National Company Law Appellate Tribunal
Asset Reconstruction Company (India) ... vs Vr2 Land Development Private Limited on 9 December, 2025
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Insolvency) No. 289-291 of 2024
& I.A. No. 1015, 1016, 1017, 2540 of 2025
(Arising out of orders dated 04.01.2024 and 16.01.2024 passed by the Ld.
National Company Law Tribunal, Mumbai Bench-1 in I.A. No. 1272 of 2021
& I.A. No. 4944 of 2023 and in I.A. No. 2193 of 2021 in C.P.(IB) No. 4464 of
2019)
In the matter of:
Rare Asset Reconstruction Company
Limited
Having its registered office at 104-106 Gala
Argos, Beside Hari Krupa Tower Gujarat
College Road, Ellisbridge, Ahmedabad,
Gujarat-380006.
.......... Appellant
Vs
1. VR2 Land Development Private
Limited
having registered office at: Unit No. l-34,
Lower Ground Floor Prime Mall, Besides
IRLA Church IRLA SOC. Road Vileparle
West, Mumbai City, Mumbai,
Maharashtra - 400056
2. Bleu Noir Infrastructure Development
Private Limited
having registered office at: B-101, Satra
One, Building no. 9, opp. Gurunanak
Garden, Goregaon West, Mumbai,
Maharashtra - 400104
3. Rushabh Praful Satra
2
having residence at: 702, Rehana
heights, 6 Chapel Lane, Santacruz
West, Mumbai, Maharashtra - 400054
4. Jayesh Sanghrajka
Resolution Professional of Satra
Property Developers Private Limited
having office at: 405-407, Hind
Rajasthan Building, D.S. Phalke Road,
Dadar East, Mumbai, Maharashtra -
400014
5. Narendra Kumar
having residence at: B/301 Arena 2,
Poonam Garden, Mira Road, Thane,
Maharashtra - 401107
6. Balaji Raghavan
having office at: Office no. 225 Second
Floor, the Summit Business Park
Premises Co-op soc. Ltd, off
Andherikurla Road, Mumbai City,
Andheri, Maharashtra, India, 400093
7. Padmavati Housing Private Limited
having registered office at: Gala 3, Pearl
Glass Compoundl. B. Patel Road, Opp.
Puja Restaurant & Bar, Goregaon East,
Mumbai, Maharashtra - 400063
8. Nandi Vardhan Infrastructure Limited
having registered office at: 2403, A-
wing, Marathon Futurex, Mafatlal Mills
Compound, N M Joshi Marg, Lower
Parel, Mumbai City, Mumbai,
Maharashtra - 400013
9. IIFL Finance Limited
having registered office at: IIFL House,
Sun Infotech Park, Road No. 16V, Plot
Company Appeal (AT) (Insolvency) No. 289-291 of 2024
3
No.B-23, Thane Industrial Area, Wagle
Estate, Thane, Maharashtra - 400 604
............Respondents
Present:
For Appellant : Mr. Abhijeet Sinha, Sr. Advocate, Mr. Abhirup
Dasgupta, Mr. Ishaan Duggal, Ms. Ruchi Goyal, Ms.
Heena Kochhar, Advocates.
For Respondents : Mr. Malak Bhatt, Ms. Neeha Nagpal and Mr. Mandeep
Singh, Advocates for R2 and R3.
Mr. Tishampati Sen, Ms. Riddhi Sancheti, Mr. Dikshat
Mehra, Mr. Anurag Anand and Mr. Mukul Kulhari,
Advocates for R4.
Mr. Aman Varma, Ms. Riya Wasade, Advocates for R-7.
JUDGMENT
(Hybrid Mode) [Per: Ajai Das Mehrotra, Member (Technical)] The present appeal is being filed against the order dated 04.01.2024 passed by the Ld. National Company Law Tribunal, Mumbai Bench-1 in I.A. No. 1272 of 2021 & I.A. No. 4944 of 2023 and order dated 16.01.2024 in I.A. No. 2193 of 2021 in C.P. No. 4464 of 2019.
2. Brief facts of this case are as under:
• IIFL Finance Private Limited (hereinafter referred as "IIFL") sanctioned loan facilities of 65 crores to Satra Property Developers Private Limited (hereinafter referred as "SPDPL"), the Corporate Debtor on 24.12.2015.
• IIFL filed petition under Section 7 of IBC, 2016, before the Ld. NCLT, which was dismissed as withdrawn in terms of the consent terms on 13.09.2019.
• In a separate proceeding under Section 7 of IBC, 2016, the Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor viz. SPDPL.
Company Appeal (AT) (Insolvency) No. 289-291 of 2024 4 • IIFL filed its claim of outstanding financial debt, which was verified and admitted on 07.11.2020 by the IRP, and IIFL was made member of the Committee of Creditors (CoC).
• Another Financial Creditor, Anchor Leasing wrote to the Resolution Professional (hereinafter referred as "RP") that IIFL is a "related party"
• In the 15th CoC held on 07.08.2021, the resolution plan given by Padmavati Housing Private Limited and Nandi Vardhan Infrastructure Limited (Respondent Nos. 7 and 8 herein) for revival of CD/SPDPL was approved by the CoC by 74.49% voting share.
