TMI Blog2023 (11) TMI 905X X X X Extracts X X X X X X X X Extracts X X X X ..... 1065 of 2021 dated 14.07.2022 upholding the constitution of CoC and this matter having attained finality, whether the issue of sole financial creditor being related party to the Corporate Debtor can be raised again at this stage? - Whether the benefit of findings of the Hon ble Delhi High Court in its order dated 29.07.2022 in CS(OS) 589/2021 regarding the Appellant being under undue and coercive influence of Sunaina Singh which in turn purportedly vitiated the CIRP proceedings was not available before the Adjudicating Authority and the Appellate Authority? - HELD THAT:- It is amply clear that this Tribunal on 14.07.2022 came to the categorical conclusion that Sunaina Singh was not a related party having resigned much before the filing of Section 7 application and that her case was not covered by the exception carved out in Phoenix (supra) judgment - it is also noted that this order of 14.07.2022 was not challenged by the Appellant and to that extent has attained finality. The only issue at hand is the allegation raised by the Appellant that the benefit of findings of the Hon ble Delhi High Court dated 29.07.2022 was not available to this Tribunal while passing its orders. Be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-payment of the said debt in full or part thereof, CIRP may be initiated by the Financial Creditor. The Adjudicating Authority only has to determine whether a default has occurred, i.e., whether the debt was due and remained unpaid. Once this is established, the CIRP has to be initiated against the Corporate Debtor. The Adjudicating Authority following this mandate of Section 7(5) of IBC had admitted the section 7 application on 07.02.2020 and initiated the CIRP against the Corporate Debtor. The CIRP admission order could have been challenged and an appeal filed within 30 days from the date of passing of the order. Admittedly, the Appellant never challenged the CIRP order - The statutory scheme of the IBC makes it clear that though the erstwhile Board of Directors are not CoC members, yet they have a right to participate in each and every meeting held by the CoC including right to discuss all the resolution plans presented in such meetings. In the present case too, pursuant to the constitution of CoC, notice of meetings of the CoC were duly sent to the Appellant. Despite service of notices upon the Appellant, it is clear that the Appellant chose neither to attend the meetings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIRP admission and constitution of CoC at the right point of time, it cannot raise the matter belatedly and make it a ground for rejection of the duly approved resolution plan. There are no error in the first impugned order dated 12.04.2023 approving the Resolution Plan and in the second impugned order of the same date dismissing IA No. 1394 which sought rejection of the Resolution Plan - appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Aadil Singh Boparai, Mr. Sumer Singh Boparai, Mr. Sidhant Saraswat, Advocates For the Respondents : Mr. Abhishek Anand, Mr. Karan Kohli, Advocates for RP with Sanyam Goel, RP in person Mr. Abhijeet Sinha, Mr. Saikat Sarkar, Mr. Naman Joshi, Ms. Ritika Vohra, Advocates for CoC Mr. Sumesh Dhawan, Advocate JUDGMENT [ Per : Barun Mitra , Member ( Technical ) ] The present appeal filed under Section 61 of Insolvency and Bankruptcy Code, 2016 ( IBC in short) by the Appellant arises out of two orders dated 12.04.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench) in IA No. 1394 of 2022 and IA No. 823 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Authority vide its order dated 07.02.2020 admitted the Section 7 petition and initiated CIRP against the Corporate Debtor. Following initiation of CIRP, Resolution Professional Respondent No.1 was appointed. The Committee of Creditors ( CoC in short) was constituted by the Resolution Professional in terms of Section 21 of IBC and the Financial Creditor was inducted as sole member into the Committee of Creditors. The Resolution Professional published the Invitation for Expression of Interest in Form-G on 24.06.2020. In the 4th CoC Meeting on 19.07.2020 the Resolution Professional apprised the CoC that it had received Expressions of Interest from five prospective Resolution Applicants. The CoC also approved the appointment of a professional to assist Resolution Professional in carrying out due diligence of the prospective Resolution Applicants in terms of Section 29A of IBC. In the 7th CoC meeting, the Resolution Professional apprised the CoC members that due diligence of Resolution Plans as received from three prospective Resolution Applicants had been undertaken. After due deliberations, the CoC found the resolution plan submitted by Mr. Abhimanyu Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted injunction in favour of the Appellant which order has been appealed by Sunaina Singh which appeal is pending consideration. Basis the interim relief granted by the Hon ble Delhi High Court, the Appellant filed IA 1394 of 2022 before the Adjudicating Authority seeking rejection of the resolution plan and directions to the Resolution Professional for constituting a fresh CoC. The Adjudicating Authority has dismissed IA 1394/2022 on 12.04.2023 on the ground that issues raised by the Appellant therein have already been decided in earlier proceedings. Aggrieved by this order, the Appellant has come up in appeal praying for the following reliefs: - a) Pass an order setting aside the impugned order dated 12.04.2023 passed by the Adjudicating Authority dismissing the IA 1394 of 2022. b) Pass and order setting aside the impugned order dated 12.04.2023 passed by the Adjudicating Authority dismissing the IA 823 of 2020. c) Pass an order directing the Respondent No.1 to reconstitute the Committee of Creditors. d) Pass any other orders as this Hon ble Appellate Tribunal may deem fit and proper in the interest of justice. 