TMI Blog2022 (9) TMI 860X X X X Extracts X X X X X X X X Extracts X X X X ..... Bank under the SARFAESI Act. It is seen that the proceedings before Hon'ble Supreme Court emanated from the applications filed on behalf of YES Bank before the NCLT. Thus, all the issues pertaining to defendant No. 3 have also been considered by Hon'ble Supreme Court. It has been informed by learned counsel appearing for the Resolution Professional that the moratorium in terms of Section 14 of the IBC still continues to operate against the defendant No. 1 company. Thus, there is clear bar to continuation of the present suit in terms of the provisions of the IBC. In view of the categorical findings by Hon'ble Supreme Court and also in view of provisions of IBC, it is held that the present suit cannot continue - application dismissed. - CS(COMM) 234/2017 with I.A. Nos. 3960/2017, 3961/2017, 5317/2017 - - - Dated:- 12-9-2022 - HON'BLE MS. JUSTICE MINI PUSHKARNA Plaintiff Through: Mr. Rahul Rajan and Mr. Lokesh Bhola (Ph. 9999410660, e-mail: lokesh@legalicons.in). Defendants Through: Mr. Mohit Uppal, Advocate for D-1 (Ph. 9427849009, e-mail: mohit.uppal@aanandlaw.com ). Mr. Akhilesh Wahal, Advocate (proxy) for Mr. Arjun Syal, Advocate for D-2 (Ph. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court. 8. In the aforesaid judgment, Hon'ble Supreme Court has given a categorical finding that Spade i.e. plaintiff herein, cannot be labelled as financial creditor of Corporate Debtor i.e. defendant No. 1 herein under Section 5(7) of IBC. Further, Hon'ble Supreme Court also held that Spade i.e. plaintiff herein alongwith AAA was related parties of the Corporate Debtor i.e. defendant No. 1 under Section 5(24) of IBC. Thus, the decision of NCLAT, inasmuch as it excluded Spade i.e. the plaintiff herein and AAA from the CoC in accordance with the first proviso of Section 21(2) IBC, was affirmed by Hon'ble Supreme Court. Further, Hon'ble Supreme Court set aside decision of the NCLAT inasmuch as it referred to Spade i.e. the plaintiff herein along with AAA as financial creditor of the Corporate Debtor i.e. defendant No. 1 herein. 9. The relevant paragraphs of the judgment dated 01.02.2021 passed by Hon'ble Supreme Court in Civil Appeal No. 2842/2020 and Civil Appeal No.3063/2020 are reproduced as under: A The appeals 1. This judgment would govern two sets of appeals arising from the judgment of the National Company Law Appellate Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anathan for AAA and Spade; (ii) Mr Neeraj Kishan Kaul for Phoenix; and (iii) Mr Sanjiv Sen for the Resolution Professional ( RP ). 26. The submission of Mr K.V. Viswanathan is that NCLT held against AAA and Spade on the ground that they were not financial creditors. In view of this finding, the NCLT held that it was not necessary to enter upon the second issue which it had formulated. On the other hand, NCLAT in appeal proceeded on the basis that admittedly AAA and Spade are financial creditors but then went on to hold that they are related parties and are therefore liable to be excluded from the CoC. His submission is threefold: 26. (i) The issue as to whether Spade and AAA are financial creditors was concluded by the earlier order of the NCLT dated 31-5-2018 which operates as res judicata. NCLT having allowed the applications of AAA and Spade for submitting their claims to the IRP as financial creditors, this finding could not have been altered in the subsequent order dated 19-7-2019 [Hari Krishan Sharma v. AKME Projects Ltd. CP (IB) No. 55/ND/2018, decided on 19-7-2019 (NCLT)]. The NCLT in its order dated 31-5-2018 gave a categorical finding that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; XXXXXX G.3.3. Collusive transactions 46. The above discussion shows that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive. In other words, the real agreement between the parties is something other than advancing a financial debt. A useful elaboration of sham transactions can be found in the opinion of Diplock, L.J. in Snook v. London West Riding Investments Ltd. [Snook v. London West Riding Investments Ltd., (1967) 2 QB 786]. As regards the contention of the plaintiff that the transactions between hims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the RP on 19-11-2019. Their report contains significant findings: Considering the above transactions, we were unable to understand the business rationale of: Purchase and sale transaction with Spade Financial resulting in a loss of approx. INR 2.12 crores to CD. Rent paid to Arun Anand and Aditya Anand. ICD balance of Spade Financial being transferred to AAA Landmark against which sale agreement was executed. Basis of valuation of the land transaction and sale of property to AAA Landmark. EY Comments: Reference to Section 66 of the Insolvency and Bankruptcy Code, 2016 Section 66 of the Insolvency and Bankruptcy Code, 2016 66. Fraudulent trading or wrongful trading.