• VR2 Land Development Private Limited (Respondent No. 1 herein) filed an I.A. No. 1272 of 2021 and Blue Noir Infrastructure Development Private Ltd. (Respondent No. 2 herein) filed an I.A. No. 4944 of 2023 before the Ld. NCLT. In the said IAs the Applicants stated that IIFL is a related party of the Corporate Debtor and is therefore not entitled to right of representation/voting in the meeting of CoC and that the engagement of Sri Jayesh Sanghara Raikara as RP should be terminated and another RP should be appointed. In I.A. No. 4944 of 2023 it was also requested that CoC be reconstituted and the CIRP of the Corporate Debtor be restarted.
3. In the present appeals, following reliefs have been sought:
"A. Allow the instant Appeal;
B. Set aside the Impugned Orders dated 04.01.2024 passed by the Ld. NCLT in I.A. Nos. 1272 of 2021 & 4944 of 2023 and Order dated 16.01.2024 passed by the Ld. NCLT in I.A. No. 2193 of 2021 in CP(IB) No. 4464 of 2021; and C. Consequently, quash and set aside the email dated 06.01.2024 sent by the Respondent No. 4 disqualifying IIFL (and Company Appeal (AT) (Insolvency) No. 289-291 of 2024 5 consequently the Appellant) to represent, participate and vote in the CoC of the Corporate Debtor;
D. Pass any such further orders as this Hon'ble Appellate Tribunal may deem fit and proper in the facts and circumstances of the matter."
4. Through the impugned order dated 04.01.2024, the Ld. NCLT held as under:
"9. Heard learned Counsel. Perused the material on record. 9.1. We find that both the emails, dated 13.9.2019 and 3.10.2019, were marked to [email protected] as CC and no other person from 'JS and Co' is marked therein. In this backdrop, the reference of 'JS and Co' in the email dated 3.10.2019 that "while the diligence process for SPDPL is ongoing by JS and Co." assumes significance. It is pertinent to note that Respondent No. 1 had given written communication in Form-2 to act as IRP in the application filed by the Respondent No. 2 on 18.1.2019.
9.1.1. We note that the email dated 15.11.2019 sent to [email protected] was in relation to change in Registered Office and not in relation to due diligence for acquisition of shares of Corporate Debtor by Mid-city and in one of email dated 15.11.2019 from Parmy Sheth, Respondent no. I is also marked CC. In view of this, we do not find merit in the argument of Respondent No.1 that he had no connection with Parmy Seth 9.1.2. Further, the Email dt. 13.09.2019 from Abid Ali records that "Please keep the list of the documents ready, we will ask Jayeshbhai team to start taking the handover from Monday onwards for SPDPL and email dated 03.10.2019, records that "While the diligence process for SPDPL is ongoing by JS and Co, some data which is critical needs to be provided. Please confirm by when the following points can be provided".
9.1.3. The Respondent No. 1 has stated that his association with Respondent No. 2 group for their professional work is not in violation of code of conduct applicable to him. However, IBB!, the regulator for Insolvency Professionals, has published a "Handbook on Ethics for Insolvency Professional - Ethical and Regulatory Framework" and it states that Integrity and Objectivity are among the fundamental principles of ethics for Insolvency Professionals. As per the First Schedule of the IP Regulations, an IP is required to be objective in his dealings i.e. decisions be made without conflict of interest, bias, coercion, or undue influence of any party, whether direct or indirect. This was also aptly captured in the Order of the Disciplinary Committee of IBBI in the Disciplinary Committee Case No. IBBI/DC/ 16/2019, dated April 17, 2019, where the Committee opined that: " When relationship triumphs over merits in professional matters, there is no place for Company Appeal (AT) (Insolvency) No. 289-291 of 2024 6 independence, integrity and impartiality. A professional must not only be impartial, but also appear to be impartial .. . Any conduct, whether explicitly prohibited in the law or not, is unfair if it impinges on independence, integrity and impartiality of an IP or inconsistent with the reputation of the profession." The handbook at page 22 thereof provides examples of circumstances that might create a conflict of interest and such examples include cases where a significant relationship has existed with the entity or someone connected with the entity, or where an IP has or others in their firm have. previously carried out one or more assignments for an entity and I or its wider group ang they are appointed as an insolvency office holder to the entity or its connected entities. 9.1.4. The facts brought on record evidence that the Respondent No. 1 had given his consent on 18.1.2019 to act as IRP in the Petition filed by Respondent No. 2 against the Corporate Debtor. This Petition was withdrawn later on by Respondent No. 2 consequent upon execution of consent terms and the Corporate Debtor was otherwise admitted into CIRP on Petition by another creditor later on i.e. 10.8.2020. The facts placed on record evidences that Respondent No. 1 had provided services to carry out due diligence to conclude the sale of shares of Corporate Debtor to Mid-City in consequence of consent terms during the period starting from September 2019 onwards. It is clear from the email communication dated 13.9.2019 and 3.10.2019 that The Respondent No. 1 was clearly involved in the due diligence process in his personal capacity.
