TaxTMI 
TaxTMI 
2024 (10) TMI 401
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..../2023. Gospell Digital Technologies Private Limited is the Operational Creditor (in short 'OC') of M/s Altius Digital Private Limited, the Corporate Debtor (in short 'CD'), which is undergoing Corporate Insolvency Resolution Process (in short 'CIRP'). The appeal has been filed by Dushyant Dave, the erstwhile Interim Resolution Professional (in short 'IRP') of the CD, under Section 61(1) of the Insolvency and Bankruptcy Code, 2016, (in short 'Code'), against the impugned order of AA, vide which Shri Dave was removed as IRP and Shri Arun Kisanlal Bagadia was appointed as IRP. 2.The appellant has challenged the impugned judgment on the grounds that it is unreasoned, arbitrary, and biased, having improperly disregarded the commercial wisdom of the Committee of Creditors (in short 'CoC'). The AA's interference with CoC decisions and unwarranted remarks that tarnish the appellant's professional reputation are also contested. The appeal questions the legal validity of removing the appellant as the IRP. 3.The brief facts of the case are as follows: (i)The Respondent No.1 in the present case, Gospell Digital Technology Co. Ltd. (OC) filed a petition u/S 9 of the Code agai....
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.... Dushyant Dave as the RP with 100% of the vote. However, the resolution to approve the fees for the IPE was not passed, and the RP was instructed to renegotiate the terms of the fees. (vi)Gospell Digital/ Respondent No.1 on February 6, 2024, filed an Interlocutory Application No. 503/2024 before the AA, challenging the decisions made in the second CoC meeting and seeking Shri Dave's removal as RP. Respondent No.1 questioned IRP's impartiality, particularly regarding the verification of Asha Apartments Pvt. Ltd./ Respondent No.2 claim, which had fundamentally altered the CoC's composition, pushing out operational creditor Gospell Digital/Respondent No.1 from the CoC. On February 20, 2024, the AA directed the Appellant Gospell Digital to implead Asha Apartments Pvt. Ltd. as a respondent in the case. After hearing arguments from both parties, the tribunal ruled on March 4, 2024, in favor of Gospell Digital. The tribunal expressed concerns about Dushyant Dave's impartiality in handling Asha Apartments Pvt. Ltd.'s claim and their inclusion in the CoC. The AA found that the resolutions passed in the second CoC meeting, including Dave's confirmation as RP and the appo....
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....the Respondent No. 1 informed CoC that the proposal from the Applicant suggesting name of the Insolvency Professional Mr. Arun Kisanlal Bagadia, has been received. We further note that the Applicant objected to the inclusion of Asha Apartment Pvt. Ltd. as Financial Creditor in CoC with 100% voting Share. 23)It may not be out of place to note that the Resolution appointing the Respondent No. 1 was put to vote by show of hands despite the Resolution to appoint him as the Resolution Professional was already voted out in the First CoC meeting. The Respondent No. 1 continued as IRP as no RP was appointed in that meeting. Further, the Resolution to appoint M/s Decode Resolvency International Pvt. Ltd., IPE as support entity was put to vote despite the Resolution to appoint them as support entity was already voted out in the First CoC meeting. 24)It is not in dispute that the claim of Asha Apartment Pvt. Ltd. is stated to be in verification and Respondent No. 1 submitted that he shall take appropriate decision in relation to genuineness in due course. However, this bench has the serious concern in relation to the impartiality of the decision in respect of Asha Apartments....
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....conducted in accordance with the law. 6.The counsel for the appellant submitted that there were significant procedural lapses by the respondent in the present case under the Insolvency and Bankruptcy Code (IBC), citing Edelweiss Asset Reconstruction Co. Ltd. v. Mohit Goyal, 2022 SCC OnLine NCLAT 4609. The appellant argued that such lapses are not merely procedural but are fundamental errors that impact the overall validity of the proceedings. 7.The counsel for the appellant further contends that their right to a fair hearing was violated. He supported his argument by referring to State Bank of India v. Ajai Kumar Srivastava, (2021) 2 SCC 612. The appellant draws on this judgment to assert that the principles of natural justice were breached, as they were not afforded a sufficient opportunity to present their case. 8.The appellant further highlighted the respondents' failure to meet their contractual obligations. In this regard he cited Katra Realtors (P) Ltd. v. Rajesh Ramnani, 2024 SCC OnLine NCLAT 302. The appellant draws a parallel between the respondents' actions and the contractual failures observed in the aforesaid case. By doing so, he emphasized that the re....
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....y the AA, rather than pursuing reappointment. 14.The counsel further stated that the Respondent No. 1 filed a Company Petition (IB) No. 137/MB/ 2023 under Section 9 of the code against the Corporate Debtor on December 14, 2022, in NCLT, Mumbai. The notice in the petition was issued on February 17, 2023. A Loan Agreement for Rs. 2 crores were executed on April 15, 2023, by the Corporate Debtor in favour of M/s Asha Apartments/Respondent No.2 after the issuance of notice under Section 9 of the Code. Over the next six months, Respondent No. 2 disbursed Rs. 1.15 Crore to the Corporate Debtor. 15.The counsel for Respondent No. 1 further submitted that he had informed the Appellant during CoC's meetings that Respondent No. 2 had been declared an accommodation entry operator by the Hon'ble Gujarat High Court. The bank statements of Respondent No. 2 showed Rs.32,618/- on 05.04.2023. On 10.05.2023 an amount of Rs. 21 lakhs were deposited in the account of Respondent No.2 and the same was instantly transferred to the account of CD. 16.The counsel further stated that the Loan Agreement required the Corporate Debtor to pay 18% annual interest on the principal, plus an additional 2% fo....
