National Company Law Appellate Tribunal
Srei Infrastructure Finance Limited vs Shri Ashish Chhawchharia & Anr on 18 January, 2022
NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
Principal Bench, New Delhi
Company Appeal (AT) (Ins) No. 1407 of 2019
(Under Section 61 of Insolvency & Bankruptcy Code, 2016)
(Against the Order dated 29.11.2019 in IA No. 85/CTB/2019 in CP (IB)
No.352/KB/2018 passed by the 'Adjudicating Authority', National Company
Law Tribunal, Cuttack Bench)
IN THE MATTER OF:
Srei Infrastructure Finance Ltd.
Having its Registered Office at
"Vishwakarma" 86 C,
Topsia Road, Kolkata - 700046 Appellant
Vs.
1. Shri Ashish Chhawchharia ....Respondent No.1
Resolution Professional of
M/s. Odisha Slurry Pipe
Line Infrastructure Limited (undergoing CIRP)
And having his office at Grant Thornton, 10C,
Hungerford Street, Kolkata - 700 017
2. Committee of Creditors through IDBI Bank ... Respondent No.2
C-Wing, Ground Floor, Mittal Tower,
Nariman Point,
Mumbai - 400 021.
Present:
For Appellant: Mr. Abhijeet Sinha, Ms. Vatsala Rai, Ms. Sayobani
Basu, Advocates
1
Comp App (AT) (INS) No. 1407 of 2019
For Respondents: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Deep Roy
and Mr. Rony O John, Mr. Piyush Swami, Mr. Dhaval
Savla, Mr. Arshdeep Singh, Advocates for R-1.
Mr. Arun Kathpalia, Sr. Advocate with Mr. Suommo
Biswas, Ms. Prabh Simran Kaur, Mr. Parth Gokhale,
Mr. Siddhant Kant, Advocates for R-2 (CoC).
Ms. Shrishti Agnihotri, RP
Mr. Neeraj K Kaul, Sr. Advocate with Mr. Vishal
Gehrana, Mr. Naman Singh Bagga, Advocates for R-3.
JUDGMENT
(VIRTUAL MODE) CA (AT) (INS) 1407 of 2019 Coram: Mr. Justice Jarat Kumar Jain Member (J) Mr. Kanthi Narahari Member (T) Per: Kanthi Narahari Member (T) The present Appeal is filed against the order dated 29.11.2019 in IA/85/2019 in CP No.352 of 2018 passed by the Adjudicating Authority (NCLT, Cuttack Bench) whereby the Adjudicating Authority dismissed the above IA filed by the Appellant. Aggrieved by the same, the Appellant preferred the present Appeal. Appellant's Submissions
1. Shri Abhijeet Sinha Learned Counsel appeared for the Appellant submitted the brief facts.
2. It is submitted that the Appellant is a Financial Creditor in its usual 2 Comp App (AT) (INS) No. 1407 of 2019 course of its business of lending providing Financial Assistance in form of loan to Odisha Slurry Pipe Line Infrastructure Ltd. (Corporate Debtor) (OSPIL for short) which is undergoing CIRP. The CD engaged in business of operating a Slurry Pipeline falling under the definition of infrastructure lending for a principal amount of Rs.136.5 crores by way of loan agreement and supplementary Loan Agreement both dated 28th March 2015. The CD approached the Appellant for disbursement of further credit facility and it agreed to provide further a sum of Rs.290 Crore by way of loan agreement and supplementary agreement both dated 20 th June 2015. Pursuant to the Agreement dated 20th June 2015 the Appellant had disbursed a sum of Rs.185.10 crores out of the sanctioned sum of Rs. 295 crores.
3. The Learned Counsel submitted that the shareholding pattern of Corporate Debtor is as follows:
a) 69.81% of the Equity Shares of the CD held by India Growth Opportunities Fund (for short IGOF)
b) 30.19% of the equity shares of the CD held by Essar Steel India Ltd.
4. For better understanding we refer Srei Multiple Asset Investment Trust as (SMAIT) Srei Alternative Investment Managers Ltd. (SAIML) India Growth Opportunities Fund (IGOF).
5. The IGOF is a scheme of Srei Multiple Asset Investment Trust (SMAIT) 3 Comp App (AT) (INS) No. 1407 of 2019 is managed by Srei Alternative Investment Managers Ltd. (SAIML) a company incorporated under the Companies Act 1956. It is stated that the IGOF is organized as a contributory trust under Indian Trust Act, 1882 and as a scheme of SMAIT. SMAIT is also a trust within the meaning of the Indian Trust Act, 1882 and one Mr. R.N. Ghosh was the Trustee, managing and controlling the SMAIT as a sole trustee.
6. As per the Trust Deed the object and purpose of setting up the Trust was for the purpose of carrying on the activity of an alternative investment fund through its various schemes. The trust has a sole trustee who carries on the fund activities. The SMAIT from time to time has floated various schemes for pooling of investments for investing in various projects. IGOF is one such scheme.
7. Pursuant to the Investment Management Agreement (IMA) executed between SMAIT and SAIML, the SAIML was appointed as Investment Manager of the Scheme, IGOF floated by Private Trust i.e. SMAIT. The Trust is only an obligation annexed to the property and arises of the confidence reposed. The Trust is a legal entity as per the Indian Trust Act, 1882. Thus, the Trustee is a person on whom confidence is reposed. The scheme in question being IGOF is a property whose ownership vests with the Trust i.e. SMAIT. The Learned Counsel emphasized the clauses of the Trust Deed in detail.
8. The Learned Counsel submitted that from the process of the Trust Deed 4 Comp App (AT) (INS) No. 1407 of 2019 as well as investment management agreement dated 22nd May 2013, SAIML who is the investment manager is supposed to act under the supervision and control of the Trustee and Trustee is empowered to float schemes in consultation with the investment manager It is the trustee of the SMAIT who shall continue to remain responsible and liable for acts even if the trustee delegates his act to his subordinates under the Trust Deed. Thus, SAIML is merely an investment Manager who has been appointed by SMAIT to render specific services and SAIML still remains a stranger to SMAIT. It is also stated that SAIML is only responsible for day-to-day management and to provide other Management Beneficiaries and Administrative society to IGOF in accordance with provisions of the Investment Management Agreement. The scope of service of SAIML under the investment management agreement is to solicit, arrange, negotiate, manage, monitor or sell or otherwise dispose of notifying investment IGOF, a scheme mutually agreed to in writing between the Investment Manager and the Trustee and to provide such other Management, Advisory and Administrative Services in respect of the IGOF scheme has been mutually agreed between SAIML and the Trustee. From the above facts, the SAIML is merely an investment Manager and an Advisor to SMAIT. The SAIML has no control over the trust being SMAIT. The Appellant is a holding company of SAIML cannot be a ground to presume that the Appellant controls or exercise positive control of OSPIL. It is submitted that the SAIML neither has de jure or de 5 Comp App (AT) (INS) No. 1407 of 2019 facto control over SMAIT, which is a trust solely controlled and administered by the sole trust. In short, the sole trustee is in de facto control of IGOF scheme which is a scheme of SMAIT, the Trust.