9.1.5. The explanation offered by Respondent No. 1 that one of independent company secretary had provided some services to IIFL is also correct but is a cleverly crafted statement to digress the attention from the due diligence work. On perusal of emails exchanged in November 2019, we find that one Parmy Sheth was handling only assignment of change of registered office and was using the email domain of 'jsandco', which is also used by the Respondent No.2 while carrying out his Insolvency related professional duties. This indicates that the respondent No. 1 and his other associates were working in tandem under the common umbrella. We further find that the documents sought vide emails exchanged in September, 2019 & October, 2019 were in relation to take over of Corporate ·Debtor and change of registered office, which Parmy Sheth dealt with was one of its off-shoot. In this backdrop of facts, we can't resist the inevitable conclusion that the Resolution Professional i.e. Respondent No. 1 was closely associated in the exercise of take over of Corporate Debtor by Mid- city prior to his engagement in the CIRP of same Corporate Debtor later on as Resolution Professional. Though, it has been pleaded that the Respondent No. 1 was engaged as Resolution Professional by the CoC unanimously, we are of considered view that this fact can't absolve the Respondent No. 1 from his obligation to disclose his association with Respondent No. 2 and Corporate Debtor in the past to the CoC members. We have no Company Appeal (AT) (Insolvency) No. 289-291 of 2024 7 hesitation to hold that the Respondent No. 1 has failed in his duty to act Objectively, which requires him not only to remain Independent but also appear to be Independent.
9.1.6. It has been pleaded before us that IBBI has already examined these aspects and found no violation of Regulatory Framework as evidenced from its affidavit filed before High Court at Mumbai. We are not aware of scope of inquiry, IBBI carried out in this relation. Considering the present facts, we find that the Respondent No.1 was responsible for carrying out the due diligence and to take over process on behalf of Mid-City at the behest of Respondent No. 2 for acquisition of the 100% shares of Corporate Debtor. These facts need to be taken into consideration for examining whether the Respondent No. 1 could have been said to be Objective and Independent in discharge of his duties as Resolution Professional of Corporate Debtor when later on he came to be appointed as Resolution Professional by CoC. Considering these facts, we are of considered view that the IBBI may examine these aspects and take appropriate action, if any required, in relation to conduct of Respondent No. 1.
9.1.7. As regards prayer for termination of the Respondent No. 1 as Resolution Professional, we find that a Resolution Plan approved by CoC is pending for approval before this Tribunal and if such plan is approved, the office of Resolution Professional shall be rendered functus officio. Even otherwise, if this Tribunal does not approve the plan, the prayer for replacement of Respondent No. 1 can be considered at that juncture in case this Tribunal considers the case of Corporate Debtor fit for fresh CIRP. Accordingly, at this juncture, we are of considered view that this prayer is meaningless.
9.2. The Applicants have not demonstrated as to how the claim of Respondent No. 2 was inflated. The Respondent No. 2 had filed Company Petition 175 of 2019 claiming a debt of Rs. 1,09,08,59,532/- (Rupees One Hundred and Nine Crore Eight Lakh Fifty-Nine Thousand Five Hundred and Thirty Two Only). Further, there is no prayer in the present application seeking reverification of claim of Respondent No. 2, therefore, we are not inclined to interfere in relation to the admission of claim of Respondent No. 2 considering that the then IRP must have admitted such claim on the basis of evidence(s) filed by Respondent No. 1.
9.3. As regards issue of transfer of shares of Corporate Debtor to Mid-City thus divesting the ownership of Corporate Debtor to it by erstwhile Promoters, we find that the Consent terms dated 31.01.2018 amongst IIFL, Satra Group and MJS group contemplated formation of a new SPV for the development rights of the Project Satra Hills, however, these consent terms never came to be implemented.
9.3.1. It was pleaded before us that the disbursement of loan by Respondent No. 2 to Mid-City for acquisition of shares of Corporate Company Appeal (AT) (Insolvency) No. 289-291 of 2024 8 Debtor was a transaction undertaken in normal course of money lending and it cannot be said that Mid-City is a facade for Respondent No. 2. To buttress this argument, Respondent No. 2 filed a loan agreement dated 7.9.2019 between Mid-City and Respondent No. 2 whereby the loan was repayable in equal quarterly instalments starting from the end of 39th month from the date of first draw down and last quarter ending on last date of 60th month. The interest was payable at the end of 24th month from the first drawdown date of the facilities. The said loan was secured against, inter-alia, a first ranking pari-passu charge in favour of lender by way of registered mortgage on development rights of Corporate Debtors share along with SPIL's share in the "Satra Hills" Project and scheduled receivable, additional receivables and all insurance proceeds both present and future from the projects and pledge of 100% equity shares of SPDPL to be held by Mid-City.
9.3.2. We find that a term sheet dated 18.6.2019 was issued sanctioning the loan of Rs. 45.00 crores to Mid-City and accepted by Mid-City. The said term sheet specifies the end use of such loan, which contemplates that the proceeds of loan must be utilized for acquisition of project through purchase of shares of Corporate Debtor i.e. Satra Property Developers Pvt Ltd and for the project related expenses, approvals of the project "Satra Hills". The term sheet further contemplates "clear, marketable, unencumbered title of all the properties given as security for the facility". It further stipulated execution of "Business Transfer Agreement between Corporate Debtor and SPIL and transfer of assets and liabilities as per agreement to be completed. 9.3.3. We find that the consent terms were executed between the Respondent No. 2 and promoters of Corporate Debtor on 09.09.2019, whereas the term sheet sanctioning the loan to Mid- City is dated 18.6.2019, which is during the pendency of Company Petition No. 175 of 2019 filed on 9.4.2019. This suggests that it was a pre-meditated transaction.
