Sumat Kumar Gupta, RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Vardhman Industries Ltd. - CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date.

NCLAT 27.07.2022) in Sumat Kumar Gupta, RP, M/s Vallabh Textiles Company Ltd. Vs. M/s Vardhman Industries Ltd. [Company Appeal (AT)(Insolvency) No. 762 of 2022] held that;

• It therefore does not stand to reason why any Financial Creditor who submits his claim under Regulation 12(1) within the stipulated time line but fails to satisfy the Resolution Professional can be denied the benefit of availing the extended time period available under Regulation 12(2) to substantiate his claim. 

• If this benefit is denied, it will disincentivize creditors from submitting claims under Regulations 12(1) as it gives them a shorter window of time to substantiate their claims thereby running the risk of their claim being disregarded for want of time.

• CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date.

• Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ Vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018 wherein it held that Resolution Professional has no adjudicatory power and that he is “really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the Adjudicating Authority.”

• In view of the above, the Appellant/Resolution Professional by summarily rejecting the belated claims at his own level without presenting the complete facts to the CoC has misconstrued his role, duties, and responsibilities.

 

Excerpts of the order;

The present appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) by the Appellant/Resolution Professional, arises out of order dated 24.05.2022 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh) in IA 568/2019 in CP (IB) No.391/Chd/Pb/2018. By the Impugned Order, the Adjudicating Authority directed the Appellant/Resolution Professional to reconsider and evaluate the claims of the Financial Creditor afresh; reconstitute the Committee of Creditors (‘CoC’ in short) for fresh Corporate Insolvency Resolution Process (‘CIRP’ in short) and, inter-alia, made certain observations against the Appellant/Resolution Professional on the manner in which he conducted the CIRP proceedings. The instant Appeal has been filed by the Appellant/Resolution Professional, in his personal capacity, with a prayer to expunge the said observations on the ground, that being adverse, it has the effect of damaging the reputation and dignity of the Appellant as Insolvency Professional.

 

# 2. The brief facts of the case, as stated and argued by the Appellant, is that he was appointed initially as Interim Resolution Professional (‘IRP’ in short) and later confirmed as Resolution Professional of the Corporate Debtor, M/s Vallabh Textiles Company Limited which was admitted for CIRP. It is further stated that the Appellant/Resolution Professional made public announcement inviting claims on 13.04.2019 with the last date of filing claims fixed as 26.04.2019. Following the public announcement, M/s Vardhman Industries Ltd. filed claim as Financial Creditor for Rs. 10,77,47,444/- (Rupees Ten crores seventy-seven lakhs forty-seven thousand and four hundred forty-four only) on 26.04.2019 in Form C. The Appellant/Resolution Professional thereafter, sent an email to the Financial Creditor on 01.05.2019 seeking certain additional details and documentation by way of account statement of the Corporate Debtor in the books of the Financial Creditor for the period 2007 to 2019. The Appellant/Resolution Professional has further submitted that as he was required to decide the claims within seven days from the last date of the receipt of claims as stipulated by Regulation 13 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as CIRP Regulations), and as the additional details sought for were not received from the Financial Creditor, he rejected the claim of the Financial Creditor on 02.05.2019. The Appellant/Resolution Professional submitted that the claim was rejected on three grounds viz. (i) that the claim was filed on the basis of old authorization; (ii) that the claim should have been filed through the Resolution Professional; and (iii) that the account statement attached with the claim was not sufficient to authenticate the claim amount.

 

# 3. It has also been admitted by the Appellant/Resolution Professional that the Financial Creditor thereafter re-submitted the claim on 24.05.2019 in Form C under Regulation 8 of CIRP Regulations. However, the said claim was not entertained by him and the same was duly communicated to the Financial Creditor on 04.06.2019 stating that since the earlier claim, submitted on 26.04.2019, within the period prescribed by the public announcement had already been rejected on 02.05.2019, no belated claim can be filed.

 

# 4. Aggrieved by the rejection of their claim, the Financial Creditor filed an application before the Adjudicating Authority seeking for directions to be issued to the Resolution Professional to admit his claim and/or to verify his claim. The Adjudicating Authority after hearing both the parties directed the Resolution Professional to reconsider the claims including evaluating the claim to be classified as Financial Creditor and to reconstitute the CoC and in the process had made certain observations against the Resolution Professional in the discharge of his duties. Aggrieved by the Impugned Order, the Learned Counsel for the Appellant/Resolution Professional, however, submits that he is challenging the Impugned Order only in respect of certain adverse remarks made against him by the Adjudicating Authority which deserve to be expunged.

 

# 5. The two paragraphs of the Impugned Order to which the Appellant/Resolution Professional has drawn the attention to, is reproduced below and the relevant portion prayed for being expunged is as emboldened hereunder :-

• “10. In the present case, the issue that falls for our consideration is whether the claims of the applicant have been properly verified before the rejection of the same by the Resolution Professional. To reiterate, the applicant has submitted the relevant copies of the audited accounts of Vardhman Industries Limited (Applicant) in respect of Vallabh Textiles Company Limited (Respondent). We have closely perused the financial statement annexed as Annexure A-8 and A-9 with the application. From the correspondence between the parties, it is clear that no serious effort was made by the Resolution Professional to classify the debts into financial and operational debts of the applicant. There is no denying the fact that the Resolution Professional needs documents and supporting evidence to decide on the nature of a claim for the purpose of admission of the same. The documents brought on record have not shown any kind of non-compliance by the applicant to any query raised by the Resolution professional in this regard”.