9. The Learned Counsel further submitted that the appointment of SAIML is only with respect to management and administration and not managing activities of the Trust as a whole. The Trustee continues to be a person in overall control and Management of the Trust. As stated supra the sole trustee of SMAIT is in control and Management of the SMAIT Trust and the IGOF Scheme. The SAIML is only a service provider who is appointed by the Trustee to facilitate management and administration of the IGOF scheme.
10. The Learned Counsel further submitted that pursuant to initiation of CIRP in respect of the CD the appellant filed Form C with the RP for claiming a sum of Rs.54,76,10,988/-. There were several communications were changed by and between the Representatives of the Appellant and the Resolution Professional, the Appellant had duly clarified all the queries raised by the Resolution Professional.
11. It is submitted that although the appellant had provided all the relevant details in support of its claim that it is not a related party of the Corporate Debtor, it was shocked and surprised to receive an e-mail dated 15.07.2019 from the Resolution Professional by which it was informed that the Appellant's claim has been provisionally accepted but at the same time, the Appellant was also declared as a 6 Comp App (AT) (INS) No. 1407 of 2019 related party to the Corporate Debtor i.e. OSPL under Section 5(24) of IBC 2016.
12. It is submitted that the reason cited by the RP for such categorization is that the Appellant is a holding company of SAIML and since SAIML is acting as an Investment Manager to IGOF who is a majority shareholder of Corporate Debtor, hence the RP considered the Appellant as a related Party of the CD. According to the RP the Appellant being the holding of SAIML controls the composition of the Board of Directors of SAIML and SAIML is purported to be an attorney of IGOF which can control the composition of the Board of Directors or corresponding governing body of the Corporate Debtor.
13. The Appellant vide its email dated 29.07.2019 clarified that it is not a related party of Corporate Debtor and duly explained its case to the Resolution Professional. However, the Resolution Professional did not change its decision and held that the Appellant is a related party of the Corporate Debtor and hence refused to allow participation of the Appellant in the proceeding of the Committee of Creditors.
14. The Appellant assailed the decision of the RP by filing the above IA/85/2019 before the Learned Adjudicating Authority the Learned Adjudicating Authority has upheld the decision of the RP. It is submitted that the Learned Adjudicating Authority erred in holding that the Appellant /Financial Creditor is a related party of the Corporate Debtor despite the fact that there are no common shareholders and there are no common directors or no common key managerial 7 Comp App (AT) (INS) No. 1407 of 2019 personal between the Appellant/Financial Creditor and the Corporate Debtor.
15. On question of law, the Learned Counsel submitted that whether the Appellant/Financial Creditor can be called a related party of the CD despite the fact that there are no common shareholders, no common Directors and no common Key Managerial Persons (for short KMP) between the Appellant and the Corporate Debtor.
16. On the Grounds of Appeal the Learned Counsel submitted that the Impugned Order failed to appreciate that the Trustee continues to be a person in overall control and management of the Trust, the SAIML is only the Manager of the IGOF a scheme of SMAIT and has been all rights and powers to run the scheme and that by no stretch of imagination can mean that SAIML is the controlling and decisions making authority of SMAIT. It is stated that the Learned Adjudicating Authority failed to consider that the Trustee is a person on whom confidence is reposed and the Trust is the owner of the Trust property. The SMAIT is the owner of all the trust properties, funds, schemes and investments of/or relating to SMAIT and therefore IGOF which a is scheme of SMAIT is a property whose ownership lies with SMAIT alone and the same will further be evident from clauses 2.1, 1.1.18, 1.1.9, 1.1.4, 1.1.27 and 1.1.3 of the Trust Deed.
17. The Learned Adjudicating Authority failed to consider that under Section 5(24) of the Code, the grounds/heads are provided under which an entity can 8 Comp App (AT) (INS) No. 1407 of 2019 be considered as "related party" in relation to Corporate Debtor, however, the Resolution Professional has not stated under which head the Appellant is purportedly treated as a related party in relation to the CD. Further it is stated that the Appellant is neither a shareholder nor an entity in control of the composition of the Board of Directors or corresponding governing body of the Corporate Debtor and is not involved in any policy making process of the Corporate Debtor hence, it cannot be declared as related party.
18. It is stated that the Appellant is a public financial institution in the business of lending infrastructure projects in India and has extended credit facilities to the Corporate Debtor for an infrastructure project and is one of the largest financial creditors of the Corporate Debtor and has a claim of Rs.5,49,76,10,986/- in respect of the Corporate Debtor and under the code the Appellant has a right to be represented in the COC. It is also stated that the voting percentage of the Appellant would be more than 20% if it is included in the COC.
19. In view of the aforesaid reasons, the Learned Counsel prayed this Bench to allow the Appeal by setting aside the Impugned Order passed by the Adjudicating Authority.
1ST RESPONDENT'S SUBMISSION:
20. The Learned Senior Counsel appearing for the Respondent submitted that a Resolution Plan was submitted by Arcelor Mittal India Pvt. Ltd. (for short 9 Comp App (AT) (INS) No. 1407 of 2019 AMIPL) which has been approved by a vote of 100% and the Adjudicating Authority approved the Resolution Plan. The Learned Senior Counsel submitted that the grievance of the Appellant is that the Appellant was treated as a related party of the Corporate Debtor and not having the right to participate or vote in any of the COC meetings. The Learned Counsel would like to appraise this Tribunal with regard to organizational structure of the Appellant as follows.
For better appreciation we refer a. SIFL (Srei Infrastructure Finance Ltd.) b. SAIML (Srei Alternative Investment Managers Ltd.) c. SMAIT-IGOF (Srei multiple Asset Investment Trust - India Growth Opportunities Fund) d. OSPIL (Odissa Slurry Pipeline Infrastructure Ltd.) e. ESIL (Essar Steel India Ltd.)
21. The Learned Senior Counsel submitted that the SAIML is a 100% subsidiary of the Appellant and the SMAIT-IGOF is a contributor and majority shareholder holding 69.81% of the Corporate Debtor. It is also submitted that the SAIML is a settlor and investment manager of SMAIT-IGOF. It is also submitted that the ESIL is also a shareholder of Corporate Debtor holding 30.19%.
22. It is submitted that the SMAIT is an Irrevocable Determinate Trust under the Indian Trust Act 1882 established under the Provisions of the Indenture of 10 Comp App (AT) (INS) No. 1407 of 2019 Trust dated 8th April 2013 (Trust Deed). The IGOF is one of its schemes of SMAIT. One Mr. Mr. R.N. Ghosh has been appointed as the Trustee of SMAIT. The SAIML is the Settlor and sponsor of SMAIT and the SAIML is the Investment Manager of IGOF and is the 100% subsidiary of Appellant. It is submitted that one of the Contributors and Beneficiaries of SMAIT is the Appellant. The IGOF being the majority shareholder of the Corporate Debtor has control over the Corporate Debtor. The SAIML is an Investment Manager Settlor and Sponsor of IGOF. As per the documents provided, the scheme is admitted managed and day to day affairs are run by SAIML. Admittedly, the SAIML is 100% subsidiary of the Appellant and the Appellant has control over SAIML. Therefore, it can be seen that directly or indirectly the Appellant is linked to the Corporate Debtor and exercises control over the Corporate Debtor.
23. It is submitted that as per Provisions of Section 5(24) of the I&B Code, 2016, related party has been defined in the said Provision.