9.3.4. Further, we find that the sanction of loan to Mid-City by Respondent No. 2 was intended for the purpose of "Utilisation of proceeds of loan towards the "acquisition of project through purchase of shares of Satra Property Developers Pvt. Ltd. and for project related expenses, approvals of the project Satra Hills"
during pendency of Company Petition No. 175 of 2019. The MCA records shows that no charge was ever created on the Project Satra Hills by the Corporate Debtor and SPIL, even though there was clear stipulation of mortgage of their respective shares in "Satra Hills" project, apart from receivables therefrom. These facts clearly evidence that the Respondent No. 2 disbursed the loans to Mid-City without complying with the conditions precedent in this respect and this could happen only where the lender is in comfortable position having acquired the control of entity having control over the Project.
Company Appeal (AT) (Insolvency) No. 289-291 of 2024 9 9.3.5. We further find that Mid-City is having authorised capital of Rs. 50,00,000/- and paid-up capital of Rs. 1,33, 110/- as per financial statements for the year ended on 31.3.2019. We are of considered view that sanction of a loan of Rs. 45.00 crores to a company with its own capital base of Rs. 1,33, 110/- can't be said to be a transaction of lending in the ordinary course of business as it is against the followed financial norms by the lenders, unless the deviation from such followed financial norms is compensated otherwise to secure the lending. This is further fortified by the fact that the amount of Rs. 40.00 crores was disbursed to Mid-City by payment to SPIL, the transferor of shares of Corporate Debtor and this amount was paid back to Respondent No.2 by SPIL towards repayment of dets. This transaction is nothing but the evergreening of its loan portfolio by the Respondent No. 2 with Mid-City acting as conduit to facilitate the same 9.3.6. The Applicant in IA 4944 of 2023 has also placed on record the what's app chats and has filed the requisite affidavit in terms of section 65B of the Indian Evidence Act, 1871. The what's app chat (Page 209 of IA 4944/2023) amongst the members of what's group named as "Satra Consent Terms" lists the liabilities of Satra Group. The said communication contains the gist of consent terms stating that "Satra will transfer 100% shareholding of its SPDPL to the developer I entity (New Shareholders) recommended by IIFL, the consideration will be returned .to IIFL ". This corroborates with the facts on record, where Mid-City acquired 100% shares of Corporate Debtor; the purchase consideration is funded by Respondent No. 2 as loan; and the amount of such purchase consideration travels back to Respondent No. 2. It is pertinent to note here that the Respondent No. 1 is part of this group and referred in some chats.
9.3.7. Further, another what's app chat (Page 203 of IA 4944/2023) provides list of What's app group members and Respondent No. 1 is member thereof apart from Mr. Amit Jain and Mr. Abidali of Respondent No. 2. Mr. Abidali has posted a message (page 204 of IA 4944/2023) stating that "Have created this group as discussed to resolve the queries that Quantum has pertaining to the Ghatkopar Project". It is pertinent to note that "Ghatkopar Project" is the "Satra Hills" Project.
9.3.8. The What's App chats by Respondent No. 4 members of Stra Group between 15th Nov. 2019 to 20th December 2019 show the Respondent No. 4 being in charge of staff salaries, payment of statutory dues and other day to day affairs of the Corporate Debtor.
9.3.9. The above facts demonstrate that the Respondent No. 2, a lender of the Corporate Debtor, on one hand, had filed proceedings before this Tribunal under section 7 of the Code and on the other hand, during the pendency of said proceedings, it has simultaneously proceeded to finance its acquisition by a company, the financial credentials of which does not demonstrate that the Company Appeal (AT) (Insolvency) No. 289-291 of 2024 10 transaction of loan by the Respondent No. 2 was merely a lending transaction to Mid-City. These facts otherwise lead to a conclusion that Company Petition No. 175 of 2019 filed on 9.4.2019 and later on withdrawn on 13.9.2019 was with an intent other than the resolution of the Corporate Debtor.
9.3.10. The Applicants have also argued that the Respondent No. 2 is a related party in terms of section 5(24)(h) of the Code, which includes in the definition of 'Related Party' qua a Corporate Debtor "any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act".
We find that the directors of Mid-City became directors of Corporate Debtor apart from Respondent No. 3. It is not in dispute that the Respondent No. 3 is in employment of the Respondent No. 2 and is stated to have been appointed to look after the interest of Respondent No. 2 as lender. However, the what's app chats placed in I.A. 4944/2023 further demonstrate that the Respondent No. 2 was involved in the day to day affairs of the Corporate Debtor through Mr. Abidali. Since, we have found that the transaction of loan to Mid-City is not a normal transaction, but to facilitate the acquisition of the Corporate Debtor's 'Satra Hills' project by the Respondent No. 2 and the Respondent No. 2 was in a position to exercise dominant control over the affairs of Mid-City on account of lending of 40.00 crores against its paid capital of few lacs, we have no hesitation to hold that the Respondent No. 2 is a person who is associated with the corporate debtor on account of participation in policy making processes of the corporate debtor and can be said to be a related party and can also be said to be a person on whose advice, directions or instructions, a director of the corporate debtor is accustomed to act.
9.4. The evidences clearly indicate that Mid-City was merely a conduit to take over the Corporate Debtor by Respondent No. 2, and Respondent No. was exercising control over the affairs of the Corporate Debtor through Mr. Abid Ali post this acquisition of Corporate Debtor. It is also clearly evident that Mid-City is nothing but merely a facade of Respondent No. 2. Accordingly, we have no hesitation to hold that Respondent No. 2 is related party of Shareholder of Corporate Debtor i.e. Mid-City. Having said so, we direct the Resolution Professional to consider the status of Respondent no. 2 accordingly in the CoC. As regards approval of Resolution Plan by CoC, where Respondent No. 2 had absolute majority, we consider it appropriate to deal with the same while passing Orders in I.A. 2193/2021 pending for Orders on the Resolution Plan.
