TaxTMI 
TaxTMI 
2025 (2) TMI 78
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....) (KB) No. 204 of 2021. This Order rejected Hari Vitthal Mission' (Appellant) application challenging the Resolution Professional's (Respondent No. 1) decision to classify the Appellant as a "related party" of the Suasth Healthcare Foundation (Corporate Debtor), which led to the Appellant's removal from the Committee of Creditors (CoC) of Corporate Debtor (CD). 2. The brief facts of the case are as follows: (i) In October 2017, Suasth Healthcare Foundation (CD), approached Hari Vitthal Mission /Appellant to raise Rs. 44,20,00,000/-. The request was made to support the construction of a hospital aimed at providing free and affordable medical care to the public. This project was aligned with the charitable objectives of Appellant, which was engaged in providing healthcare relief to the poor. Consequently, an agreement was signed on 10th October 2017 between CD and Appellant. According to the agreement, Appellant committed to provide financial assistance of Rs. 44.2 crore to the CD. In return, the CD agreed to reserve 100 hospital beds for Appellant, to be used for treating underprivileged patients free of cost. The CD further committed to complete the hospital's c....
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....sional's contention was that Appellant had a connection with Kanoria Foundation (KF), which purportedly had indirect control over the Corporate Debtor through a series of entities, including SREI Infrastructure Finance Limited (SIFL) and Trinity Alternative Investment Managers Limited (TAIML). The RP asserted that this connection made appellant a related party, as defined under the IBC. (vii) On 11th January 2022, after reviewing available information and documents, and relying on legal counsel, the RP formally declared appellant as a related party to the CD. The RP initially invoked Section 5(24)(i) of the IBC, which defines a related party as a holding, subsidiary, or associate company of the CD. Later, during the course of legal arguments, the RP also cited Sections 5(24)(h), (j), and (l), which cover entities that exert control over the CD or its management. The RP argued that Kanoria Foundation controlled CD through SREI and TAIML, and further appellant was a subsidiary of Kanoria Foundation, it was deemed a related party. (viii) The appellant submitted a detailed reply on 22nd January 2022, disputing the RP's declaration. The Appellant argued that Kanoria Fo....
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.... company and that it had no control over the CD after SREI entered CIRP. Submission of the Appellant 3. The counsel for the appellant submits that it is challenging the order dated September 23, 2022, passed by the National Company Law Tribunal (NCLT), Kolkata, which excluded the appellant from the Committee of Creditors (CoC) of the Corporate Debtor, Suasth Healthcare Foundation, on the grounds of being classified as a "related party." The appellant asserts that this classification, and its subsequent exclusion from CoC is erroneous both in fact and law. This exclusion has deprived the appellant of its legal right to participate in the resolution process and vote on crucial decisions, severely prejudicing its interests as a financial creditor. 4. The counsel for the appellant further submits that after the exclusion of SREI Infrastructure Finance Limited from the CoC, the appellant's voting share increased to 20.37% from an earlier 9.61%, on the strength of its admitted claim of Rs. 62.16 crores. The exclusion of the appellant from the CoC resulted in a significant reduction of its ability to influence the resolution process, despite the legitimate size of its claim. He s....
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.... form of direct or indirect control over the Corporate Debtor. The AAs reliance on Trinity Alternate Investment Managers Ltd. (TAIML) as being in control of the Corporate Debtor is misplaced. TAIML is merely an investment manager of SREI Alternate Investment Trust, which itself is governed by trustees. According to the well-established principles of trust law, only the trustees hold the legal control over the trust assets. In this regard he cited the Supreme Court's decision in W.O. Holdsworth & Ors v. The State of Uttar Pradesh [1958 (1) SCR 296], which categorically holds that trustees are the legal owners of trust property, and mere investment managers cannot be held as controllers of a trust's assets. Therefore, the appellant's relationship with TAIML or the Corporate Debtor, even if tenuous, does not meet the threshold of control as required to be classified as a related party under Section 5(24)(h) and (j) of the IBC. 9. The counsel for the appellant submits that the appellant's exclusion from the CoC has caused significant prejudice, both procedurally and substantively. Procedurally, the appellant was deprived of its right to participate in the decision- making pr....
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....shareholding; and (b) Param Capital Pvt Ltd (PCPL) 49% shareholding. This Hon'ble Tribunal may kindly appreciate that the Kanoria Family, through the Kanoria Foundation ("KF") controls the Appellant, which in turn is a 'Related Party' of the CD. 14. He submitted that the Organogram referred to at Para 12 of the Impugned Order (which has been reproduced below) reveals the following: • Kanoria Foundation, owned by Kanoria Family, owns 99.90% shareholding in the Appellant and another entity, namely Adisri Commercial Pvt Ltd ("Adisri"). • Adisri in turn owns 60.36% in SREI Infrastructure Finance Ltd ("SREI Infrastructure"). • SREI Infrastructure holds 50.76% in Trinity Alternate Investment Managers Lad ("TAIML") • TAIMI, is the Settlor Contributor/ Manager of a trust called SREI Alternate Investment Trust (SAIT) • SAIT in turn holds 99.99% each in SIPL and PCPL thereby clearly establishing the Appellant as a 'Related Party' of the CD. 15. He submitted that the AA passed the Admission Order against the CD on 31.08.2021. The Interim Resolution Professional was replaced by the present RP in the 2th ....
