TaxTMI 
TaxTMI 
2025 (12) TMI 1318
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.... JUDGMENT [Per: Ajai Das Mehrotra, Member (Technical)] The present appeal is being filed against the order dated 04.01.2024 passed by the Ld. National Company Law Tribunal, Mumbai Bench-1 in I.A. No. 1272 of 2021 & I.A. No. 4944 of 2023 and order dated 16.01.2024 in I.A. No. 2193 of 2021 in C.P. No. 4464 of 2019. 2. Brief facts of this case are as under: • IIFL Finance Private Limited (hereinafter referred as "IIFL") sanctioned loan facilities of 65 crores to Satra Property Developers Private Limited (hereinafter referred as "SPDPL"), the Corporate Debtor on 24.12.2015. • IIFL filed petition under Section 7 of IBC, 2016, before the Ld. NCLT, which was dismissed as withdrawn in terms of the consent terms on 13.09.2019. • In a separate proceeding under Section 7 of IBC, 2016, the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor viz. SPDPL. • IIFL filed its claim of outstanding financial debt, which was verified and admitted on 07.11.2020 by the IRP, and IIFL was made member of the Committee of Creditors (CoC). • Another Financial Creditor, Anchor Leasing wrote to the Res....
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....that the email dated 15.11.2019 sent to [email protected] was in relation to change in Registered Office and not in relation to due diligence for acquisition of shares of Corporate Debtor by Mid-city and in one of email dated 15.11.2019 from Parmy Sheth, Respondent no. I is also marked CC. In view of this, we do not find merit in the argument of Respondent No.1 that he had no connection with Parmy Seth 9.1.2. Further, the Email dt. 13.09.2019 from Abid Ali records that "Please keep the list of the documents ready, we will ask Jayeshbhai team to start taking the handover from Monday onwards for SPDPL and email dated 03.10.2019, records that "While the diligence process for SPDPL is ongoing by JS and Co, some data which is critical needs to be provided. Please confirm by when the following points can be provided". 9.1.3. The Respondent No. 1 has stated that his association with Respondent No. 2 group for their professional work is not in violation of code of conduct applicable to him. However, IBB!, the regulator for Insolvency Professionals, has published a "Handbook on Ethics for Insolvency Professional - Ethical and Regulatory Framework" and it states that I....
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.... is a cleverly crafted statement to digress the attention from the due diligence work. On perusal of emails exchanged in November 2019, we find that one Parmy Sheth was handling only assignment of change of registered office and was using the email domain of 'jsandco', which is also used by the Respondent No.2 while carrying out his Insolvency related professional duties. This indicates that the respondent No. 1 and his other associates were working in tandem under the common umbrella. We further find that the documents sought vide emails exchanged in September, 2019 & October, 2019 were in relation to take over of Corporate *Debtor and change of registered office, which Parmy Sheth dealt with was one of its off-shoot. In this backdrop of facts, we can't resist the inevitable conclusion that the Resolution Professional i.e. Respondent No. 1 was closely associated in the exercise of take over of Corporate Debtor by Mid- city prior to his engagement in the CIRP of same Corporate Debtor later on as Resolution Professional. Though, it has been pleaded that the Respondent No. 1 was engaged as Resolution Professional by the CoC unanimously, we are of considered view that this fact ca....
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.... to interfere in relation to the admission of claim of Respondent No. 2 considering that the then IRP must have admitted such claim on the basis of evidence(s) filed by Respondent No. 1. 9.3. As regards issue of transfer of shares of Corporate Debtor to Mid-City thus divesting the ownership of Corporate Debtor to it by erstwhile Promoters, we find that the Consent terms dated 31.01.2018 amongst IIFL, Satra Group and MJS group contemplated formation of a new SPV for the development rights of the Project Satra Hills, however, these consent terms never came to be implemented. 9.3.1. It was pleaded before us that the disbursement of loan by Respondent No. 2 to Mid-City for acquisition of shares of Corporate Debtor was a transaction undertaken in normal course of money lending and it cannot be said that Mid-City is a facade for Respondent No. 2. To buttress this argument, Respondent No. 2 filed a loan agreement dated 7.9.2019 between Mid-City and Respondent No. 2 whereby the loan was repayable in equal quarterly instalments starting from the end of 39th month from the date of first draw down and last quarter ending on last date of 60th month. The interest was payable a....