3. The Learned Counsel for the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was also submitted that the Resolution Plan does not attempt to revive the Corporate Debtor or maximise its assets but is an attempt to conduct liquidation of the assets of the Corporate Debtor. 5. Learned Counsels appearing for the Resolution Professional, CoC as well as the SRA have opposed the submissions of the Learned Counsel for the Appellant. As their submissions overlap, the same are encapsulated together. It was stated that the reliance placed by the Appellant on the Hon ble Delhi Court order dated 29.07.2022 is highly misplaced as the said order was passed in a totally different set of facts and circumstances. The said order being relied upon by the Appellant is interim in nature and relates to a matter wherein neither the Corporate Debtor nor the Financial Creditor were a party. It is further submitted that Sunaina Singh cannot be said to be related party to the Corporate Debtor as she had resigned from the Board of Corporate Debtor on 25.03.2019 whereas application under Section 7 was filed six months thereafter and admitted on 07.02.2020. Thus, Sunaina Singh not being a related party, there was no error in the constitution of the CoC with Financial Creditor as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the Corporate Debtor can be raised again at this stage. (ii) Whether the benefit of findings of the Hon ble Delhi High Court in its order dated 29.07.2022 in CS(OS) 589/2021 regarding the Appellant being under undue and coercive influence of Sunaina Singh which in turn purportedly vitiated the CIRP proceedings was not available before the Adjudicating Authority and the Appellate Authority. (iii) Whether the Appellant not having challenged the CIRP admission order or the constitution of CoC within 30 days from the date of the passing of the relevant orders by the Adjudicating Authority is now entitled to raise these issues belatedly at this stage when the resolution plan came up for approval. (iv) Whether cogent grounds have been made out by the Appellant in terms of Section 61(3) of IBC for challenging the order approving the resolution plan and whether the Appellant under the pretext of contesting the approval of the resolution plan has attempted to indirectly challenge the CIRP admission order dated 07.02.2020. 9. Before we seek to answer the above questions, we may recapitulate some of the significant events and related dates which are going to have a bearing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 held that the Appellant was accustomed to act under the advice and directions of Sunaina Singh and that undue influence and coercion exercised over the Appellant by Sunaina Singh coincided with the time period of the CIRP proceedings before the Adjudicating Authority. It was pressed that the allegation of related party therefore requires to be looked into afresh in terms of Section 5(24)(h) of the IBC and the act of resignation of Sunaina Singh from the Corporate Debtor on 25.03.2019 has to be re- examined both in the light of the Hon'ble Delhi High Court order dated 29.07.2022. In support of their contention, attention was also adverted to the exception carved out by the Hon'ble Apex Court in Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd. Ors (2021) 3 SCC 475 where the related party divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating in the CoC to sabotage the CIRP. 11. Making rival submissions, it has been contended by the Learned counsel of the Respondents that the orders of the Adjudicating Authority dated 05.03.2021 and 02.11.2021 dismissing I.A. No. 344 of 2020 and I.A. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor. As such, the financial creditor who in praesenti is not a related party, would not be debarred from being a member of the CoC. However, in case where the related party financial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating the CoC and sabotage the CIRP, by diluting the vote share of other creditors or otherwise, it would be in keeping with the object and purpose of the first proviso to Section 21(2), to consider the former related party creditor, as one debarred under the first proviso. 14. After noticing the Phoenix ratio, we find that this Tribunal in the same judgement has also noticed at length the relevant provisions of IBC as contained in Section 5(24) [including Section 5(24)(h)], Section 5(24A) and Section 21(2) and recorded its findings in Para 16 of the said order as reproduced: - 16. The fact that Smt. Sunaina Singh on 01.01.2019 requested the Corporate Debtor for redemption of non-convertible debentures and the fact that Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of admission of CP, she was not the Director of the third respondent/financial creditor, since she had admittedly resigned as a Director from the corporate debtor on 25.03.2019. The financial creditor/third respondent is not a holding, subsidiary or associate company of the corporate debtor. The averments made or documents filed on behalf of the applicant do not show that any of the Directors of the corporate debtor have in any manner interfered in the working of the financial creditor/third respondent in the ordinary course of business of that the Directors of the corporate debtor in any way advise/instruct the Directors of the financial creditor/third respondent or vice versa. In the absence of the same, it cannot be stated that the third respondent/financial creditor is a related party to the corporate debtor. Mere relationship between Mrs. Sunaina Singh and Mrs. Sita Chaudhary i.e. granddaughter and grandmother without there being sufficient evidence to show that both of them are working conjointly on aid and advise of each other shall not disentitle the third respondent/financial creditor to be the COC Member either under Section 5(24) or/and Section 21(2). In view of our f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 7 application and that her case was not covered by the exception carved out in Phoenix (supra) judgment. We also note that this order of 14.07.2022 was not challenged by the Appellant and to that extent has attained finality. 