21 (1)

Can Assignee be treated as non-related party and voted in CoC meetings when Financial Debt transferred by related party Financial Creditor on an arm-length transaction during ongoing CIRP – Peanence Commercial Pvt. Ltd. and Anr. Vs. Mamta Binani, RP for Rolta India Ltd. – NCLAT New Delhi

In this case, Rolta Pvt. Ltd. entered into MoU with Peanence Commercial Pvt. Ltd. for assignment of debt for a one-time consideration. It was argued that the Assignment for consideration of Rs.50 Crore is an arm-length transaction and Peanence Commercial Pvt. Ltd. is not a related party to the Corporate Debtor nor there is any disqualification attached to the Assignee to be part of the Committee of Creditors.
Hon’ble NCLAT held that:

(i) Present is a case where in fact no assignment has taken place. What is entered between the parties is agreement for assignment that is contingent on approval by the Resolution Professional that Assignee will be given a seat in the CoC.
(ii) The Adjudicating Authority has rightly noticed the judgment of the Hon’ble Supreme Court in Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. & Ors. (2021) ibclaw.in 03 SC.
(iii) At this stage, the Assignment Agreement which has been entered by the parties and has been communicated to the Resolution Professional, clearly indicates that Rolta Pvt. Ltd. is trying to bring its Assignee to create hurdles and delay in the CIRP of the Corporate Debtor.

Can Assignee be treated as non-related party and voted in CoC meetings when Financial Debt transferred by related party Financial Creditor on an arm-length transaction during ongoing CIRP – Peanence Commercial Pvt. Ltd. and Anr. Vs. Mamta Binani, RP for Rolta India Ltd. – NCLAT New Delhi Read Post »

CoC constituted on the basis of provisional list of claims and exclusion/delayed inclusion of a Financial Creditor from/on the CoC is prejudicial to the best interests of the Corporate Debtor – Edelweiss Asset Reconstruction Company Ltd. Vs. Mohit Goyal – NCLAT New Delhi

NCLAT held that Section 21(1) of the IBC imposes a pre-condition that the IRP shall only after collation of all claims received against the Corporate Debtor and after determination of the financial position of the Corporate Debtor constitute a CoC. The word “collation” ordinarily means verification of claim. The procedure for verification of claims is outlined in Regulation 13. It is also important to note that Section 24(6) provides that each creditor shall vote by the voting share assigned to him based on financial debts owed to such creditor. A duty is also imposed on the Resolution Professional to determine the voting share assigned to each creditor. While it is true that the claims were not submitted by the Appellant before the last date, it cannot be discounted that he had in clear terms stated that he was in the process of submitting his claims as a financial lender. However, in the same breath, we must add that while it is a well settled proposition that time is of essence under IBC, overzeal shown as in the present case, carries with it the risk of stifling the basic canons of fairness and justice, which must be obviated.

CoC constituted on the basis of provisional list of claims and exclusion/delayed inclusion of a Financial Creditor from/on the CoC is prejudicial to the best interests of the Corporate Debtor – Edelweiss Asset Reconstruction Company Ltd. Vs. Mohit Goyal – NCLAT New Delhi Read Post »

Resolution Professional is not duty bound to collate claims which are belatedly received after the last date thereby delaying the entire CIRP which is a time bound process – The Deputy Commissioner Division-VII, Central GST Vs. Mr. Kiran Shah, RP of Vicor Stainless Pvt. Ltd. – NCLAT New Delhi

NCLAT held that the Resolution Professional was not duty bound to collate claims which are belatedly received after the last date thereby delaying the entire CIRP which is a time bound process and further having regard to the fact that the claim of the Appellant was incorporated in the Information Memorandum which was circulated to the Prospective Resolution Applicant and the Members of the Committee of Creditors for their consideration, there is no dereliction of duty on behalf of the IRP/RP as provided for under Sections 18 and 21(1) of the Code.

