TaxTMI 
TaxTMI 
2022 (7) TMI 661
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....Mr. Dev Roy, Mr. Atul Sharma, Ms. Renuka Iyer, Mr. Aditya Vashisth and Ms. Himanshi Rajput, Advocates. For the Respondent No.1: Mr. Abhijeet Sinha and Mr. Raghavendra M. Bajaj, Advocate for R-1. For the IRP : Mr. Milan Singh Negi, Advocate for New IRP. JUDGEMENT [ Per ; Shreesha Merla , Member (T) ] 1. The present Appeals filed under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'The Code') challenge the Impugned Order dated 14/03/2022 passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi Bench - II) in I.A. No. 1610/2020 and in I.A. No. 4130/2020 filed in C.P. (IB) No. 894/ND/2019, whereby, the Adjudicating Authority, on an Application filed by a Homebuyer/Mr. Abhinav Mukherji has allowed the Application and held that 'IDBI Trusteeship Services Limited' and 'ECL Finance Ltd.'/the Appellants are not 'Financial Creditors' and also observed that the Appellants are 'Related Parties' to the 'Corporate Debtor'. ECL Limited is arrayed as Appellant No. 1 and 'Assets Care & Reconstruction Enterprises Ltd.' as Appellant No. 2 in Comp. App. (AT) (Ins.) No. 358 of 2022. Since both these Appeals deal with common fac....
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.... and Revenue Escrow Agreement in respect of the entire receivables of the 'Project Encore' all dated 02/07/2016 in favour of the Appellants to secure the due performance of the terms and conditions of the Trust Deed. It was averred that the Principal Borrower and the Obligors committed defaults in performance of the terms of the Debenture Trust Deed, but the Appellants in utmost good fate continued with the Debentures with the hope that the Issuers/Obligors shall rectify the default in a timely manner. Despite repeated requests, as the defaults continued, the Appellants vide Letters dated 30/10/2018, 08/01/2019, 02/04/2019 exchanged communication with the Issuer and the Obligors and the Corporate Guarantor highlighting the defaults and asking them to rectify the same. 4. On 27/01/2020, CIRP against the 'Corporate Debtor' was initiated and Moratorium was issued. On 31/01/2020, the IRP made Public Announcement and on 10/02/2020 within the stipulated time frame, the Appellant submitted its 'Form C' showing default from the Year 2017 and claiming an amount of Rs.1,26,96,88,698/- as against the Principal and Interest 'due and payable' as on 27/01/2020. It was averred that on 20/02/2020....
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....ts have not appointed their nominee Director, which would be evident from the MCA date. As it is seen that part II of the Article of Association of the corporate debtor clearly says that in case of conflict between the two, part II shall prevail over the part I, which shows that Director, or Manager of the corporate debtor cannot take any decision without the written approval of the debenture holders. In other words, the debenture holder will actively participate in the policy making process of the corporate debtor. Therefore, we have not even an iota of doubt that the Respondents no. 2 and 3 are not in a position to have control over the policy decisions of the corporate debtor and on the composition of the board of directors. As per the definition of related party, what is required to be established is, whether a person is in a position to control the composition of the Board of Directors and it is not necessary that he/they is/are the director(s) of the corporate debtor or not. Hence, we are unable to accept the contention of the Respondent no. 2 and 3 that they have not nominated any Director as yet and they are not in a position to take part in the policy making process. 41.....
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....in terms of this order, the IRP/RP is directed to revise the claims of Respondents no. 2 and 3 and reconstitute the CoC. 49. So far as the prayer of the applicant regarding the acceptance of interest is concerned, the IRP/RP is directed to examine the same on merit and in accordance with the provisions of law. 50. Accordingly, in terms of aforenoted order, the IA 1610/2020 stands disposed of." (Emphasis Supplied) 7. Submissions of the Learned Sr. Counsel appearing on behalf of the Appellants: * Learned Sr. Counsel Dr. Singhvi contended that the Adjudicating Authority has wrongly relied on the ratio of the Judgment of the Hon'ble Supreme Court in 'Anuj Jain (IRP of Jaypee Infratech Ltd.)' (Supra) observing that the essentials of a 'Financial Debt', in particular, the 'pre-requisite of disbursal' is not satisfied in this case and therefore the Appellant is not a 'Financial Creditor' of the 'Corporate Debtor'. It is submitted that the Adjudicating Authority misrepresented 'Anuj Jain' case, overlooking para 43 of the Judgement which clearly states that 'Financial Debt includes liability arising out of a guarantee'. Learned Counsel placed reliance on the Judgement of this Tribu....
