Ajit Kumar vs Alpha (India) Properties Ltd. & Others

IN THE MATTER OF: MR. AJIT KUMAR, Resolution Professional of K-Lifestyle & Industries Limited, Having Its Office At-83, National Media Centre, Shankar Chowk, Near Ambience Mall, DLF Cyber City, Gurugram-122002 ...Appellants

VERSUS

1. M/S. ALPHA (INDIA) PROPERTIES PVT. LTD. Gala No. 105, Everest Industrial Estate, Near 66 KVA Power Substation, Amli, Silvassa- Dadar & Nagar Haveli - 396230

2. M/S. AMEX INFRASTRUCTURE PVT. LTD Gala No. 108, Everest Industrial Estate, Near 66 KVA Power Substation, Amli, Silvassa- Dadar & Nagar Haveli - 396230

3. M/S. BODAL CONPRO PVT. LTD. Gala No. 107, Eyerest Industrial Estate, Near 66 KVA Power Substation, Amli, Silvassa- DNH-396230

4. M/S. CLEMATIS TRADING COMPANY PVT. LTD. 404, Silvassa Complex, Behind Dan & Popular Hotel, Tokarkhada, Silvassa- DNH- 396230

5. M/S. CONART CONPRO PVT. LTD. Gala No. 108, Everest Industrial Estate, Near 66 KVA Power Substation, Amli, Silvassa- Dadar & Nagar Haveli - 396230

6. M/S. CRANES REAL ESTATE PVT. LTD. Glala No. 108, Everest Industrial Estate, Near 66 KVA Power Substation, Amli, Silvassa- Dadar & Nagar Haveli - 396230

7. M/S. KAUSAR TEXTILE PVT. LTD. RM - 81, Sudarshan Nagar, MIDC Phase-II, Dombivali (E), Thane - 421201

Comp. App. (AT) (Ins) No. 404 of 2021 2

8. M/S. MADHU CRIMPERS PVT. LTD. Office No. 127, 18t Floor, Paras Centre A, Tata Road, No.2, Opera House, Mumbai 400004

9./M/S. ROYAL COMPSERVICES PVT. LTD. RM-81, Sudarshan Nagar, MIDC Phase-II, Dombivali (E), Thane - 421201

10. M/S.TABAN REAL ESTATE PVT. LTD. Unit No.6, Ground Floor, Karnath Industrial Estate, Opp. Siddhi Vinayak Temple, Prabhadevi- Mumbai - 400025

11.M/S. TANVISH TRADING PVT.LTD. Office No. 127, 1st Floor, Paras Centre A, Tata Road, No.2, Opera House, Mumbai 400004

12. M/S. VIGNAHARTA CORRUGATORS PVT. LTD. RM - 81, Sudarshan Nagar, MIDC Phase-II, Dombivali (E), Thane - 421201

13./M/S. WELLWORTH APPARELS PVT. LTD. RM-81, Sudarshan Nagar, MIDC Phase-II, Dombivali(E), Thane - 421201

Present: For Appellants : Mr. Abhishek Anand, Mr. Karan Kohli & Lubhanshi Rai, Advocates For Respondent : Mr. Krishnendu Datta, Sr. Adv. With Mr. Prateek Gupta, Ms. Varsha Himatsinghka, Advocates for 1,2,9,12,13 Mr. Lokesh Malik & Raghav Tiwari, Advocates for R7,8,10 & 11. Mr. Vaihav Tyagi, Advocate for R3, 4, 5, & 6.

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is directed against the order dated 15.04.2021, passed by

the Adjudicating Authority (National Company Law Tribunal, Ahmedabad

Bench, Court No. I) by which an application bearing I.A. No. 69 of 2021 filed

in CP (IB) No. 625/7/NCLT/AHM/2018 by thirteen Applicants (Respondents

Comp. App. (AT) (Ins) No. 404 of 2021 3

No. 1 to 13 herein) under Section 60(5) of the Insolvency and Bankruptcy

Code, 2016 (In short 'Code') has been allowed.

2. In brief, an application under Section 7 of the Code, filed by UCO

Bank bearing CP (IB) No. 625/7/NCLT/AHM/2018 against M/s K-Life Style

&Industries Limited (Corporate Debtor) was admitted on 05.02.2020 and the

application filed under Section 7 of the Code by Respondents No. 1 to 13

against M/s K-Life Style & Industries Limited became infructuous but

liberty was granted to lodge their claim before the Interim Resolution

Professional (in short 'IRP').