9.5. No order for costs are considered desirable by us in view of complexities of facts involved in the present application and absence of direct evidences.
10. In view of the foregoing, IA 1272/2021 and IA 4944/ 2023 are partly allowed."
(Emphasis supplied) Company Appeal (AT) (Insolvency) No. 289-291 of 2024 11
5. In its oral and written submissions, the Learned Counsel for the Appellant submitted that the present appeal was filed on behalf of Asset Reconstruction Company (India) Limited (hereinafter referred as "ARCIL" or "Appellant") who was the bonafide assignee of debt of IIFL Finance Limited qua loan given to the Corporate Debtor (SPDPL) by virtue of Assignment Deed dated 30.12.2021 executed by IIFL Finance Ltd. in favour of ARCIL.
Subsequently, by virtue of Assignment Agreement dated 05.04.2025 during pendency of this appeal, the said loan was assigned by ARCIL to Rare Asset Reconstruction Ltd. (Rare ARC) and substitution of appellant was allowed by this Tribunal on 29.04.2025.
6. It is submitted that the Appellant has stepped into the shoes of ARCIL and IIFL as a Secured Financial Creditor of the Corporate Debtor in accordance with Section 5(7) of the IBC,2016. It is submitted that the Ld. NCLT has erroneously held that IIFL is a related party of a shareholder of the Corporate Debtor and has directed the RP to consider the status of IIFL in the CoC accordingly.
7. The appellant is also challenging the impugned order dated 16.01.2024 passed by the Ld. NCLT in IA No. 2193 of 2021 in CP No. 4464 of 2019 wherein resolution plan in the CIRP of the Corporate Debtor was rejected on the grounds that the plan has been approved by 74.49% vote share of CoC, of which IIFL had 68.92% vote share and vide order dated 04.01.2024 passed in IA No. 1722 of 2021, IIFL is held to be a related party of shareholder of the Corporate Debtor, namely, Mid-City, which holds majority share capital of the Corporate Debtor. It was held IIFL could not have been inducted into the CoC, and was not entitled to vote and if its vote share is excluded, the resolution Company Appeal (AT) (Insolvency) No. 289-291 of 2024 12 plan could muster only 5.56% in favor as against 18.91% rejecting the plan.
Through the impugned order, the CoC was directed to take appropriate decision whether to publish another Form G and continue the CIRP or seek liquidation of the Corporate Debtor. Liberty was granted to the Successful Resolution Applicant (SRA) to participate again in case CoC proceeds to publish fresh Form G.
8. It was submitted that both the Respondent Nos. 1 and 2 who had objected to the status of IIFL are themselves related parties of the promoters of the Corporate Debtor. The Respondent No. 1 itself has been admitted into CIRP subsequently.
9. It was submitted that IIFL is in no way related to the promoters of the Corporate Debtor, and its actions including financing of Mid-City or nomination of nominee director in the Corporate Debtor were to ensure the security of loans given by it to the Corporate Debtor. The Financial Creditor-
IIFL is not a related party can also be seen by its conduct of filing application under Section 7, which was withdrawn only because of the consent terms, and also from the fact that it is only the promoters, and the company promoted by them who are objecting to its presence in the CoC.
10. It was further submitted that there are no common directors or shareholders between IIFL, ARCIL and Rare ARC and it is nobody's case that Rare ARC, the present assignee of the debt, is a related party of IIFL or ARCIL pr the Corporate Debtor. It was submitted that it is the debt which is assigned and not the relationship. It was further submitted that RP has not raised any objection regarding IIFL being related party and it is the promotors who have raised the objection. It was further submitted that the Ld. NCLT was aware Company Appeal (AT) (Insolvency) No. 289-291 of 2024 13 that the debt has been assigned to ARCIL when the impugned order was passed on 16.01.2024.
11. The Learned Counsel for the Appellant has referred to the order dated 08.06.2022 wherein ARCIL was allowed to be the additional Respondent in the I.A. No. 1272 of 2021.
12. The Learned Counsel for the Appellant referred to decision of Hon'ble Supreme Court in the case of Phoenix ARC Private Limited v. Spade Financial Services Limited & Ors., (2021) 3 SCC 475. In the said judgment, in para 98 which is reproduced below, the Hon'ble Supreme Court had given the rationale for the first proviso to Section 21(2) of IBC, 2016 which excludes the related party of the Corporate Debtor from the CoC:
"98. Hence, we would need to consider the meaning of the first proviso in the light of the context, object and purpose for which it was enacted. The purpose of excluding a related party of a corporate debtor from the CoC is to obviate conflicts of interest which are likely to arise in the event that a related party is allowed to become a part of the CoC. The logic underlying the exclusion has been summarised as follows;
"11.9. The Committee was of the view that the disability under the first proviso to Section 21(2) is aimed at removing any conflict of interest within the CoC, to prevent erstwhile promoters and other related parties of the corporate debtor from gaining control of the corporate debtor during the CIRP by virtue of any loan that may have been provided by them."
