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2024 Supreme(Online)(NCLAT) 903
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Hon'ble Justice Rakesh Kumar Jain (Member(Judicial)) , Hon'ble Mr. Naresh Salecha (Member (Technical)) , Hon'ble Mr. Indevar Pandey (Member (Technical)) ,
HARI VITTHAL MISSION – Appellant
Versus
RAVI SETHIA & ORS – Respondent
1206/ND/2022 COMPANY APPEAL(AT)(INS)
Mr. Akshay Ringe, Ms. Megha Mukherjee, Mr. Dhananjay Gupta, Mr. Sunil Fernandes, Mr. Deep Roy, Ms. Rajshree Chaudhary, Ms. Diksha Dadu, Mr. Rony O John, Mr. Dhaval Savla, Mr. Gopal Jain, Mr. Raunak Dhillon, Ms. Isha Malik, Ms. Niharika Shukla
The classification of a financial creditor as a related party under the IBC is valid when substantial control and influence are established through shareholding structures.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 5(24) - Related party classification - Appellant challenged exclusion from Committee of Creditors (CoC) based on classification as related party to Corporate Debtor - Appellant provided financial assistance for a hospital project, but was later deemed related party due to connections with Kanoria Foundation - Tribunal upheld exclusion, finding substantial influence and control over Corporate Debtor by Kanoria Foundation through shareholding structure. (Paras 1, 34, 35, 44, 59)
(B) Powers of Resolution Professional - The Resolution Professional is empowered to determine related party status of creditors for the purpose of constituting the CoC, ensuring that related parties do not participate in decision-making. (Paras 38, 59)
Facts of the case:
The Appellant provided significant funding to the Corporate Debtor for a charitable hospital project, but default led to insolvency proceedings. The Appellant was classified as a related party due to its connections with Kanoria Foundation, which controlled the Corporate Debtor.
Findings of Court:
The Tribunal found that the Appellant was rightly classified as a related party, based on the influence exerted by Kanoria Foundation and the shareholding structure.
Issues: Whether the Appellant was correctly classified as a related party and whether the Resolution Professional had the authority to make this determination.
Ratio Decidendi: The court affirmed that the Appellant's connection to Kanoria Foundation established it as a related party under Section 5(24) of the IBC, thus justifying its exclusion from CoC participation.
Result: Appeal dismissed.
J U D G M E N T
(5th November, 2024)
INDEVAR PANDEY, MEMBER (T)
This appeal arises from the Order dated September 23, 2022, passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata, in I.A. No. 390 of 2022, part of C.P. (IB) (KB) No. 204 of 2021. This Order rejected Hari Vitthal Mission’ (Appellant) application challenging the Resolution Professional's (Respondent No. 1) decision to classify the Appellant as a "related party" of the Suasth Healthcare Foundation (Corporate Debtor), which led to the Appellant’s removal from the Committee of Creditors (CoC) of Corporate Debtor (CD).
2. The brief facts of the case are as follows:
(i) In October 2017, Suasth Healthcare Foundation (CD), approached Hari Vitthal Mission /Appellant to raise Rs. 44,20,00,000/-. The request was made to support the construction of a hospital aimed at providing free and affordable medical care to the public. This project was aligned with the charitable objectives of Appellant, which was engaged in providing healthcare relief to the poor. Consequently, an agreement was signed on 10th October 2017 between CD and Appellant. According to the agreement, Appellant committed to provide financial assistance of Rs. 44.2 crore to the CD. In return, the CD agreed to reserve 100 hospital beds for Appellant, to be used for treating underprivileged patients free of cost. The CD further committed to complete the hospital’s construction by December 2018 and making it fully operational by April 2019.
(ii) To ensure this, Appellant provided Rs. 50 crore as an interest-free refundable security deposit. A clause in the agreement stipulated that if the hospital was not operational by the December 2018 deadline, the full deposit would become payable with 10% interest. The CD defaulted on its obligations as the project could not be completed on time. By July 2021, the CD was in default which lead to termination of the agreement.
(iii) In view of the default, the CD filed an application under Section 10 of the IBC, 2016, seeking to initiate a voluntary insolvency resolution process. On 31st August 2021, the NCLT, Kolkata Bench, admitted CD’s application and initiated the CIRP process. Mr. Arun Kumar Khandelia was appointed as the Interim Resolution Professional (IRP).
(iv) Shortly after his appointment, the IRP issued a public announcement on
3rd September 2021, in accordance with Sections 13(2) and 15 of the Insolvency and Bankruptcy Code, inviting creditors to submit their claims against the Corporate Debtor. The Appellant, as a financial creditor, submitted its claim of Rs. 62,16,33,563 on 15th September 2021. This claim was verified by the IRP and duly admitted. Following the verification, the IRP constituted the Committee of Creditors (CoC), with Appellant as one of its members.
(v) In the second CoC meeting held on 8th October 2021, the members passed a resolution to replace the IRP with Mr. Ravi Sethia as the Resolution Professional (RP). This decision was approved by a majority of the CoC members, and the NCLT formally appointed Mr. Ravi Sethia as the RP on 15th November 2021. At this point, Appellant continued to be a member of the CoC, attending the meetings and exercising its rights as a financial creditor.
(vi) On 31st December 2021, the Resolution Professional, Mr. Ravi Sethia, sent an email to the appellant and its key managerial personnel, informing them that the Appellant had been identified as a related party of the Corporate Debtor. The RP’s notice was based on an internal review of documents and a legal opinion. The email requested Appellant to show cause by 3rd January 2022 as to why it should not be excluded from the CoC, given its alleged status as a related party under Section 5(24) of the IBC. The Resolution Professional’s contention was that Appellant had a connection with Kanoria Foundation (KF), which purportedly had indirect control over the Corporate Debtor through a series of entities, including SREI Infrastructure Finance Limited (SIFL) an