• xxx xxx xxx xxx

• “12. In the result of the aforementioned discussion, this Bench is of the view that the Resolution Professional has failed in his duty to analyze the evidence placed before him regarding the nature of transactions of the applicant reflected in the books of the corporate debtor and present the complete facts regarding the admissibility of the claims made by the applicant before the CoC. The Resolution Professional in the present case was duty-bound to verify these transactions and put the same before the CoC with the complete factual and legal position rather than reject it summarily. In view of the foregoing, this Bench directs the Resolution Professional to reconsider the claims made by the applicant with reference to the evidence already before him. He may call for additional evidence if required and decide in the light of the discussions in the foregoing paragraphs. Based on the evidence before him, he is directed to also evaluate the claim of the applicant to be classified as a financial creditor and to reconstitute the CoC with the applicant as a member. With the above said observations, CA No. 568/2019 is allowed and disposed of accordingly”.

 

# 6. We have duly considered the detailed arguments advanced by the Learned Counsel for the Appellant and perused the records carefully. Respondent did not file any counter-affidavit.

 

# 7. We find that the general purport of the remarks contained in paragraphs 10 and 12 of the Impugned Order are broadly intertwined. Put in a nutshell, the two observations contained in the Impugned Order as brought before us for our consideration are summed up hereunder: –

• (i) Whether serious efforts were made by the Appellant/Resolution Professional in properly verifying the claim submitted before him by the Financial Creditor including classifying the debts into financial and operational debts.

• (ii) Whether the Appellant/Resolution Professional had failed in his duty to analyse the evidence placed before him regarding the nature of transactions made by the Financial Creditor reflected in the books of Corporate Debtor and presenting the complete facts before the CoC on the admissibility of the claims of the Financial Creditor.

 

# 8. The tenability of the above observations made by the Adjudicating authority about the Appellant/Resolution Professional can be best appreciated if we put in perspective the objectives of the IBC and the role and responsibilities of Interim Resolution Professional/Resolution Professional in furthering these objectives. The objective of the IBC is, inter-alia, to promote entrepreneurship, maximize value of assets, make available credit, and balance the interest of all stakeholders, in a time bound manner. As a natural corollary thereto, the statutory framework governing CIRP seeks to put in place an arrangement which can resolve insolvency in a timely, efficient, transparent, predictable manner.

 

# 9. The Bankruptcy Law Reforms Committee Volume I (November 2015) in Chapter 4 under the title ‘Institutional Infrastructure’ has focused on the role and responsibilities of Resolution Professional and the relevant excerpts are as under: –

• “Insolvency professionals form a crucial pillar upon which rests the effective, timely functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution process.”

• xxx xxx xxx xxx

• “In performing these tasks, an IP acts as an agent of the adjudicator. In a way the adjudicator depends on the specialized skills and expertise of the IPs to carry out these tasks in an efficient and professional manner. The role of the IPs is thus vital to the efficient operation of the Insolvency and Bankruptcy Resolution Process.”

• xxx xxx xxx

• “In the case of Insolvency Resolution, a failure of the process may result from two main sources: collusion between the parties and poor quality of the execution of the process itself. Hence, it is important that the professionals responsible for implementing the insolvency resolution process adhere to certain minimum standards so as to prevent failures of the process and enhance credibility of the systems as a whole.”

 

# 10. Coming to the factual matrix, we find that it is an undisputed fact that the Financial Creditor submitted his claims under Rule 8 of CIRP Regulations in Form C well within the prescribed time limit in terms of the public announcement made by Appellant/Resolution Professional on 13.04.2019. The last date of submission of claims, as provided in the public announcement was 26.04.2019 and the Financial Creditor had submitted on 26.04.2019 his claim details along with supporting documents as also found in the Appeal Paper Book.

 

# 11. It is also an undisputed fact, that the Resolution Professional is entitled to seek substantiation of claims under Regulation 10 of CIRP Regulations which reads as follows:

• “10. “Substantiation of claims – The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.”

 

Invoking CIRP Regulation 10, the Appellant/Resolution Professional sent an email on 01.05.2019 seeking additional information with respect to account statements spanning over a period of 12 years from 2007 to 2019 from the Financial Creditor. We entirely agree that the Appellant/Resolution Professional was well within his rights to exercise the discretion of seeking additional information from the Financial Creditor. What, however, merits consideration is the reasonability on the part of the Appellant/Resolution Professional to have allowed only just twenty-four hours to the Financial Creditor to submit additional information spanning order a period of 12 years (2007-2019) and the propriety of his action of rejecting the claim of the Financial Creditor soon thereafter on 02.05.2019 after having allowed only one day’s time to furnish such additional information which entailed voluminous documentation.

 

# 12. The Learned Counsel for Appellant/Resolution Professional while making his arguments pointed out that the Financial Creditor while filing the claims on 26.04.2019 should have filed separate claims for financial and operational debt and that it was incumbent on the part of Financial Creditor to have separated and bifurcated the transactions on account of supply of goods and services from the loan related transactions. He also argued that there was a difference between the closing balance as on 31.03.2009 and the opening balance as on 01.04.2009 of nearly Rs.6 crores and that the transactions were not properly verified.

 

# 13. As to whether serious efforts were made by the Appellant/Resolution Professional to verify the claims submitted by the Financial Creditor, from the documents available on record, we are inclined to agree with the Adjudicating Authority that there is not much evidence to validate that the Appellant/ Resolution Professional undertook adequate and credible effort on his part to deep-dive into the account statements to distinguish between the operational and financial transactions but for sending a bald and bare four-line mail requisitioning additional information pertaining to 12-year period. The conduct of the Appellant/ Resolution Professional stands out in sharp contrast to that of the Financial Creditor whose bona-fide in providing information at every stage to substantiate his claim cannot be doubted. The Adjudicating Authority after making an in-depth examination was justified in holding that Appellant/ Resolution Professional made no serious efforts to verify the claims of the Financial Creditor.