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....n Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta & Ors reported at (2019) 2 SCC 1). 22. He submitted that the companies/trusts mentioned in the Organogram are all directly or indirectly controlled by KF. It is also undisputed that Kanoria Foundation has 99.9% shares in the Appellant. It is therefore the Kanorias" who are controlling both the Appellant as well as the CD. This is further apparent from the fact that Mr. Sanjeev Kanoria (beneficiary of KF) was the director of the CD till 20.04.2019. Further, Mr. Hariprasad Kanoria (Trustee of KF) was also a director of the CD till 28.11.2019. 23. He further submitted that the Appellant's claim that "chain" is broken due to there being a trust in the middle (SREI Trust) also deserves to be rejected. He cited this Tribunal Judgment in the case of SREI Infrastructure Finance Ltd. v. Shri Ashish Chhawchharia (Company Appeal (AT)(Ins) No. 1407 of 2019 which has already dealt with the same issue and held in favour of the holding company of the "Investment Manager" of the Trust would be a related party to the companies held by the Trust. 24. The counsel stated that the Resolution Plan of CD was placed before the COC in the 15th....
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.... both the appellant and the CD has been clearly shown by the organogram relied upon in the impugned order. The manner of control of the appellant and CD by Kanoria foundation can be seen in following manner: a) Chain of Control Through Shareholding Structure (i) Kanoria Foundation holds 99.9% of the shares in the Appellant; (ii) Kanoria Foundation also holds around 99.9% shareholding of Adisri Commercial Private Limited (Adisri). (iii) Adisri, in turn, holds 60.36% of the shares in SREI Infrastructure Finance Limited (SIFL). SIFL, along with Sunil Kanoria (0.04%), Hari Prasad Kanoria (0.04%), and Hemant Kanoria (0.04%), holds 50.88% of the shares in Trinity Alternative Investment Managers Limited (TAIML). This multi-tier shareholding structure establishes a clear chain of control from the Kanoria Foundation down to the Corporate Debtor, with the Appellant falling within this chain of control. (b) Chain of Control Through Contractual Arrangements (i) Further, the counsel for Respondent No. 2 submits that in addition to the shareholding control, a chain of control through contractual arrangements also exists between the A....
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....ppoint and remove trustees in SAIT in terms of Clauses 4.2, 5.5.2 and 5.5.2.3 of the Trust Deed and • manage affairs and appoint directors in the portfolio companies of SAIT, being SIPL and PCPL in terms of Clause 8 and Clause 26,28,29 in Schedule A of the Amended Investment Agreement. 28. The counsel further cited the Judgment of Hon'ble Supreme Court in the case of Arcellor Mittal (India) (P) (Ltd.) v Satish Kumar Gupta (2019) 2 SCC 1, (Para 47,48), that having the right to appoint directors in an entity, amounts to de facto control. Thus, by virtue of TAIML having the right to appoint trustees/ directors in SAIT and SIPL/PCPL respectively, evidently exercises de facto control in the same. Further, SIPL and PCPL in turn exercise control over the Corporate Debtor by having 99.99% shareholding in the same. Thus, a chain of control is evidently established from Kanoria Foundation to the Corporate Debtor. 29. In view thereof, the Appellant is a subsidiary of a holding company i.e. Kanoria Foundation, of which the Corporate Debtor is a subsidiary, attracting the provision of Section 5(24)(i) of the Code and warranting classification of the Appellant as a 'Related Pa....
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....of the IBC is legally sound and supported by the facts, shareholding patterns, and contractual arrangements. The Impugned Order dated September 23, 2022, passed by the NCLT Kolkata, is correct in law and does not warrant any interference. Furthermore, the reliefs sought in the present appeal have been rendered infructuous due to the successful implementation of the Resolution Plan. Analysis and findings 33. We have heard the Counsels on behalf of the applicant as well as respondents and gone through their written submissions and documents on record in detail. 34. The key issue in this appeal is whether the appellant has been correctly identified as related party of CD. The RP has invoked Section 5(24) sub-Sections (h), (i), (j) and (l) of the code and held that the appellant is a related party of the CD. This decision of RP was upheld by the AA. 35. The appellant has also raised a question regarding the powers of RP to decide about the 'related party'. 36. Appellant has further raised a question about Kanoria Foundation which is a trust being held on par with a holding company and has stated that the same is not in accordance with Section 5(24)(i) of the Code and the....
