Asset Reconstruction Company (I) Limited (ARCIL) Vs. Koteswara Rao Karuchola & Ors. (NCLAT, NEW DELHI)

Company Appeal (AT) (Insolvency) No. 633 of 2018

ISSUE:

The issue before the Court was whether a Company against which Money Laundering case has been initiated can be allowed to be the member of the Committee of Creditors.

FACTS:

1. A Business Transfer Agreement was entered into between Viceroy Hotels Limited and Mahal Hotel Private Limited on 02.04.2011. Viceroy Hotels Limited was paid part of consideration amount of Rs. 122.23 crores by Mahal Hotel Private Limited. On 22^nd March 2014, Mahal Hotel Private Limited cancelled the Business Transfer Agreement. The amount paid by Mahal Hotel Private Limited was shown as forfeited and was so reflected in the Balance Sheet of the Viceroy Hotels Limited (Corporate Debtor) for the Financial Year 2013-14 onwards.
2. Corporate Insolvency Resolution Process was initiated against Viceroy Hotels Limited (‘Corporate Debtor’) on 12.03.2018 and the ‘Committee of Creditors’ was constituted. The first meeting of the ‘Committee of Creditors’ was held on 09.04.2018, in which Mahal Hotel Private Limited was not the Member. On 23^rd of April, 2018, the Infomation Memrandum was circulated by the “Resolution Professional.’ The list of creditors as disclosed in the Information Memorandum did not include the Mahal Hotel Private Limited.
3. An updated list of Members of ‘Committee of Creditors’ was circulated on 7^th of July 2018 by the Resolution Professional’ in which also the Mahal Hotel Private Limited was not shown as a Member. The ‘Committee of Creditors’ directed the ‘Resolution Professional.’ On 11^th of July 2018, ‘Resolution Professional’ circulated an email annexing therewith updated list of Members of the ‘Committee of Creditors’ by including Mahal Hotel Private Limited as ‘Financial Creditor.’
4. According to the Appellant the aforesaid inclusion of Mahal Hotel Pvt. Ltd. as ‘Fianancial Creditor’ was intentionally made by the Respondent No.1 i.e. the ‘Resolution Professional’ with intention to ensure that he is not removed by the Committee of Creditors. It was further stated that on such inclusion in the Committee of Creditors Mahal Pvt. Ltd. would have voted in favour of the Resolution Professional, who has unethically included the Mahal Hotel Pvt. Ltd. as ‘Financial Creditor.’
5. On the issue of merit of the claim of Mahal Hotel Pvt. Ltd. it was submitted that the above claim is not debt shown in the books of accounts of Corporate Debtor. The claimed amount has been received by the Corporate Debtor under Business Transfer Agreement dated 02.04.2011 which was forfeited by the Corporate Debtor as in 2013 on account of Mahal Hotels Pvt. Ltd.’s inability to perform the part of Business Transfer Agreement. Therefore, according to the Appellant- ARCIL, apart from forfeiture of the debt amount the amount received under Business Transfer Agreement do not come within the meaning of Financial Debt and, therefore, Mahal Hotel Pvt. Ltd. could not have been included as Financial Creditors. It was also submitted that the decision on inclusion of the name was only taken when  a decision was taken to remove the Resolution Professional and the same was done with an intent to defeat the purpose of I&B Code.
6. It was further submitted that Mahal Hotel Private Ltd. is involved in money laundering, of which the transaction is also stated to be one such, as per Enforcement Directorate under Prevention of Money Laundering Act, 2002.

HELD:

In the present case there is a dispute as to whether Mahal Hotel Private Limited comes within the meaning of Financial Creditor or not.

1. After constitution of the ‘Committee of Creditors;, without its permission, the ‘Resolution Professional’ was not competent to entertain more applications after three months to include one or other persons as ‘Financial Creditor’.
2. Once the decision was taken by ‘Committee of Creditors to call for a meeting to remove the Resolution Professional, it was improper for him to include Mahal Hotel Pvt. Ltd. as Financial Creditor of the Member of ‘Committee of Creditors.’

• Money Laundering case having been initiated against Mahal Hotel Pvt. Ltd., the said Hotel cannot be allowed to be the Member of the ‘Committee of Creditors.’