16. The only issue at hand before us now is the allegation raised by the Appellant that the benefit of findings of the Hon ble Delhi High Court dated 29.07.2022 was not available to this Tribunal while passing its orders. Be that as it may, this contention lacks substance as we find that the Adjudicating Authority while passing the second impugned order in IA No. 1394/2022 has dwelled at length on the findings of the Hon ble Delhi High Court dated 29.07.2022 before coming to the conclusion that the financial creditor in the present case is not a related party of the corporate debtor, which is as reproduced below: - 10. In the present case, the applicant has mainly relied on the interim reliefs in the order of the Hon'ble Delhi High Court dated 29.07.2022, granted in favour of the applicant, i.e. Ms. Sita Chaudhary, and the injuncting director of the financial creditor, i.e. Ms. Sunaina Singh and Associates from transferring and siphoning o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a related party of the corporate debtor and the re-constitution of CoC in the matter of the corporate debtor have been adjudicated by this Adjudicating Authority by its order dated 05.03.2021 in IA No. 344/2020, and order dated 02.11.2021 in IA No. 728/2020, and the prayers have been rejected. 17. It is the case of the SRA and the Financial Creditor that the decision of the Hon ble Delhi High Court is interim in nature and is presently under challenge. It is also their contention that the subject matter before the Hon ble Delhi High Court for its consideration was different in that it related to declaration, permanent and mandatory injunction, rendition of account and cancellation of the gift deed by the Appellant to Sunaina Singh. The determination of these issues by the Hon ble High Court can at best be for the purposes for which the suit was filed in the Hon ble High Court and not for deciding on the sustainability of the CIRP proceedings. 18. Having regard to the material facts on record which shows that Sunaina Singh resigned as Director of the Corporate Debtor on 25.03.2019 while the Section 7 application was filed on 25.09.2019 and CIRP of the Corporate Debtor co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly which otherwise it would not have been achieved directly. 21. It is trite law that under the IBC, once a debt becomes due or payable, in law and in fact, and there is incidence of non-payment of the said debt in full or part thereof, CIRP may be initiated by the Financial Creditor. The Adjudicating Authority only has to determine whether a default has occurred, i.e., whether the debt was due and remained unpaid. Once this is established, the CIRP has to be initiated against the Corporate Debtor. The Adjudicating Authority following this mandate of Section 7(5) of IBC had admitted the section 7 application on 07.02.2020 and initiated the CIRP against the Corporate Debtor. The CIRP admission order could have been challenged and an appeal filed within 30 days from the date of passing of the order. Admittedly, the Appellant never challenged the CIRP order. Thereafter the CIRP proceedings had commenced and CoC was constituted on 29.02.2020. Even the constitution of CoC was not questioned within the prescribed period. The statutory scheme of the IBC makes it clear that though the erstwhile Board of Directors are not CoC members, yet they have a right to participate in each and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roving the resolution plan. In para 11 of the first impugned order, the Adjudicating Authority has categorically held that the CoC evaluated all the resolution plans submitted by the PRAs in terms of Regulation 39 of the IBBI (CIRP) Regulations as per the Evaluation Matrix to identify the best resolution plan. We also notice that the Adjudicating Authority has observed at paras 33 and 34 of the first impugned order that : 33. As per the CoC, the Resolution Plan meets the requirement of being viable and feasible for the revival of the Corporate Debtor. By and large, all the compliances have been done by the RP and the Resolution Applicant for making the plan effective after approval by this Bench. 34. On perusal of the documents on record, we are satisfied that the Resolution Plan is in accordance with Sections 30 and 31 of the Code and complies with Regulations 38 and 39 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. . 26. Undisputedly, in the statutory framework of IBC, the grounds on which the decision of approval of the resolution plan by the CoC can be interfered with by the Adjudicating Authority has been set out in Section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is which establishes material irregularity. There can be no fetters on the commercial wisdom of CoC and the supremacy of commercial wisdom of CoC has been reaffirmed time and again by the Hon ble Supreme Court in a catena of judgements including K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150 ; Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) 8 SCC 531; Maharashtra Seamless Limited v. Padmanabhan Venkatesh (2020) 11 SCC 467; Kalpraj Dharamshi v. Kotak Investment Advisors Limited, (2021) 10 SCC 401 and Ghanashyam Mishra and Sons Private Limited through the Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited through the Director (2021) 9 SCC 657. 29. Thus, to summarise our findings on the questions raised at para 6(iii) and (iv) we are of the clear view that the scope of interference with an order approving the resolution plan is very limited. The approved resolution plan can only be challenged before the Appellate Authority on limited grounds in terms of Section 61 (3) of the IBC. However, the Appellant has failed to make out a case of applicability of any such limited grounds. The IBC provides for an initiation of timely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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