 

# 14. We have further noted that consequent upon rejection of his claim on 02.05.2019, the Financial Creditor again refiled his claims on 24.05.2019 with requisite supporting documents which included:

• I. Form C – the Financial Creditor Claim of Vardhman Industries Limited.

• II. Authority Letter authorizing Anil Kumar Surya (CFO – Vardhman Industries Limited) to file the claim on behalf of Resolution Professional for Vardhman Industries Limited.

• III. Order of Hon’ble NCLT New Delhi dated January 17, 2018 appointing the undersigned as the Resolution Professional.

• IV. Account Statement of Vallabh Textiles Co. Ltd in the books of Vardhman Industries limited since the inception of transaction.

• V. Certificate of Incorporation and PAN Number of Vardhman Industries Limited.

 

# 15. We therefore take cognizance of the fact that, prima-facie, there is no negligence, or inaction or lack of bona-fide on the part of the Financial Creditor to submit claim with proof to the Resolution Professional both on 26.04.2019 and 24.05.2019. The Adjudicating Authority therefore cannot be faulted for coming to the conclusion that there is no evidence of non-compliance on the part of the Financial Creditor on both occasions when he submitted his claims.

 

# 16. The refiled claim dated 24.05.2019 was again rejected by Appellant/Resolution Professional on 04.06.2019 on the ground that since the claim submitted by Financial Creditor was already rejected earlier, he cannot file a belated claim again. The Appellant/Resolution Professional took the stand that Regulation 12(2) of CIRP Regulations can be availed for submission of claims only by such creditors who fail to submit claim with proof within the time stipulated in the public announcement. This brings before us the question whether the Appellant/Resolution Professional was correct in holding that Regulation 12(2) of CIRP Regulations places an embargo on resubmission of claims by such Financial Creditors who have earlier submitted their claims under CIRP Regulation 12(1) before last date mentioned in the public announcement but their claim was rejected for want of authentication or substantiation.

 

# 17. For better understanding, it would be desirable to examine CIRP Regulation 12 which is as reproduced below:

• “12. Submission of proof of claims-

• (1) Subject to sub-regulation (2), (emphasis added) a creditor shall submit claim with proof on or before the last date mentioned in the public announcement.

• (2) A creditor, who fails to submit claim with proof within the time stipulated in the public announcement may submit the claim with proof to the interim resolution professional or the resolution professional, as the case may be, on or before the ninetieth day of the insolvency commencement date.

• (3) Where the creditor in sub-regulation (2) is [a financial creditor under regulation 8], it shall be included in the committee from the date of admission of such claim:

• Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.”

 

# 18. It is amply clear from a plain reading of the above CIRP Regulations that Regulation 12(1) is subject to Regulation 12(2) as expressed in the opening sentence of Rule 12(1). Furthermore, Regulation 12(2) clearly permits a creditor who has failed to submit his claim with proof within the stipulated time of the public announcement to avail extended time period to submit such claims on or before the ninetieth day of the insolvency commencement date. It therefore does not stand to reason why any Financial Creditor who submits his claim under Regulation 12(1) within the stipulated time line but fails to satisfy the Resolution Professional can be denied the benefit of availing the extended time period available under Regulation 12(2) to substantiate his claim. If this benefit is denied, it will disincentivize creditors from submitting claims under Regulations 12(1) as it gives them a shorter window of time to substantiate their claims thereby running the risk of their claim being disregarded for want of time.

 

# 19. Be that as it may, CIRP Regulation 12 does not lay down any specific embargo on a creditor who on having failed to satisfy the Resolution Professional with respect to the claims submitted by him under Regulation 12(1) from refiling his claim under Regulation 12(2) as long as it is done on or before the ninetieth day of the insolvency commencement date. CIRP is a largely creditor driven process and therefore a claim submitted by a creditor deserves to be handled with due care and seriousness to ensure successful resolution of insolvency. Thus, CIRP Regulations need to be viewed in a purposive manner so as to advance the cause of insolvency resolution while safeguarding the interest of all the stakeholders. The Appellant/Resolution Professional, therefore, ought not to have summarily rejected the claim refiled by the Financial Creditor on the stand-alone ground that his earlier claim under Regulation 12(1) having been rejected, he cannot file a belated claim. This narrow and pedantic interpretation of the CIRP Regulations 12 by the Appellant/Resolution Professional has stymied the bona-fide efforts on the part of the Financial Creditor to substantiate his claims.

 

# 20. Section 18 of the IBC lays down the various duties of the IRP in respect of handling claim proposals. Section 18(1)(b) lays down that IRP shall “receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under Sections 13 and 15.” As regards the role of the Resolution Professional in this regard, Section 25(e) of the IBC lays down that he shall “maintain an updated list of claims.” The Resolution Professional while examining claims is therefore expected to act in a manner which inspires confidence in the Financial Creditor so as to ensure the credibility of the insolvency process. In the present matter, therefore, the question before us is therefore whether a Resolution Professional is competent to decide or reject the claims of the Financial Creditor by himself without presenting the complete facts before the CoC on the admissibility of the claims. This aspect has already been settled by the Hon’ble Supreme Court in ‘Swiss Ribbons Pvt. Ltd. & Anr.’ Vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018 wherein it held that Resolution Professional has no adjudicatory power and that he is “really a facilitator of the resolution process, whose administrative functions are overseen by the CoC and by the Adjudicating Authority.” The Resolution Professional has been vested with administrative as opposed to quasi-judicial power. In view of the above, the Appellant/Resolution Professional by summarily rejecting the belated claims at his own level without presenting the complete facts to the CoC has misconstrued his role, duties, and responsibilities.

