JUDGMENT :

Dhananjaya Y Chandrachud, J.

This judgment has been divided into sections to facilitate analysis. They are:

A The appeals

B CIRP for the Corporate Debtor

C Proceedings before NCLT

D Proceedings before NCLAT

E Transactions of the Corporate Debtor

F Relationship between Anil Nanda and Arun Anand

G Whether Spade and AAA are financial creditors of the Corporate Debtor

G.1 Submission of Counsel

G.2 Assessment of preliminary submissions

G.2.1 Res Judicata

G.2.2 Issues before NCLAT

G.2.3 Remand to NCLAT

G.3 Analysis

G.3.1 Statutory Provisions

G.3.2 Financial Creditor and Financial Debt

G.3.3 Collusive Transactions

G.3.4 Spade and AAA

H Whether Spade and AAA are related parties

H.1 Submission of Counsel

H.2 Statutory provisions

H.3 Analysis

I Whether Spade and AAA can be excluded from the CoC

I.1 Submissions of Counsel

I.2 Related Parties and CoC

I.3 Amendment to First Proviso of Section 21(2)

I.4 Related Parties - Interpretation In Praesenti

J Conclusion

A The appeals

1. This judgment would govern two sets of appeals arising from the judgment of the National Company Law Appellate Tribunal (“NCLAT” or “Appellate Tribunal”). By a judgment dated 27 January 2020, NCLAT dismissed the appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) preferred by AAA Landmark Private Limited (“AAA”) and Spade Financial Services Private Limited (“Spade”) to assail the order dated 19 July 2019 of the National Company Law Tribunal, New Delhi Bench -III (“NCLT” or “Adjudicating Authority”). The NCLT had held that AAA and Spade have to be excluded from the Committee of Creditors (“CoC”) formed in relation to the Corporate Insolvency Resolution Process (“CIRP”) initiated against AKME Projects Limited (“Corporate Debtor”). NCLT passed its order dated 19 July 2019 on applications¹[CA No. 337/2018 and CA No. 338/2019 (Phoenix); CA No. 268/2018 and CA No. 269/2018 (Yes Bank).] filed by Phoenix Arc Private Limited (“Phoenix”) and YES Bank under Section 60(5)(c) of the IBC.

2. Phoenix, in Civil Appeal No. 2842 of 2020, submits that though the NCLAT correctly dismissed the appeal filed by Spade and AAA, holding that they are related parties of the Corporate Debtor and are hence to be excluded from the CoC, there is an erroneous finding that they are financial creditors. In paragraph 11 of its judgment, the NCLAT has observed that:

“…admittedly appellants are the financial creditors of the corporate debtor AKME Projects Limited...”

It has been submitted that there was never any admission on the part of Phoenix that AAA and Spade are financial creditors. The appeal by Phoenix seeks to challenge the above finding on the ground that:

(i) It is contrary to the record; and

(ii) The specific stand of Phoenix is that both AAA and Spade are not even creditors of the corporate debtor, much less financial creditors.

Phoenix is thus in appeal under Section 62 of IBC, confined to the finding that AAA and Spade are financial creditors.

3. Spade and AAA have independently filed an appeal under Section 62, Civil Appeal No. 3063 of 2020, in order to assail the decision of the NCLAT dated 27 January 2020 affirming their exclusion from participating in the CoC on the ground that they are related parties of the Corporate Debtor in terms of Section 5(24) and the first proviso to Section 21(2) of IBC.

4. Based on the above appeals, three issues have arisen for consideration before this Court:

(i) Whether Spade and AAA are financial creditors of the Corporate Debtor;

(ii) Whether Spade and AAA are related parties of the Corporate Debtor; and

(iii) Whether Spade and AAA have to be excluded from the CoC.

B CIRP for the Corporate Debtor

5. The brief facts of the case are that CIRP has been initiated against the Corporate Debtor on 18 April 2018 on an application filed by an operational creditor, Mr. Hari Krishan Sharma, under Section 9 of IBC.

6. During the CIRP, claims were invited