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2022 (4) TMI 374 - AT - Insolvency and BankruptcyFraudulent transactions - Transaction covered under Section 43, 45, 49 and 66 is mandatory to be filed within the period of 135th Day of the Insolvency Commencement Date - time period prescribed under Regulation 35A of the CIRP Regulations, 2016 - mandatory or directory? - defrauding the Creditor under section 49 - fraudulent trading or wrongful trading within meaning of Section 66 - fraud as contemplated by Section 49 and 66 of the Code. Whether an Application by the Resolution Professional relating to a Transaction covered under Section 43, 45, 49 and 66 is mandatory to be filed within the period of 135th Day of the Insolvency Commencement Date and in event the Application is filed beyond such period, the same is liable to be rejected due to non-compliance of Regulation 35A of CIRP Regulations, 2016? - Whether time period prescribed under Regulation 35A of the CIRP Regulations, 2016 is mandatory or directory? - HELD THAT:- Regulation 35A of the CIRP Regulations imposes a duty on the Resolution Professional to take measure within the timeline as prescribed. In performance of such duty the public in general has no control including the Corporate Debtor. In event it is held that any action taken by Resolution Professional beyond the time prescribed in Regulation 35A of the CIRP Regulations is prohibited, it shall cause serious general inconvenience or injustice to the Corporate Debtor. One of the objective of the Code is to maximise the assets of the Corporate Debtor. In event the actions taken by the Resolution Professional after the timeline prescribed in Regulation 35A of the CIRP Regulations are to be annulled, the undervalued and fraudulent transactions will go out of the reach of Resolution Process, reach of the Court and shall cause great inconvenience and injustice to Corporate Debtor - thus, the timeline prescribed in Regulation 35A of the CIRP Regulations is only directory and any action taken by the Resolution Professional beyond the time prescribed under Regulation 35A of the CIRP Regulations cannot be held to be non-est or void only on the ground that it is beyond the period prescribed under Regulation 35A of the CIRP Regulations. There may be genuine and valid reasons for Resolution Professional not to file application for avoiding the transactions within time prescribed which are question relating to each case and has to be examined on case-to-case basis and if there are reasons due to which Resolution Professional could not file the Application within time the same has to be examined on merit. There was no cooperation by the Suspended Directors, documents and assets were not handed over to the RP, RP had to move an Application under Section 19(2) of the Code. The Order was passed on 09th December, 2019 by the Adjudicating Authority directing the suspended Directors to extend cooperation and it was only thereafter on 15th February, 2020 the lease deed was shared by Respondent No. 1 with the Corporate Debtor. The Transaction Audit Report was finalised on 14th August, 2020 and thereafter the Application was filed. The timeline prescribed in Regulation 35A of CIRP Regulations is directory and not mandatory. Whether the time period prescribed under Section 46 for avoiding undervalued transactions are also to be applied for judging of fraudulent transaction? - HELD THAT:- In so far as the Lease Agreement was concerned that was sought to be questioned under Section 49 and 66 of the Code and whereas the preferential transactions were attacked were under Section 43 of the Code. Thus the Application contained the allegations which were falling both under Section 43, 45 and Section 49, 66 and in so far as the allegations referable to Section 49, 66 the timeline prescribed under Section 46 is not attracted. The Civil Proceedings as referred by Respondent Nos. 1 and 3 does not in any manner cause any impediment in proceeding to decide the Application on merits by the Adjudicating Authority. It is further relevant to notice that even in Appeal before us Respondents who were issued notice and given time to file Reply have chosen not to file any Reply. In the Insolvency Resolution Process, Adjudicating Authority has been empowered to pass appropriate order in the Application which are brought before it as per provisions in the Code, when the RP brought into the notice of the Adjudicating Authority by filing the Application I.A. No. 742 of 2020 it was incumbent on the Adjudicating Authority to consider the Application on merits and take appropriate decision to benefit the Corporate Debtor. Adjudicating Authority committed error in rejecting the Application - Appeal allowed - decided in favor of appellant.
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