3. Ajit Kumar (Appellant herein) was appointed as IRP of the Corporate

Debtor and was then confirmed as Resolution Professional (in short 'RP').

4. It is alleged that pursuant to the publication of Form A in the

newspaper by the IRP on 19.02.2020, inviting claims from the Financial

Creditors by 03.03.2020, the Respondents No. 1 to 13 submitted their

claims in Form-C to the IRP. It is stated that the RP has accepted their claim

towards the principal amount but treated them as related party, did not

make them part of the Committee of Creditors (in short 'COC') and did not

allow them to participate in any of the meetings of the CoC.

5. The Respondents No. 1 to 13 have thus filed this application under

Section 60(5) of the Code before the Adjudicating Authority seeking direction

to the IRP to admit their claim in full, not to treat them as a related party of

the Corporate Debtor and assign voting rights in respect of Corporate

Insolvency Resolution Process (in short 'CIRP'). The application has been

allowed by the Adjudicating Authority after recording its findings in Para 10

to 15 of the impugned order. The findings recorded by the Adjudicating

Comp. App. (AT) (Ins) No. 404 of 2021 4

Authority in the aforesaid paragraphs needs to be highlighted and therefore,

the same are reproduced as under:-

"10. Having discussed the legal background, it is absolutely clear whether the applicant financial creditors are relative or not but they have got a right to join the meetings of COC. Thus, actionof IRP in not allowing them to participate in COC meetings even after accepting their claims to the extent of principal amount is against the provisions of law and arbitrary. Thus, we reverse the same and direct IRP to include them into COC with immediate effect.

11. Now, coming to the aspect whether they are, in fact, relative ornot, it is noted that originally RP relied on Clause 2(q) of SAST(SEBI) Regulation to hold that they were a related party under Section 5(24) of IBC, 2016. However, no specific clause ofSection 5(24) of IBC, 2016 has been involved to do so whereas during the course of hearing, the learned senior counsel Mr. Rashesh Sanjanwala, appearing on behalf of the Resolution Professional, has relied on Clause 5(24)(m) to justify this action of RP. He specifically pointed out that following parties fall under the provisions of this Clause:

Sr. NAME OF THE PAGE APPLICANT No. DIRECTOR NO. COMPANY SR. NO. (Commonalityin the entities) 17. Kulwinder Kumar 178 CD, TG** AND 10 Nayyar 20. Farindra Bihari 187 CD, TG, 8 Bhuneshwar Rai 29. Mahendra kumar 204 TG**, 3, 5 Gopikrishna Aggarwal 30. Madhusudan 205 CD, TG** AND 3 Dinabandhu Paul

In this regard, it is noted that the basis for such action remains the order of SAT in the case of Tayal Industries vs. Securities and Exchange Board of India dated 11.02.2014. Onthe other hand, it has been strongly countered by the learned senior counsel Mr. Navin Pahwa appearing on behalf of the applicants. We have also noted that no reply by RP has been given on the report of External Expert dated 24.10.2020 submitted by the applicants to

Comp. App. (AT) (Ins) No. 404 of 2021 5

him on 29.10.2020 wherein ithas been already stated that applicants are not a related party. The applicants-financial creditors have also placed reliance onthe decision of Hon'ble Supreme Court in the case of Phoenix ARC Private Limited vs. Spade Financial Services Limited &Ors. dated 01.02.2021 wherein it has been categorically hold that ifparties were a related party at the some point of time but thereafter they did not remain so in the normal course i.e. without having intention or design to alter or extinguish this relationship to dominate the CIRP or otherwise derail insolvency resolution of a corporate debtor then such partiescould not be considered as a related party for all times. In thepresent case, there is nothing on record show that suchrelationship, if any, has been converted into a situation of norelationship with this purpose or object. It is also noted thatno material has been brought on record except general observations given by the RP on the basis of said order of SATthat these parties are related parties but no exercise has beendone to substantiate its case. The letters from some of the ex-directors have been produced subsequent to our directions,however, in our opinion do not serve any purpose as far asrelated party issue is concerned. Further, legal aspects relating to application of SEBI Regulation vis-a-vis Section 5(24) ofIBC, 2016 have already been dealt by us in IA 953 of 2020 andIA 13 of 2021 and those finding are squarely applicable here. In view of above discussion, we are of the view that even onfacts and in the background of applicable legal position asnarrated here-in-before, applicants cannot be considered as arelated party. Accordingly, this decision of the RP is also reversed. Accordingly, we hold that these parties will get proportionate voting rights according debt owed by the corporate debtor to such applicant-financial creditors.