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....s dated 02/04/2019 and 26/09/2019 which are much prior in time to the date of initiation of the CIRP. * The only basis of arriving at the conclusion by the Adjudicating Authority that there has been 'no default' is a settlement made by the first Respondent that as per the information received by the Applicant, the Issuer of the Debentures continued to service the Debentures and therefore there is no default in servicing the interest due on the Debentures. It was strenuously contended that the Adjudicating Authority has failed to appreciate that filing of 'Claims' under the Code is governed by Section 3(6), Section 13(1)(b), Section 15(1)(c) and Section 18(1)(b) of the Code and none of these Sections mandate any pre-requisite of default. * Pre-conditions such as 'existence of default' is only to be satisfied when the Petition under Section 7 of the Code has been filed by a 'Financial Creditor'. It was further submitted that the Adjudicating Authority has erroneously applied the ratio of the Judgement in 'Laxmi Pat Surana Vs. Union of India & Anr.', (2021) 8 SCC 481, on the premise that 'default is a pre-requisite for filing of a Claim'. This Tribunal in 'Axis Bank Vs. EDU Smart ....
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....who has lent a substantial sum of money. * Learned Counsel for the Appellants in support of their submissions placed reliance on the following Judgements: Sr. No. Judgements Relevant Paras 1. 'Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors.' (2019) 2 SCC 1. Paras 51-54 2. 'Ebix Singapore Pvt. Ltd. Vs. 'CoC Educomp Solutions Ltd.' (2022) 2 SCC 401. Para 101 3. 'Ascot Realty Pvt. Ltd. Vs. Ajay Kumar Agarwal & Ors.' (2020) SCC OnLine NCLAT. Paras 21-24, 28-30 4. 'Axis Bank Ltd. Edusmart Vs. Services Pvt. Ltd.', Company Appeal (AT) (Insolvency) 302 of 2017. Paras 36, 45, 46 49-51 5. 'Andhra Bank Vs. M/s. FM Hammerle Textile Ltd.' (2018) SCC OnLine NCLAT 883. Paras 10-11 6. 'State Bank of India Vs. Mr. Animesh Mukhopadhyay', (2021) SCC OnLine NCLAT 30. Para 14 7. 'State Bank of India Vs. Athena Energy' (2020) SCC OnLine NCLAT 774. Paras 16-19 8. 'Edelweiss Asset Reconstruction Company Ltd. Vs. Gwalior Bypass Projects', Company Appeal (AT) (Ins) No. 1186 of 2019. Paras 8-9 9. 'Aashray Social Welfare Society Order in IDBI Trusteeship Services Ltd. Vs. Saha Infratech Pvt. Ltd.', (IB) 1781 (ND)/2018. Paras 20-23 10. 'Phoenix ARC Pvt. Ltd. Vs. S....
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....incipal Borrower despite 'default' committed and interest and other parties in terms of the Debentures not having been paid. The defaults were committed from the Year 2017 itself to ECL has been continuing to disburse the loans to Saha Infratech till October, 2019. The Learned Counsel has drawn our attention to the dates and the amounts disbursed which is detailed as follows: Date Amount Disbursed (in Rs.) 07.11.2017 50,00,00,000 23.11.2017 10,00,00,000 15.02.2018 8,00,00,000 23.03.2018 7,00,00,000 23.05.2018 7,00,00,000 01.03.2019 2,00,00,000 24.10.2019 25,00,000 Total 84,25,00,000 * It is submitted that the Appellant and ECL are the alter egos of the Promoters of the 'Corporate Debtor' and are hand in glove with the Promoters which is evident from the fact that the erstwhile RP had been suspended for two years by the IBBI for failing to proceed with the CIRP of the 'Corporate Debtor' since he had refused to constitute the CoC and adhere to the timelines in the CIRP process till ECL and Appellant were made part of the CoC. This stand of the erstwhile RP only helped the Promoters of the 'Corporate Debtor' to the detriment of the interest of the Homebuyers. Vide ....
