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TMI Blog2023 (12) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... E&G Global Estates Limited , Mr. Gajesh Labhchand Jain Resolution Professional of E&G Global Estates Limited , Mrs. Asha Sanap, Dnyaneshwar Chaudhari , Mr. Ganesh K Ahire, Mr. Hiraman Patil, Small Industrial Development Bank of India Specialized Asset Recovery Branch (SARB) And G.S. Constructions Versus E & G Global Estates Ltd. , Gajesh Labhchand Jain , Jitender Kothari, Asha Sanap , Small Industries Development Bank of India Specialized Asset Recovery Branch (SARB), Bela Gujarati , Pallavi Girish Malani , Govind Malani , Madan Vallabhdas Devi , Mina Gopal Gokhale , Gaurav Anil Mahajan , Gokulsingh Morkar [ Justice Ashok Bhushan ] Chairperson , [ Barun Mitra ] Member ( Technical ) And [ Arun Baroka ] Member ( Technical ) For the Appellants : Mr. Krishnendu Datta , Sr. Advocate with Mr. Pranjit Bhattacharya , Ms. Raj Sarit Khare , Advocates For the Respondents : Mr. Sumesh Dhawan , Mr. Saurya Shyam , Mr. Sagar Thakkar and Mr. Raghav Dembia , Advocates for SRA Mr. Gaurav Mitra , Mr. Aman Varma , Ms. Riya S. Wasade , Advocates for R - 4 , 5 & 6 JUDGMENT [ Per : Barun Mitra , Member ( Technical ) ] These two sets of appeals have been filed challenging the impugned orders dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with 79.60% vote share. The Home Buyers appointed an Authorized Representative to represent their interests in the CoC. * The Appellants -1 filed an IA No. 1430 of 2020 in respect of fraudulent transactions entered between certain set of suspect/fraudulent home buyers and suspended Director of the Corporate Debtor seeking the quashing of the CoC and reconstitution thereof. The Adjudicating Authority disposed of the said IA on 16.09.2020 stating that the outcome of the forensic audit which had been sought by the CoC would provide the way forward. * The Forensic Auditor, appointed on 01.09.2020, submitted its report ("FAR" in short) on 14.01.2021 basis which the RP filed IA 107 of 2021 under Section 66 of the IBC on the fraudulent and circuitous transactions by certain home buyers with the suspended directors of the Corporate Debtor. The RP had sought cancellation of their voting rights as they were not Financial Creditors and for having filed fraudulent claims. Relief was also sought against the suspended directors for returning money back to the Corporate Debtor which had been siphoned off through circular transactions. * The Adjudicating Authority in the matter of IA 107 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected by the Adjudicating Authority vide third impugned order on 11.08.2023 which order has been assailed by Appellant-2. * Aggrieved by the first, second and the third impugned orders, both the Appellants have come up in appeal. 3. More or less identical submissions were made by Learned Senior Counsel for Appellants-1 and Learned Counsel for Appellant-2 and hence for reasons of convenience both their pleadings/arguments are being summed up together. Making their submissions, it was submitted that the Appellants- 1 had filed IA 1430 of 2020 before the Adjudicating Authority seeking the quashing of the irregularly constituted CoC since illegitimate home buyers who had entered into fraudulent and circuitous transactions with the suspended directors of the Corporate Debtor were included in the CoC by the RP. The Adjudicating Authority in its orders dated 16.09.2020 disposed of IA 1430 by observing that conduct of forensic audit would address these concerns. It was submitted that their apprehensions of fraudulent and circuitous transactions were validated by the FAR dated 14.01.2021. It was submitted that the Appellant-2 had also made similar prayers in IA1609 inter alia to set asi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether. It has been contended that IA 1777 of 2021 was filed by the Appellants-1 challenging the constitution of CoC only after the rejection of the resolution plan of GSC as an after-thought. Prior to the approval of the resolution plan of the SRA, the Appellants never raised any objections to the constitution of the CoC and had in fact participated in the voting process without any protest or demur. That the Appellants-1 in IA 1777 of 2021 had also prayed for approval of the resolution plan of GSC manifests their motive which was to revive the rejected resolution plan of GSC though it had failed to secure the requisite majority votes in favour. This shows that their motives are not bona fide in that they aimed only to derail the CIRP process and to somehow manage approval of the resolution plan of GSC. 6. It was also contended that the grounds of non-joinder of necessary parties cited by the Adjudicating Authority in rejecting IA 1777 of 2021 was also right as the alleged suspect/fraudulent homebuyers whose removal from the CoC was sought had not been impleaded by the Appellants-1. Even the RP had been kept away from the list of parties. Even the Appellant-2 in IA1609/2021 had so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IA 1777/2021. It is the contention of the Appellants-1 that they are legitimate owners of Holiday Homes developed by the Corporate Debtor and that they are part of CoC with 16.53% vote share. The Appellants-1 claim that they have reasonable grounds to feel aggrieved as the RP had admitted the claims of certain illegitimate home owners who had committed irregularities which amounted to fraudulent transactions and made them part of the CoC. It was asserted that in IA No. 1430 of 2020, the Adjudicating Authority was convinced of dubious transactions undertaken by the suspended directors of the Corporate Debtor with the illegitimate home owners which had led to ordering of forensic audit of the books of account of the Corporate Debtor. The FAR had clearly set out the fact that fraudulent and circuitous transactions were actually carried out by some home owners and suspended directors. 