Foreign lender can’t be treated as a related party under IBC as there was no evidence of its influence on CD’s management

Case Details: ODAT GmbH v. CA Santanu Brahma, Interim Resolution Professional of Darjeeling Organic Tea Estates (P.) Ltd. - [2024] 159 taxmann.com 770 (NCLAT- New Delhi)

Judiciary and Counsel Details

• Ashok Bhushan, Chairperson, Barun Mitra & Arun Baroka, Technical Member
• Ms Purti Gupta & Ms Henna George, Advs. for the Appellant. 
• Shaunak Mitra, Aakash Agarwal, Dripto Majumdar, Santanu Brahma, Abhijeet Sinha, Sr Adv. Ashish Choudhury, Santosh Kumar Ray, Ms Ritupuram Sanyal, Ms Zeba Khan & Abhishek Arora, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant was a foreign financial lender who extended loans and advances to the corporate debtor. Meanwhile, foreign shareholders of the corporate debtor appointed a director to the Board of Directors of the corporate debtor i.e., RB in the year 2017. The CIRP was initiated against the corporate debtor and the appellant filed its claim.

The Interim Resolution Professional (IRP) constituted the CoC, in which the appellant had not been given voting rights on the premise that the director of the corporate debtor i.e., RB was also one amongst the three managing directors of the appellant and thus, the appellant was a related party of the corporate debtor.

The appellant sent a communication to IRP informing that it was not a related party however, IRP had not accepted the appellant as a financial creditor. Consequently, the appellant filed an application before the Adjudicating Authority (NCLT) seeking a direction to RP to include the appellant in CoC and also to provide voting rights to the appellant.

However, the NCLT vide the impugned order rejected the said application. Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

It was noted that RB was a Director in the corporate debtor and all the functions which were being referred to by IRP including e-mails and communication were sent by RB as director of the corporate debtor and not as Managing Director of the appellant.

The NCLAT observed that the appellant was the only financial lender, who extended a loan facility to the corporate debtor and there was no material placed on record to indicate that the appellant had given advice, direction or instruction to the director, promoter or manager of the corporate debtor who was accustomed to act accordingly.

NCLAT Held

The NCLAT held that for applying section 5(24)(h) of the IBC, it has to be proved that on the advice of the appellant, a director, promoter or manager of the corporate debtor is accustomed to act; the mere fact that one of the directors is common in appellant as well as corporate debtor shall not ipso facto lead to prove the fulfilment of section 5(24) of the IBC.

Thus, the NCLAT stated that the NCLT committed an error in holding the appellant as a related party and, set aside the NCLT’s order.