TMI Blog2022 (8) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... party FC ceases to become a related party with the sole intention of participating in the CoC, then it should be considered as a related party for the purpose of Section 21 (2) of the Code and shall not be entitled to participate in the CoC. As the facts of this case reveal, the order admitting the CD in to CIRP is on 18.02.2022 and the resignation letter was sent through courier on 11.02.2022 which is 7 days prior to the CD being taken into CIRP. Inspite of the differences, disputes and the breaches which took place much prior to the moving of the Application under Section 7 of IBC by the Baftia they continued as nominee directors till 11.02.2022. Though may not be with a malafide intention, in their own interest Bafha appears to have considered it appropriate to tender their resignation in order to safeguard their financial interest by taking part in the CoC. Hence the intention for resignation apparently seems to be to become part of CoC. Hence by virtue of the judgment in Phoenix ARC Private Limited vs. Spade Financial Services Limited and others Bafha will not be entitled to participate in the CoC. Though Bafha is an FC as held in section 7 petition filed by it and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant: Avinash Krishnan Ravi and Y. Suryanarayana, Advocates For Respondents: S. Ravi, Senior Counsel, V. Siddhivardhana, Advocate, Ayush J. Rajani, PCA, Y. Suryanarayan and Avinash Krishnan Ravi, Advocates ORDER Telaprolu Rajani, J. (Member (J)) IA (IBC) No. 53/2022 IA (IBC) No. 54/2022 1. IA (IBC) No. 53/2022 is filed by KVR Industries Private Limited, Corporate Debtor (herein referred to as CD ) represented by Mr. Kotha Venkata Rao, who is the promoter director of the CD. IA (IBC) No. 54/2022 is filed by Punjab National Bank, which is the Financial Creditor (herein referred to as FC ) of the CD. The reliefs claimed and the grounds which form the basis of said reliefs are the same. Hence both the IAs are taken up for disposal by this common order. 2. The facts of the case briefly are as follows: i). M/s. PP Bafna Ventures Private Limited (3rd Respondent in IA No. 54/2022 and 1st Respondent in IA. No. 53/2022) filed an Company Petition before this Tribunal under Section 7 of IBC, 2016. By virtue of an order dated 18.02.2022, this Tribunal passed an order admitting the Company Petition filed by Respondent No. 3 and initiating CIRP of the CD. Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated party. He also informed that Respondent No. 3 intentionally resigned right before the date of admission order dated 18.02.2022 in an attempt to avoid Respondent No. 3 from falling within the definition of related party. vi). The Supreme Court in Phoenix ARC Private Limited vs. Spade Financial Services Limited and others held that if the related party FC ceases to become a related party with the sole intention of participating in the CoC, then it should be considered as a related party for the purpose of Section 21 (2) of the Code. Hence, in view of the above, it is prayed that Respondent No. 2 shall be directed not to convene and conduct any meeting of CoC until dismissal of the Application and to direct Respondent No. 2 to remove Respondent No. 3 from the CoC and to issue directions to IBBI to enquire into the misconduct of Respondent No. 2 in the CIRP of the CD and to initiate appropriate disciplinary proceedings in order to protect the sanctity of the profession of Insolvency Professionals and also that of the CIRP. 3. Respondent No. 3 filed separate counters in the IAs, but however the contentions are the same. The background history of the agreements between Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CD on 11.02.2022. The IRP also took a legal opinion from an independent law firm, which is to the effect that as on ICD, the Bafha could not be treated as a related party. The said opinion was sought before constituting the CoC and hence it shows that the IRP has diligently performed his duties. c) The Ministry of Corporate Affairs (MCA) record clearly shows the end date of directorship of Mr. Praful Prakash Bafha and Mr. Yogesh Prakash Bafna as 11.02.2022 while the ICD in the present case is 18.02.2022. The other contentions need not be mentioned as they are not relevant. 6. Rejoinder is filed by Bafha to the counters, reiterating that Bafna clearly falls within the definition of related party. The contention of Bafna that Mr. Praful Prakash Bafha and Mr. Yogesh Prakash Bafna have resigned from the position of directors on 11.02.2022 due to sustained non filing of balance sheets of the CD is absolutely false. The nominees of Bafha were representing 50% of the board of the CD and could have very well taken steps to file balance sheets and annual returns. The IRP in his counter stated that having regard to the details as per the RoC records as on the ICD i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n application under Section 7 of the IBC, which was admitted and the CD was taken into CIRP. However, there is no dispute that Mr. Praful Bama and Mr. Yogesh Bafna would continue to be nominal directors till their resignation comes into effect. 