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2020 (1) TMI 1518 - Tri - Insolvency and BankruptcyEligibility of claimant to be made as part of the CoC or not - Applicant hit by Section 5(24) (h) & 5(24) (m) (i) of Insolvency and Bankruptcy Code, 2016 or not - HELD THAT:- At the time of enactment of IBC, whichever Company falling under the definition of related party, such company shall not have any right of representation, participation or voting in a meeting of the Committee of Creditors - Since this was an unqualified elimination of Financial Service Providers from becoming members of CoC, this situation has been remedied by inserting Proviso 2 to Section 21 (2) of the Code through IBC (2nd Amendment) Act, 2018, and now the Government has come out with an Ordinance dated 28th December 2019 including the bold words in the proviso mentioned widening the scope of exemption of financial Service providers from elimination from participating in CoC. The Insolvency Law Committee at the time of recommending second proviso to Section 21 (2) of the Code, it has been stated that this Related Party Rule should not be fastened upon the Financial Creditors such as Banks and ARCs and the Financial Creditors regulated by the Financial Creditor Regulators for taking them as CoC members because Financial Creditors holding large portion of financial debt in Corporate Debtor Companies for fixed returns are unable to participate in the restructuring of the company by way of Corporate Insolvency Resolution - in order to avoid that predicament, the legislature has inserted this amendment stating that though debt has been converted into equity, if the company is regulated by the financial sector regulator, first proviso to Sec. 21(2) of the Code shall not be applied. In this case, this Applicant has not even converted its debt into equity and it has not been holding 20% shareholding in the company - this Applicant already initiated Arbitration Proceedings against this Corporate Debtor, and the Arbitrator has also passed an award with respect to the debentures the Applicant has in the Corporate Debtor directing the Corporate Debtor to pay a decretal amount of ₹ 155,32,56,626 to the Applicant. This Applicant/Financial Creditor shall be permitted to become member of CoC so as to participate in considering the functioning of the Corporate Debtor and examining the Resolution Plan, if any, that may come up before the Committee of Creditors - the Resolution Professional is directed to make this Applicant as member of the CoC with voting rights proportionate to its claim against the Corporate Debtor. Application disposed off.
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