 

# 21. The Resolution Professional is an important instrumentality in the insolvency resolution process and his role is crucial and critical to fulfill the objective of the IBC. It is therefore incumbent upon him to discharge his responsibilities with the highest standards of professional excellence, dexterity, integrity, rectitude, and good faith. The Adjudicating Authority based on the facts and documents presented before it, found lack of professionalism on part of the Appellant/Resolution Professional in analyzing the admissibility of claims before him. We find no reasons to disagree with the Adjudicating Authority and affirm the findings that there has been failure of duties on the part of the Appellant/Resolution Professional.

 

# 22. In view of the above discussions, facts, and circumstances, we are of the considered opinion that there are no convincing reasons to interfere with the Impugned Order. We are, therefore, unable to accept the contention of the Appellant that the adverse remarks made by the Adjudicating Authority in Paragraphs 10 and 12 of the Impugned Order be expunged. In the result, the appeal having no merit is dismissed.

 

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IDBI Trusteeship Services Limited Vs. Mr. Abhinav Mukherji & Ors. - 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.

 NCLAT (12.07.2022) in IDBI Trusteeship Services Limited Vs. Mr. Abhinav Mukherji & Ors.  [Company Appeal (AT) (Insolvency) No. 356 & 358 of 2022] held that;

• The Authorised Representative under the statutory scheme as noticed above is to represent the Financial Creditors i.e., Homebuyers in a class for a limited purpose i.e., for attending meetings of the CoC and voting on behalf of the Financial Creditors in a class. It cannot be said that since the Authorised Representative has not came up before the Adjudicating Authority for filing the impleadment application, the Appellants who themselves are Homebuyers have no right to participate in the adjudication initiated by filing applications by Respondent No. 2 and 3.”

• Once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found that there is no illegality or irregularity in not admitting the claim of EARC.

• The fact remains that the Principle that a Corporate Guarantee cannot be invoked once the CIRP has commenced and that an uninvoked Corporate Guarantee as on date of filing of the Claim, cannot be considered as ‘Matured Claim’

• This Tribunal is of the earnest view that the Appellants cannot Claim the amounts in the CIRP of the ‘Corporate Debtor’ who is a ‘Corporate Guarantor’ on the basis of the Deed of Guarantee which was never invoked as on the date of filing of the Claims.

• We are of the considered view 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.

• Control is the direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise. The power or authority to manage, direct or oversee.’

• The first part of the term ‘Control’ refers to ‘de jure’ control, which includes the right to appoint directors of the Company. The second part of the expression ‘Control’ refers to ‘de facto’ control, whereby, person/body corporate directly or indirectly can positively influence in any manner, the management or policy decisions.

 

Excerpts of the order;

# 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 2022. Since both these Appeals deal with common facts and challenge a common Impugned Order, they are being disposed of by this Common Order.

 

# 2. Facts in brief are that the Appellant/IDBI was appointed as a Debenture Trustee for the benefit of the Holders of certain Debentures issued by M/s. Saha Infratech Pvt. Limited (Issuer/Principal Borrower) vide Debenture Trustee Agreement dated 18/05/2016. The first Respondent Mr. Abhinav Mukherjee is the Homebuyer of the ‘Corporate Debtor’ having Claim of Rs.2,94,43,634/-; the second Respondent Mr. Krit Narayan Mishra is the RP of the ‘Corporate Debtor’, appointed vide letter dated 13/07/2021 in I.A. 1742/2021 replacing the erstwhile IRP, Mr. Manoj Kumar Singh. Appellant/M/s. ECL Finance Limited is the original Debenture Holder which has executed the Assignment Agreement dated 27/03/2020 whereby all rights in regard to the Financial Assistance were assigned in favour of Assets Care and Reconstruction Enterprise Limited (‘ACRE’). While so, in June 2016, Saha Infratech with a view to augment their resources issued 110 Non-Convertible Debentures having a face value of Rs.1 Crore/- each for an aggregate amount of Rs.110 Crores/- and appointed the Appellant/IDBI to act as a Trustee for the Holders of the Debentures. At the request of the Issuer/‘Palm Developers Private Limited’ (hereinafter referred to as the ‘Corporate Debtor’) and their Promoters, Debenture Holders agreed to subscribe to the Debentures and a Debenture Trust Deed dated 01/07/2016 was executed amongst the Principal Borrower, the ‘Corporate Debtor’ (Corporate Guarantor) and the Appellant (Debenture Trustee) including the promoters. As per the terms of the Trust Deed a part of the Debenture Subscription amount was to be used for funding the construction of the ‘Project Encore’, being developed by the ‘Corporate Debtor’. The Debenture Holder as on date has made a subscription of the first tranche of the Debentures i.e., 110 amounting to Rs.110 Crores/-. The second tranche has not been subscribed yet. Under the terms of the Debenture Trust Deed, payment of interest and all other accounts on the respective due dates was secured by an irrevocable Corporate Guarantee of the ‘Corporate Debtor’, executed vide Guarantee Agreement dated 02/07/2016.

 

# 3. Additionally, the ‘Corporate Debtor’ executed and delivered a Demand Promissory Note, a Deed of Hypothecation, Mortgage 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 faith 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 payable’ as on 27/01/2020. It was averred that on 20/02/2020, the IRP constituted the CoC and the Appellant was made a member thereof; that subsequently, on 25/02/2020, the first Respondent filed I.A. 1610/2020 praying inter alia the following reliefs:

• (a) Rejections of the claim of the Appellants as accepted by the IRP of the ‘Corporate Debtor’.