10. The issue before this Tribunal now in this case is whether the resignation of Bama came into effect and whether the said resignation would exclude them from the category of related party and whether they can be members of CoC. The counsel for Bafha relies on a judgment of NCLAT in Sai prosperity Apartments vs. ASK investments services limited which held that the Insolvency Law Committee of 2020 has clarified that under the 1st proviso to section 21(2) under the code is related not to the debt itself but the relationship between a related party and financial creditor and the corporate debtor. As such, the financial creditor who is in praesenti not a related party, would not be debarred from being a member of CoC. There is absolutely no quarrel with the above proposition. The quarrel is on the service of the Resignation letter on the Company as mandated by section 168 of the Companies Act, until which time the resignation does not com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dressing, prepaying and posting by registered post. It is held that unless the two conditions are satisfied, Section 27 of the General Clauses Act, 1897 will not apply. In this case the mode of service is through courier. For better appreciation of the facts Section 27 of the General Clauses Act, 1897 is extracted here under: 27. Meaning of service by post. - Where any (Central Act) or Regulation made after the commencement of this Act authorizes of requires any document to be served by post, where the expression serve or either of the expressions give or send or any other expression in used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing pre-paying and posting by registered post, a letter containing the document, and unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post Hence, Section 27 of the General Clauses Act, 1897 under which the notice has to be served by post cannot be applied to a service by courier. Apart from that, the Counsel for the FC submits that the pin code number mentioned in the track record and the one men ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never being provided to the financial creditor is not complete. The effect of the said lapse is not explained. Until the time the resignation comes into effect, Bafha continues to be nominee directors, which leads to a strong presumption that they are related parties and that they were playing the role as specified in the agreements between the CD and Bafha. Section 3(24) does not exclude those directors who are not under the control of the promoter of the CD, from the purview of Related parties. Hence the contention in that regard is not merited. Bafha falls under Section 24 (a), hence whether they acted according to the other clauses, is not material. Judgment in ASK Investment Managers case is not relevant to the facts of this case. In section 7 application filed by Bafha, the CD has alleged certain lapses on the part of Bafna, like failure to finalise Annual Business plan, wrongful stoppage of factory etc, which imply that Bafha has been in considerable control of the affairs of the CD. No finding in that regard is given by tins tribunal or any other forum, One of the allegations made by Bafha in section 7 application is that the CD had withdrawn various amounts without the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igned from the directorship of the CD and dropped from the meeting and thereafter the resignation letters dated 11.02.2022 were received along with screen shots of MCA site reflecting 11.02.2022 as the end date of their tenure as directors in the CD. He also once again verified from the MCA site at their end at the time of constitution of CoC. The notice dated 11.02.2022, mentioned that the director is resigning with immediate effect and as per Section 168(2) of Companies Act, 2013, the resignation of director shall be effective from the date specified by the director in the said notice. Hence, the IRP treated the date of resignation of Mr. Praful Bafha and Mr. Yogesh Bafha as 11.02.2022. He further stated that as a matter of abundant precaution, he sought and obtained a detailed legal opinion dated 14.03.2022 from an independent and reputed law firm before constituting the CoC. His contention is that he has acted bonafide and that he is unnecessarily made a scapegoat. It is possible that Mr. Praful Bama and Mr. Yogesh Bama might have informed the IRP that they have tendered their resignation on 11.02.2022 and that the IRP might have believed the same, without proper verification. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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