TaxTMI 
TaxTMI 
2022 (7) TMI 661
X X X X Extracts X X X X
X X X X Extracts X X X X
....san, Sr. Advocate with Mr. Gaurav Mitra, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtgage Agreement on the properties of 'Project Encore', 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 pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 3 in their written submissions have contended that though there is a provision but the respondents 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot the Financial Creditors and the admission of claims of the Respondents no. 2 and 3 as 'Financial Creditor' is contrary to the provisions of law. Accordingly, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Learned Sr. Counsel that the default occurred prior to the initiation of the CIRP of the 'Corporate Debtor' as evidenced by the letters of default issued by the Respondent to the Principal Borrowers and the Obligors 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Borrower/Saha Infratech and the 'Corporate Debtor' and by no stretch of imagination, can these allegations be made against the Appellant and even if such allegations are proven to be correct, then the Appellant being a bona fide lender could also be an affected party 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,77,970/- to Saha Infratech and PDPL cannot in any event be saddled with any liability on account of the Corporate Guarantee which had illegally executed to secured redemption of Debentures issued by Saha Infratech. The Principal Borrower for default for far lesser amount then what it has claimed. * The third Respondent/ECL continued to disburse the amount to the Principal 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate Debtor'. * As per Clauses 5.4 and 7 of the AoA, the Debenture Holders not only formulated the Business Plan of the 'Corporate Debtor' but also control the Sales of Inventory, Bank Account, Salary and Remuneration of the Key Managerial Personnel of the 'Corporate Debtor'. The 'control' is to such an extent that the 'Corporate Debtor' required the express approval of the Appellant before entering into any Builder Buyer Agreement with any prospective 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uthority to represent the 'Corporate Debtor' and do anything on its behalf. ECL had the power to approve or modify and finalise the business Plans of the 'Corporate Debtor'. ECL had complete control over the appointment and removal of Key Managerial Personnel. All decisions of the Board of Directors of the 'Corporate Debtor' were to be held only in the presence of an observer of ECL or such Meetings were rendered invalid. * Lastly it was submitted by the Learned Counsel that the 'Right to Payment' 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lder to claim against a Corporate Guarantor, the existence of default is a must. In the absence of any default on part of the Principal Borrower no liability can be fastened upon the Corporate Guarantor and placed reliance on the Judgment of the Hon'ble Supreme Court in 'Laxmi Pat Surana' (Supra). Assessment: 10. The main issues which arise in these Appeals are: (a) Whether the Adjudicating Authority was right in applying the ratio of 'Anuj Jain (IRP of Jaypee Infratech Ltd.)' (Supra) to the facts of the attendant case and holding that the Appellants are not '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 P....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted that reliance cannot be placed on 'Phoenix Arc Pvt. Ltd.' Vs. 'Spade Financial Services Ltd. & Ors.' (2021) 3 SCC 475, as the Hon'ble Supreme Court in that judgement has held that AAA & Spade are backdoor entrants and are to be removed from the CoC. That ratio cannot be applied in this case as the Appellants are not related parties and did not contemplate any backdoor entry. Mr. Mitra argued that a lone Homebuyer cannot challenge the constitution of the CoC and placed reliance on Sections 25(a) and 21(6)(a)(b) in support of his contention that only an 'Authorized Representative' should represent the 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. Counse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egulation 16A(5) is only clarification to the statutory scheme delineated under the Regulations and the Code that the Authorised Representative has no role in respect of verification of claim of a creditor in class. Can it be said that the Authorised Representative has no role in respect of verification of claims of creditors, therefore, the Financial Creditors in a class themselves have also no right with regard to receipt or verification of claims. The answer is obviously no. The Financial Creditor in class have every right to submit their claim giving proof of verification. 14. The mere fact that the Authorised Representative 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 rol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....im'. 