24. The Learned Counsel relied upon the Judgment of the Hon'ble Supreme Court in Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta & Ors. reported in (2019) at 2 SCC Page 1.
25. The Learned Counsel submitted that under the Provisions of Trust Deed the Trustee is required to appoint an Investment manager to manage the schemes of SMAIT. The Learned Counsel refer to Clause 3.2 and Clause 4.2.8 of the Trust Deed. 11 Comp App (AT) (INS) No. 1407 of 2019
26. It is submitted that the Role and Rights of SAIML are specified in the Investment Manager Agreement (IMA) and the recital of IMA specifies as follows:
"5. The Trustees no wish to appoint the Investment Manger for the primary purpose of managing the business affairs of the trust by providing Professional Investment Management services and related services to the Trust"
Further, as per Clause 2 of the IMA, SAIML is appointed as the Investment Manager of SMAIT to.
"solicit, originate, negotiate, manage, monitor, sell or otherwise dispose off, portfolio investment of such schemes as mutually agreed in writing between the Investment Manger and the Trustee, and to provide such other Management, Advisory and Administrative Services in respect of such schemes as may be mutually agreed in writing between the Investment Manager and the Trustee".
27. It is submitted that as stated supra the SAIML is the Investment Manager of SMAIT and IGOF. Pursuant to Clause 3.1 read with schedule A of the IMA, the Trustee has appointed, nominated, constituted and granted to SAIML as the true and lawful attorney of IGOF scheme for all powers and privileges given to the Trustee under the Trust Deed, except as otherwise limited under the IMA, in its own name to do, execute and perform any or all the following acts, deeds and things for the management of SMAIT for the IGOF scheme.
28. It is submitted that the Trust Deed read with IMA clearly indicates that a vast range of powers and rights have been granted to SAIML to manage the investment f SMAIT and IGOF which includes the Investment in the Corporate 12 Comp App (AT) (INS) No. 1407 of 2019 Debtor.
29. It is submitted that the IGOF has a number of portfolio Companies. As stated supra SAIML is the 100% subsidiary of the Appellant, the Appellant being a contributor to SMAIT IGOF and SAIML wholly owned subsidiary of the Appellant and the SMAIT IGOF being a majority shareholder of the Corporate Debtor has control over the Corporate Debtor. The SAIML is fully held and controlled by the Appellant and it can accordingly be seen that it is the Appellant that ultimately influences the Management and Policy decisions of the Corporate Debtor and therefore the Appellant has control over the Corporate Debtor.
30. It is further submitted that appellant is a related party of the Corporate Debtor in accordance with Section 5(24) of the Code as the appellant through SAIML is a person on whose advice directions or instructions a Director Partner or Manager of the Corporate Debtor is accustomed to and Act. Further the SMAIT IGOF who being a contributor and Settlor Investment Manager of SAIML having 69.81% in the Corporate Debtor controls more than 21% of voting rights in the Corporate Debtor on account of ownership or a voting agreement and who can control the composition of the Board of Directors or corresponding governing body of the Corporate Debtor.
31. It is submitted that this Respondent admitted the claim of the Appellant as a Financial Creditor of the Corporate Debtor but classified the Appellant as a related party of the Corporate Debtor.
13 Comp App (AT) (INS) No. 1407 of 2019 2nd RESPONDENT'S SUBMISSION:
32. The Learned Senior Counsel appearing for the 2nd Respondent submitted that the Appellant squarely qualifies as a related party of the Corporate Debtor in terms of Section 5(24) (h), (j) and (i) of the I&B Code. It is submitted that the Appellant has failed to disclose the true structure behind the SMAIT through which one of its schemes IGOF holds 69.81% of the shareholding and voting rights in the Corporate Debtor. The SMAIT is an irrevocable determinate trust established by SAIML in terms of the Indenture of Trust dated 8th April, 2013 (Trust Deed under the Indian Trust Act, 1882) in order to act as a vehicle to pool together funding from Institutional and other Investors for the purpose of undertaking investments in identified portfolio companies. Accordingly, SAIML is the Settlor for SMAIT and derives its powers as a Settlor in terms of the Trust Deed. In terms of Clause 2.2 of the Trust Deed the Settlor i.e. SAIML shall appoint the Trustee to the fund of the underline Trust i.e. SMAIT who on behalf of SMAIT shall raise and pool together funds for the purpose of investment with the objective of obtaining attractive returns for the beneficiaries of the Trust i.e. SMAIT.
33. It is submitted that the SAIML is a 100% subsidiary of the Appellant, accordingly the wholly owned subsidiary of the Appellant is the settlor of the Trust i.e. SMAIT which runs the scheme IGOF which holds 69.81% of the shareholding in the Corporate Debtor. The Learned Counsel refers to clauses 4.5.2 and 5.5.4 of the 14 Comp App (AT) (INS) No. 1407 of 2019 Trust Deed relating to the discharge of the Trustee and appointment of a new Trustee.
34. It is submitted that as per the Deed of Appointment and Detriment dated 01.04.2014 SAIML along with Essar Oil Limited are contributory of SMAIT and in such capacity has executed the Deed of Appointment and Detriment of the Trustees of SMAIT.
35. It is submitted that SAIML in its capacity as both Settlor and Contributor of SMAIT has the power to appoint remove the Trustees to the Trust and accordingly holds considerable influence over the individual wrested with responsibility to manage the affairs of the Trust. In order to manage the affairs of SMAIT the Trustee is required to appoint an Investment Manager to manage one or more skills of SMAIT. As per clause 3.2 of the Trust Deed, the Trustee of the Trust shall appoint an Investment Manager to manage and administer each scheme under the Trust i.e. IGOF which is a majority shareholder of the Corporate Debtor in consultation with the Settlor i.e. SAIML. As per the Investment Management Agreement (IMA) dated 22.05.2013 the Trust i.e. SMAIT through its Trustee has appointed SAIML (the Settlor) as the Investment Manager of IGOF a 69.81% shareholder of the Corporate Debtor. The Learned Senior Counsel also referred to various clauses of the Investment Management Agreement dated 22.05.2013.
36. It is submitted that the IMA had conferred upon SAIML in its capacity as the Investment Manager with wide ranging powers to undertake and manage the 15 Comp App (AT) (INS) No. 1407 of 2019 investments of SMAIT and also exercise the rights and powers available to SMAIT in its role as a shareholder in the portfolio Companies. Accordingly, the wholly owned subsidiary of the Appellant i.e. SAIML is the Creator, Settlor, Contributor and the Investment Manager of the IGOF (a major shareholder of CD). Further, the SAIML have the power to appoint, remove the trustees to the trust and accordingly holding considerable influence over the individual wrested with the responsibility to manage the affairs of the trust. Therefore, it is submitted that the SAIML exercises full control over the affairs of SMAIT including in relation to the appointment time removal of its trustees and its investment in Corporate Debtor.
37. The Learned Counsel refers to the Provisions of Section 5(24) of the I&B Code, which defines a related party.
38. It is submitted that as stated supra the SAIML being a wholly owned subsidiary of Appellant is the creator, settlor, contributor and the Investment Manager of IGOF who is 69.81% shareholder of the Corporate Debtor holds considerable influence over the individual wrested with responsibility to manage the affairs of the Trust. It is submitted that the Appellant has conveniently concealed the fact that SAIML is firstly a wholly owned subsidiary of the Appellant and secondly SAIML is the creator settlor and contributor of the Trust i.e. SMAIT and thereby having the power to appoint/remove the Trustees to the Trust in an attempt to conceal the extent of control exercised by SAIML.