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....ospective customer. * Learned Counsel placed reliance on Clause 5.4 of the AoA and also Clause 24(4) of the sanctioned letter dated 13/06/2017 in support of his argument that ECL also had the power to execute Sale Deeds for all the units to be sold in the project being developed by the 'Corporate Debtor'. * The Shareholders of the 'Corporate Debtor' have given an irrevocable Power of Attorney (PoA) to the Appellant for conducting all business activities on behalf of itself. ECL, the Debenture Holder is a selling partner of the 'Corporate Debtor' as it has the controlling power to appoint Real Estate Agents, on behalf of the 'Corporate Debtor' for sale of specific residential units/inventory totaling to 1,77,900 square fts. saleable areas in various projects of the 'Corporate Debtor'. * As per the requirements of Section 5(24)(i) of the Code what has to be seen is only whether the person is in a position to control and there is no requirement under the law to verify if that person has actually exercised any control or not. Any person who can control the composition of the Board of Directors or corresponding governing body of the 'Corporate Debtor' will be a 'Related Party' and....
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.... from the 'Corporate Debtor' did not accrue as admittedly the Guarantee Deed was not invoked prior to the CIRP date. Learned Counsel placed reliance on the Judgement of the Hon'ble Apex Court in 'Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited', (2021) 9 SCC 657, in support of his argument that there cannot be any invocation of guarantee post-commencement of CIRP and that of the coming into effect of the Order of Moratorium, or prior transactions entered into by the 'Corporate Debtor' stand frozen and no fresh liability can be fastened. Hence it is argued that the Appellant cannot make a 'Claim' in the CIRP on the basis of the Guarantee Deed which was never involved prior to the commencement of the CIRP of the 'Corporate Debtor' on 27/01/2020. Admittedly no notice which was mandatory in terms of Clause 2.1(ii) of the Guarantee Deed was issued to the 'Corporate Debtor' by the Appellant for the amount claimed in Form-C. * Learned Counsel also fairly conceded that the ratio of 'Anuj Jain (IRP of Jaypee Infratech Ltd.) (Supra) may not be strictly applicable to the facts of this case as in the Guarantee Deed in almost all cases, the disburs....
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.... 'Financial Creditors' in view of the fact that there was no 'direct disbursal' of amount to the 'Corporate Debtor'/Guarantor. (b) Whether an individual Homebuyer has the locus to challenge the admission of a Claim of another Creditor/'Financial Creditor'. Whether the filing of the said Application had to be done through the 'Authorized Representative' (AR) only. (c) Whether the Appellant can make a 'Claim' on the basis of the 'Guarantee Deed' which was never invoked pre-commencement of the CIRP, and remained uninvoked even as on the date of filing of the 'Claim', thereby meaning that 'Right to Payment' has not yet accrued. (d) Whether the Appellants are 'Related Parties' of the 'Corporate Debtor'. Whether the Appellants were in a 'position' to 'control' the affairs of the 'Corporate Debtor', to fall within the ambit of the definition of 'Related Party' as defined under Section 5(24) of the Code. 11. At the outset, we address ourselves to the first issue raised by the Appellants that the Adjudicating Authority has erroneously relied on the Judgement of the Hon'ble Supreme Court in 'Anuj Jain' Case and held that there was no direct disbursal of amount by ECL to the 'Corporate....
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....he Homebuyer. Merely because the inclusion of the Appellants would reduce the voting percent, a single Homebuyer cannot decide the status of the CoC. It is argued that this would constitute a serious conflict of interest and that any such challenge by a single Homebuyer would open the Pandora's Box. Learned Sr. Counsel for IDBI, Dr. Singhvi also submitted that a single Homebuyer constituting miniscule voting share filed I.A. 1610/2020 and the Adjudicating Authority has ordered that the Appellant IDBI is not a 'Financial Creditor' and cannot be a member of the CoC. Learned Sr. Counsel Mr. Ramji Srinivasan appearing for ECL further contended that a single Homebuyer does not have the locus to challenge the constitution of the CoC. 14. Recently this Tribunal in 'Aashray Social Welfare Society & Ors.' Vs. 'Saha Infratech Pvt. Ltd. & Ors.', Comp. (AT) (Ins) No. 904 of 2021 has discussed in detail the role of 'Authorized Representative' ('AR') and whether the Homebuyers/Welfare Society representing the Homebuyers have a right to be heard/impleaded and observed as follows: "12. The statutory scheme as is reflected from Section 21(6-A) and Section 25-A of the Code indicates that the Aut....
