The National Company Law Appellate Tribunal has clarified that ‘trust’ falls under the definition of ‘person’ under Section 2(23) of the Insolvency and Bankruptcy Code, 2016, and whereby the corporate debtor is controlled by a trust in the manner prescribed by aforesaid Sections, then the said trust, qualifying as a ‘person, would fall under the category of a related party i.e., defined under Section 5(24) (h) and (j) of the IBC.
The Appellate Tribunal has held that if the ‘Related Party’ and the Corporate Debtor are held to be controlled by the same entity, then a related party relationship can clearly be established between the ‘Related party’ and the Corporate Debtor in terms of Section 5(24) of the IBC.
The bench of Justice Rakesh Kumar Jain (Judicial Member), and Naresh Salecha and Indevar Pandey (Technical Member) upheld the decision of the NCLT, Kolkata Bench whereby Hari Vitthal Mission was held to be a related party of the Corporate Debtor i.e. Suasth Healthcare Foundation.
| The criteria laid down by NCLAT under Section 5(24) IBC are as follows: |
| The entities must be able to influence or advise the management of the Corporate Debtor under Section 5(24)(h) of the IBC. |
| The entity shall qualify as a related party by virtue of its position as a subsidiary of the holding company/trust that controls the Corporate Debtor. |
| The overall control must be through shareholding and appointment of Directors through the clauses of the trust deed and investment agreement which must be “real and substantial.” |
The appellate authority relied upon the top court’s judgment, wherein the court emphasized the necessity of excluding related parties from the CoC to maintain the integrity of the insolvency resolution process.
The Committee of Creditors was represented by Gopal Jain, Senior Advocate, assisted by Raunak Dhillon (Partner), Isha Malik (Senior Associate) and Niharika Shukla (Senior Associate) from Cyril Amarchand Mangaldas.
The judgment was pronounced on November 5, 2024.