16 Comp App (AT) (INS) No. 1407 of 2019
39. The Learned Senior Counsel relied upon certain Judgements with regard to suppression of facts.
40. The Learned Senior Counsel also submitted that the Appellant and its related entities have made repeated attempts to subvert the Resolution Process of the Corporate Debtor. It is an attempt to delay the conduct of the CIR Process in order to frustrate the rights of the financial Creditors and other stakeholders of the Corporate Debtor. The Learned Senior counsel also submitted that the appellant is securing 100% recover of its principal due under the approved Resolution Plan and the Appellant has in no manner been prejudiced due to the approval of the Resolution Plan or due to the inability to participate and vote in meetings of the Committee of Creditors owing to its related parties status. In view of the reasons as stated above, the Learned Senior Counsel submitted that no case has been made out by the Appellant and the appeal deserves to be rejected.
ANALYSIS/APPRAISAL:
41. Heard the Learned Counsel and Senior Counsel appeared for the respective parties perused the pleadings, documents and citations relied upon by them. After analyzing the pleadings, the only issue felt for consideration is whether the classification of the appellant as related party by the RP and upheld by the Adjudicating Authority in the Impugned Order dated 29.11.2019 is in accordance with law or not.
17 Comp App (AT) (INS) No. 1407 of 2019
42. The Adjudicating Authority at para 34 of the Impugned Order observed as under:
"The SAIML is the wholly owned subsidiary of the Applicant. The SAIML plays the roles of creator, settlor, management, administration, appointment and removal of trustee, contributor, investment manager and manager of the scheme IGOF. Hence, the applicant is 'related party' as defined under Section 5(24) of the Insolvency and Bankruptcy Code, 2016. The decision of the RP that he applicant is 'related party' is right."
In view of the same, this IA No.85 of 2019 is dismissed.
43. Before proceeding with the issue and the facts, for better appreciation the chart pertaining to the entities and its relation with each other is extracted hereat:
SIFL 100% SAIML CONTRIBUTOR SETTLOR SMAIT IGOF INVESTMENT MANAGER ESIL OSPIL 30.19% 69.81% "Also, for better appreciation we refer to the following legal entities as detailed hereunder:18
Comp App (AT) (INS) No. 1407 of 2019 a. SIFL (Srei Infrastructure Finance Ltd.) b. SAIML (Srei Alternative Investment Managers Ltd.) c. SMAIT-IGOF (Srei multiple Asset Investment Trust - India Growth Opportunities Fund) d. OSPIL (Odissa Slurry Pipeline Infrastructure Ltd.) e. ESIL (Essar Steel India Ltd.) f. IMA (Investment Management Agreement)
44. The entire gamut for filing the application and the Appeal emerges from the loan agreement dated 28th March 2015 whereby the Corporate Debtor i.e. OSPL entered into a Loan Agreement with the Appellant for providing a total contribution of Rs.700 crores in the form of compulsorily convertible loan, out of which Srei being one of the Investor has inter alia agreed to contribute to 19.50% of the said amount, amounting to Rs.136 Crore and 50 Lakhs referred to as Loan facility by way of a loan duly secured by the Secured Property.
45. The Learned Counsel for the Appellant referred to Article V of the Loan Agreement whereat the borrower representation and warranties have been incorporated. Further, Clause 5.24 of the Loan Agreement it has been mentioned that the borrower is not engaged in any business or trade other than as set out in its Memorandum of Articles and Association, and the borrower has not engaged in any business or activities either alone or in partnership or joint venture other than those 19 Comp App (AT) (INS) No. 1407 of 2019 disclosed to, or permitted by Srei. The Learned Counsel for the Appellant mainly relied upon the Clause 5.27 of the Loan Agreement which refers to as 'no interested Directors'. Sub Clause (1) read as "No Director of Srei is a Director, Manager, Managing Agent, employee or guarantor of the Borrower, or of the holding company of the borrower or holds substantial interest, in the Borrower or the Holding Company of the Borrower and no Directors of any other Bank holds substantial interest or is interested as Director or as a Guarantor of the Borrower.
(ii) No relative as specified by RBI of a Chairman/Managing Director or Director of Banking Company including any of Srei or a relative of Senior Officer as specified by RBI of Srei, holds substantial interest or is interested as a Director or Guarantor of Borrower. For this purpose, the term relative' shall have the meaning ascribed to it under the Companies Act and shall include the relative as defined under Reserve bank of India's Master Circular on loans and advanced statutory and other restrictions darted 01.07.2011 as may be amended from time to time."
Further the Corporate Debtor and the Appellant have entered loan agreement dated 20th June 2015 and a supplementary loan agreement dated 20 th June 2015 and Clause 5.27 of the said Supplementary Agreement also incorporated the Clause as referred to above viz. 'no interested Directors'.
46. While so, CIRP was initiated in respect of the Corporate Debtor and pursuant to that, all the claims have been called for from the respective Creditors. It appears that the appellant also submitted its claim and the RP admitted the said claim. However, the moot point for consideration is that the RP vide e-mail dated 20 Comp App (AT) (INS) No. 1407 of 2019 15.07.2019 stated that the Appellant has been considered as 'related party' to OSPIL (CD) under Section 5(24) of the I&B Code, 2016. However, in the same letter the RP has stated that 'In this connection, pleased be informed that SIFL has been accepted as a Financial Creditor with a Provisional Claim amount of Rs.549,76,10,988/- as represented by you in Form-C. This will be reflected in the next update of the list of creditors."
As stated supra, the IRP in his letter specifically stated the reasons for classifying the Appellant as a related party. It is stated that the key reasons for this decision (related party) is based on the following facts as per information provided to them during verification and available from public sources:-
. SIFL is the holding Company of Srei Alternative Investment Managers Ltd.
(SAIML) and SAIML is the Acting Manager to the majority shareholder in OSPIL (69.80%) viz. India Growth Opportunities Fund (IGOF) under the Investment Management Agreement.
. SIFL as a Holding Company of SAIML controls the composition of the Board of Directors of SAIML and SAIML as an attorney of IGOF can control the composition of the Board of Directors or corresponding governing body of OSPL.
47. With the classification of the Appellant as a related party the main grievance of the Appellant is that the Appellant cannot participate in the meetings of 21 Comp App (AT) (INS) No. 1407 of 2019 the COC and cannot exercise its voting rights. Therefore, the Appellant aggrieved that they have denied the right to participate in the COC meetings and exercise their voting rights.
