2019 was also annexed. It is evident from these documents that the loan amount for Rs.1.6Crs./- was actually 'equity' and hence the claim for the amount be tre....