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....ative of a creditor in a class have no role in receipt and verification of the claim of the creditors, it cannot be held to mean that creditors in a class have no right with regard to receipt and verification of their claim. The clarification as contained in Regulation 16A(5) has been read by the Adjudicating Authority to an extent which it never meant. The conclusion recorded by the Adjudicating Authority in paragraph 23 on the basis of erroneous interpretation of Regulation 16A(5) resulted in a wrong conclusion that the creditors in a class have no role in receipt or verification of claims of creditors. 15. The present is a case where the question for consideration is the right of impleadment of Appellants in Applications filed by Respondent No. 2 and 3 challenging the rejection of their claim as Financial Creditors. The Appellants are also Financial Creditors in a class and they represent majority of the Homebuyers in class, as has been pleaded by the Appellants. The Financial Creditors in a class, who at present consist of 99.85% of CoC, have every right to be heard in the Applications filed by Respondent No. 2 and 3 whose claim has been partly and fully rejected, respectivel....
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.... 'P. Mohanraj & Ors. Vs. Shah Brothers Ispat Private Ltd. (2021) 6 SCC 258, and 'Rajendra K. Bhutta Vs. Maharashtra Housing & Area Development Authority & Anr.' (2020) 13 SCC 208, in support of his argument that, on the coming into effect of the Order of Moratorium, all prior transactions entered into by the 'Corporate Debtor' stand frozen and no liability can be fastened. It was also contended by the Counsel that the Appellants cannot have any valid claim in the CIRP of the 'Corporate Debtor' as the liability of the 'Corporate Debtor'/Corporate Guarantor can never be more than that of the Principal Borrower. In Column 4 of Form-C, the Appellant had filed a claim of Rs.1,26,96,88,698/-. The Appellant has also filed a claim of Rs.1,30,96,46,399.24/- in the CIRP of the Principal Borrower/M/s. Saha Infratech. It was also submitted that RP of Saha Infratech has not accepted the Claim of the Appellant and has held that the Appellant in fact owes Rs.12,60,77,970/- to Saha Infratech. Hence, even as per the Guarantee Deed, 'Palm Developers' being the Corporate Guarantor cannot have any liability if the Principal Borrower itself has no liability towards the Appellant. It was further contend....
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....g events shall constitute a "Payment Related Default": (i) Default is committed in payment of the Interest, the Default Interest and, or, the Redemption Amounts ln accordance with this Deed; (ii) If any amount paid under the Transaction Documents (including any payment on a Interest Payment Date and, or, a Redemption Date) cannot be remitted and is not paid at the place and in the currency in which it is expressed to be payable; (iii) Failure to redeem all and not less than all the Tranche 1 Debentures and, or, the Tranche 2 Debentures on the expiry of the respective Tenor by payment of the Redemption Amounts, in full, in accordance with this Deed; (iv) Non-payment of amounts reimbursements/ fees including the fees payable to the Debenture Trustee, the Debenture Holders' Representatives, the Depository and the depositories agent, the Utilization Escrow Agent and the Project Revenue Escrow Agents and the credit rating agency and reimbursements/ payments to be made to the Debenture Trustee under the terms of this Deed (including as set forth in Section 15.2 hereto); and, or, (v) Any shortfall or failure to maintain the requisite amounts towards the DSRA." 21. Default m....
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..... In their Reply dated 18/09/2020 to I.A. 1610/2020, ITSL and ECL took a stand that defaults were being committed since 2017 itself but that debentures were continued in good faith. On 16/05/2021 RP of Saha rejected the Appellants' claims and demanded that the Appellants owed Rs.12,60,77,970/- to Saha, the Principal Borrower. On 13/07/2021, on an Application filed by IBBI, I.A. 1742/2021, Adjudicating Authority has appointed Mr. Mishra as the new IRP who published the Forensic Audit Report on 12/03/2022. 25. Learned Counsel Dr. Singhvi has placed reliance on the Judgement of this Tribunal in 'Axis Bank Limited' Vs. 'Edu Smart Services Pvt. Ltd.', Comp. App. (AT) (Ins) No. 302 of 2017, wherein this Tribunal has held as follows: "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 1....