48. In response to the above letter of IRP, the Appellant vide its Reply dated 29th July 2019 stated that the Appellant being one of the largest Financial Creditors of Corporate Debtor has a right to be represented in the COC and exercised its voting right. Therefore, it is stated that the decision has curtailed the right of appellant and requested the IRP to admit the claim of Appellant and include in the COC and allow to exercise its voting rights in the COC meeting. The reasons given in its reply by the Appellant as under:
"As it would appear from your e-mail dated July 15, 2019, SIFL is considered as 'Related Party' since SIFL is the holding company of SAIML and SAIML is the investment manager of the fund (which is a trust) which is holding around 69% of the corporate debtor. We hereby request you to provide the basis of such consideration and also inform the relevant provisions of the Insolvency and Bankruptcy Code, 2016 under which SIFL is considered as 'Related Party' specifically under which head/provision under Section 5(24) of IBC, 2016 has SIFL been considered as a 'related party' to the Corporate Debtor? We state that SIFL is not a 'related party' of Odisha Slurry Pipeline Infrastructure Limited (OSPIL) because neither SIFL nor SAIML has any control over India Growth Opportunities Fund (IGOF) which is the scheme of SMAIT which is a trust and is controlled by the sole trustee namely Mr. R.N. Ghosh, SMAIT, the trust in question has a sole trustee namely Mr. R.N. Ghosh 22 Comp App (AT) (INS) No. 1407 of 2019 who controls and/or administers not only the trust but also the schemes floated by the trust which includes IGOF. SAIML is only the investment manager and it only renders its services to IGOF and it does not in any manner whatsoever controls or administer the trust viz. SMAIT. Thus, SIFL cannot in any manner be a related party to OSPIL. You are requested to kindly reconsider your decision after carefully going through the Trust Deed, the Investment Manager Agreement from wherein it will be evident that SAIML has no control or connection with IGOF as IGOF is controlled and/or administered by the Trustee namely Mr. R.N. Ghosh."
49. Aggrieved by the same, the Appellant filed IA/85/2019 before the Adjudicating Authority and the Adjudicating Authority vide Order dated 29.11.2019 dismissed and uphold the decision of the IRP holding that the Appellant is a related party. The Appellant in the Grounds of Appeal contended that the Appellant cannot be treated as a related party and to state that the SAIML is not a trustee of the SMAIT and SAIML is absolutely not in control and cannot ever be in control of the SMAIT or the IGOF which a scheme of the SMAIT. Further it is stated that the SMAIT is the owner of all the Trust Properties, Funds, schemes and investments of/or relating to SMAIT and therefore, IGOF which is a scheme of SMAIT is a property whose ownership lies with SMAIT alone and the same will further be evident from various clauses of "Trust Deed" dated 08.04.2013, the Learned Counsel relied upon to Clauses 2.1, 1.1.18, 1.1.9, 1.1.4, 1.1.27 and 1.1.3 of the Trust Deed.
50. In view of the grounds as raised by the Appellant in the Appeal, we 23 Comp App (AT) (INS) No. 1407 of 2019 intend to refer to the Trust Deed which is most vital to the facts and issues. The Trust Deed is a registered Trust under the Indian Trust Act, 1982. M/s. SAIML (formerly known as Srei Venture Capital Ltd.) and Mr. Anil Chowdhury are the Creators to the Trust. As per the Trust Deed, the SAIML referred to as a 'Settlor' and Mr. Anil Chowdhury referred to as the Trustee of the Trust Deed. The object of the Trust Deed is to pool together funding from Institutional and other Investors for the purpose of making such investments, the Settlor (SMAIL) has decided to establish and irrevocable determinate trust under the Indian Trust Act, 1882 which shall be known as Srei Multiple Asset Investment Trust (SMAIT) Fund through this indenture. The Trustee at the request of Settlor agreed to act as a Trust. Clause 1.1.9 refers to as contributors or beneficiaries means the persons, each of whom have made or agreed to make contributions to any scheme in accordance with the Contribution Agreement. Clause 1.1.18 and 1 .1.19 refers to Initial Settlement and Investment Manager. Clause 1.1.20 refers to Investment Management Agreement means an agreement i.e. entered into by and between the Trustee and an Investment Manager for advising, managing and administering the Trust fund in relation to the relevant scheme for which such Investment Manager is appointed. Clause 2 refers to Constitution of the Fund and Clause 2.1, 2.2 refers to as Settlement and appointment of Trustee. As per Clause 2.2 the Settlor hereby appoints the Trustee as the Trustee of the Fund hereby created and the Trustee hereby agrees and declare that it is willing to act and shall act as a Trustee 24 Comp App (AT) (INS) No. 1407 of 2019 hereunder subject to all provisions contained herein and to signify such appointment and willingness the aforesaid parties have executed the indenture. The clause 3 provides for Trust Fund. Clause 3.2 refers to Management of the Trust Fund, it reads as 'the Trustee shall appoint the Investment Manager to manage and administer each scheme in consultation with the Settlor and shall execute with it the Investment Management Agreement to record the terms and conditions of such appointment. The trustee shall pay to the Investment Manager, the management fee in accordance with the terms set out in the Investment Agreement. The Trustee in consultation with the settlor may appoint different Investment Managers with respect to different schemes. Further various provisions have been made in the Trust Deed to show with regard to the powers delegated to any committee or any other person. Further, the Trust Deed provides for liability, indemnity, term and Discharge of the Trustee and appointment of new Trustees. Clause 4.5.2 refers to discharge of trustee. Sub Clause 3 apart from sub clause 1.2 clause 3 empowers the contributors jointly remove the Trustee from office due to a cause in favor of all the Contributors. The Trust Deed also provides for an appointment of a new Trustee, distribution of the Trust Fund, income, withdrawal and transfer of Units, etc.
51. From the documents, it is seen that there is an Investment Management Agreement dated 22.05.2013 subsequent to the Trust Deed. From the Investment Management Agreement referred to as IMA, SMAIT a Trust constituted and Mr. Anil 25 Comp App (AT) (INS) No. 1407 of 2019 Chowdhury Advocate referred to as a 'Trustee' for the aforesaid IMA and the IMA entered it by and between SMAIT and SAIML. The SAIML was referred to as Investment Manager. Clause 2 of the IMA it refers to appointment of the Investment Manager, which read as 'subject to the terms and conditions as detailed in this Agreement the Trustees hereby appoint the Investment Manager as the Investment Manager of the Trust, to solicit, originate, negotiate, manage, monitor, sell or otherwise dispose of, Portfolio Investments of such schemes as mutually agreed to in writing between the Investment Manager and the Trustee, and to provide such other management, advisory and administrative services in respect of such scheme as may be mutually agreed in writing between the Investment Manager and the Trustee. The Investment Manager herby accept appointment as Investment Manager to such schemes as mutually agreed to in writing between the Investment Manager and the Trustee and agrees to be responsible for day to day management and to provide other management advisory and administrative services to such schemes in accordance with the provisions of this Agreement". Further, Schedule A of the said IMA provides for Powers of the Investment Manager and as per Clause 28, 29 the Investment Manager exercises all the rights, powers and privileges of shareholders, capital participants, debenture holders, bond holders and other security holders in such portfolio company.
52. Subsequent to the above, the parties have entered a Deed of 26 Comp App (AT) (INS) No. 1407 of 2019 Appointment and Retirement dated 01.04.2014, wherefrom it is seen that the SAIML refer to as contributor-1 to the scheme of SMAIT settled as Trust by a Deed of Trust dated 08.04.2013 (Trust Deed). The Essar Oil Ltd. refer to as the contributor No.2 to the schemes of SMAIT. Further the Deed of Appointment and Retirement states that contributor No.1 i.e. SAIML and Essar Oil Ltd. both to the schemes of SMAIT collectively referred as 'Contributors' to the schemes of SMAIT. One Mr. Anil Chowdhury referred to as retiring Trustee and Mr. Raghunath Ghosh referred to as the new Trustee of SMAIT. Therefore, from the above Deed of Appointment and Retirement the SMAIL is a contributor to the Trust viz. SMAIT. It is also be seen that the SMAIL is the 100% wholly owned subsidiary of Appellant i.e. Srei Investment Finance Ltd.