12. It is also the case of the Appellants that in view of the clear findings of the FAR, the RP had filed IA No. 107/2021 for fraudulent transactions under Section 66 of the IBC and IA No. 149 of 2021 for preferential transactions under Section 43-45 of IBC and prayed that the illegitimate home owners be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allegations were raised by them on the constitution of the CoC, and IA 107 was still pending, these facts were disregarded by the Adjudicating Authority without examining the merits of the same or providing reasons for negating the same. The CoC was illegally constituted with illegitimate home buyers who had entered into collusive arrangements with the suspended directors of the Corporate Debtor and voting undertaken for approval of the resolution plan with a CoC comprising of such illegitimate home buyers. If the votes of the illegitimate home owners were excluded, which should have been the right course of action on the part of the RP, the results of the voting on the resolution plan of SRA would have been different. Relying on the judgments of this Tribunal in Jayanta and Hindalco supra, it was contended that the RP by allowing related parties of the Corporate Debtor to become members of the CoC made the constitution of CoC illegal and rendered decisions undertaken by such an irregularly constituted CoC to be null and void. 15. It may be useful at this stage to notice the first impugned order and would like to extract hereinunder the relevant observations and conclusions arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative under sub-section (6A) of section 21 shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote: 17. In the instant case, the class of creditors (i.e. Home Buyers) have voted in favour of Resolution Plan of Mrs. Asha Snap with 42.03% voting which represents more than 50% of the total voting strength of their class i.e.79.60%. Therefore, the entire vote (i.e. 79.60%) would be considered to have been cast in favour of the plan submitted by Mrs. Asha Sanap, as required in terms of provisions of the Code. 18. In view of the above, the objections raised by the Applicants in an individual capacity as a home buyer are inconsequential as they represent homebuyers in minority and are thus bound by the decision taken by the majority within the class of homebuyers. In this regard, reliance can be placed as the law laid down by the Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. Vs. NBCC(India) Ltd. and Ors.(2022)1 SCC 401 wherein it was held that when Homebuy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re-cited judgment it becomes abundantly clear that Home Buyers can vote for or against the Plan only as a class and if there are some Home Buyers pitted against the Resolution Plan, who are otherwise in minority, they have absolutely no locus to oppose the Plan in the capacity of dissatisfied or dissenting Home Buyers. It is also abundantly clear that such dissenting minority segment within the class of Home Buyers cannot arrogate themselves to be dissenting Financial Creditors." 16. It is an undisputed fact that the Appellants-1 had only impleaded the suspended directors of the Corporate Debtor as parties in IA 1777/2021 and not included the suspect home buyers or even the RP. We therefore find sound logic in the dismissal of IA 1777/2021 by the Adjudicating Authority on the ground that the alleged illegitimate home buyers had not been impleaded in the said IA at a time when their ouster from the CoC was being agitated. Any decision by the Adjudicating Authority to remove these home buyers from the CoC without hearing them would have caused deep prejudice to their interests and been unfair, unequitable, unjust besides running contra to the principles of natural justice. That apar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ambit of preferential, fraudulent, undervalued or extortionate transactions. When the statutory scheme clearly states that it is the duty of Resolution Professional to determine the nature of such transactions and file an appropriate application before the Adjudicating Authority, neither the Appellants-1 being home buyers themselves nor the GSC as unsuccessful resolution applicant are entitled on their own to file applications seeking avoidance of transactions. The ratio of the Jayanta case also cannot come to the aid of the Appellant-1 since in that case the RP without verifying the claims submitted by the Financial Creditors had allotted voting share. Further, the RP had not prepared the Information Memorandum and the CIRP proceedings were conducted without any valuation of the Corporate Debtor. Neither was there any publication of Form G inviting Expression of Interest. Moreover, in that case the CoC had rushed into liquidation of the Corporate Debtor. We therefore cannot commend such unilateral addition of names in the list of suspect home buyers by the Appellants-1. 20. This brings us to the second impugned order passed by the Adjudicating Authority in IA No. 1150/2023 ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra and held that objections raised by a set of home buyers as a minority constituent of the same class of creditors does not hold ground. 23. The Hon'ble Supreme Court in the Jaypee matter has emphasized that the democratic principles of a determinative role of majority opinion have been enshrined in the statutory construct of the IBC and hence the minority homebuyers have to necessarily sail with the majority within the class. Once the CoC has approved the resolution plan by requisite majority and the same is in consonance with applicable provisions of law, the same cannot be a subject matter of judicial review and modification. We are therefore not convinced with the plea raised by the Appellants that the Adjudicating Authority had committed an error in approving the resolution plan. 24. This brings us to the third impugned order passed by the Adjudicating Authority dated 11.08.2023 in I.A. 1609 of 2021 and IA No. 1150/2021 in CP(IB) No. 2995/MB/2019 which has been challenged by Appellant-2/GSC who is an unsuccessful resolution applicant. 25. In IA 1609 of 2021, the Adjudicating Authority has dismissed the prayers of GSC to quash and set aside the CoC of the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sanap." Since we have already recorded our reasonings in the preceding paragraphs affirming the dismissal of IA 1777/2021, we have no reasons to take a different stand and therefore uphold the third impugned order of the Adjudicating Authority dismissing IA 1609/2021. 26. In IA No. 1150/2021, the Adjudicating Authority has approved the resolution plan of the Corporate Debtor. The issues challenged by the Appellant-2 in IA 1150/2021 being the same as those challenged in the first and second impugned orders by the Appellants-1 we do not propose to discuss them again as they have already been dealt in the foregoing paragraphs. We would only like to touch upon the argument proffered by Appellant-2 that the resolution plan could not have been approved by the Adjudicating Authority since applications under Sections 43, 44 and 66 of IBC as contained in IA 149 were still pending before the Adjudicating Authority. 27. We are not inclined to agree with this contention of the Appellant-2 in view of the statutory construct of IBC. The IBC stipulates the conclusion of CIRP in 330 days. Within this prescribed timeline, often the RP is unable to identify avoidable transactions and apply to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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