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.... received any response till 21-2-2018 from EARC. Despite repeated requests made by RP, EARC did not respond to the query made by RP. From the record placed before NCLT, it was clear that EARC had not invoked the corporate guarantee. NCLT therefore posed a question to itself, as to whether an uninvoked corporate guarantee could be considered as matured claim of the applicant. NCLT found that once the moratorium was applied under Section 14 of the I&B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found that the OMML's guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found that there is no illegality or irregularity in not admitting the claim of EARC. ............................................................................. 124. Shri Bhushan, learned counsel appearing on behalf of EARC, strongly relying on the judgment of NCLAT dated 14-8-2018 passed in Export Import Bank of India v. JEKPL (P) Ltd. Resolution Professional, submits that NCLAT itself in the said case had held that invocation of corporate guarantee h....
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.... in appeals which were allowed and the order, as stated hereinabove, was passed. .............................................................................. 133. We are therefore of the considered view that the appeal deserves to be allowed by expunging SCC OnLine NCLAT paras 28, 42, 43, 51 and 52 from the judgement of NCLAT dated 23-4-2019. It is ordered accordingly. The judgement and order passed by NCLT dated 22-6-2018 is upheld. No costs." (Emphasis Supplied) 27. It is seen from the aforenoted Judgement that an uninvoked Corporate Guarantee cannot be considered as a 'Matured Claim'. In para 133 of the aforenoted Judgement the Hon'ble Supreme Court has upheld the finding of the Adjudicating Authority that once the moratorium was applied under Section 14 of the Code, a Corporate Guarantee cannot be invoked. Though this is a case where the Resolution Plan has been approved, the fact remains that the Principle that a Corporate Guarantee cannot be invoked once the CIRP has commenced and that an uninvoked Corporate Guarantee as on date of filing of the Claim, cannot be considered as 'Matured Claim' has been laid down by the Hon'ble Supreme Court. 28. We also place reliance....
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.... entire redemption amount with respect to debentures on 25/03/2020 subsequent to the initiation of CIRP. The Adjudicating Authority recorded that the Corporate Guarantee was invoked on 07/04/2020. The claims were filed by the Appellants on 10/02/2020. This Tribunal is of the earnest view that the Appellants cannot Claim the amounts in the CIRP of the 'Corporate Debtor' who is a 'Corporate Guarantor' on the basis of the Deed of Guarantee which was never invoked as on the date of filing of the Claims. The record also does not show that any Notice in terms of Clause 2.1(ii) of the Deed of Guarantee was ever issued to the 'Corporate Debtor'. We do not find any substance in the argument of the Appellant Counsel that no such Notice is required to be issued as invocation of Guarantee is not a pre-condition to file a 'Claim'. The Deed of Guarantee stipulates such a notice to be issued which was never sent as the Deed was never invoked prior to CIRP filing of Form C. 30. In 'SBI' Vs. 'Orrisa Manganese & Minerals Ltd.' dated 22/06/2018, EARC (Edelweiss Asset Reconstruction Co. Ltd.) filed an Application before the Adjudicating Authority, (NCLT) Kolkata in CA(IB) 470/KB/2018 in CP (IB) No. 3....
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....RP of the Principal Borrower has not admitted the claims of the Appellants. A perusal of the email dated 16/05/2021 addressed by the IRP of the Principal Borrower to IDBI shows rejection of the Claim of IDBI on the ground of being a 'Related Party' and that an amount of Rs.12,60,77,970/- is recoverable from them. When the Appellants' Claim has been rejected in the CIRP of the Principal Borrower, the onus is on the Appellants to substantiate how their claims can be 'admitted' in the CIRP of the 'Corporate Guarantor' when they have not even invoked the Guarantee prior to CIRP commencement, or as on the date of filing of Form C, which they have failed to discharge. Issue of 'Related Party': 33. Now we address to the contention raised by the Learned Counsel Mr. Sinha that the Appellants are 'related Parties' of the 'Corporate Debtor' as defined under Section 5(24) of the Code. 34. It is submitted by Dr. Singhvi that the power contingent upon occurrence of 'Event of Default' was never exercised by the Appellant in the present case and as such the Appellant could not in any manner be said to be a 'Related Party' under Section 5(24) of the Code. Learned Counsel placed reliance on the r....