53. It is also seen that there is a Share Subscription Agreement between IGOF and the Corporate Debtor dated 28.03.2015 whereby the recital states that the Share Subscription Agreement (SSA) dated 28.03.2015 by and between India Growth Opportunities Fund (IGOF), a scheme of Trust SMAIT, a Trust settled by SAIML refers to as 'subscribers' or 'IGOF subscriber' and OSPIL referred to as a 'Company'. It is stated that the Subscriber IGOF and the Company OSPIL referred to as 'Parties'. As per the said SSA, the IGOF viz. the subscriber agreed to invest 54 Crore in the equity share capital of the Company and company has agreed to issue 54 lakhs equity shares on non-diluted basis.
27 Comp App (AT) (INS) No. 1407 of 2019
54. The Learned Senior Counsel for the Respondent states that the clauses of SSA with regard to the notices, the address of the SAIML has been mentioned, to contend that the SAIML being a wholly owned subsidiary of Appellant therefore, the address of the Subsidiary Company has been given for the purpose of correspondences and issue of notices in the SSA.
55. The Learned Senior Counsel for the Respondent also referred to the Agreement dated 24.06.2016, between OSPIL (CD) and Essar Steel India Ltd., one of the Shareholder of the Corporate Debtor refers to as parties to the said Agreement. It is contended that on 27.02.2015, the ESIL with the consent of its lenders executed a Business Transfer Agreement (For short BTA) with OSPIL and inter alia agreed to sell and transfer to OSPIL its business undertaking for a lumpsum consideration of Rs.4,000 Crores on terms and conditions as setout therein. It is submitted that subsequent to the above said BTA, it was decided to cancel/unwind the BTA in their Lender's meeting. Further, the decision to that effect was taken at the key lenders meeting of ESIL held on 23.03.2016 and on 28.04.2016 and at the OSPIL Lender Meeting held on 28.04.2016 and 16.06.2016 respectively. However, from the documents it is seen that the above Business Transfer Agreement is under challenge before other forums, therefore this Tribunal is not inclined to look into those aspects.
56. The Learned Counsel for the Respondent also relied upon the Adjudication Order of the SEBI dated 29.11.2017 to show that the order came to be 28 Comp App (AT) (INS) No. 1407 of 2019 passed with respect to certain violations by the SMAIT and SAIML. In that regard, in the order it is stated that the IGOF was having three investors and the details of which are given as under.
a. Essar Oil Ltd.
b. Shree Infrastructure Finance Ltd. (Appellant) c. SAIML (a subsidiary of Appellant).
The above said order relied upon to show that there is a relation between the Appellant and the Corporate Debtor and SAIML. The MCA documents proves that the SAIML is a subsidiary of the Appellant, which shows that the SAIML is an 100% subsidiary of the Appellant. Therefore, it is unequivocal that the SAIML is the 100% subsidiary of the Appellant.
PROVISION OF LAW RELATING TO THE ISSUE:
57. As per Sub Section 2 of Section 21of the I & B Code the Committee of Creditors shall comprise all Financial Creditors of the Corporate Debtor - provided that a Financial Creditor or the authorized representative of the financial creditor referred to in subsection 6(6) or sub section (6)(A)or sub section (5)(24) if it is a related party of the corporate Debtor, shall not have any right of representation participation or voting in a meeting of the Committee of Creditors. In the present case, sub section (24) of section 5 is relevant.
58. Now we refer to Section 5 sub section 24 of the I & B Code, 2016. 29 Comp App (AT) (INS) No. 1407 of 2019 Section 5 deal with definitions respectively and Sub Section 24 define 'related party', in relation to a Corporate Debtor. Sub Clauses (a) to (m) fall under the category of 'related party'. However, we are inclined to go to the relevant clause/category under which category the Appellant classified as 'related party'. Now, we refer to clauses h, j and i of the sub section 24 of Section 5 read as under:
" (h) any person on whose advise, directions or instructions, a director, partner or manager of the corporate Debtor is accustomed to act,
(j) any persons who controls more than 20% of voting rights in the Corporate Debtor on account of ownership or a voting agreement
(l) any person who can control the composition of the Board of Directors or corresponding governing body of the Corporate Debtor.
a) a director or partner of the Corporate Debtor or a relating Corporate Debtor or partner of the Corporate Debtor;
b) a key managerial person of the Corporate Debtor or a relative of a key managerial person of the Corporate Debtor"
59. From the chart at Para 43 of the Judgment, it is evident that the SAIML is a 100% subsidiary of the Appellant and sponsoror, Settlor and Investment Manager of SMAIT IGOF. Further, the chart proves that the Appellant is a contributor of SMAIT IGOF and the said SMAIT IGOF is a irrevocable determinate established by SMAIL. Further, the SMAIT IGOF is a direct shareholder of the Corporate Debtor holding 69.81% which is a majority shareholder of the Corporate Debtor. Further the ESIL is another shareholder holding 30.19% of the Corporate Debtor. Therefore, this 30 Comp App (AT) (INS) No. 1407 of 2019 Tribunal comes to a definite conclusion that the Appellant is a related party to the Corporate Debtor whereby it controls the Corporate Debtor. Further as per sub clause 'h' of subsection 24 of Section 5 as stated supra, the Appellant comes under this sub section that any person on whose advice, directions or instructions a Director, Partner or manager of the Corporate Debtor is accustomed to act is also a related party of the Corporate Debtor. Therefore, it is crystal clear from the chart as stated in para 43 of this Judgment that Appellant is being an holding company of the SAIML and contributor of SMAIT IGOF who is a majority shareholder of the Corporate Debtor is a related party which falls under the above Provision of Law. Further it is also evident that as per the SEBI investigation it is also revealed that the Appellant directly invested a sum of Rs.60.49 Crores in IGOF who is a majority shareholder of the Corporate Debtor. Further, the SMAIT IGOF who is an irrevocable determinate established by SAIML is a majority shareholder more than 20% also attracts sub section (j) of Sub Section 24. Further, sub clause (l) of Sub Section 24 of Section 5, states that any person who can control the composition of Board of Directors or corresponding governing body of the Corporate Debtor is a related party. In this regard, the word 'control' defined under sub section 27 of Section 2 of the Companies Act, 2013 defined as "control, shall include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by 31 Comp App (AT) (INS) No. 1407 of 2019 virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner". This tribunal is of the view that the IGOF holding 69.81%, a majority shareholder of the Corporate Debtor can have the control includes the right to appoint a majority of Directors and can positively influence in any manner management or policy decisions of the Corporate Debtor.
60. The Hon'ble Supreme Court in Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta and Ors. Civil Appeal Nos.9402, 9405 of 2018 dated 04.10.2018 held at Paras 46, 47 as Under:
46. "The expression 'control' is defined in Section 2(27) of the Companies Act, 2013 as follows:
"(27) "control" shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner."