• (b) Reconstituting of the CoC after exclusion of the Appellants.

• (c) Restraining the Appellants from exercising any voting right in the CoC of the ‘Corporate Debtor’.

While issuing Notice in I.A. 1610/2020, the Adjudicating Authority vide Order dated 28/02/2020 directed the erstwhile IRP to restrain from holding any Meeting of CoC till the constitution of CoC was ascertained.

 

# 5. The erstwhile IRP in his Reply to the Application I.A. 1610/2020 denied the allegation made by the first Respondent and challenge the said Application on maintainability and submitted that on seeking legal opinion from his Counsel M/s. Dua Associates, the Claims of the Appellants and the third Respondent were admitted in accordance with Section 21(1) of the Code. The Adjudicating Authority vide Order dated 07/09/2020 modified the earlier Order dated 28/02/2020 to the extent that the erstwhile IRP was allowed to proceed in the matter in accordance with the provisions of the Code but was restrained from declaring the status of the Appellants until further Orders.

 

# 6. While so, on an Application, filed by IDBI, bearing IA No. 1742/2021, the Adjudicating Authority appointed Mr. Krit Narayan Mishra new IRP on 13/07/2021. Based on the Reply filed by the new IRP, the Articles of Association (AoA) of the ‘Corporate Debtor’, the terms of the Guarantee Deed, the Adjudicating Authority observed as follows:

• “39. On perusal of the Articles of Association (AOA) of the corporate debtor, we observe the part II of the Articles have overriding effect over the part 1 Articles and in case of conflict between the two, part II shall prevail over the part 1. And the clause referred to supra shows that the corporate debtor shall not take any decision without prior written approval of the debenture holders. We further observe that as per clause 7.1 of AOA, in the event of default both the debenture holders and lender have right to appoint their Nominee Director on the Board of the Company.

• 40. The Respondent No. 2 and 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 data. 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 any Director as yet and they are not in a position to take part in the policy making process.

• 41. For the reasons discussed above, we are of the considered view that in terms of the AOA, since the Respondents no. 2 and 3 are in a position to have control over the policy decisions of the corporate debtor and on the composition of the board of directors, hence they are related parties in terms of Section 5(24) of the IBC, 2016.

• 42. At this juncture, we would also like to refer to the arguments advances on behalf of the Ld. Counsels appearing for the Respondent no. 2 and 3 that the verification of the claims can be made by the IRP only and Adjudicating Authority is not required to interfere.

• 43. We are unable to accept this contention of the Respondent no. 2 and 3 as the duty of the IRP is only to verify the claims and in case, if any error has been committed by the IRP, the Adjudicating Authority is empowered under Section 60(5) of the IBC, 2016 to rectify such an error.

• 44. Apart from that, it is also an admitted fact that the Guarantee was invoked on 07.04.2020 i.e., after the initiation of the CIRP on 27.01.2020.

• 45. Therefore, the Ld. Counsel appearing for the Applicant has rightly submitted that the deed of guarantee was invoked after the initiation of CIRP. Therefore, in terms of the moratorium declared under Section 14 of the IBC, 2016, the amount claimed by the Respondent No. 3 is not liable to be admitted.

• 46. At this juncture, we would also like to refer to the contention of Respondent No. 2 and 3 that the Applicant has no locus standi to raise this issue. As we have also referred to the additionally reply filed by the IRP, therefore, on the request of IRP, this Adjudicating Authority is empowered to invoke section 60(5) IBC 2016 and consider whether the Respondent No. 2 and 3 are the Financial Creditor or not?

• 47. Hence, we find, no force in the contentions raised on behalf of the Ld. Counsels appearing for the Respondent No. 2 and 3, that the application is not maintainable.

• 48. In sequel to the above, we are of the considered view that the Respondents No. 2 and 3 can be treated as ‘creditors’ but they shall not be treated as ‘Financial Creditors’ under Chapter II, Section 5(7) of the IBC, 2016. Hence, we have no option but to hold that the Respondents no. 2 and 3 are not 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)

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 Payment’ has not yet accrued.

• (d) Whether the Appellants are ‘Related Parties’ of the ‘Corporate Debtor’. Whether the Appellants were in a ‘position’ to ‘control’ the affairs of the ‘Corporate Debtor’, to fall within the ambit of the definition of ‘Related Party’ as defined under Section 5(24) of the Code.

 

11. At the outset, we address ourselves to the first issue raised by the Appellants that the Adjudicating Authority has erroneously relied on the Judgement of the Hon’ble Supreme Court in ‘Anuj Jain’ Case and held that there was no direct disbursal of amount by ECL to the ‘Corporate Debtor’ and hence the amount involved is not a ‘Financial Debt’ as defined under Section 5(8) of the Code. This Tribunal is of the considered view that ECL, being the original lender had disbursed the amount in terms of the Facility Agreement entered into and the disbursement of ‘debt’ is essentially to the Issuer/Borrower and not to the ‘Corporate Guarantor’ i.e., ‘Palm Developers’. By providing Corporate Guarantee, ‘Palm Developers’ has agreed to incur the ‘debt’, if ‘due and payable’. A Guarantee is included as one of the illustrations which specifies the definition of ‘Financial Debt’ under Section 5(8)(i) of the Code. This Tribunal in ‘Ascot Realty Private Limited’ (Supra) has held that for initiation of Insolvency Proceedings against the Corporate Guarantor, the element of disbursal for ‘Time Value of Money’ is not required. We are of the considered view that despite the fact that there was no direct disbursal of amount to the Corporate Guarantor, any amounts released to the Issuer/Principal Borrower and not to the Corporate Guarantor does constitute ‘Financial Debt’ as defined under Section 5(8) of the Code and it cannot be said that such amounts do not have consideration for ‘Time Value of Money’. In the facts of the attendant case, it has to be only seen whether there was a ‘default’ and the amounts are ‘due and payable’ as on the date of filing of the ‘Claim’.