In para 102 and 103 of the said judgment, the Hon'ble Supreme Court has held as under:
"102. In this regard, it is relevant to note the observations in the Insolvency Law Committee Report of 2020 clarifying the Company Appeal (AT) (Insolvency) No. 289-291 of 2024 14 eligibility of third-party assignees of the debt of a related party creditor, to be members of the CoC. It was observed:
"11.9.... As a third-party assignee, who by itself is not a related party. would not have any such conflict of interest, it should not be disabled from participating in the CoC. Further, the aforesaid disability is not related to the debt itself but is based on the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section 21(2) pertains to the related party financial creditor and not to the debt it is owed, the Committee agreed that it is clear that when a related party financial creditor assigns her debt to a third party in good faith, such third party should not be disqualified from participating, voting or being represented in a meeting of the CoC.
11.10. However, the Committee discussed that in certain cases. a related party creditor may assign its debts with the intention of circumventing the disability imposed under the first proviso to Section 21(2) by indirectly participating in the CoC through the assignee. As a related party is expressly prohibited from participating in the CoC. it cannot do so indirectly by assigning its debt to a third-party assignee for the purposes of circumventing this restriction. Therefore, in order to prevent any misuse, the Committee recommended that prior to including an assignee of a related party financial creditor within the CoC, the resolution professional should verify that the assignee is not a related party of the corporate debtor. In cases where it may be proved that a related party financial creditor had assigned or transferred its debts to a third party in bad faith or with a fraudulent intent to vitiate the proceedings under the Code, the assignee should be treated akin to a related party financial creditor under the first proviso to Section 21(2)."
(emphasis supplied)
103. Thus, it has been clarified that the exclusion under the first proviso to Section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor. As such, the financial creditor who in praesenti is not a related party, would not be debarred from being a member of the CoC. However, in case where the related party financial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating in the CoC and sabotage the CIRP, by diluting the vote share of other creditors or otherwise, it would be in keeping with the object and purpose of the first proviso to Company Appeal (AT) (Insolvency) No. 289-291 of 2024 15 Section 21(2), to consider the former related party creditor, as one debarred under the first proviso."
(Emphasis supplied)
13. The Learned Counsel for the Resolution Professional referred to page 6 to 10 of his Affidavit dated 21.08.2024. The relevant para of the Affidavit referred to by him is reproduced below:
"9.1. That IFL is an NBFC and is engaged in the business of lending;
9.2. That under the Term Sheet dated December 24, 2015 and Mortgage cum Loan Agreement dated February 4, 2016, IIFL had disbursed certain credit facilities to the Corporate Debtor at the rate of 22% p.a;
9.3. That the aforesaid facilities extended by IIFL to the Corporate Debtor were secured inter alia by a registered mortgage, hypothecation on receivables, charge on an escrow account, personal guarantee of the then directors and pledge of shares;
9.4. That under Clause 16 of 'Other Terms and Conditions' contained in the Term Sheet dated December 24, 2015, IIFL had the option to appoint a 'nominee director' on the board of the directors of the Corporate Debtor. Clause 16 of the said Term Sheet is reproduced as under:
"16. The Lender will have the option to appoint their nominee a member/observer of the Board of Directors of the Borrowing Company"
9.5. That under Article 7 ('Representations and Warranties') of the Mortgage cum Loan Agreement dated February 4, 2016, the Corporate Debtor had represented that no director or relative of the director of IIFL was a 'related party' to the Corporate Debtor. Article 7 is reproduced as under:
"7.1.(z) - The Borrower declares that no director or a relative (as specified by RBI) of director of the Lender is a partner of the Borrower, or a trustee, member, director, manager, employee of the Borrower, or of a subsidiary of the Borrower, or of the holding company of the borrower or a guarantor on behalf Company Appeal (AT) (Insolvency) No. 289-291 of 2024 16 of/or/to the Borrower, or holds substantial interest in the Borrower or in the subsidiary or in the holding company of the Borrower."
9.6. That IIFL had filed an application for initiation of corporate insolvency resolution process of the Corporate Debtor under Section 7 of the Code viz. C.P. 175 of 2019 which was settled in view of the Consent Terms dated September 9. 2019 and that the Corporate Debtor in the said Consent Terms has clearly acknowledged and admitted that it owes financial debt to IIFL.
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13. It is further stated and submitted that the undersigned has no relationship with IIFL as per the types of disclosable relationship prescribed by IBBI through the afore mentioned circular. I repeat and reiterate that the Firm had acted in an independent and professional capacity with regard to services sought by IIFL at the relevant time. I further state and submit that the fees charged by the Firm for the said assignment was not 5% or more of the Firm's gross revenue in the relevant financial year. Infact no fees has also been charged. Therefore, I submit that there is no breach in my duty to disclose any relationship as alleged in the complaint.
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15. It is worthwhile to highlight that I have been appointed as the R.P. of the Corporate Debtor by the entire CoC and with its 100% majority (and not IIFL alone) had confirmed my appointment as the R.P. of the Corporate Debtor in the 2nd CoC Meeting as already mentioned above.
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19. At this juncture it is worthwhile to highlight that the Affidavit filed by the IBBI in the matter before the Hon'ble High Court of Bombay also pointed out that IIFL is not a related party of the Corporate Debtor. Furthermore, the Hon'ble NCLT, Mumbai Bench itself has in its Orders dated December 5, 2023 and November 22, 2023 admitted the claim filed by IIFL as a Company Appeal (AT) (Insolvency) No. 289-291 of 2024 17 financial debt. The copies of the Affidavit filed before the Hon'ble High Court of Bombay and the Orders dated December 5, 2023 and November 22, 2023 passed by the Hon'ble NCLT are hereto annexed and marked as Annexure B."
