The National Company Law Appellate Tribunal (NCLAT) has ruled that a “related party” cannot transfer its debt solely to get a position on the Committee of Creditors (CoC) in order to influence the rights and interests of other creditors.
On October 13, 2023, Rolta Bi & Big Data Analytics Pvt. Ltd. (“Corporate Debtor”) was the target of the Corporate Insolvency Resolution Process (“CIRP”). Following the start of CIRP, on 6.11.2023, Greenshift Initiatives Pvt. Ltd. (“Appellant”/”Assignee”) entered into an Assignment Agreement with Rolta Pvt. Ltd. (“Assignor”) and asserted that they were a member of the CoC as a result.
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While the Resolution expert accepted the appellant’s Rs. 3.48 lakh claim, it was not allowed to seat before the CoC. In order to get a seat in the CoC with voting powers, the appellant filed an IA.The contested order of January 13, 2025, denied the application on the grounds that the assignor was a “related party.” The appeal against the order was filed by the appellant.
The appellant’s attorney argued that the assignor’s status as a “related party” does not automatically mean that the appellant or assignee is a related party as well. A third-party assignee who is not a “related party” to the corporate debtor should not be prohibited from taking part in the CoC, according to the Supreme Court’s ruling in Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. (2021), which the lawyer cited.
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The Resolution Professional (RP) argued that the Appellant had entered into the Assignment Agreement after the commencement of CIRP with the motive to come in the CoC.
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Arun Baroka, a technical member, Barun Mitra, and Justice Ashok Bhushan, the chairperson of the New Delhi bench, noted that a financial creditor who is not a connected party in praesenti would not be prohibited from joining the CoC. There is a catch to this proposal, though: it cannot be done with the goal of using the CoC to undermine the CIRP by reducing the other creditors’ voting share. According to the intent and goal of Section 21(2)’s first proviso, such a party ought to be barred from CoC.
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On the grounds that “one cannot assign a better right than he himself possesses” and that “disqualification that existed at the time of initiating the CIRP cannot be removed by a mere assignment,” the RP had rejected the appellant’s request for a seat in the CoC. The Tribunal determined that the assignment was made in order to obtain a seat in the CoC and so influence the rights and interests of other creditors, and it dismissed the appeal.
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