Related Party Of Financial Creditor Not Barred U/S 29A To Submit A Resolution Plan: NCLT Cuttack

BACKGROUND FACTS

M/S. JC Flowers Asset Reconstruction Pvt. Ltd. ("Corporate Debtor/Respondent No. 2") was admitted into Corporate Insolvency Resolution Process ("CIRP"). M/s. Jindal Saw Ltd. ("PRA/Respondent No. 3") had submitted a resolution plan for the Corporate Debtor and thus became Prospective Resolution Applicant. Trimex Industries Pvt. Ltd. ("Applicant") was one of the Operational Creditors of the Corporate Debtor. The Applicant had filed an application originally before the NCLT-Hyderabad under Section 60(5) of IBC, seeking to restraint the Committee of Creditors (CoC) from considering any resolution plan for the Corporate Debtor submitted by the Respondent No. 3, pending the hearing and disposal of the application.

The issue before the Hyderabad Bench was whether the CoC can be restrained from considering the resolution plan of M/s. Jindal Saw Ltd., which already submitted by the Resolution Professional to the CoC. The Members of Hyderabad Bench differed on the issue. The Judicial Member held that the Applicant failed to demonstrate any illegality requiring lifting of the corporate veil and dismissed application with cost of Rs.25,000/-. Whereas, the Technical Member directed CoC not to consider the Resolution Plan submitted by Respondent No.3.

Therefore, the President NCLT, New Delhi referred the application to NCLT Cuttack Bench, to be heard as a Single Bench under Section 419(5) of Companies Act, 2013 for disposal.

CONTENTIONS OF APPLICANT

The Applicant argued that the basis for seeking the relief is that the CoC and PRA are related parties. The CoC, PRA, M/s.Siddeshwari and M/s. Hexa are all group companies, which have colluded with each other. The PRA is holding a key position in the latter two companies, and the said two companies funded the purchase by the CoC of the entire Financial Debts of the Corporate Debtor from its original Financial Creditors. Thus, the PRA taking advantageous position held by the CoC as the sole successor of Financial Creditor and the member in the CoC of the Corporate Debtor, has submitted the Resolution Plan.

DECISION OF ADJUDICATING AUTHORITY

The Bench observed that the arguments of the Applicant were bereft of any tangible evidence. The Application was based on presumptions and apprehensions that CoC will approve the Resolution Plan submitted by the PRA. Hence it was premature and any application filed on future contingencies is unsustainable. A mere contemplation or possibility that a right may be infringed without any legitimate basis for the right, would not be sufficient to hold that the pleadings disclose a cause of action.

Further, in view of the proviso to Section 30(5) of IBC, it is only a figment of imagination by the Applicant to state that the related party of the Financial Creditor is prohibited from submitting the resolution plan, more particularly when it is not statutorily barred in Section 29A of IBC. Hence, the allegation of collusion between the CoC and PRA on the only ground that they are related parties is unsustainable. It was opined that Section 30(2) of IBC enables challenging the approved Resolution Plan before the Adjudicating Authority and the inherent powers of the Adjudicating Authority cannot supersede Section 30(2).

It was held that the IBC does not prohibit the related party to the Financial Creditor to submit the resolution plan. Giving an opportunity to the CoC to consider the Resolution Plan submitted by the PRA would not in any manner detract from the integrity of the IBC.

"In these circumstances, the reference is answer that the Committee of Creditors cannot be restrained from considering the Resolution plan of the 3rd respondent and I agree with the findings of the Hon'ble Judicial Member and accordingly am of the view that this application deserves to be dismissed as held by him."

The Application was dismissed.

Case Title: Trimex Industries Pvt. Ltd. v M/S. Sathavahana Ispat Ltd. & Ors.

Case No.: (CP.(IB) No.179/HDB/2020)

Counsel for Petitioner: Mr. P.H. Arvindh Pandian, Sr.Advocate for Mr. Thriyambak J.Kannan, Advocate.

Counsel for 1st Respondent: Sr. Adv. S.S. Dash, M/s. Ajay Razvi/Shashank Agarwal, Advocates.

Counsel for 2nd Respondent: Sr. Adv. Ramji Srinivasan, M/s. Shubhabrata Chakraborti, Adv.

Counsel for 3rd Respondent: Sr. Adv. C.S. Vaidyanathan, M/s. Manoj Kumar Singh, Adv. Ms. Daizy Chawla, Adv.

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