 

# 12. Therefore, we hold that the ratio of ‘Anuj Jain’ (Supra) is not applicable to the facts of the attendant case on hand.

 

Locus of the ‘Individual Homebuyer’/‘Financial Creditor’ to challenge the constitution of the CoC:

# 13. Learned Sr. Counsel Mr. Gourav Mitra argued that a single Homebuyer cannot challenge whether the Appellants can be treated as ‘Financial Creditors’ or not. It was submitted 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. Counsel Mr. Ramji Srinivasan appearing for ECL further contended that a single Homebuyer does not have the locus to challenge the constitution of the CoC.

 

14. Recently this Tribunal in ‘Aashray Social Welfare Society & Ors.’ Vs. ‘Saha Infratech Pvt. Ltd. & Ors.’, Comp. (AT) (Ins) No. 904 of 2021 has discussed in detail the role of ‘Authorized Representative’ (‘AR’) and whether the Homebuyers/Welfare Society representing the Homebuyers have a right to be heard/impleaded and observed as follows:

• “12. The statutory scheme as is reflected from Section 21(6-A) and Section 25-A of the Code indicates that the Authorised Representative is chosen to represent the creditor in a class in the CoC. The Authorised Representative needs to attend the meeting of the CoC and vote on behalf of the Financial Creditor to the extent of voting share of the Financial Creditor. The Adjudicating Authority in its order has referred to Regulation 16A Subregulation (5) of the CIRP Regulations, 2016. Regulation 16A deals with the Authorised Representative. Regulation 16A provides for procedure of choosing an Authorised Representative of creditors of the respective class. The Sub-regulation 16A(5) contains a clarifications, which is to the following effect:-

• “16A(5). The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is updated. Clarification: The authorised representative shall have no role in receipt or verification of claims of creditors of the class he represents.”

• 15. The present is a case where the question for consideration is the right of impleadment of Appellants in Applications filed by Respondent No. 2 and 3 challenging the rejection of their claim as Financial Creditors. The Appellants are also Financial Creditors in a class and they represent majority of the Homebuyers in class, as has been pleaded by the Appellants. The Financial Creditors in a class, who at present consist of 99.85% of CoC, have every right to be heard in the Applications filed by Respondent No. 2 and 3 whose claim has been partly and fully rejected, respectively by the IRP. The Authorised Representative under the statutory scheme as noticed above is to represent the Financial Creditors i.e., Homebuyers in a class for a limited purpose i.e., for attending meetings of the CoC and voting on behalf of the Financial Creditors in a class. It cannot be said that since the Authorised Representative has not came up before the Adjudicating Authority for filing the impleadment application, the Appellants who themselves are Homebuyers have no right to participate in the adjudication initiated by filing applications by Respondent No. 2 and 3.”

(Emphasis Supplied)

15. Having regard to the aforenoted observations, the contention of the Appellants that the first Respondent/Homebuyer has only 4.43% of the Voting Share in the CoC and not represented through the Authorised Representative and hence has no locus to challenge the claim of the Appellants, is untenable. The Hon’ble Supreme Court in ‘Phoenix Arc Pvt. Ltd.’ Vs. ‘Spade Financial Services Ltd. & Ors.’ (2021) 3 SCC 475 has held that ‘Financial Creditors’ forming part of the CoC must be heard during proceedings which would establish the status of other ‘Financial Creditors’. Keeping in view the principle laid down in ‘Phoenix ARC Pvt. Ltd. (Supra) and in ‘Aashray Social Welfare Society & Ors.’ (Supra) we are of the considered view that the first Respondent/Homebuyer has every right to be heard and has the locus to challenge the Claim of the Appellants.

 

# 16. Having held so, now we address ourselves to the contention of the first Respondent/Homebuyer that there is no ‘default’ as on the date of initiation of CIRP as the Corporate Guarantee was not invoked as on the date of commencement of CIRP, as on the date of filing of the ‘Claim’.

 

# 23. However, at this juncture, the moot question which falls for consideration is whether the ‘Claims’ of the Appellants can be admitted keeping in view that the Corporate Guarantee was never invoked pre-commencement of CIRP, or as on the date of filing of the Claim, especially having regard to the fact that the ‘Corporate Debtor’ is the ‘Corporate Guarantor’. The fact which is to be kept in mind is that the Appellants have not preferred any Section 7 Applications, but have filed ‘Claims’ in the ongoing CIRP Proceedings of the Principal Borrower/Saha and the Corporate Guarantor/Palm Developers.

 

# 24. A few dates are also relevant here. Briefly put, the Section 9 Application preferred by an ‘Operational 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 new IRP who published the Forensic Audit Report on 12/03/2022.

 

# 25. Learned Counsel Dr. Singhvi has placed reliance on the Judgement of this Tribunal in ‘Axis Bank Limited’ Vs. ‘Edu Smart Services Pvt. Ltd.’, Comp. App. (AT) (Ins) No. 302 of 2017, wherein this Tribunal has held as follows:

• “54. Therefore, stand taken by the respondents that the claim has not been matured cannot be ground to reject the claim.

