The NCLAT rules in favour of the Appellant, setting aside the NCLT's decision, and mandates the inclusion of the Appellant in the CoC with voting rights during the CIRP.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and found no substantial evidence to support the contention that the appellant influenced the Corporate Debtor's decisions or policy-making. It also dismissed the argument that Rembert Biemond's positions automatically made the Appellant a related party.
In the case brought before the National Company Law Appellate Tribunal (NCLAT), the Appellant, a foreign financial creditor, had filed an appeal contesting the order issued on 11th December 2023 in I.A.(IB) No.1649/KB/2023. This application sought inclusion in the Committee of Creditors (CoC) and the granting of voting rights, which had been denied in the impugned order.
The facts revealed that the Appellant had provided loans and advances to the Corporate Debtor, totalling Rs. 158,97,81,571/-. Despite having no director appointed on the Corporate Debtor's board, the Appellant found itself entangled in a legal battle concerning its status in the CoC.
The Corporate Debtor, originally promoted by the Bansal Family, had seen significant changes, including the exit of its promoters due to creditor pressure. Rembert Biemond, a director in the Corporate Debtor and one of the Appellant's managing directors, played a pivotal role.
The Corporate Insolvency Resolution Process (CIRP) initiated against the Corporate Debtor prompted the Appellant to file a claim. However, its attempt to gain representation in the CoC was met with rejection by the Interim Resolution Professional (IRP), leading to the appeal.
During the proceedings, arguments revolved around whether the Appellant could be considered a related party under Section 5(24)(h) and (m) of the Insolvency and Bankruptcy Code (I&B Code). The IRP and other respondents contended that the Appellant's association with the Corporate Debtor, particularly through Rembert Biemond's roles, warranted related party status.
Conversely, the Appellant argued against this characterization, emphasizing its separate legal identity and lack of direct involvement in the Corporate Debtor's affairs. It challenged the notion that Rembert Biemond's actions could be attributed to the Appellant.
NCLAT Bench observed the interpretation of Section 5(24)(h) and 5(24)(m) of the Insolvency and Bankruptcy Code (IBC), which defines "related party" concerning a corporate debtor. Under Section 5(24)(h), a related party is defined as someone on whose advice, directions, or instructions a director, partner, or manager of the corporate debtor is accustomed to act. The NCLAT concluded that there was no evidence proving the Appellant influenced the actions of the corporate debtor's management.
Similarly, under Section 5(24)(m), a related party includes those associated with the corporate debtor due to participation in policy-making processes, interchange of managerial personnel, or provision of essential technical information. The NCLAT Bench found no indication that the Appellant participated in the corporate debtor's policy-making or provided essential technical information.
Ultimately, the NCLAT ruled in favour of the Appellant overturning the Adjudicating Authority's decision. It directed the IRP to include the Appellant in the CoC with corresponding voting rights based on its admitted claim in the CIRP. Additionally, the Appellate Tribunal emphasised the corporate entity's separate legal identity from its shareholders.
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