Case Number: Civil Appeal No. 2842 of 2020 with Civil Appeal No. 3063 of 2020

Judges Name: Hon’ble Judges Dr. Dhananjaya Y. Chandrachud J, Indu Malhotra J, Indira Banerjee J.

Order dated: 01.02.2021

“The Financial creditors must be excluded from Committee of Creditor, when he was a related party to the Corporate debtor on the basis of debt created.”

Facts of the Case:

• Mr. Hari Krishan Sharma, the Operational Creditor filed the section 9 application before the National Company Law Tribunal against the AKME Projects Limited. The interim Resolution professional invited the claims during the Corporate Insolvency Resolution Process (‘CIRP’).
• Spade Financial Services Private Limited (‘Spade’) filed its claim in Form C as a financial creditor for a sum of Rs. 52,96,00,000 on 10 May 2018. Thereafter, Spade filed a revised Form C for a sum of Rs. 109,11,00,000 on 20 May 2018. Spade had filed the form on the basis of an alleged Memorandum of Understanding dated 12 August 2011 executed with the Corporate Debtor, which stated that Inter Corporate Deposits (“ICDs”) of Rs. 26,55,00,000 have been granted to the Corporate Debtor by Spade bearing interest of 24% repayable in terms of the mutual agreement between the parties.
• AAA Landmark Private Limited (‘AAA’) filed its claim before the IRP in Form F as a creditor other than a financial creditor or operational creditor for a sum of Rs. 93,90,00,000 on 10 May 2018. Thereafter, AAA Landmark Private Limited filed a revised claim in Form C as a financial creditor for a sum of Rs. 109,72,00,000 on 23 May 2018.
• The CoC was constituted and the IRP rejected the claim of Spade, inter alia, on the ground that the claim was not in the nature of a financial debt in terms of Section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated. The IRP also rejected the claim of AAA Landmark Private Limited on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim. Aggrieved by the rejection of their claim as financial creditors, AAA Landmark Private Limited and Spade filed applications before the NCLT to be included in the CoC.
• The Hon’ble NCLT held that held that “there is no doubt in our mind that Arun Anand and his company namely Spade and AAA Landmark were related parties to the CD”. Therefore, the NCLT was to allow the applications filed by YES Bank and Phoenix for the exclusion of AAA Landmark Private Limited and Spade from the CoC.
• In the Appeal, the Hon’ble NCLAT concluded that the Adjudicating Authority had rightly excluded both Spade and AAA Landmark Private Limited from participation in the CoC since Mr. Anil Nanda, in concert with Mr. Arun Anand and his family, had created a web of companies which were related parties to the Corporate Debtor, and was now trying to gain a backdoor entry into the CoC through them.
• The appeal was filed before the Hon’ble Supreme Court challenging the order of the Hon’ble NCLAT. 

Supreme Court held:

• The Court held that Mr Arun Anand, Spade and AAA Landmark Private Limited were related parties of the Corporate Debtor during the relevant period when the transactions on the basis of which Spade and AAA Landmark Private Limited claim their status as financial creditors took place. The Court further observed that through Spade and AAA Landmark Private Limited own admission, Mr Arun Anand was appointed as the Group CEO of the Anil Nanda Group of Companies (for however short a period) on circular approval by Mr Anil Nanda himself. Finally, Mr Arun Anand’s brother in-law, Mr Sonal Anand, has also been consistently associated with companies in the Anil Nanda Group of Companies, including the Corporate Debtor and JIPL. This deep entanglement between these individuals was noted by the NCLT and the NCLAT.
• The Court further held that there is a finding that AAA Landmark Private Limited and Spade were related parties within the meaning of Section 5(24) at the time when the alleged financial debt on the basis of which they assert a claim to be a part of the CoC was created. This was due to the long-standing relationship between Mr. Arun Anand and Mr. Anil Nanda, and their respective corporations. Admittedly, such a relationship still existed even in 2017, since Mr. Anil Nanda’s JIPL held shareholding in Mr. Arun Anand’s Spade.
• Therefore, the Hon’ble Supreme court held that the decision of the NCLAT in as much it referred to as Spade and AAA Landmark Private Limited as financial creditors, is set aside. Due to the collusive nature of their transactions alleged to be a financial debt under Section 5(8), Spade and AAA cannot be labelled as financial creditors under Section 5(7).
• Further the Court held that decision of the NCLAT, in as much as it referred to Spade and AAA Landmark Private Limited as related parties of the Corporate Debtor under Section 5(24), is affirmed; and the decision of the NCLAT, in as much as it excluded Spade and AAA from the CoC in accordance with the first proviso of Section 21(2), is affirmed.