• 55. Section 25 provides the duties of Resolution Professional. As per Section 25(2)(e), the Resolution Professional is required to maintain an updated list of all the claims. Aforesaid fact also suggests that the maturity of a claim or default of debt are not the guiding factors to be noticed for collating or updating the claims. The 111atter can be looked from another angle. It is only in case of ‘debt’ and ‘default’, a ‘Financial Creditor’ or ‘Operational Creditor’, may file applications under Section 7 or 9. The ‘Corporate Applicant’ has also right to file application under Section 10 for initiation of Corporate Insolvency Resolution Process against itself if it has defaulted to pay the ‘debt’. It does not mean that the persons whose debt has not been matured cannot file claim. The ‘Financial Creditors’ or ‘Operational Creditors’ or ‘secured or unsecured creditors’ all are entitled to file claim.

• 56. Therefore, we hold that maturity of claim or default of claim or invocation of guarantee for claiming the amount has no nexus with filing of claim pursuant to public announcement made under Section13(1)(b) r/w Section15(1)(c) or for collating the claim under Section 18(1)(b) or for updating claim under Section 25(2)(e). For the purpose of collating information relating to assets, finances and operations of Corporate Debtor or financial position of the Corporate Debtor, including the liabilities as on the date of initiation of the Resolution Process as per Section 18(1), it is the duty of the Resolution Professional to collate all the claims and to verify the same from the records of assets and liabilities maintained by the Corporate Debtor.”

 

26. It is pertinent to mention that the aforenoted Judgement ‘Axis Bank Limited’ (Supra) relied heavily upon by the Appellants has been overruled by this Tribunal in the subsequent decision in the case of ‘Edelweiss Asset Reconstruction 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:

• “102. 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 applied under Section 14 of the I&B Code, EARC was prevented from invoking the corporate guarantee. NCLT further found that the OMML’s guarantee had not been invoked by EARC till the date of completion of CIRP process and once the moratorium was imposed, it could not invoke the corporate guarantee. NCLT therefore found that there is no illegality or irregularity in not admitting the claim of EARC.

• XXXXXX

• 119. 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.

• XXXXX

• 125. We are therefore of the considered view that the appeal deserves to be allowed by expunging paragraphs 28, 42, 43, 51 and 52 from the judgement of NCLAT dated 23-4-2019. It is ordered accordingly. The judgement and order passed by NCLT dated 22-6-2018 is upheld. No costs.”       (Emphasis Supplied)

 

# 27. It is seen from the aforenoted Judgement that an uninvoked Corporate Guarantee cannot be considered as a ‘Matured Claim’. In para 133 of the aforenoted Judgement the Hon’ble Supreme Court has upheld the finding of the Adjudicating Authority that once the moratorium was applied under Section 14 of the Code, a Corporate Guarantee cannot be invoked. Though this is a case where the Resolution Plan has been approved, the fact remains that the Principle that a Corporate Guarantee cannot be invoked once the CIRP has commenced and that an uninvoked Corporate Guarantee as on date of filing of the Claim, cannot be considered as ‘Matured Claim’ has been laid down by the Hon’ble Supreme Court.

 

# 28. We also place reliance on the observations of the Hon’ble Supreme Court in para 38 of ‘Swiss Ribbons Pvt. Ltd. & Anr.’ Vs. ‘Union of India & Ors.’, (2019) 4 SCC 17, in which it is stated as follows:

• “38. In this context, it is important to differentiate between “claim”, “debt» and default». Each of these terms is separately defined as follows:-

• 3. Definitions- in this Code, unless the context otherwise requires- xxx

• (6) “claim” means –

• (a) a right to payment, whether or not such 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; xxxxxxx

• (11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt:

• (12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be; xxxxx

 

Whereas a “claim” gives rise to a “debt” only when it becomes “due”, a “default” occurs only when a “debt” becomes “due and payable” and is not paid by the debtor. It is for the reason that a financial creditor has to prove “default” as opposed to an 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. This Tribunal is of the earnest view that the Appellants cannot Claim the amounts in the CIRP of the ‘Corporate Debtor’ who is a ‘Corporate Guarantor’ on the basis of the Deed of Guarantee which was never invoked as on the date of filing of the Claims. The record also does not show that any Notice in terms of Clause 2.1(ii) of the Deed of Guarantee was ever issued to the ‘Corporate Debtor’. We do not find any substance in the argument of the Appellant Counsel that no such Notice is required to be issued as invocation of Guarantee is not a pre-condition to file a ‘Claim’. The Deed of Guarantee stipulates such a notice to be issued which was never sent as the Deed was never invoked prior to CIRP filing of Form C.

 

# 30. In ‘SBI’ Vs. ‘Orrisa Manganese & Minerals Ltd.’ dated 22/06/2018, EARC (Edelweiss Asset Reconstruction Co. Ltd.) filed an Application before the Adjudicating Authority, (NCLT) Kolkata in CA(IB) 470/KB/2018 in CP (IB) No. 371/KB/2017 challenging the decision of the RP in not admitting the claim of the Applicant. In this case, the ‘Corporate Debtor’ had executed a guarantee securing loan received by APNRL which has been given by India Infrastructure Finance Company Ltd. (IIFCL). The Corporate Guarantee executed by the ‘Corporate Debtor’ was in favour of IIFCL, which assigned its rights to the Applicant, who filed their Form C but have not invoked the Corporate Guarantee. The Adjudicating Authority has categorically held that the Applicant was prevented from invoking Corporate Guarantee during Moratorium and that RP has rightly rejected the Claim as the Corporate Guarantee was not invoked. In an Appeal preferred by Edelweiss Asset Reconstruction Company Ltd. (EARC), NCLAT reversed its decision passed in ‘Axis Bank’ (Supra) and has held that on declaration of moratorium, it was not open to EARC to invoke the Corporate Guarantee and held that the IRP has rightly not accepted the claim of the Appellant/EARC. As the Resolution Plan was already approved in that case, the Hon’ble Supreme Court in ‘Ghanshyam Mishra and Sons Private Limited’ (Supra) in paragraph 133 has also closed the right of EARC in terms of taking any further action. Therefore, we are of the view that the ratio of the Hon’ble Supreme Court in ‘Ghanshyam Mishra and Sons Private Limited’ (Supra), is squarely applicable to the facts of this case and hence we are of the considered view 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 Party’ and that an amount of Rs.12,60,77,970/- is recoverable from them. When the Appellants’ Claim has been rejected in the CIRP of the Principal Borrower, the onus is on the Appellants to substantiate how their claims can be ‘admitted’ in the CIRP of the ‘Corporate Guarantor’ when they have not even invoked the Guarantee prior to CIRP commencement, or as on the date of filing of Form C, which they have failed to discharge.