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....d admission of the claims received. 21.The counsel for Respondent No.1 submitted that the Appellant, thereafter, circulated the Minutes of the second CoC Meeting held on 30.01.2024, wherein the Appellant admitted that it was in the process of verifying the claims of the alleged Financial Creditor i.e., Respondent No.2 and surprisingly the claims of the Respondent No.1 were also placed under verification. It is pertinent to mention herein that the Respondent No.2 was given 100% voting share, despite its claims still being under verification. 22.The counsel further stated that the Claim of the Respondent No.2, alleged Financial Creditor, was admitted by the Appellant only on 03.02.2024 i.e. after the conclusion of the 2nd COC Meeting on 30.01.2024. The Respondent No. 1 sent email dated 03.02.2024 objecting to the illegalities committed by the Appellant as well as complaining about the conduct of the Appellant. 23.The Respondent No.1 stated that the Appellant acting in a high-handed manner only to get himself reappointed, after being voted out in the 1st COC meeting. That various proceedings have been initiated against the Appellant before the IBBI during his previous assignm....
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....01.2024 Respondent No.2 submitted an updated claim through Form C. 25.01.2024 Updated list of creditors, which included the Respondent No.2 was filed by the IRP before the Tribunal wherein the claim of Respondent No. 2 was admitted and CoC was constituted with Respondent No. 2 as sole member. 30.01.2024 Second CoC meeting was held with Respondent No. 2 as the Sole Financial Creditor with 100% voting rights. CoC approved the esolution appointing appellant as the RP. 29.We observe that following the issuance of notice by the Adjudicating Authority (AA) in the CIRP petition on 17.02.2023, the Corporate Debtor (CD) executed a loan agreement with Respondent No. 2 on 15.04.2023, wherein Respondent No. 2 was designated as a Financial Creditor to infuse funds into the CD. However, at that time, no assets of the CD were hypothecated in favor of Respondent No. 2. 30.Further, it is noted that the AA reserved its order on the CIRP petition on 04.10.2023, and immediately thereafter, a deed of hypothecation was executed between the CD and Respondent No. 2 on 12.10.2023. 31.Upon admission of the CIRP petition and the subsequent appointment of the Interim Resolution Profess....
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.... claim from Asha Apartments was recorded as having been received on 11.01.2024. 34.It is further observed from the appellant's petition that the claim of Respondent No. 2, in Form-C, was received by the IRP on 24.01.2024. The claim was verified on the same day and on 25.01.2024, the Appellant filed an I.A with AA for reconstitution of CoC. It is also noted that M/s Asha Apartments Pvt. Ltd. was inducted as the sole Financial Creditor, with 100% voting rights in the CoC, by the appellant acting as the IRP, even though he had already been voted out as the IRP of the CD by the then-existing CoC. The appellant failed to mention before AA that he has already been voted out by the CoC. 35.We note that despite the differing dates reflected in various documents, it is evident that the claim of Asha Apartments/Respondent No. 2 was received after the stipulated deadline for the submission of creditor claims. 36.On 25.01.2024 the appellant filed an I.A. with the AA, wherein he informed the Tribunal that based on further claims, he has reconstituted the Committee of Creditors. The relevant paragraphs from the I.A. are reproduced below: "2. The Applicant in discharge of hi....
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....esent Reconstitution of CoC has been arrived at in accordance with the updated list of creditors also filed herewith. 5.In view of the above, the undersigned has reconstituted the Committee of Creditors comprising of the creditors as mentioned above based on the information available as on date with the IRP in accordance with Section 21 (1) of the Code. In view of the above and in compliance with Regulation 1 7 (1) of the CIRP Regulations, the undersigned certifies the reconstitution of the Committee of Creditors in compliance with Regulation 17 of CIRP Regulations." 37.It is observed from the aforesaid petition of appellant that the claim of Respondent No. 2 in Form-C was received by IRP on 24.01.2024. It is also seen that M/s Asha Apartments Pvt. Ltd. was inducted as Sole Financial Creditor with 100% voting rights in the Committee of Creditors by the appellant as IRP at a stage when he was already voted out as IRP of the CD by the existing CoC. At no point the appellant informed the AA about the fact that first CoC has not approved his proposal for ratification as RP, rather they have voted him out. 38.We now examine the minutes of the second CoC meeting held on 30....