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....is also necessary to examine as to how "person" has been defined under the Code. Section 2(23) defines person in the following manner: (23) "person" includes- (a) an individual; (b) a Hindu Undivided Family; (c) a company; (d) a trust; (e) a partnership; (f) a limited liability partnership; and (g) any other entity established under a statute; and includes a person resident outside India; [Emphasis supplied] 41. It is clear from the definition of person that trust is defined as persons and when we look at the definition of a related party in Section 5(24)(h) and (j) in all such cases if the CD is controlled by a trust in the manner prescribed by aforesaid Sections of the Code, then the said trust would fall under the category of related party. 42. We now have a look at the determination of appellant as related party of the CD in terms of various clauses of Section 5(24) of the Code. 43. Regarding Section 5(24)(h), it is seen that Kanoria Foundation at the apex of the organogram shown earlier held 99.9% shares of appellant (Hari Vitthal Mission) which is a Section 8 company. Similarly, Kanoria Founda....
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....nbsp; SUASTH 49% 15% 45. We note that the Kanoria Foundation holds 99.9% of the shares in the Appellant. On the other side Kanoria Foundation holds 99.9% of Adisri Commercial Private Limited (Adisri). Adisri, in turn, holds 60.36% of the shares in SREI Infrastructure Finance Limited (SIFL). SIFL, along with Sunil Kanoria (0.04%), Hari Prasad Kanoria (0.04%), and Hemant Kanoria (0.04%), holds 50.88% of the shares in Trinity Alternative Investment Managers Limited (TAIML). TAIML is the settlor, contributor and investment manager of SREI Alternative Investment Trust (SAIT). SAIT in turn holds 99.99% of shares in SIPL and PCPL. The contention of the appellant is that the chain is broken on this side of organogram due to presence of a Trust- SAIT in between. However, we have seen, how TAIML as Investment Manager, controls both the subsidiaries of SAIT viz. SIPL and PCPL. SIPL in turn holds 51% in CD and PCPL holds 49% in CD. The investment Manager for SAIT is TAIML which exercises control over CD through SIPL and PCPL. This multi-tier shareholding structure establishes a clear chain of control from the Kanoria Foundation down to the Corporate De....
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....he organogram and even though there may be intermediary entities between Kanoria Foundation and the Corporate Debtor the overall control through shareholding and appointment of Directors through the clauses of trust deed and investment agreement is real and substantial. Hari Vitthal Mission which is 99.9% owned by Kanoria Foundation is a subsidiary company of Kanoria Foundation. The holding entity Kanoria Foundation in this case holds more than 20% in both CD and appellant and appellant therefore squarely falls in the definition of related party of CD. 49. Further in this regard our attention is drawn to the amended investment management agreement between SAIT and TAIML dated 10.03.2021 wherein SAIT is defined as the 'Trust' and TAIML is referred to as the 'Investment Manager'. The relevant Clauses 8 of the agreement and Clauses 26, 28 and 29 of Schedule A of the agreement- Powers of the Investment Manager are reproduced below: "Clause 8: PORTFOLIO ADMINISTRATION The investment manager shall supervise the investment activities of the Trust in accordance with the following principles: (a) the Investment Manager shall exercise all rights of nomination, voting, ve....
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.... 52. The appellant has cited several Judgments of Hon'ble Supreme Court in support of his submissions. We have looked into these Judgments in the subsequent paras. 53. The appellant has invited our attention to the Judgment of Hon'ble Supreme Court in Greater Noida Industrial Development Authority Vs. Prabhjit Singh Soni & Anr (2024 SCC 767), The appellant compares their exclusion from the COC in the same manner in which Greater NOIDA as the creditor was not notified of the resolution plan and its rights were subsequently prejudiced. The appellant contends that their exclusion from the COC due to being classified as a related party is similarly unjust and should be reversed. The ratio of Greater Noida Supra is not applicable in the present case, as in the aforesaid matter the resolution plan was set aside due to procedural lapses, specifically the failure to notify the creditor about critical meetings, which violated the principles of natural justice. The creditor in that case was a statutory body and was not a related party; and therefore, its exclusion was a procedural irregularity. 54. The appellant has further cited Hon'ble SC's Judgement in Sri Parmeshwari Prasad Gupta....
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....he Supreme Court focused on the eligibility of applicants to submit resolution plans. However, in the present matter the issue is about the appellant's status as a related party under Section 5(24) of the IBC, and consequent disqualification from CoC and not eligibility to submit a resolution plan. Therefore, the ratio laid down in Arcelor Mittal (supra) is not applicable in the instant matter. 57. In the end the appellant has cited Hon'ble SC's Judgement in Bharat Damodar Kale Vs. State of Uttar Pradesh (2003 (8) SCC 559) to argue that procedural issues in the insolvency process should invalidate their exclusion from the COC, similar to how procedural issues affected the application of criminal procedure in the cited case. The aforesaid case dealt with the retrospective application of procedural rules under the Criminal Procedure Code. The Judgment in Bharat Damodar Kale (supra) had no connection to insolvency law or the substantive classification of parties under the IBC. By no stetch of imagination the ratio of the aforesaid criminal matter can be applied to the present case which is covered by IBC, which is a self-contained comprehensive code for insolvency matters. 58. W....