12. One issue which remains is what should be the quantum oftheir debt owed by the corporate debtor to them. Initially, theRP relying on provisions of Section 186 of the Companies Act,2013 and Section 372 of Companies Act, 1956 as that such transactions were void ab-initio, however, subsequently the Resolution Professional has himself admitted the principal amount. Hence, this stand of the RP stands contradicted by itsown conduct. One reason for not allowing the interest which is outstanding on these loans and payable for each Financial Year is that same is not reflected in the Financial Statements of both the sides i.e. financial creditor as well as corporate debtor. Even Form-26AS has not been produced either by applicants or corporate debtor. TDS certificate, if any, has alsonot been

Comp. App. (AT) (Ins) No. 404 of 2021 6

produced by applicants-financial creditors. The company is bound to maintain its account on accrual basis of accounting, hence, provision of such interest in the books ofaccount is mandatory and non-provision thereof needs qualification from the statutory auditors. No such qualification has been brought to our notice. In this background, we are ofthe view that no conclusive view can be taken by us because it requires some further verification. Hence, we direct RP as wellas applicant-financial creditors to do the needful exercise inthis regard within fifteen (15) days from the date of receipt ofthis order. In case, the applicant-financial creditors fail to submit necessary documentary evidences or otherwise justify their claim of interest, we hold that the claim of interest amount shall not be considered while calculating amount of debt owed by corporate debtor to the applicant-financial creditors.

13. Although, we are not very much convinced with the approach of IRP in not allowing the applicant-financial creditors to participate in the first COC meeting itself and the manner in which they have been not so allowed as evident from averments/minutes of meetings provided to us by RP, we arenot replacing him because he has given opportunity of hearing to the applicant-financial creditors before declaring them as a related party and reply by them has not been given within the scheduled time. The reply of applicant-financial creditors hasbeen given after lapse of three or four months. However, weadvise him to act in a fair and balanced manner without getting influenced by the conflicting interests of the secured financial creditors.

14. In view of above discussion and applicable legal position, this IA69 of 2021 in CP (IB) 625 of 2018 stands allowed in terms of directions given as above.

15. Urgent certified copy of this order, if applied for, be issued upon compliance with all requisite formalities."

6. Attacking the finding recorded in Para 10 of the impugned order,

Counsel for the Appellant has submitted that the Adjudicating Authority has

committed a patent error in law in making observation that whether or not

the Respondent No. 1 to 13 (Financial Creditors) are related parties, they

have got a right to join the meetings of the CoC and therefore, the action of

the IRP for not allowing them to participate in CoC meeting even after

Comp. App. (AT) (Ins) No. 404 of 2021 7

accepting their claims to the extent of principal amount is against the

provisions of law and arbitrary. On this premise, the IRP was directed to

include them into CoC immediately.

7. In this respect, Counsel for the Appellant drew our attention to

Section 21(2) proviso of the Code which is reproduced as under:-

"(2) The committee of creditors shall comprise all financial creditors of the corporate debtor:

Provided that a financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub- section (6A) or sub-section (5) of section 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"

8. Counsel for the Appellant has submitted that the finding recorded in

para 10 of the impugned order is palpably illegal and erroneous being

contrary to the provisions of Section 21(2) proviso and is liable to be set

aside.

9. Counsel for Respondents No. 1 to 13 candidly conceded that theycan

support the finding recorded by the Adjudicating Authority in para 10.

10. As a consequence thereof, we have no hitch in holding that the finding

recorded in para 10 of the impugned order by the Adjudicating Authority is

patently illegal and therefore, the same is hereby set aside.

11. It is further submitted that the Adjudicating Authority has erred in

observing that originally RP relied upon Clause 2(q) of the SEBI Regulations

to convass that Respondents No. 1 to 13 are the related parties under

Section 5(24) of the Code without referring to any specific clause of the same

and thereafter, referred to clause 5(24)(m) of the Code for that purpose. It is

further submitted that the Adjudicating Authority has also referred to a

Comp. App. (AT) (Ins) No. 404 of 2021 8

table (chart) of the parties who fall in the category of related parties but

without making any further reference to it in the impugned order and

observed that no material has been brought on record by the Appellant

except the order of the SAT without further doing the exercise to

substantiate its case. It is further submitted that the Adjudicating Authority

has followed the order passed in earlier litigation between other parties in

I.A. No. 953 of 2020 and I.A. No. 13 of 2021 in relation to the application of

SEBI Regulation vis a vis Section 5(24) of the Code.