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....pellant had submitted before AA on 25.01.2024 that the claim of Respondent No. 2 as Financial Creditor has been duly verified and admitted, whereas in the minutes of the second CoC meeting held on 30.01.2024, it is shown that the claims of Asha Apartment Pvt. Ltd./ Respondent No. 2. Gospell Digital Technology Co. Ltd./ Respondent No. 1 and M/s Babosa Corporation (OC) were still under verification by the IRP. Inspite of this the IRP reconstituted the CoC. 40.We reach at following conclusions regarding the conduct of appellant (IRP) in the issue of reconstitution of CoC: (i)The claim of Asha Apartments/ Respondent No. 2 was received after 04.01.2024 the last date of submission of claims by creditors of the CD. There are two dates mentioned by appellant in his submission before us i.e. 05.01.2024 and 11.01.2024. The aforesaid claim was defective. (ii)The claim in Form-C was submitted by Respondent No. 2 on 24.01.2024. (iii)The claims of Gospell Digital Technology Co. Ltd./ Respondent No. 1 and M/s Babosa Corporation as Operational Creditors were received in time and admitted by the IRP as per his own affidavit before AA on 12.01.2024. (iv)On 25.0....
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....CoC, contravenes the provisions of Section 22 of The Code. This is seen as an abuse of his position as IRP to influence the CoC in his favor and maintain control over the insolvency resolution process, disregarding the CoC's commercial wisdom. 44.When there are no financial creditors, the CoC should be constituted with operational creditors as per Regulation 16 of IBBI (CIRP) Regulations, 2016. Initially, the CoC included only operational creditors, with Gospell Digital Technology Co. Ltd. holding a 99.99% voting share. The inclusion of Asha Apartments, without proper verification, violated the CIRP regulation and effectively removed Respondent No.1/Operational Creditor from CoC with a claim of Rs. 145 Crore approx. by the Financial Creditor, who had provided a loan of Rs. 1.24 crore in the CoC. 45.The appellant has referred to several Judgment of Hon'ble Supreme Court and this Tribunal to support their argument. These are discussed here: (i)The appellant has cited Edelweiss Asset Reconstruction Co. Ltd. v. Mohit Goyal, 2022 SCC Online NCLAT 4609, where this Tribunal upheld the Committee of Creditors' (CoC) decision to reject a Rs. 600 crore resolution plans,....
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....mittee of Creditors (CoC) meetings. This principle is vital for maintaining the procedural integrity of the CIRP and ensuring the CoC is properly constituted based on verified claims. 47.Based on the discussion above, we find that the conduct of the RP in the instant CIRP proceeding seems to be premediated, biased and authoritarian in clear violation of the core objectives and principles of the Code, which seeks to ensure fair and transparent insolvency proceedings. The facts and circumstances presented above clearly reveal the Appellant's abuse of authority, demonstrating both overreach and bad faith; further compromising the integrity and trust that is essential to the insolvency resolution process. The appellant has not been transparent even in his submissions to AA and had hidden the fact that CoC has decided to remove him. Keeping these in view, we find no flaw in the decision of the AA regarding replacement of IRP and fully endorse the same. 48.Another important issue to be examined in this matter is the role of Financial Creditor Asha Apartments who is Respondent No.2 here. The role of Asha Apartments/ Respondent No. 2 needs scrutiny as the company provided c....
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....cer, prima facie found, based on the materials on record and the information received, that total share capital of Rs.40 lakh was received during the year under consideration. On verification of the details of the investor's companies, it was found, prima facie, that the same was controlled by one Kolkata based accommodation entry provider, namely Manoharlal Nangalia. In a statement recorded by the department, Manoharlal Nangalia is said to have admitted to the fact that his main business is to provide accommodation entries through shell companies to various beneficiaries in lieu of commission." 53.Considering these concerns and the timing of the transactions, there are significant doubts regarding the legitimacy of the dealings between the Corporate Debtor and Asha Apartments Pvt. Ltd. The inclusion of Asha Apartments as a Financial Creditor and the sole member of the Committee of Creditors (CoC) raises serious questions about the fairness and impartiality in the CoC's composition. This issue is particularly critical given that Respondent No. 1 has a substantial claim of approximately Rs. 145 crores, while Asha Apartments' claim amounts to Rs. 1.24 crores, which arose only ....
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.... for his appointment as Resolution Professional and appointment of M/s Decode Resolvency International Pvt. Ltd., IPE as support entity before the reconstitution of CoC is questionable. Accordingly, we set aside the Resolution passed in 2nd CoC meeting appointing the Respondent No. I as Resolution Professional and M/s Decode Resolvency International Pvt. Ltd., IPE as support entity. We deem it appropriate to appoint Insolvency Professional Mr. Arun Kisanlal Bagadia as a Resolution Professional of the Corporate Debtor for a fee of Rs. 2,00,000/- per month plus GST and discharge the Respondent No. 1 with effect from 11.03.2024. The Respondent No. 1 is directed to handover all the records whatever available with him in the physical and electro format to the incumbent Resolution Professional. 25) The incoming Resolution Professional shall take final decision on the claim submitted by Asha Apartments Pvt. Ltd. within Thirty (30) days and reconstitute the CoC, if required. Till such time, the CoC as constituted initially shall function and take decisions. The business carried out at 3rd CoC meeting, if any, shall not be given effect to, if any. The incumbent Resolution Professio....