NCLAT upheld the exclusion of a related party from the CoC and affirmed the RP’s authority under Section 5(24) of the IBC.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey reviewed an Appeal and held that the Resolution Professional had the authority to determine a creditor’s related party status under Section 5(24) of the IBC, and the appellant’s exclusion from the Committee of Creditors was justified based on substantive legal findings of control and influence, rather than procedural lapses. The NCLAT upheld the Adjudicating Authority’s decision, affirming that the appellant was rightly classified as a related party, thereby barring its participation in the CoC.
The present appeal arose from the Order dated September 23, 2022, passed by the National Company Law Tribunal (NCLT), Kolkata, in I.A. No. 390 of 2022, wherein the application filed by Hari Vitthal Mission (Appellant) challenging the Resolution Professional’s (RP) decision to classify it as a "related party" of Suasth Healthcare Foundation (Corporate Debtor) was rejected, leading to its exclusion from the Committee of Creditors (CoC). The dispute originated from a financial arrangement in October 2017, where the Corporate Debtor sought financial assistance of Rs. 44.2 crore from the Appellant for the construction of a hospital, which included an obligation to reserve 100 beds for underprivileged patients. The Appellant provided Rs. 50 crore as an interest-free refundable security deposit, but upon project delays and default by the Corporate Debtor, the agreement was terminated in July 2021. The Corporate Debtor subsequently filed an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC), admitted by the NCLT on August 31, 2021, initiating the Corporate Insolvency Resolution Process (CIRP). The Interim Resolution Professional (IRP) initially admitted the Appellant’s claim and included it in the CoC; however, upon the appointment of a new RP, the Appellant’s status was reviewed, and by a letter dated February 7, 2022, it was classified as a related party and excluded from the CoC.
The RP’s decision was based on an alleged connection between the Appellant and the Kanoria Foundation, which purportedly controlled the Corporate Debtor through various entities, including SREI Infrastructure Finance Limited and Trinity Alternative Investment Managers Limited. The NCLT upheld the RP’s decision, finding sufficient evidence of control, which led to the present appeal before the National Company Law Appellate Tribunal (NCLAT). The Appellant argued that the RP had exceeded his authority in determining its related party status without substantive evidence and contended that the Kanoria Foundation, being a trust, could not be classified as a holding company under Section 5(24) of the IBC. Additionally, it was asserted that the alleged control over the Corporate Debtor ceased once SREI entered CIRP in October 2020.
The Respondents defended the NCLT’s ruling, arguing that the Appellant was rightly classified as a related party under Section 5(24) of the IBC. The counsel for Respondent No. 2 provided an organogram to establish the Kanoria Foundation’s control over both the Appellant and the Corporate Debtor through shareholding and contractual arrangements. The shareholding structure indicated that Kanoria Foundation held 99.9% of the Appellant’s shares and also controlled Adisri Commercial Private Limited, which in turn held a 60.36% stake in SREI Infrastructure Finance Limited (SIFL). SIFL, along with key individuals, held 50.88% in Trinity Alternative Investment Managers Limited (TAIML), thereby extending control over the Corporate Debtor through various investment schemes. Additionally, contractual control was demonstrated through TAIML’s role as the settlor and investment manager of SREI Alternative Investment Trust (SAIT), which controlled entities holding a 99.99% stake in the Corporate Debtor. The Appellant was thus deemed a related party under Section 5(24)(i), (j), and (h) of the IBC, and its exclusion from the CoC was justified to prevent conflicts of interest, as supported by the Supreme Court’s rulings in Phoenix Arc Private Limited v. Spade Financial Services Limited, REEDLAW 2021 SC 02501 and ArcelorMittal India Private Limited v. Satish Kumar Gupta and Others, REEDLAW 2018 SC 10541.
The Tribunal examined the precedents relied upon by the Appellant and found them inapplicable. The judgment in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni and Another, REEDLAW 2024 SC 02527, was distinguished on the ground that it pertained to the setting aside of a resolution plan due to procedural lapses, whereas the present case involved a substantive finding of related-party status under Section 5(24). Similarly, Sri Parmeshwari Prasad Gupta v. Union of India was deemed irrelevant as it dealt with a failure to provide notice rather than statutory disqualification. The Tribunal also rejected the Appellant’s reliance on Committee of Creditors of Essar Steel v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505, clarifying that the doctrine of Actus Curiae Neminem Gravabit did not apply, as the exclusion was based on a well-established factual finding rather than procedural irregularities. The reference to ArcelorMittal India Private Limited v. Satish Kumar Gupta and Others, REEDLAW 2018 SC 10541, was misplaced as it concerned the eligibility of resolution applicants under Section 29A of the IBC, whereas the present dispute centred on related-party exclusion under Section 5(24). The Tribunal also dismissed the reliance on Bharat Damodar Kale v. State of Uttar Pradesh, which dealt with procedural rules under criminal law and was inapplicable to the present insolvency matter.
The NCLAT upheld the RP’s authority to determine the related party status of creditors and affirmed the NCLT’s findings, ruling that the Appellant’s classification was legally justified under Section 5(24) of the IBC. The appeal was dismissed, with all pending interlocutory applications closed, and no order was passed as to costs.
Mr. Akshay Ringe, Ms. Megha Mukherjee and Mr. Dhananjay Gupta, Advocates, represented the Appellant.
Mr. Sunil Fernandes, Sr. Advocate, Mr. Deep Roy, Ms. Rajshree Chaudhary, Ms. Diksha Dadu, Mr. Rony O. John and Mr. Dhaval Savla, Advocates, appeared for Respondent No. 1.
Mr. Gopal Jain, Sr. Advocate, Mr. Raunak Dhillon, Ms. Isha Malik and Ms. Niharika Shukla, Advocates, appeared for Respondent No. 2/ CoC.
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