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....of the 'Corporate Debtor'. * Control over the modalities of sale of units in the projects. * Control over the sale of units to prospective customers and registration of units before the Registrar. * Control over all revenue and other accounts of the 'Corporate Debtor'. * Selling partner of the 'Corporate Debtor'. 38. It is strenuously contended that as per the requirements of Section 5(24) of the Code, what has to be seen is only whether the person is in a 'position' to control and there is no requirement under the law to verify if that person has actually exercised control or not. Learned Counsel argued that the observations made by the Hon'ble Supreme Court in 'Arcelor Mittal India Pvt. Ltd.' Vs. 'Satish Kumar Gupta & Ors.' (2019) 2 SCC 1 that 'so long as a person or persons acting in concert, directly or indirectly, can positively influence, in any manner, management or policy decisions, they could said to be in control' is applicable to the facts of this case and hence it is not necessary to show whether or not the entity exercised actual control or not. 39. It is contended that the Appellant was not merely a lender, but also the Debenture Holder and a selling partner....
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.... (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; (k) any person in whom the corporate debtor controls more than twenty per cent. of voting rights 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 policy making processes of the corporate debtor; or (ii) having more than two directors in common between the corporate debtor and such person; or (iii) interchange of managerial personnel between the corporate debtor and such person; or (iv) provision of essential technical information to, or from, the corporate debtor;....." (Emphasis Supplied) 41. The Hon'ble Supreme Court in 'Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors.', (2019) 2 SCC 1 has discussed in detail and made the following observations with respect to 'control' and the 'power' to direct the management and policies of a person or entity, whether through ownership of Voting Securitie....
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.... The Securities Appellate Tribunal held: (SCC OnLine SAT para 6) "6...The term control has been defined in Regulation 2(1)(c) of the Takeover Code to "include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their Shareholding or management rights or Shareholders agreements or voting agreements or in any other manner". This definition is an inclusive one and not exhaustive and it has two distinct and separate features: (i) the right to appoint majority of Directors or, (ii) the ability to control the management or policy decisions by various means referred to in the definition. This control of management or policy decisions could be by virtue of shareholding or management rights or shareholders agreement or voting agreements or in any other manner. This definition appears to be similar to the one as given in Black's Law Dictionary (Eighth Edn.) at p. 353 where this term has been defined as under: 'Control--The direct or indirect power to direct the management and policies of a person or entity, whether through ow....
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....se the principle of noscitur a sociis must also be held to apply. Thus viewed, what is referred to in clauses (c) and (g) is de jure or de facto proactive or positive control, and not mere negative control which may Now from an expansive reading of the definition of the word *control" contained in Section 2(27) of the Companies Act, 2013, which is inclusive and not exhaustive in nature. 54. In a recent judgment delivered by one of us (Nariman, J.) in Chintalapati Srinivasa Raju v. SEBI, this Court after referring to the definition of "control" in the SEBI Regulations, held on facts that an executive Director, on a fixed monthly salary, post-resignation, cannot be held to be a person exercising "control" within the meaning of the SEBI Regulations. This Court referred to with approval the following test laid down in SEBI v. Kishore R. Ajmera: (SCC p. 383. para 26) "26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegatio....
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....ing passing necessary resolutions at the Board and Shareholder meetings and filing necessary forms with the RoC, to enable the Debenture Holders and/or the lenders to exercise the aforesaid right. Notwithstanding anything contained in these Articles and, or, in the Transaction Documents, the Promoters and the Company shall in the event there is a deadlock on any matter/decision at a board meeting and, or, at a shareholders meeting amongst the directors or the Promoters, such matter/decision shall be referred to the nominee director of the Debenture Holders and/or the lenders and, or, to the Debenture Holders or the lenders for final decision. Any decision by such director of the Debenture Holders and/or the lenders and, or, the Debenture Holders and/or the lenders shall be final and binding on the Promoters of the Company." 45. Regarding the contention of Learned Counsel Mr. Sinha that ECL had complete control over the appointment and removal of Key Managerial personnel, it is pertinent to see the relevant clauses of the 'Facility Agreement' which are detailed as hereunder: "6.8 MANAGEMENT 6.8.12 Unless the Lender otherwise agree in writing the Borrower and the Obligors shall ....
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.... Quarterly Construction Budget") shall be applicable to for the quarter for which the same is approved and the amount from the Escrow Account to meet the construction cost shall during such quarter will be released as per the Approved Quarterly Construction Budget subject to availability of the amount in the Escrow Accounts. The Debenture Trustee/ Monitoring Agent may in suitable circumstances and at the request of the Issuer and/or Security Providers approve such modification/ revisions in the respective Approved Quarterly Construction Budget as may be deemed necessary by the Debenture Trustee/ Monitoring Agent." 48. It is seen from Clause 21 of the Sanction Letter that ECL had the controlling power to appoint Real Estate Agent/Distribution Agent on behalf of the 'Corporate Debtor' for sale of specific residential units/inventory totaling to 1,77,9000 sq. ft. saleable area in various projects of the promoters. Clause 21 of the Sanction Letter reads as follows: "21 Pre-disbursement Conditions x The Borrower and Security Providers shall have executed distribution agreement for appointment of real estate agent/distribution agent with an entity recommended by the Lender for sale of....