Resolution Professional is not duty bound to collate claims which are belatedly received after the last date thereby delaying the entire CIRP which is a time bound process – The Deputy Commissioner Division-VII, Central GST Vs. Mr. Kiran Shah, RP of Vicor Stainless Pvt. Ltd. – NCLAT New Delhi Read Post »

All the statutory provisions for the conduct of CIRP are interlinked, it doesn’t leave any scope to the IRP/RP to skip any of the provisions & when the constitution of the CoC itself is found to be tainted, then the decision of that CoC cannot be validated on the pre-text of exercise of commercial wisdom – Jayanta Banerjee Vs. Shashi Agarwal Liquidator of INCAB Industries Ltd – NCLAT New Delhi

In the instant case, entire CIRP proceedings were conducted & completed even without any valuation of the Corporate Debtor. The IRP has constituted the CoC even without admitting the claims, formed based on claims submitted. No Information Memorandum was prepared, and the decision to liquidate the Corporate Debtor was taken. There was no publication of Form G for inviting expression of interest.
NCLAT set aside liquidation order and held that CIRP regulations are exhaustive and include a provision to deal with all the eventualities that may arise in the conduct of the CIRP. Section 21(1) imposes a precondition for the collation of all claims received to determine the financial position of a Corporate Debtor. The word ‘collation’ used in sub-section 21(1) means verification of claims. The literal meaning of the word ‘collation’ is the comparison of a copy with its original to ascertain its correctness. Under Regulation 12(3) of CIRP Regulations, the IRP/RP has no discretionary power to constitute the CoC without admission of a claim. Without verification and admission of a claim, the IRP cannot assign the voting share to a creditor, and without that, there cannot be a meeting of the CoC. When the Constitution of the CoC itself is found to be tainted, then the decision of that CoC cannot be validated on the pretext of exercise of commercial wisdom.

All the statutory provisions for the conduct of CIRP are interlinked, it doesn’t leave any scope to the IRP/RP to skip any of the provisions & when the constitution of the CoC itself is found to be tainted, then the decision of that CoC cannot be validated on the pre-text of exercise of commercial wisdom – Jayanta Banerjee Vs. Shashi Agarwal Liquidator of INCAB Industries Ltd – NCLAT New Delhi Read Post »

A decision taken by the Adjudicating Authority in regard to admission or rejection of a claim cannot be questioned by the Resolution Professional in appeal before NCLAT – Mr. Avil Menezes RP of AMW Auto Component Ltd. Vs. M/s. Shah Coal Pvt. Ltd. – NCLAT New Delhi

NCLAT held that it is flabbergasting to find that the appeal has been preferred by the Resolution Professional who is part of the CIRP mechanism and in terms of Section 21(1), he is only supposed to collate the claims which implies comparison with the record and verification. Unlike a Liquidator who is empowered to admit or reject a claim under Section 40 of the Code against which an appeal lies to the Adjudicating Authority (NCLT), the Resolution Professional is not vested with any adjudicatory powers and being a part of the mechanism all actions taken by him are subject to control of the Adjudicating Authority.

A decision taken by the Adjudicating Authority in regard to admission or rejection of a claim cannot be questioned by the Resolution Professional in appeal before NCLAT – Mr. Avil Menezes RP of AMW Auto Component Ltd. Vs. M/s. Shah Coal Pvt. Ltd. – NCLAT New Delhi Read Post »

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. and Ors. – Supreme Court

An issue of interpretation in relation to the first proviso of Section 21(2) is whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or if the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt. Thus, facially, it would appear that the use of the simple present tense in the first proviso to Section 21(2) indicates that the disqualification applies in praesenti. Furthermore, this interpretation would also be supported by a reading of the first proviso to Section 21(2), in light of the definition of ‘related party’ under Section 5(24), which uses phrases such as ‘is accustomed to act’ or ‘is associated’ to define a related party in the present tense.(p82 & 84).

While the default rule under the first proviso to Section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the CoC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder. Mr Kaul has argued, correctly in our opinion, that if this interpretation is not given to the first proviso of Section 21(2), then a related party financial creditor can devise a mechanism to remove its label of a ‘related party’ before the Corporate Debtor undergoes CIRP, so as to be able to enter the CoC and influence its decision making at the cost of other financial creditors. (p95)

Only those Financial Creditors that are related parties in praesenti would be debarred from CoC under the first proviso to Section 21(2), those related party Financial Creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to Section 21(2), should also be considered as being covered by the exclusion thereunder – Phoenix Arc Pvt. Ltd. Vs. Spade Financial Services Ltd. and Ors. – Supreme Court Read Post »

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