47. The expression "control" is therefore defined in two parts. The first part refers to de jure control which includes the right to appoint a majority of the directors of a company. The second part refers to de facto control. So long as a person or persons acting in concert, directly or indirectly, can positively influence in any manner, management or policy decisions, they could be said to be "in control". A management decision is a decision to be taken as to how the corporate body is to be run in its day to day affairs. A policy decision would be a decision that would be beyond running day to day affairs i.e., long term decisions. So long as management or policy decisions can be, or are in 32 Comp App (AT) (INS) No. 1407 of 2019 fact, taken by virtue of shareholding, management rights, shareholders agreements, voting agreements or otherwise, control can be said to exist."
61. The Learned Counsel for the Appellant vehemently contended that a shareholder is a completely different entity than that of the company. He submitted that the shareholder of the corporate Debtor hostile, namely IGOF which is a scheme of SMAIT trust controlled by M/s. Neelina Chatterjee "(earlier Mr. Raghunath Ghosh)", its sole trustee who is an independent practicing lawyer. The appellant had no direct control over IGOF who is a shareholder of the Corporate Debtor and in the absence thereof it is incorrect to contend that the Appellant or its subsidiary i.e. SAIML control's the Corporate Debtor.
62. We refuse to accept the contention of the Learned Counsel for the Appellant for the aforesaid reasons that in all the three criteria as envisaged above, i.e. Sub Clause (h), (j) and (l) of Sub Section 24 of Section 5 have met the requirement and having found the relation between the Appellant and the Corporate Debtor as per the chart at para 43 hereinabove, we unequivocally hold that the Appellant is a 'related party' to the Corporate Debtor.
63. Now we deal with the Judgments cited by the Appellant.
64. The Learned Counsel for the Appellant on the aspect of what when the Constitution of Committee of Creditors itself to be found to be tainted then the decision of the Committee of Creditors cannot be validated on the pretext of exercise of Commercial Wisdom and relied upon the Judgment of this Tribunal in Jayantha 33 Comp App (AT) (INS) No. 1407 of 2019 Banerjee v Shashi Agarwal and Anr. CA(AT)(INS) No.348 of 2020. However, this Judgment will not be helpful to the case of the Appellant.
65. The Learned Counsel for the Appellant submitted that the RP/IRP has no jurisdiction of Adjudicative Powers as held by the Hon'ble Supreme Court in Swiss Ribbons Pvt. Ltd. and Anr. v Union of India and Ors. reported in 2019(4) SCC 17. The Hon'ble Supreme Court held that the Resolution Professional has no adjudicatory powers (Para 88). Further at para 91 the Hon'ble Supreme Court held as under:
"unlike the Liquidator, the Resolution Professional cannot act in a number of matters without the approval of the committee of creditors under Section 28 of the Code, which can, by a 2/3rd majority replace one resolution professional with another, in case, they are unhappy with his performance. Thus, the resolution professional is really a facilitator of the resolution process, whose administrative functions are overseen by the committee of creditors and by the adjudicating Authority."
66. In the present case, the Resolution Professional has acted in accordance with law. Therefore, the above judgment of the Hon'ble Supreme Court cannot be made applicable to the facts of the present case.
67. The Learned Counsel for the Appellant relied upon the Judgment of the Hon'ble Supreme Court reported in 2014 (9) SCC 407 in the matter of Balwant Rai Saluja and Anr. v Air India Ltd. and Ors. at para 70 to show that 34 Comp App (AT) (INS) No. 1407 of 2019 "the doctrine of Piercing the 'Corporate Wheel' stands as an exception to the principle that a company is a legal entity separate and distinct from its shareholders with its own legal rights and obligations. It seeks to this regard the separate personality of the company and attribute the acts of the company to those who are allegedly in direct control of its operation."
68. Further the Learned Counsel relied upon the Judgment of the Hon'ble Supreme Court of India in Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta and Ors. reported in 2019(2) SCC para 37. Further the Learned Counsel for the Appellant relied upon the Judgment reported in 2020(13) SCC 308 in the matter of Embassy Property Developments Pvt. Ltd. v State of Karnataka and Ors. the Hon'ble Supreme Court dealt with the powers of the NCLT and NCLAT. The Hon'ble Supreme Court held that the NLCT is not even a Civil Court, which has jurisdiction by virtue of Section 9 of CPC to try all suits of a Civil nature excepting suits of which their cognizance is either expressly or impliedly barred. Therefore, the NCLT can exercise only such powers within the contours of jurisdiction as prescribed by the statute, the law in respect of which it is called upon to administer. Further, the Learned Counsel for the Appellant relied upon the Judgment of this Tribunal in Bank of India v IRIS Electro Optics Pvt. Ltd. & Ors. in Company Appeal (AT)(INS) 49 of 2020 this tribunal at para 16 held as under:
16. "Having regard to all relevant aspects of the matter, we find that the impugned order cannot be sustained. While allowing this appeal and setting aside the impugned order dated 27th November 2019, we direct the 35 Comp App (AT) (INS) No. 1407 of 2019 Adjudicating Authority to accord fresh consideration to I.A. No.785 of 2019 and record finding about the status of Respondent No.3 as a 'related party' and also a finding on the issue whether Respondent No.3 has fraudulently initiated 'Corporate Insolvency Resolution Process' by filing application under Section 7 of the 'I&B code' against the 'Corporate Debtor' However, the above Judgment of this Tribunal will not be made applicable to the facts of the present case. This Tribunal is of the view that the order passed by the Adjudicating Authority which is impugned in this Appeal is a well-reasoned order.
69. Further, the Learned Counsel relied upon the Judgment of the Hon'ble Supreme Court in the matter of Phoenix ARC Pvt. Ltd. v Spade Financial Services Ltd. and Ors. reported in 2021 SCC Online 51 at Paras 79, 80, 81, 82, 83, 85, 86, 89, 91, 92 and 95. Para 82 the Hon'ble Supreme Court held that the COC is comprised of Financial Creditor under Loan and Debt Contracts who have the right to vote on decisions and operational creditors such as employees, rental obligations, utilities, payments and trade credit, who can participate in the COC, but do not have the right to vote. The aim of the COC is to enable coordination between various creditors so as to ensure that the interest of all stakeholders is balanced and the value of the assets of the entity in financial distress is maximized.
70. The Hon'ble Supreme Court held at para 55 to show that these objects under scope of the composition of COC guided by Section 21 of the IBC. The objects and purposes of the Code are best served when the CIRP is driven by external 36 Comp App (AT) (INS) No. 1407 of 2019 Creditors, so as to ensure that the COC is not sabotaged by related parties of the corporate Debtor.
71. At para 86 it is held that since the IBC attempts to balance the interest of all stakeholders, such that some stakeholders are not able to benefit at the expense of others, related party financial creditors or disqualified from being represented, participating or voting in the COC, so as to prevent them from controlling the COC to unfairly benefit the corporate Debtors.