 

Issue of ‘Related Party’:

# 33. Now we address to the contention raised by the Learned Counsel Mr. Sinha that the Appellants are ‘related Parties’ of the ‘Corporate Debtor’ as defined under Section 5(24) of the Code.

 

# 42. On the touchstone of the aforenoted observations of the Hon’ble Supreme Court and the definition of ‘Related Party’ as defined under Section 5(24) of the Code, this Tribunal finds it relevant to peruse the Clauses of the ‘Sanction letter’, the ‘Articles of Association’, the ‘Facility Agreement’ and that of the ‘Builder Buyer Agreement’ to assess the true nature of relationship between the parties and if there was any ‘positive control’ by the Appellants over the affairs of the ‘Corporate Debtor’.

 

# 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.’ (Supra), has referred to the definitions of ‘Control’ as defined in Black’ Law Dictionary – ‘Control is the direct or indirect power to direct the management and policies of a person or entity, whether through ownership of voting securities, by contract, or otherwise. The power or authority to manage, direct or oversee.’

 

# 56. The first part of the term ‘Control’ refers to ‘de jure’ control, which includes the right to appoint directors of the Company. The second part of the expression ‘Control’ refers to ‘de facto’ control, whereby, person/body corporate directly or indirectly can positively influence in any manner, the management or policy decisions. Any decision which has a long term effect, for formulation of Business Plans, comes within the purview of policy making. The argument that the Clauses with respect to ‘Business Plans’ and any substantial/important charges requiring the approval of the Debenture Holders, is only ‘restrictive’ and does not construe ‘positive control’ is untenable. We are of the view that the irrevocable PoA executed in favour of the Debenture Holders suggests Positive and proactive control as the Appellants are in a position to take proactive decisions regarding the rights of the ‘Corporate Debtor’.

 

# 60. We are of the view that the Articles of Association point out that decisions regarding important matters ought to be taken only by the affirmative role of the Appellants. The Adjudicating Authority has gone through the Articles of Association as well as the conduct of the management of the ‘Corporate Debtor’ and held that the ECL and IDBI are related parties of the ‘Corporate Debtor’ by virtue of their inter se management participation. Examining the influence and inter-relationship between the parties, we are of the considered view that the Appellants have the trappings of ‘Related Party’ on account of the various clauses of the Agreements and AoA, which gives them a participatory role in the Corporate Debtor’s policies. The purpose of excluding a related party of a ‘Corporate Debtor’ from the CoC is to obviate conflicts of interest which are likely to arise in the event that a related party is allowed to become a part of the CoC. The Hon’ble Supreme Court has held in a catena of Judgements that exclusion under the first proviso to Section 21(2) of the Code was related not to the debt itself, but to the relationship existing between the related party ‘Financial Creditor’ & ‘Corporate Debtor’. The contention of Dr. Singhvi that the Appellants constitute more than 80% Voting Share of the CoC and hence injustice would be done, if they are not included has to be decided within the framework of the provisions of the Code and the material on record evidences that the Appellant falls within the ambit of the definition of ‘Related Party’ and according to Section 21(2) of the Code, a Related Party even if it is a ‘Financial Creditor’ of the ‘Corporate Debtor’, will have no right of representation, participation or voting in a meeting of CoC. Further, the question of ‘Voting Share’ arises only when the Appellants are declared ‘Financial Creditors’ and made part of the CoC.

 

# 62. Keeping in view the Clauses of the Sanction Letter, the Facility Agreement, the amended Debenture Trust Deed, the AoA, this Tribunal is of the earnest view that the ratio of the Hon’ble Supreme Court in in ‘Arcelor Mittal India Pvt. Ltd.’ (Supra), regarding ‘Control’ is squarely applicable to the facts of this case, as we hold that the Appellants do have ‘Positive Powers’ and are in a position to directly and indirectly Control the management and the policy decisions of the ‘Corporate Debtor’ and hence we do not find any illegality in the Impugned Order passed by the Adjudicating Authority affirming the decision of the RP in deleting the Appellants from being part of the CoC as stipulated for under Section 21(2) of the Code.

 

# 63. Though we do not agree with the Learned Adjudicating Authority regarding the applicability of the ratio of ‘Anuj Jain’ (Supra) to the facts of this case, for all the other aforenoted reasons, these Appeals are dismissed. No order as to costs.

 

# 64. I.A. No. 1118 of 2022 in Comp. App. (AT) (Ins) No. 356 of 2022, preferred by three allottees in the Project ‘Meghdutam Encore’ developed by the ‘Corporate Debtor’, seeking impleadment in the subject Appeals, is dismissed accordingly.

 

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