17. The Learned Adjudicating Authority has held that as the Guarantee was invoked on 07/04/2020 i.e., after the initiation of CIRP on 27/01/2020, the amount claimed by the Appellants cannot be admitted in terms of the Moratorium declared under Section 14 of the Code. It is the case of the first Respondent/Homebuyer that the Appellants did not have any 'Right to Payment' as post-commencement of CIRP, there cannot be any invocation of Guarantee. Learned Counsel Mr. Sinha placed reliance on the Judgements of the Hon'ble Supreme Court in 'Ghanshyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited' (2021) 9 SCC 657, '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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured;" 20. Dr. Singhvi drew our attention to Clause 14.1 of the Debenture Trust Deed dated 01/07/2016, wherein it is stated that occurrence of one or more of the following events shall constitute a 'Right Related Default': "14. EVENT OF DEFAULT 14.1 Payment Related Default. Occurrence of one or more of the following 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal Creditor' was admitted on 02/01/2020. The actual recall Notice was admittedly issued on 25/03/2020. The Public announcement was made on 31/01/2020. On 03/02/2020, a reminder letter was sent to Saha for payment of Rs.9,16,66,666/- against the NCDs. On 10/02/2020 ITSL and ECL submitted Form C Claiming Rs.126,96,88,698/-, the debt incurred shown was when the NCDs were issued to Saha. The amount mentioned in the letter dated 16/12/2019 to 'Corporate Debtor' was Rs.9,16,66,666/-. On 17/02/2020, subsequent to CIRP commencement, Notice was issued by ECL and ITSL to Saha that as per RBI guidelines all accounts where loan repayment is overdue for more than 60 days, Appellants are required to disclose the same to RBI as 'Special Mention Account 2'. 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 ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ruction Company Limited' Vs. 'Orissa Manganese and Minerals Ltd.', 2019 SCC OnLine NCLAT 764. Even 'Andhra Bank Vs. M/s. F.M. Hammerle Textiles Ltd.', (Supra) is not applicable in view of the subsequent decision. The Hon'ble Supreme Court in 'Ghanshyam Mishra and Sons Private Limited' Vs. 'Edelweiss Asset Reconstruction Company Limited', (2021) 9 SCC 657, (Supra), has addressed to this issue. It is pertinent to reproduce the relevant paras with respect to invocation of Corporate Guarantee as hereunder: "110. NCLT found that by email dated 6-1-2018 EARC had submitted its claim in Form "C' for an amount of Rs 648,89,62,395. In response to the said email, RP sought a clarification as to whether the corporate guarantee had been invoked by the applicant. RP had not 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d perused the relevant material on record. 4. The civil appeal is dismissed. 5. It will be open for the appellant to urge all points as may be available to it in law before the appropriate forum, if so advised." It will thus be clearly seen that this Court in Atyant Capital Fund I case while dismissing the appeal has reserved the liberty to the appellant to urge all points as may be available to it in law before the appropriate forum. 127. It is to be noted that in the appeal before NCLAT, EXIM Bank as well as Axis Bank had taken steps immediately after the claim of the said Banks on the basis of corporate guarantee came to be rejected by RP/CoC. After rejection of the claim, the said Banks had filed an application under Section 60(5) before NCLT. On NCLT rejecting the said claim, those Banks had approached NCLAT 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....operational creditor who merely "claims" a right to payment of a liability or obligation in respect of a debt which may be due. When this aspect is borne in mind, the differentiation in the triggering of insolvency resolution process by financial creditors Under Section 7 and by operational creditors Under Sections 8 and 9 of the Code becomes clear." (Emphasis Supplied) 29. It is clear from the observations made by the Hon'ble Supreme Court in the aforenoted Judgement 'Swiss Ribbons Pvt. Ltd. & Anr.' (Supra) that a 'Claim' gives rise to a debt only when it becomes due. A 'Claim' is wider in its scope then debt. A claim may be due or may not be due, but a debt must be a claim which is due. A complete mechanism has been provided in IBC, 2016 as to how and when claims become 'due and payable' and debt owed. In the instant case, the CIRP commencement date of the 'Corporate Debtor' is 27/01/2020 and the Appellant had recalled the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that when the 'Corporate Debtor' is a 'Guarantor' and when the 'Corporate Guarantee' has never been invoked prior to the commencement of the CIRP, as on the date of filing of the Claims, the 'Right to Payment' has not accrued. 31. Additionally, IBBI vide Order dated 08/04/2022, in the matter of Erstwhile IRP, suspended his services for two years and made observations in its 'Analysis & Findings' in paras 4.10 and 4.13 and finally held that the IRP failed to conduct the CIRP as per the provisions of the Code. It was observed that 'since the Corporate Guarantees were not invoked yet and the two Corporate Guarantors were not eligible to join the CoC, a CoC could have been constituted with the remaining members and claims of homebuyers verified, but the IRP took advantage of his own mistake wrongly including the two Corporate Guarantor in the CoC and delayed the CIRP by 309 days'. 