(Emphasis supplied)
14. The Learned Counsel for the Resolution Professional submitted that a different person (Mr. Devarajan Raman) was appointed as Interim Resolution Professional, and the present Resolution Professional was appointed subsequently. It was further submitted that IBBI in Affidavit filed before the Hon'ble Bombay High Court has submitted that IIFL is not a related party of the Corporate Debtor.
15. The Learned Counsel for the Respondent No. 2 stated that it was on their application that the Appellant herein was held to be a related party. The conduct of IIFL reflected that it was in the management and control of the Corporate Debtor and was thus was a related party under Section 5(24)(h) of the IBC, 2016.
16. M/s IIFL gave a loan of Rs.65 crores to the Corporate Debtor for the Satra project and charge was created on the entire project. In March, 2018 they discussed to settle the loan and the proposal was that 40% of the shareholding of Corporate Debtor will be taken up by IIFL, 40% by M.J. Shah and 20% by Anchor Leasing. Subsequently, the employees of IIFL started attending the meeting for slum rehabilitation on behalf of the Corporate Debtor.
17. On 18.01.2019, IIFL filed an application under Section 7 against the Corporate Debtor and the Resolution Professional who was nominated by IIFL Company Appeal (AT) (Insolvency) No. 289-291 of 2024 18 is presently the Resolution Professional. It was alleged that Resolution Professional did due diligence on behalf of IIFL so that associate of IIFL may takeover.
18. Subsequently, Section 7 was not admitted because of consent terms arrived at on 09.09.2019. The Corporate Debtor (SPDPL) had agreed to transfer shares of Corporate Debtor to nominee of IIFL. Earlier, SPIL (holding company) held 100% shares of the Corporate Debtor (SPDPL). On 13.09.2019, the Ld. Adjudicating Authority took on record the consent terms and Section 7 was disposed of. The IIFL granted loan to Mid-City which than purchased shares of SPDPL. The IIFL had funded Mid-City which then purchased shares from SPIL and the consideration for the shares was utilized by SPIL to repay the loan taken from IIFL. As a result of these circuitous transactions, the shares of SPDPL came to Mid-City and the funds were routed back to IIFL through Mid-City and SPIL. Earlier, IIFL had charge over the project but now Mid-City got charge over the project. This clearly showed round tripping of funds. The nominee of IIFL came on the board of directors of SPDPL. The Mid-
City was only in front and it is a company with very small share capital of Rs.1,45,000/-.
19. Heard the Ld. Counsels for the Appellant and Respondents and perused the records of this case.
20. The instant appeal challenges the order of Ld. NCLT dated 04.01.2024 holding that IIFL is a related party and order of Ld. NCLT dated 16.01.2024 rejecting the resolution plan given by Respondent No. 7 and Respondent No. 8 on the grounds that the plan has been approved by 74.49% vote share by the CoC of which 68.92% vote share is of IIFL, held to be a related party of Company Appeal (AT) (Insolvency) No. 289-291 of 2024 19 Corporate Debtor vide Ld. NCLT order dated 04.01.2024 and if its vote share is excluded, the plan is not passed by requisite vote share of 66% as prescribed in Section 30(4) of IBC, 2016.
21. We note that the prospective resolution applicants, Respondent No. 7- Padmavati Housing Private Limited and Respondent No. 8-Nandi Vardhan Infrastructure Limited have not filed any appeal against the impugned orders dated 04.01.2024 and 16.01.2024. We note that allegations against Resolution Professional were examined by IBBI and proceedings were closed on 12.09.2022.
22. We note that claim of IIFL was admitted by Resolution Professional and IIFL was made member of Committee of Creditors (CoC) with proportionate rights though Ld. NCLT treated it as a "related party". We note that IIFL had assigned its debt to ARCIL on 30.12.2021. This assignment has been accepted and has not been challenged by anyone. Initially the appeal was filed by ARCIL. However, later, the said debt was assigned by ARCIL to Rare ARC on 05.04.2025. ARCIL had also informed the Corporate Debtor and Resolution Professional regarding assignment of debt to Rare ARC vide letter dated 09.04.2025. This assignment also has not been challenged. Subsequent to the assignment Rare ARC was duly substituted as the appellant vide order dated 29.04.2025.
23. We note that the issue of IIFL being a related party is of not much relevance now as the debt has been subsequently assigned to ARCIL, and later to Rare ARC. As per the list of directors and shareholders of Corporate Debtor, IIFL, ARCIL and Rare ARC submitted by the appellant it is seen that there are no common directors or shareholders in these entities. It is seen that the Company Appeal (AT) (Insolvency) No. 289-291 of 2024 20 shares of IIFL are mainly held by the public with 75.01% of shares and by the promotors group with 24.99% of shares. The shares of ARCIL are mainly held by banks, namely, ICICI Bank holds 13.26%, the Federal Bank Limited holds 1.27%, the Karnataka Bank Ltd. holds 2.64%, the South Indian Bank Ltd.
holds 1.27%, ICICI Home Finance Company Ltd. holds 2.26%, State Bank of India holds 19.95%, IDBI Bank Ltd. holds 19.18%, Punjab National Bank holds 10.01% and Lathe Investment Pte. Ltd. holds 5% and Avenue India Resurgence Pte. Ltd. holds 25.03% of the share capital. The major shareholders in Rare ARC are Renaissance Fiscal Services Pvt. Ltd. (41.36%), Praveen K. Jain (19.58%), Sunita Jain (9.85%), Priyanka Jain (9.84%), Sweta Jain (6.22%) and Vardhaman Investments Pte. Ltd. (9.85%). It is seen that there are no common shareholders in Corporate Debtor, IIFL, ARCIL and Rare ARC. Similarly, there are no common directors in these entities.