12. Counsel for the Appellant while referring to the order of the Security

Appellate Tribunal dated 11.02.2014 has submitted that14 appeals were

filed by 118 persons consisting of 9 public limited companies, 93 private

companies and 16 individuals who are non-executive chairman/directors in

some of above companies to challenge common adjudication order dated

14.02.2013 whereby penalties have been imposed against all those persons

under various provisions of Securities and Exchange Board of India Act,

1992. It is submitted that some time in November, 2009, SEBI received a

reference from RBI wherein the observations were made that:-

"a. There were incorrect disclosures made by Bank of Rajasthan('BOR' for short) regarding its shareholding held byPromoters group led by Mr. Pravin Kumar Tayal and Others. b. Though promoters of BoR reported certain reduction in their stake in BoR as mandated by RBI in its Guidelines datedFebruary 28, 2005, it appeared that they had increased their stake in BoR simultaneously through surrogate acquisition. c. There were inter-corporate transfer of funds to the accountsof other corporate bodies who had purchased the stake inBOR. d. Most of those companies have contact details same as that ofvarious Tayal group companies.

e. Some of the directors were common in the said corporate bodies and Tayal group companies."

Comp. App. (AT) (Ins) No. 404 of 2021 9

13. Thereafter, he has referred to Para 11 of the said order in which it has

been observed that:-

"11. Based on evidence on record, AO has held that above four group entities were inter-connected with each other by having common addresses, common directors as also by transfer of shares and transfer of funds within the group as more particularly set out in the impugned order. It is further held in the impugned order that promoters of BOR in connivance with other group entities have cancelled correct information from investors regarding their shareholding in BOR and their act culminated into fraud on investors and securities market and thus Tayal family as also four group entities have violated PFUTP Regulations, 2003 and some entities violated SAST Regulation, 1997 and hence were liable for monetary penalty."

14. He has further referred to the reasons recorded by the SAT for

dismissing the appeals in Para 33 of the said order. Para 33 (a) to (b) are

reproduced as under:-

"33.....

a) Although 44 appellants in Appeal No. 83 of 2013 are distinct legalentities duly registered under Companies Act 1956, for sake ofconvenience AO has considered all these appellants as Silvassa group because all these 44 entities are situated at Silvassa. Fact that these Silvassa group entities were connected with Promoter/Tayalgroup is established from following facts:

i)Most of Silvassa group entities were incorporatedafter RBI circular dated February 28, 2005 whichrequired every promoter of banking company toreduce its shareholding in that company to the extentspecified there in.

ii) Out of 44 entities in Silvassa group, 35 entities had addresses at various flats in Silver Park, Plot No. 5 ofsurvey no. 6, Vanmali Park, Silvassa Khanvel Main Road, Samarvani, Silvassa 396230.

Investigationconducted by SEBI revealed that those flats in which35 appellants are supposed to have their offices were residential premises of the employees of Krishna Mill which is owned by Krishna Knitwear Technologies Ltd., a Tayal group company (see para 22 of impugned order). This fact is not disputed by appellants. Moreover, in their reply to show cause notice, appellants have merely stated that they areunable to offer

Comp. App. (AT) (Ins) No. 404 of 2021 10

comments on the above issue. Since 35out of 44 Silvassa group entities are situated at the residential premises of employees of entities controlled by Tayal group, conclusion drawn by AO that Silvassa group were connected with Promoter/Tayal group cannot be said to be without any basis.

iii.) Out of remaining 9 Silvassa group companies 5 ofthem were found to be situated in different flats at Gurudev Complex, phase

- I/II/III Silvassa - 396230. Investigation revealed these flats were residential flatsused as Guest House of Krishna Mill, owned byKrishna Knitwear Technologies Ltd., a Tayal groupcompany. This fact further supports conclusion drawn by AO that Silvassa group companies were connectedwith Promoter/Tayal group.

b) Investigation carried out by SEBI reveals that during the investigation period, Promoter group entities had transferred by wayof off market transaction 166.35 lac shares of BoR (see para