32. It is the further case of the first Respondent that the 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 Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an Escrow Account only to ensure that amounts are not siphoned off mortgager releasing the mortgage on the production of an NOC is only to ensure the recovery of money lent. The right to nominate a Director does not mean positive control of the Board but can be interpreted only as some sort of 'Financial Discipline'. 37. It is the main case of the first Respondent/Homebuyer that the Appellants are 'related Parties' of the 'Corporate Debtor' as defined under Section 5(24)(m)(h)(i) of the Code on account of their controlling powers over the operations of the 'Corporate Debtor' in the following manner: * Control over the decisions of the Board of Directors. * Final say in any decision at a Board Meeting or at a shareholders meeting or on any other matter in the event of a deadlock. * Control over the appointment and removal of key managerial personnel of the 'Corporate Debtor'. * Control over the approval and modifications of the business plans 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 cent. of voting rights in the corporate de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, in any manner, management or policy decisions, they could be said to be "in control". A management decision is a decision to be taken as to how the corporate body is to be run in its day-to-day affairs. A policy decision would be a decision that would be beyond running day-to-day affairs i.e. long-term decisions. So long as management or policy decisions can be, or are in fact, taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist. 51. Thus, the expression "control", in Section 29-N(c), denotes only positive control, which means that the mere power to block special resolutions of a company cannot amount to control. "Control" here, as contrasted with "management", means de facto control of actual management or policy decisions that can be or are in fact taken. A judgment of the Securities Appellate Tribunal in Subhkam Ventures (I) (P) Ltd. v. SEBI, made the following observations qua "control" under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997, wherein "control" is defined in Regulation 2(1)(e) in similar terms as in Section 2(27) of the Companies Act, 2013.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ving seat. To extend the metaphor further, the question would be whether he controls the steering, accelerator, the gears and the brakes. If the answer to these questions is in the affirmative, then alone would he be in control of the company. In other words, the question to be asked in each case would be whether the acquirer is the driving force behind the company and whether he is the one providing motion to the organization. If yes, he is in control but not otherwise. In short control means effective control." 52. We think that these observations are apposite, and apply to the expression "control" in Section 29-A(c). 53. Section 29-A(c) speaks of a corporate debtor " under the management or control of such person". The expression "under" would seem to suggest positive or proactive control, as opposed to mere negative or reactive control. This becomes even clearer when clause (g) of Section 29-A is read, wherein the expression used is "in the management or control of a corporate debtor" as, entering into preferential, undervalued, extortionate credit, or fraudulent transactions. It is thus clear that in the expression "management or control", the two words take ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ditions 23. The Lender shall have absolute right to appoint a director on the Board of the Borrower and/or the other Security Provider(s) any time, and such Nominee Director shall not incur any liability and shall be indemnified by the Borrower. Such nominee director shall be member of all the committees appointed by the Board of Directors of the Borrower/Security Provider(s). 24 The Lender shall have right to appoint an Observer on the Board of Borrower and/or management of the Security Providers. The Borrower and/or Security Providers shall forward a copy of all the notices/resolution/agenda of the respective Board meetings to such Observer." (Emphasis Supplied) 44. Clause 7.1 of the Articles of Association (AoA) refers to the powers of the Appellant/ECL Finance to resolve any deadlock in the Board/Shareholder Meetings, if required: "7.1 Without prejudice to the other rights of the Debenture Holders and the lenders under these Articles and the loan documentation and debenture trust deed and under applicable Laws, the Debenture Holders and/or the lenders shall upon occurrence of an event of default have the right to appoint a nominee director....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der necessary, any chartered accounts/cost accountants as auditors for carrying out any specific assignment(s) or to examine the financial or cost accounting system and procedures adopted by the Borrower and/or Obligors for its/their working or as concurrent or for conducting a special audit of the Borrower. The costs, charges and expenses including professional fees and travelling and other expenses of such consultants or auditors shall be payable by the Borrower and/or Obligors." 