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....is could happen only where the lender is in comfortable position having acquired the control of entity having control over the Project. 9.3.5. We further find that Mid-City is having authorised capital of Rs. 50,00,000/- and paid-up capital of Rs. 1,33,110/- as per financial statements for the year ended on 31.3.2019. We are of considered view that sanction of a loan of Rs. 45.00 crores to a company with its own capital base of Rs. 1,33,110/- can't be said to be a transaction of lending in the ordinary course of business as it is against the followed financial norms by the lenders, unless the deviation from such followed financial norms is compensated otherwise to secure the lending. This is further fortified by the fact that the amount of Rs. 40.00 crores was disbursed to Mid-City by payment to SPIL, the transferor of shares of Corporate Debtor and this amount was paid back to Respondent No.2 by SPIL towards repayment of dets. This transaction is nothing but the evergreening of its loan portfolio by the Respondent No. 2 with Mid-City acting as conduit to facilitate the same 9.3.6. The Applicant in IA 4944 of 2023 has also placed on record the what's app c....
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.... section 5(24)(h) of the Code, which includes in the definition of 'Related Party' qua a Corporate Debtor "any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act". We find that the directors of Mid-City became directors of Corporate Debtor apart from Respondent No. 3. It is not in dispute that the Respondent No. 3 is in employment of the Respondent No. 2 and is stated to have been appointed to look after the interest of Respondent No. 2 as lender. However, the what's app chats placed in I.A. 4944/2023 further demonstrate that the Respondent No. 2 was involved in the day to day affairs of the Corporate Debtor through Mr. Abidali. Since, we have found that the transaction of loan to Mid-City is not a normal transaction, but to facilitate the acquisition of the Corporate Debtor's 'Satra Hills' project by the Respondent No. 2 and the Respondent No. 2 was in a position to exercise dominant control over the affairs of Mid-City on account of lending of 40.00 crores against its paid capital of few lacs, we have no hesitation to hold that the Respondent No. 2 is a person who is associated with t....
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....rate Debtor and has directed the RP to consider the status of IIFL in the CoC accordingly. 7. The appellant is also challenging the impugned order dated 16.01.2024 passed by the Ld. NCLT in IA No. 2193 of 2021 in CP No. 4464 of 2019 wherein resolution plan in the CIRP of the Corporate Debtor was rejected on the grounds that the plan has been approved by 74.49% vote share of CoC, of which IIFL had 68.92% vote share and vide order dated 04.01.2024 passed in IA No. 1722 of 2021, IIFL is held to be a related party of shareholder of the Corporate Debtor, namely, Mid-City, which holds majority share capital of the Corporate Debtor. It was held IIFL could not have been inducted into the CoC, and was not entitled to vote and if its vote share is excluded, the resolution plan could muster only 5.56% in favor as against 18.91% rejecting the plan. Through the impugned order, the CoC was directed to take appropriate decision whether to publish another Form G and continue the CIRP or seek liquidation of the Corporate Debtor. Liberty was granted to the Successful Resolution Applicant (SRA) to participate again in case CoC proceeds to publish fresh Form G. 8. It was submitted that both the ....
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.... underlying the exclusion has been summarised as follows; "11.9. The Committee was of the view that the disability under the first proviso to Section 21(2) is aimed at removing any conflict of interest within the CoC, to prevent erstwhile promoters and other related parties of the corporate debtor from gaining control of the corporate debtor during the CIRP by virtue of any loan that may have been provided by them." In para 102 and 103 of the said judgment, the Hon'ble Supreme Court has held as under: "102. In this regard, it is relevant to note the observations in the Insolvency Law Committee Report of 2020 clarifying the eligibility of third-party assignees of the debt of a related party creditor, to be members of the CoC. It was observed: "11.9.... As a third-party assignee, who by itself is not a related party. would not have any such conflict of interest, it should not be disabled from participating in the CoC. Further, the aforesaid disability is not related to the debt itself but is based on the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section....
