NCLT Delhi Upholds Termination Of Related Party Agreements By Resolution Professional With Coc’s Consent – decided on : 09/08/2023

Case Name: India SME Asset Reconstruction Company Limited v M/s Medirad Tech India Limited

There’s a company called Medirad Tech India Limited that owns a hospital called Hemalata Hospitals & Research Centre. In 2006, they made an agreement with another company called Hemalata Hospitals Limited. This agreement said the second company would manage the medical services at the hospital, and they would share the money they make with the first company. They also signed a lease agreement in 2013, renting out the hospital and its stuff to the second company. But in 2021, the first company had financial problems and had to get help to fix things. Some other companies wanted to help and submitted plans, but they said the agreements with the second company had to end. The person in charge of sorting out the money problems (called the Resolution Professional) ended those agreements with the second company without asking them. The second company didn’t like this and went to a special court (NCLT) to complain. They said the Resolution Professional shouldn’t have ended the agreements without asking them and the court should decide if it’s okay.

The court looked at the Section 25 of the Insolvency and Bankruptcy Code (IBC). The code doesn’t outline dealing with related-party transactions, but Section 28(1)(f) and 28(3) of IBC said that the Resolution Professional can’t continue agreements with related companies without getting permission from a group of important people (Committee of Creditors) who have to agree with 66% of the votes. The court also said that in a meeting, all the companies who wanted to help said they would only help if the agreements with the second company were ended. The Committee of Creditors agreed to this. So, the court decided that the Resolution Professional did the right thing by ending the agreements because the important group of people said it was okay. They said that based on the rules, the Resolution Professional didn’t make any mistakes in ending the agreements. The court dismissed the complaint from the second company. 


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