26) to various Silvassa group entities (71.05 lac shares by Sovotex Textile Pvt. Ltd.+ 60 lac shares by Ginger Clothing Pvt. Ltd.+ 35.30 lacshares by other Promoter group entities). Similarly Tayal group entities had transferred 31.13 lac BoR shares in off market (see para27) and Yadav group entities had transferred 231.18 lac BoR shares to various Silvassa group entities in off market. Thus during the investigation period Silvassa group entities had acquired 428.66 lacshares of BOR in off market transactions from Promoter/Tayal/Yadav group entities. Although it is contended that above off market transfers were genuine business transactions, factson record establish to the contrary. For example, from the ledgersproduced by appellants it is seen that on November 13, 2009 Acrow Constructions Pvt. Ltd ('Acrow' for short) a Silvassa group entity acquired in off market 4,85,653 and 2,34,456 shares of BoR from two Yadav group entities, namely Hiren Trading Co. Pvt. Ltd., and Niti Mercantile Co. Pvt. Ltd., respectively (see page 1456 in AppealNo. 83 of 2013). From ledger account produced by Acrow for the period 1.4.2009 to 31.3.2010, it is seen that for acquisition of 4,85,663 BoR shares from Hiren Trading Co. Pvt. Ltd. in off market Acrow claims to have paid by way of book adjustment 3,76,87,449/-(at page 1458). Similarly, as per ledger account of Niti Mercantile Co. Pvt. Ltd. (at page 1459) maintained by Acrow, consideration paid by Acrow to Niti Mercantile Co. Pvt. Ltd. for acquisition of 2,34,456 BoR shares is 19,92,877/- by way of book adjustment. Thus as per ledger account, on November 13, 2009 Acrow has acquired in off market 4,85,663 BoR shares for3,76,87,449 and 2,34,456 shares for 19,92,877/-. No explanation was offered before AO as to the circumstances under which on November 13, 2009, 4,85,663 shares were purchased at 77.60 pershare and 2,34,456 shares were purchased at 8.50 per share. Even before us, learned counsel for appellants fairly stated that facts speak for themselves

Comp. App. (AT) (Ins) No. 404 of 2021 11

and he cannot improve them. Apart from above, ledger accounts of various Silvassa group entities (at pages1456 to 1769 in Appeal No. 83 of 2013) show that those entities had acquired BoR shares in off market from Promoter/Tayal/Yadav group entities during the investigation period at a price ranging from 8.50 per share to 277.09 per share and all entities paid consideration for such acquisition by way of book adjustment and not by actual payment. It is interesting to note that the ledger accounts of all Silvassa group entities show that they had sold fabrics from time to time without receiving payment and on purchasing BoR shares in off market from those entities to whom fabrics were sold accounts have been squared off by book adjustment. In majority of cases, it is seen that adjustment of alleged consideration brings about a nil balance because it corresponds perfectly to the amounts built up in the ledgers as alleged purchase/sale of fabrics. In these circumstances decision of AO (see para 43) that these are absurd and meaningless transactions and have been recorded in ledgers with a view to evade detection and togive an impression of legitimacy cannot be faulted."

15. It is submitted that some of Respondents herein were the parties

before the SAT, namely, Respondents No. 1, 2, 3, 5 & 6.

16. Counsel for the Appellant has further argued that though the

Adjudicating Authority has noticed the argument of the Appellant in regard

to the various directors who are related parties but failed to discuss about

them subsequently in the order. The table produced in Para 11 of the said

directors is also reproduced as under:-

Sr. NAME OF THE PAGE APPLICANT No. DIRECTOR NO. COMPANY SR. NO. (Commonalityin the entities) 17. Kulwinder Kumar 178 CD, TG** AND 10 Nayyar 20. Farindra Bihari 187 CD, TG, 8 Bhuneshwar Rai 29. Mahendra kumar 204 TG**, 3, 5 Gopikrishna Aggarwal 30. Madhusudan 205 CD, TG** AND 3 Dinabandhu Paul

Comp. App. (AT) (Ins) No. 404 of 2021 12

17. It is further submitted that the Appellant (as Respondent before the

Adjudicating Authority) filed the reply and submitted a summary prepared

on the basis of master data of MCA in order to show that the Respondents

are the related parties and in the absence of any denial of these facts by way

of rejoinder the Adjudicating Authority has made an observation that no

material has been brought on record except general observations given by

the RP on the basis of the order of the SAT. It is submitted that the

Adjudicating Authority has also reproduced the said summary in detail from

Pgs. 89 to 111 of the impugned order yet it has not been adverted to and no

finding has been recorded that this material is not sufficient to hold that the

Respondents No. 1 to 13 are the related parties.