72. The Learned Counsel for the Appellant relied upon the Judgment of the Hon'ble Supreme Court in the matter of Bacha F Guzdar Bombay v Commissioner of Income Tax, Bombay reported in AIR 1955 SC 74 at Para 7. The Learned Counsel for the Appellant contended that mere shareholder of a company namely the SMAIT IGOF of the Corporate Debtor, cannot have any interest in the property of the Company except a right to participate in the profits if and when the company decides to divide them. The legal position is that "the company is a juristic person and is distinct from the shareholders. It is the company which owns the property and not the shareholders. The dividend is a share of the profits declared by the company as liable to be distributed among the shareholders. Further it is well settled law that "the true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any 37 Comp App (AT) (INS) No. 1407 of 2019 portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it."
73. By relying upon the Judgment of the Hon'ble Supreme Court, the Learned Counsel for the Appellant tried to convince this Tribunal that mere being a shareholder of the Company cannot have any powers in the business and management of the Company. Section 152 of the Companies Act, 2013 prescribes for appointment of Directors. As per Sub Section 2 of Section 152 of the Companies Act, every Director shall be appointed by the Company in general meeting. In view of the above provision of law, the members of the company (shareholders) only shall have the power to appoint Directors in its general meeting. As stated supra, the shareholders have only the power to elect the Directors on the Board and to the Directors the company will function, meaning thereby and taking a perspective view, this Tribunal cannot accept the contention of the Learned Counsel for the Appellant that the shareholder cannot have any major role in the business and its administration. Apart from the above, this Tribunal intend to look into through the eyes of IBC, in view of the definitions and the Provisions of the I&B Code, 2016 which have over riding effect of all other Laws.
74. With reference to the "related party" as defined in the I&B Code, 2016 it 38 Comp App (AT) (INS) No. 1407 of 2019 is also paramount with respect to the word 'control' defined under the Companies Act, 2013 as clarified by the Hon'ble Supreme Court. Therefore, the Judgments cited by the Learned Counsel for the Appellant are not applicable to the facts of the present case.
RESPONDENT'S CITATIONS:
75. The Learned Counsel for the Respondents relied upon the Judgments of the Hon'ble Supreme Court in their favor in Committee of Creditors of Essar Steel India Ltd. v Satish Kumar Gupta & Ors. in Civil Appeal Nos.8766-67 of 2019 dated 15.11.2019. The Hon'ble Supreme Court at Para 38 held that under Section 30(4) of the I&B Code, making it clear that ultimately it is the commercial wisdom of the Committee of Creditors which operates to approve what is deemed by a majority of such creditors to be the best resolution plan, which is finally accepted after negotiation of its terms by such committee with prospective Resolution Applicants.
76. Further the Learned Counsel for the Respondent relied upon the Judgment of Hon'ble Supreme Court in Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta and Ors. in Civil appeal Nos.9402-9405 of 2018 dated 04.10.2018 wherein the Hon'ble Supreme Court at Para 28 held as under:
"28 It will be noticed that the Opening lines of Section 29A contained in the ordinance of 2017 are different from the Opening lines of section 29A as contained in the Amendment Act of 2017. What is important to 39 Comp App (AT) (INS) No. 1407 of 2019 note is that the phrase 'persons acting in concert' is conspicuous by its absence in the ordinance of 2017. The concepts of 'promoter' 'management and control which were contained in the opening lines of section 29A under the ordinance have now been transferred to sub clause
(c)in the amendment act of 2017. It is, therefore, important to note that amendment act of 2017 opens with language which is of wider import than that contained in the ordinance of 2017, evincing an intention to rope in all persons whom may be acting in consult with the person submitting a Resolution Plan."
77. With regard to the expression control as defined in Section 2(27) of the Companies Act, 2013, the Hon'ble Supreme Court at paras 46, 47, 48 defined the word 'control' and we have explained the same in earlier paragraph of this Judgment. To avoid of repeatence, we are not inclined to reproduce again the same paragraphs.
78. Further the Learned Counsel for the Respondent relied upon the report of the Insolvency Law Committee dated 26.03.2018, wherein the committee dealt with the related party. However, the Provisions with respect to 'related party' of Section 5(24) of the I&B Code, namely (h) (j) and (l) there is no change in law. Therefore, all the three clauses of subsection 24 of section 5 stand applicable.
79. Further, the Learned Counsel for the Respondent also relied upon the Judgment of the Hon'ble Supreme Court in the matter of Phoenix ARC Pvt. Ltd. v Spade financial Services Ltd. and Ors. The Respondents relied upon para 103, 104, 105 of the Judgment. The Hon'ble Supreme Court held that at para 103, "Hence we 40 Comp App (AT) (INS) No. 1407 of 2019 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 underlines the exclusion has been summarized as follows: "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 with 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."
80. Further at Para 104 of the aforesaid Judgment the Hon'ble Supreme Court held that "accepting the submissions of Mr. Vishwanathan would allow the statutory provisions to be defeated by a related party of a Corporate Debtor creating commercial contrivances which have the effect of denuding its status as a related party, by the time that the CIRP is initiated. The true test for determining whether the exclusion in the first proviso to Section 21(2) applies must be formulated in a manner which would advance the object and purpose of the statute and not lead to its provisions being defeated by disingenuous strategies.
FINDINGS:
81. From the factual and legal position as discussed above, it is unequivocal that the Legislatures have in clear terms have incorporated the Provisions that a 41 Comp App (AT) (INS) No. 1407 of 2019 related party defined under Sub Section 24 of Section 5 shall not have any right of representation, participation or voting in a meeting of the Committee of Creditors as per Proviso 2 of Sub Section 2 of Section 21 of the I&B Code. In the present case, it is evident that as per the clauses of the Trust Deed dated 08.04.2013 and clauses of the Investment Management Agreement dated 22.05.2013, it is clear that the Appellant is a 'related party' as explained in Chart at Para 43 of this Judgment. It is also reiterated that SAIML who is the 100% subsidiary of Appellant is the settlor and the sponsor of SMAIT. Further, the SAIML is the Investment Manager of IGOF and, one of the contributors and beneficiaries of SMAIT is the Appellant.
82. It is reiterated that as per Clause h, j and l it is submitted that the Appellant can be classified as related party to the Corporate Debtor. The Hon'ble Supreme Court in Arcelor Mittal India Pvt. Ltd. v Satish Kumar Gupta and Ors. the expression of Control as defined in section 2(27) of the Companies Act, 2013 held that the control shall include the right to appoint majority of the Directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly including by virtue of their shareholding or management rights or shareholder's agreement or voting agreement or in any other manner. Further the Hon'ble Supreme Court defined the control in two parts viz. de Jure control and de facto control. The law laid down by the Hon'ble Supreme Court with regard to control is applicable in the present case and taking the 42 Comp App (AT) (INS) No. 1407 of 2019 law laid down forward with respect to the related party it is germane to come to conclusion that the appellant is a related party.
CONCLUSION:
83. In view of the aforesaid reasons and having held that the Appellant is a related party to the Corporate Debtor, we do not find any infirmity or illegality in the Order, hence, we are not inclined to interfere with the Order passed by the Adjudicating Authority dated 29.11.2019, in IA/85/2019 in TP/41/2019 in CP/352/2018. Accordingly, the Appeal is dismissed. No orders as to costs.
[Kanthi Narahari] [Justice Jarat Kumar Jain]
Member (Technical) Member (Judicial)
18.01.2022
SE
43
Comp App (AT) (INS) No. 1407 of 2019