-( 1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the adjudicating authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s judgment. This finding has been disputed by Mr Viswanathan who argued that no amount of the ICDs has been credited to the account of Mr Arun Anand and such an allegation has not been made by any of the parties including the RP. However, it is to be noted under Clause 2 of the memorandum of understanding, the amount of Rs 26.55 crores has been disbursed not only to the corporate debtor but also to other companies on behalf of AKME . In any event, the entirety of the ICDs were not disbursed to Spade. Additionally, no Board Resolution was passed by Spade approving the grant of ICDs and the charge created on the loan was not registered with the Registrar of Companies. In view of the above, we are inclined to agree with Mr Kaul that the memorandum of understanding was an eyewash and collusive. 51. NCLT in its order dated 19-7-2019 [Hari Krishan Sharma v. AKME Projects Ltd. CP (IB) No. 55/ND/2018, decided on 19-7-2019 (NCLT)] has noted that AAA and the corporate debtor had entered into multiple agreements regarding the same property without giving any explanation or rationale regarding variation in the consideration. This showed that the transactions were collusive in nature en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the decision of the NCLT on the close business relationship between AAA and Spade on one hand and the corporate debtor on the other, in terms of the provisions contained in Section 5(24). The decision of the NCLT spoke of a deep entanglement in the business affairs. The NCLT came to the specific finding that Spade and AAA were related parties of the corporate debtor but, that the relationship had ended by the time the initiation of the CIRP took place. It is this aspect which now merits consideration. We shall first analyse whether Spade and AAA are related parties of the Corporate Debtor. XXXXXXXX H.3 Analysis 60. Crucial to the understanding of whether Spade and AAA were related parties of the corporate debtor during the relevant period is the relationship between Mr Arun Anand and Mr Anil Nanda. It is Mr Viswanathan's argument that these individuals shared no prior relationship, which has been opposed by Mr Kaul and Mr Sen. We noted that Mr Arun Anand has held multiple positions in companies which form part of Anil Nanda Group of Companies. Further, Mr Anil Nanda has himself invested in companies owned by Mr Arun Anand, and had commercial transactions wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the board/Directors of the corporate debtor under Section 5(24)(f). Mr Viswanathan's submission that these were purely commercial transactions between the parties cannot be accepted, given the extensive history demonstrating the interrelationship between the individuals associated with these corporations. While the transactions may have indeed been commercial, it cannot be doubted that Spade undertook them due to the pervasive influence of Mr Anil Nanda. In our analysis above, we have similarly come to the conclusion that other past transactions between these entities have been collusive. 64. Finally, we have already held that the transactions between AAA and the corporate debtor were collusive in nature. This supports the findings of the NCLAT that the agreement to sell and side letter dated 25-10-2012 were a mere eyewash, through which they sought to develop the AKME RAAGA project together while circumventing government guidelines. Hence, AAA would be a partner of the corporate debtor within the meaning of Section 5(24)(a). 65. Therefore, we come to the conclusion that Mr Arun Anand, Spade and AAA were related parties of the corporate debtor during the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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