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.....08.2024. The relevant para of the Affidavit referred to by him is reproduced below: "9.1. That IFL is an NBFC and is engaged in the business of lending; 9.2. That under the Term Sheet dated December 24, 2015 and Mortgage cum Loan Agreement dated February 4, 2016, IIFL had disbursed certain credit facilities to the Corporate Debtor at the rate of 22% p.a; 9.3. That the aforesaid facilities extended by IIFL to the Corporate Debtor were secured inter alia by a registered mortgage, hypothecation on receivables, charge on an escrow account, personal guarantee of the then directors and pledge of shares; 9.4. That under Clause 16 of 'Other Terms and Conditions' contained in the Term Sheet dated December 24, 2015, IIFL had the option to appoint a 'nominee director' on the board of the directors of the Corporate Debtor. Clause 16 of the said Term Sheet is reproduced as under: "16. The Lender will have the option to appoint their nominee a member/observer of the Board of Directors of the Borrowing Company" 9.5. That under Article 7 ('Representations and Warranties') of the Mortgage cum Loan Agreement dated February 4,....
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....ember 22, 2023 admitted the claim filed by IIFL as a financial debt. The copies of the Affidavit filed before the Hon'ble High Court of Bombay and the Orders dated December 5, 2023 and November 22, 2023 passed by the Hon'ble NCLT are hereto annexed and marked as Annexure B." (Emphasis supplied) 14. The Learned Counsel for the Resolution Professional submitted that a different person (Mr. Devarajan Raman) was appointed as Interim Resolution Professional, and the present Resolution Professional was appointed subsequently. It was further submitted that IBBI in Affidavit filed before the Hon'ble Bombay High Court has submitted that IIFL is not a related party of the Corporate Debtor. 15. The Learned Counsel for the Respondent No. 2 stated that it was on their application that the Appellant herein was held to be a related party. The conduct of IIFL reflected that it was in the management and control of the Corporate Debtor and was thus was a related party under Section 5(24)(h) of the IBC, 2016. 16. M/s IIFL gave a loan of Rs. 65 crores to the Corporate Debtor for the Satra project and charge was created on the entire project. In March, 2018 they discussed to settle ....
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....mavati Housing Private Limited and Respondent No. 8-Nandi Vardhan Infrastructure Limited have not filed any appeal against the impugned orders dated 04.01.2024 and 16.01.2024. We note that allegations against Resolution Professional were examined by IBBI and proceedings were closed on 12.09.2022. 22. We note that claim of IIFL was admitted by Resolution Professional and IIFL was made member of Committee of Creditors (CoC) with proportionate rights though Ld. NCLT treated it as a "related party". We note that IIFL had assigned its debt to ARCIL on 30.12.2021. This assignment has been accepted and has not been challenged by anyone. Initially the appeal was filed by ARCIL. However, later, the said debt was assigned by ARCIL to Rare ARC on 05.04.2025. ARCIL had also informed the Corporate Debtor and Resolution Professional regarding assignment of debt to Rare ARC vide letter dated 09.04.2025. This assignment also has not been challenged. Subsequent to the assignment Rare ARC was duly substituted as the appellant vide order dated 29.04.2025. 23. We note that the issue of IIFL being a related party is of not much relevance now as the debt has been subsequently assigned to ARCIL, an....
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....n the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section 21(2) pertains to the related party financial creditor and not to the debt it is owed, the Committee agreed that it is clear that when a related party financial creditor assigns her debt to a third party in good faith, such third party should not be disqualified from participating, voting or being represented in a meeting of the CoC. 11.10. However, the Committee discussed that in certain cases. a related party creditor may assign its debts with the intention of circumventing the disability imposed under the first proviso to Section 21(2) by indirectly participating in the CoC through the assignee. As a related party is expressly prohibited from participating in the CoC. it cannot do so indirectly by assigning its debt to a third-party assignee for the purposes of circumventing this restriction. Therefore, in order to prevent any misuse, the Committee recommended that prior to including an assignee of a related party financial creditor within the CoC, the resolution professional should verify that the assignee is not....