TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 401
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....ate 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 against M/s Altius Digital Private Limited (CD). M/s Al....
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....ove 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 appointment of Decode Resolvency International Pvt. Ltd. as the support entity, were quest....
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....l 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 Pvt. Ltd. in the light of Respondent No. 1 despite having been voted out was voted in by the same Financial Creditor. We deem it ....
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....ent 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 respondents' breach of contract is a pivotal issue that justifies their claims and supports their position in the dispute. 9.The appellant furth....
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....ainst 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% for late payments, but no payments were made. 17.The counsel stated that on October 4, 2023, the NCLT reserved its order on the Company Petition (IB) No. 137 (MB) of 2023 for initiating C....
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.... 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 assignments. 24.The Respondent No. 1 further stated that Respondent No.2/Asha Apartments had preferred an independent appeal bearing CA (AT) (INS.) No. 915 of 2024, against the impugned order, which was dis....
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....spondent 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 Professional (IRP) by the AA, the IRP filed a report on 12.01.2024, concerning the constitution of the Committee of Creditors (CoC) to AA. The relevant paras 3,4, and 5 of the same are reproduced below: "3. As on January 04, 2024, the IRP has received the following claims that have been....
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....ha 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 his duties made a public announcement as per Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("CIRP Regulations") intimating the public in general and the creditors of the Corporate Debtor in particular of the initiation of Corporate Insolvency Resolution Process ("CIRP") and inviting claims from the credito....
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....ed 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 30.01.2024. Agenda item No. B refers to the revised list of creditors and change in the constitution of the CoC the relevant extracts of the minutes of the second CoC meeting are extracted below: "B. To take note of the revised list of creditors and change in constitution of the COC (refer slide no. 6) 1.The IRP stated that in accordance with Regulation 6 of CIRP Regulations had published Form A, intimating the public at large and the creditors of the Corporate De....
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....ents/ 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 25.01.2024, in an application before the AA, the Appellant stated that he has received another claim of Financial Creditor M/s Asha Apartment, the same has been examined and verified and it's in order, Accordingly, all three claims were found in order and have been duly admitted. He further stated that CoC has accordingly been reconstituted with M/s Asha Apartments/ Respondent No. 2 as a Sole Financial Creditor with 100% voting share. (v)According to the minutes of the second CoC meeting held on January 30, 2024, the IRP stated that all three claims were under verification. Despite this, the CoC was reconstituted with Asha Apartme....
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....ondent 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, emphasizing non-interference in commercial wisdom. The ratio of the Judgment (supra) does not apply to the present case as it focuses on the IRP's conduct in CIRP proceedings where there are serious questions about impartiality and fairness of IRP leading to the replacement of IRP by NCLT. The impugned order has nothing to do with commercial wisdom of CoC, rather it's about impartiality and fairness in conduct of CIRP process, which is squarely within the domain of NCLT. (ii)The Judgment of Hon'ble Supreme Court in SBI v. Ajai Kumar Srivastava, (2021) 2 SCC 612, is again identical to Edelweiss (supra) and relates to approval of resolution plan and the....
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....cy 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 credit to the CD after petition for initiating CIRP was filed against the CD, which subsequently let to it becoming the sole Financial Creditor with 100% voting rights in CoC. 49.Asha Apartments Pvt. Ltd. entered into a loan agreement with the Corporate Debtor on April 15, 2023. This was done after a CIRP petition was filed against the CD by the Respondent No.1 for a claim of Rs. 145 Crore. on 14.12.2022. The notice in the matter was issued on 17.02.2023. The loan agreement for Rs. 2 crores were signed shortly thereafter. Additionally, a Deed of Hypothecation was executed in favor of Asha Apartments on 12.10.2023, which was after the NCLT had reserved its order on the company petition on 04.10.....
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....imacy 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 after the CIRP proceedings were initiated and notices were issued by AA. 54.We have come across several cases under IBC, wherein the Operational Creditor with a large claim file for CIRP proceedings against CD. There are no financial creditors at this stage. Corporate Debtor at this stage introduce friendly entities, as Financial Creditor with a loan which is a fraction of claim of OC. These claims are admitted by the IRP/RP as Financial Debt. Once included in the CoC, such financial creditors become part of CoC and get voting right and in turn manage the CIRP proceedings in collusion with IRP/RP. With the voting power entirely concentrated in FC, the OCs receive minimal payouts during the resolution process. ....
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....hysical 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 Professional shall pay the fees of the Outgoing IRP at the rate of Rs. 2,00,000/- per month plus out of pocket expenses after verification. thereof if not already approved by the CoC." 3.Counsel for the Appellant submits that more than two months' period was over, but the claim of the Appellant was not verified. 4.Resolution Professional who appears in person submits that the process of verification is still on since he has not received the relevant records from the suspended directors of the corporate debtor. He submits that he is in the process of filing an application under Section 19. 5.We have no doubt that in view of the direction issued by the Adjudicating Authority that the Appellant's claim shall be verified as per the rec....