46. It is vehemently contended by the first Respondent Counsel that the power of ECL is stretched to such a vast extent that finalization of all 'Business Plans' had to be only with the approval of ECL. 47. The Debenture Trust Deed was amended on 16/10/2017 and Schedule I of the first Amendment reads as hereunder: "10. Business Plan, Project Cost and Quarterly Budget Approval Mechanism 5) The Debenture Trustee/ Monitoring Agent may approve the Quarterly Construction Budget or may advise the Issuer and/ or Security Providers to make modification as mutually decided. The Issuer and/ or Security Providers will revise/ modify the respective Quarterly Construction Budget if so advised ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e construction of the Project etc. on our behalf; 5. To construct and to deal with the construction of the Project or to assign someone for the completion of the Project on our behalf; 6. To file or to defend any suit in the court of law or any other appropriate forum on our behalf; 7. To appoint any Advocate, Chartered Accountant or any other professional as may be on our behalf; 8. To deal with all the banks and to open any bank account as maybe required on our behalf; 9. To sign, execute and deliver the letters and all other deeds and document in respect of the flats and give/receive all documents on our behalf as we would have done; 10. To apply to any competent/relevant authority, if necessary, for obtaining and/or renewal of the permissions, pertaining to the said property/said flats and for the purpose to sign, execute, affirm declare such applications, forms, declarations and papers as may be from time to time be required; 11. To appear either personally or through an Advocate or Chartered Accountant to make representations if required before any such authority to obtain its permission; 12. To deal with....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd. amounting to Rs. 1400.00 Lakhs each and have shown it as Loans and Advances in the books of accounts. These amounts were never going to be received by the company and have not been received back by the company (Refer section 9.0 of Banking for detailed discussion). RP should file application for Rs. 2800.00 Lakhs to recover this amount of Rs. 1400.00 Lakhs each from Abet Buildcon Pvt. Ltd. and Elicit Realtech Pvt. Ltd. It has been observed that companies i.e. Palm Developers Pvt. Ltd. assets were mortgaged for the purpose of loan taken by Saha Infratech Private Limited. However, no loan has been received for the project of PDPL. PDPL has just been used as an intermediary to transfer the funds from Saha Infratech Private Limited to its related parties. This is a clear case of Fraudulent Transaction as company never had the intention to complete the project of "Meghdutam Encore", it had started the project only for the purpose of defrauding the home buyers and mortgaging it for taking loan from financial creditors in the name of Saha Infratech Private Limited which would then be used in its related parties just to rotate the funds and not to use it for construction of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t only a Restrictive one is unsustainable. Controlling the Revenue Escrow Accounts to involvement in the execution of sale deeds of the sale of units to allottees show that the Debenture Holders were in a 'position to control'. The requirements under Section 5(24) under the provisions of the Code does not anywhere provide that such control should actually be exercised. Even otherwise, the Forensic Audit Report filed, specifically notes that the 'Corporate Debtor' was transferring amounts received from Saha to other related parties of Saha. 55. Being in charge of the Escrow Accounts, empowered under Clause 1.1 of AoA whereby and whereunder, the Revenue Escrow Account shall be operated with the instructions of the Debenture Trustee (acting on the instructions of the Debenture Holders) and having executed an irrevocable Power of Attorney to deal with all Banks etc., it cannot be said that the Appellants were neither in the knowledge of the transfers nor were they exercising any 'control'. Viewed from any angle, the AoA and the aforenoted powers conferred under Clause 4.1 of the AoA, cannot be only 'Restrictive Powers'. The Hon'ble Supreme Court in 'Arcelor Mittal India Pvt. Ltd.' (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....been obtained for the matter to be discussed during the meetings, the said meeting shall be deemed to be invalidly held and the resolution passed by the Board and the Shareholders shall be held to be invalid and shall not be implemented by the Company. Further, if a resolution of the Board and the Shareholders is approved through postal ballot or without a physical meeting the resolution shall not be valid unless the same has been approved in writing by the Debenture Holders." (Emphasis Supplied) 58. This shows that meetings held in the absence of the observer appointed by the Debenture holder, would be rendered invalid. Clause 6.8, 6.8.12, 6.8.13, 6.1.14 of the Facility Agreement further fortifies that the Appellants had the power and position to control the appointment and removal of marginal personnel. Though some of the Clauses relied upon by the Learned Counsel Mr. Sinha, are to be exercised in the event of default, the fact remains that the terms and conditions and clauses of the Sanction letter, Facility Agreement, Article of Association, the amended Debenture Trust Deed, read together, all establish that the Appellants had the 'Ability and the Power and Position....