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.... 14. To apply for and obtain Income Tax Certificate under the provisions of the Income Tax Act for registration of any document(s) executed by the said Attorney pursuant to these presents if required; 15. To commence and prosecute or appear in and defend all suits, actions and proceedings arising out of or in respect of all or any of the matters aforesaid and if the said Attorney shall think fit to compromise, conclude and submit to Arbitration all and every or any differences or disputes which shall or may arise in reference to the mater aforesaid; 16. To do or cause to be done or execute or cause to be executed all other acts, deeds and things which may be deemed to be necessary or proper or expedient for purposes of the said flats; 17. To appoint from time to time one or more Attorneys or Attorney under him with the same or limited powers and remove such substitute or substitutes at our discretion; and 18. To sub-delegate the power given to them by this Power of Attorney to any individual or organization as may deem fit." (Emphasis Supplied) 50. It is vehemently contended by Learned Counsel Mr. Sinha that the Forensic Audit Report in its findings has reported that t....
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....d and Rs. 9000.00 Lakhs relates to ECL Finance Limited). So, RP should file application in NCLT totaling Rs. 28322.50 Lakhs under section 66 "Fraudulent Trading and Wrongful doing" as per IBC 2016." (Emphasis Supplied) 51. In the terms and conditions of the Facility Agreement, under the caption 'Special Conditions' Clause 24(4) it is clearly stated that 'The Borrower shall execute irrevocable Power of Attorney authorizing representatives of Lender to execute the sale deed and represent on behalf of the Borrower and Security Providers before the Registrar on its behalf to register the Sale Deed for units to be sold in each of its Projects'. 52. On a pointed query from the bench, Learned Sr. Counsel Dr. Singhvi submitted that the Appellant had never exercised this power and was never a participant in the execution of Sale Deeds of the Homebuyers. Be that as it may, the fact to be seen is whether the Appellants have the 'ability to control' and are in a 'position to Control'. 53. Clause 4.1 of the AoA shows that the Project revenue including the payments made by the allottees of the 'Corporate Debtor' is in direct and complete control of the Appellant/ECL: "4.1 PDPL Revenue E....
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....refers to 'de jure' control, which includes the right to appoint directors of the Company. The second part of the expression 'Control' refers to 'de facto' control, whereby, person/body corporate directly or indirectly can positively influence in any manner, the management or policy decisions. Any decision which has a long term effect, for formulation of Business Plans, comes within the purview of policy making. The argument that the Clauses with respect to 'Business Plans' and any substantial/important charges requiring the approval of the Debenture Holders, is only 'restrictive' and does not construe 'positive control' is untenable. We are of the view that the irrevocable PoA executed in favour of the Debenture Holders suggests Positive and proactive control as the Appellants are in a position to take proactive decisions regarding the rights of the 'Corporate Debtor'. 57. Additionally, Clause 7.2 of the Articles of Association specifies that all decisions of the Board of Directors of the 'Corporate Debtor' are subject to the approval of the Debenture Holder as can be seen from Clause 7.2 of the Articles of Association: "7.2 The Promoters shall and shall cause the Company to pr....
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.... in the policy making process and that whether the nominee Director was actually appointed or not (the Appellants have the power to appoint a Nominee Director) is immaterial, as the definitions of 'Related Party' is only to see whether a person is in a position to control the composition of Board of Directors and is not necessary that he/she/they are actually the directors of the 'Corporate Debtor'. 60. We are of the view that the Articles of Association point out that decisions regarding important matters ought to be taken only by the affirmative role of the Appellants. The Adjudicating Authority has gone through the Articles of Association as well as the conduct of the management of the 'Corporate Debtor' and held that the ECL and IDBI are related parties of the 'Corporate Debtor' by virtue of their inter se management participation. Examining the influence and inter-relationship between the parties, we are of the considered view that the Appellants have the trappings of 'Related Party' on account of the various clauses of the Agreements and AoA, which gives them a participatory role in the Corporate Debtor's policies. The purpose of excluding a related party of a 'Corporate Deb....