18. It is further submitted that the Adjudicating Authority has further

erred in brushing aside the order of the SAT only on the ground that it had

already decided in application bearing I.A. No. 953 of 2020 and 13 of 2021

in respect of the effect of SEBI Regulations vis a vis Section 5(24) of the

Code. In this regard, he has referred to Para 18 of the impugned order

wherein the earlier order passed in I.A. No. 953 of 2020 and 13 of 2021 has

been reproduced. It is submitted that there were two questions framed in

the said case, reproduced in that paragraph as to whether RP, after

including Financial Creditors in CoC, can remove them from CoC for the

reason that they are related parties without prior approval of the

Adjudicating Authority and whether the Financial Creditors though they

may be a related party remain entitled to be a part of the CoC without

having any voting rights or right to participate or represent in the CoC

meetings. It is submitted that in so far as the first question is concerned, it

Comp. App. (AT) (Ins) No. 404 of 2021 13

has been observed that once the Financial Creditors is included in the CoC

it cannot be removed on the ground that they are related parties without

prior approval of the Adjudicating Authority which is not the issue involved

in the present case. It is also submitted that the decision in I.A. No. 953 of

2020 and 13 of 2021 was challenged by Union Bank of India by way of an

appeal i.e. CA (AT) (Ins) No.399 of 2021 which was dismissed on 05.12.2022

by this Tribunal and further the appeal filed by the Union Bank of India to

the Hon'ble Supreme Court bearing CA No. 508 of 2023 was also dismissed

on 29.03.2023 but the issue involved is not applicability of Clause 2(q) of the

SEBI Regulations vis a vis Section 5(24) of the Code rather the finding of the

SAT which has not been challenged was brought to the notice of the

Tribunal highlighting the modus operandi of the Corporate Debtor with

Respondents No. 1 to 13. Counsel for the Appellant has relied upon a

decision of this Tribunal rendered in CA (AT) (Ins) No. 1022 of 2021 'Bank of

India Vs. Naresh Seth' decided on 05.07.2023 in which insimilar

circumstance the Adjudicating Authority did not take into consideration the

material on record, the order was set aside and matter was remanded back

to decide after referring to the material on record.

19. On the other hand, Counsels appearing on behalf of the Respondents

No. 1 to 13 have submitted that they are not the related parties to the

Corporate Debtor and the order of SAT cannot be applied for this purpose.

They have also relied upon the order passed in I.A. No. 953 of 2020 and 13

of 2021 and referred to Para 22 which is reproduced as under:-

"22. We further think it pertinent to mention that IBC is a complete CODE in itself and unless IBC, 2016 incorporates the provisions of other Acts, provisions of other Acts cannot be

Comp. App. (AT) (Ins) No. 404 of 2021 14

applied to IBC, 2016 as such although some assistance can be taken there-from in a given set of circumstances. Asnoted earlier, provisions of Section 5(24) of the CODE have been part of thestatute since beginning which define who could be a related party in relation to a Corporate Debtor This clause, in fact, uses the word "means" which further indicates the legislative intent as to how to determine the nature relationship of related party in relation to a Corporate Debtor to find ananswer to such issue which crops up during the course of CIRP of a Corporate Debtor. Provisions of Section 3(37) of the CODE also provide that"words and expression" used in the CODE and not defined in this CODE but defined in certain statutes shall have the meanings respectively assigned tothem in those Acts. In the list of Acts mentioned in Section 3(37) of theCODE, the Securities and Exchange Board of India (SEBI) Act, 1992 is included. The term "person acting in a concert" is not mentioned in any ofthe clauses of Section 5(24) of CODE, hence, there is no occasion to refer to definition of this term for the purposes of interpreting provisions of Section 5(24) meaning thereby that one needs to confine itself to the provisions of Section 5(24) of the CODE as this specific provision defines that who could be a related party to Corporate Debtor.