24. It is nobody's case that Rare ARC, the present appellant is a related party of the Corporate Debtor in terms of Section 5(24) of the IBC,2016. Both the entities to whom debt is assigned, namely, ARCIL and later, Rare ARC are independent entities and are not related to the Corporate Debtor.
25. The Hon'ble Supreme Court in the case of Phoenix ARC Pvt. Ltd. vs. Spade Financial Services Ltd. & Ors. [(2021) 3 SCC 475] has held that the disqualification attached under Section 21(2) of the IBC, 2016 regarding membership, representation and voting rights in the Committee of Creditors is applicable only in praesenti. The Hon'ble Supreme Court in the said judgment has held as under:
"102. In this regard, it is relevant to note the observations in the Insolvency Law Committee Report of 2020 clarifying the Company Appeal (AT) (Insolvency) No. 289-291 of 2024 21 eligibility of third-party assignees of the debt of a related party creditor, to be members of the CoC. It was observed:
"11.9.... As a third-party assignee, who by itself is not a related party. would not have any such conflict of interest, it should not be disabled from participating in the CoC. Further, the aforesaid disability is not related to the debt itself but is based on the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section 21(2) pertains to the related party financial creditor and not to the debt it is owed, the Committee agreed that it is clear that when a related party financial creditor assigns her debt to a third party in good faith, such third party should not be disqualified from participating, voting or being represented in a meeting of the CoC.
11.10. However, the Committee discussed that in certain cases. a related party creditor may assign its debts with the intention of circumventing the disability imposed under the first proviso to Section 21(2) by indirectly participating in the CoC through the assignee. As a related party is expressly prohibited from participating in the CoC. it cannot do so indirectly by assigning its debt to a third-party assignee for the purposes of circumventing this restriction. Therefore, in order to prevent any misuse, the Committee recommended that prior to including an assignee of a related party financial creditor within the CoC, the resolution professional should verify that the assignee is not a related party of the corporate debtor. In cases where it may be proved that a related party financial creditor had assigned or transferred its debts to a third party in bad faith or with a fraudulent intent to vitiate the proceedings under the Code, the assignee should be treated akin to a related party financial creditor under the first proviso to Section 21(2)."
(emphasis supplied)
103. Thus, it has been clarified that the exclusion under the first proviso to Section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor. As such, the financial creditor who in praesenti is not a related party, would not be debarred from being a member of the CoC. However, in case where the related party financial creditor divests itself of its shareholding or ceases to become a related party in a business capacity with the sole intention of participating in the CoC and sabotage the CIRP, by diluting the vote share of other creditors or otherwise, it would be in keeping with the object and purpose of the first proviso to Company Appeal (AT) (Insolvency) No. 289-291 of 2024 22 Section 21(2), to consider the former related party creditor, as one debarred under the first proviso."
(Emphasis supplied)
26. The Hon'ble Supreme Court in judgment cited above has held that a third party assignee, who itself is not a related party would not have any conflict of interest and should not be stopped from participating in the CoC.
The Hon'ble Supreme Court has held that disability pertains to the related party, and not to the debt, and any assignment of debt in good faith to an unrelated independent third party should not disqualify the assignee/transferee from participating or voting in the CoC. Only if the assignment is done with a malafide intention of circumventing the disqualification under Section 21(2) of IBC, 2016 it can be examined by the Resolution Professional.
27. In the present case, the Resolution Professional has supported the case of the appellant and his submissions are noted in para 13 and 14 above.
28. ARCIL as well as Rare ARC are large public limited asset reconstruction companies with no common shareholdings and directors with Corporate Debtor or IIFL, and it cannot be said the debt has been assigned to them only to become member of the CoC. Clearly the appellant Rare ARC, the financial creditor in praesenti is not a related party of the Corporate Debtor. Following the guidelines given by the Hon'ble Supreme Court in the judgment of Phoenix ARC (supra), we hold that the appellant herein i.e. Rare ARC is not a related party of the Corporate Debtor and is thus entitled to participate in the COC with proportionate voting rights. The impugned orders dated 04.01.2024 and 16.01.2024 are modified to this extent.
Company Appeal (AT) (Insolvency) No. 289-291 of 2024 23
29. It has been submitted that a fresh Form-G was issued by the Resolution Professional on 29.01.2024 and thereafter, a revised Form-G was issued on 24.04.2024. Against the said Form-G, two resolution plans have been received but they have not been considered by the COC in view of the directions issued by this Tribunal vide order dated 13.02.2024 wherein Resolution Professional was directed not to place the plans before CoC or to call any meeting of CoC for consideration of the resolution plan. The said interim order dated 13.02.2024 stands vacated in view of directions given in para 28 above. The Rare ARC is to be made member of COC with proportionate voting rights. The pending resolution plans can be considered by the re-constituted COC to carry forward the resolution of the Corporate Debtor.
30. In the result, the appeals are disposed of. Pending application(s), if any, are also closed. No order as to costs.
[Justice Yogesh Khanna] Member (Judicial) [Mr. Ajai Das Mehrotra] Member (Technical) Place: New Delhi Dated: 09.12.2025 Ram N. Company Appeal (AT) (Insolvency) No. 289-291 of 2024