As against this, if we look at the provisions of Section 29A r.w. Clause (f) thereof, it is noted that the main provision itself mentions that a person shall not be eligible to submit a Resolution Plan, if such person, or any other person acting jointly or inconcert with such person prohibited by SEBI from trading the securities or accessing the securities markets whereas provisions similar to main clauseof Section 29A or clause(f) to Section29A do not exist in Section 5(24) of theCODE for determining of status of a financial creditor as a related party. It is also to be noted that in Section 29A not only related but other categories ofpersons have also been made ineligible to submit Resolution Plan, hence, in that section wider definition has been given in respect of an ineligible personand in that context person acting in concert, in certain situations provided therein, have been barred from submitting Resolution Plan and for thispurpose, the definition of such term as given in SEBI Act can be used in viewof provisions of Section 3(37) of the CODE as the same has not been definedin the CODE.

Thus, for the purpose of Section 29A, both persons actingjointly or in concert and a related party would be treated as "connected person" as defined in Explanation I of clause (j) of Section 29A of CODE. However, for the purpose of Section 29A also, in our view, the provisions of Section 5(24) or

Comp. App. (AT) (Ins) No. 404 of 2021 15

5(29A) of CODE will also have to be applied to find out themeaning of the term "related party" as these terms have not defined inSection 29A separately. Thus, for different purposes, the legislature has provided distinct provisions i.e., Section 21(2) for constitution of COC and Section 29A as regards to ineligibility of certain persons including a related party to submit a Resolution Plan and this mechanism further confirms ourview that related party even though it may not be eligible to submit a Resolution Plan but it would remain a member of COC having no voting rights."

20. It is further submitted that though the Appellant did not invoke any

particular sub provision of Section 5(24) of the Code which has to be

independently proved as a matter of fact. It is also submitted that in the

case of Phoenix ARC Pvt. Ltd. Vs. Spade Financial Services Limited,(2021) 3

SCC 475, the issue of related party has been decided on the basis of

evidence whereas in the present case the Appellant has relied solely on the

order of SAT which cannot be looked into.

21. He has further argued that in the order of the SAT, it has been

observed that the persons are acting in concert which is not the purview of

Section 5(24) of the Code rather it attracts Section 29A of the Code which is

not the present case.

22. We have heard Counsel for the parties and perused the record with

their able assistance.

23. As we have held in the earlier part of this order that the Adjudicating

Authority has committed a patent error in holding that a related party has a

right to join the meeting of the CoC.

24. The Adjudicating Authority has further erred in observing that the

Appellant did not refer to a specific sub clause of Section 5(24) of the Code

Comp. App. (AT) (Ins) No. 404 of 2021 16

whereas it has in fact referred to Clause 5(24)(m) and also gave the detail of

the name of the directors by way of a chart which also forms part of Para 11

of the impugned order but still there has been no finding in this regard.

25. Further, the Adjudicating Authority has erred in making specific

observation that no material has been brought on record except general

observations given by the RP on the basis of the order of SAT whereas the

Appellant has produced on record a detailed summary which has been

prepared on the basis of MCA Data which though has been reproduced in

the impugned order from pages 89 to 111 but it has not been referred to in

the discussion part where it has been rather held that no material has been

produced except for the order of the SAT. It has also been found that even

the order of SAT has been kept at bay only for the reason that SEBI

Regulation and Section 5(24) have already been dealt with in some earlier

litigation which is in I.A. No. 953 of 2020 and 13 of 2021 and did not refer to

the order of the SAT which speaks volume about the manner in which the

fake transactions have been carried out by Tayal Group and Silvassa Group

and that there was interchangeable management. The argument raised by

the Respondent that every provision of Section 5(24) has its own effect and

impact which has to be assessed on the basis of the evidence may be

attractive but even that part has not been seen by the Adjudicating

Authority while passing the impugned order.

26. Thus, in view of the aforesaid facts and circumstances, we strongly

feel that it is a fit case for allowing the appeal for the purpose of its remand

to the Adjudicating Authority to decide it afresh after take into consideration

Comp. App. (AT) (Ins) No. 404 of 2021 17

the entire evidence brought on record by the Appellant and Respondent and

then passing a speaking order.

27. Consequently, the appeal is allowed. The impugned order is set aside.

The matter is remanded back to the Adjudicating Authority to decide it

again by recording specific findings on the basis of material which has been

brought on record, referred to in the earlier part of this order by the

Appellant and by passing a speaking order.

The parties are directed to appear before the Adjudicating Authority

on 06th November, 2023.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Arun Baroka] Member (Technical)

New Delhi

04th October, 2023.

Sheetal

Comp. App. (AT) (Ins) No. 404 of 2021