TMI Blog2023 (1) TMI 644X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Single Judge - There is no doubt that IBC is clearly special statute that seeks to be a single source guide for all issues relating the issue of insolvency. Avoidance of certain transactions such as preferential transactions or undervalued transactions are special remedies envisaged only under the IBC to benefit a special creature of the Code itself, i.e., the Committee of Creditors. In view of the purpose and policy behind enactment of the IBC, it is only befitting that any petition or application arising out of the insolvency resolution or liquidation of a corporate person includes proceedings under Part III of the IBC. Effect of Regulation 38(2)(d)of CIRP Regulations, 2016 - HELD THAT:- Respondent No. 1 s reliance upon this clause is misplaced. This clause has no bearing on the dispute in the present matter. Regulation 38 is titled Mandatory contents of the Resolution Plan . Regulation 38(2) requires that a resolution plan shall contain whatever is listed under sub-clauses (a) to (d). Therefore, the understanding is that Regulation 38(2)(d) necessitates a resolution plan to provide for the manner in which the resolution applicant seeks to deal with a pending avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other creditors. The scheme of the Act suggests that proceedings for unearthing such transactions are ancillary proceedings and the resolution of the corporate debtor need not be stalled due to pendency of such proceedings. The insolvency professional has to thoroughly examine the transactions which the corporate debtor has undertaken in the period prior to commencement of the period of insolvency proceedings. This is a very cumbersome process and more so in respect of companies whose books and records do not properly document all its past transactions - Since investigation and adjudication of these transactions are time consuming this cannot allow persons who were managing the corporate debtor to escape from reversal of these transactions. The time line given in the IBC cannot be used as a premium by the unscrupulous persons who have forced the corporate entity into insolvency process. The amount that is available after the transactions are avoided cannot go to the kitty of the resolution applicant, in this case the Appellant in LPA No. 37/2021. For the resolution applicant, it was purely a commercial contract, a commercial decision whereunder the resolution applicant knew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngh, Ms. Nishtha Chaturvedi and Ms. Shatakshi Tripathi, Advocates for respondent No.4. JUDGMENT 1. The present Letters Patent Appeals, being LPA No. 37 43 of 2021 have been filed by Tata Steel BSL Ltd. (hereafter, TSBL ) and the Union of India (hereafter, UoI ) (collectively, Appellants ) respectively, impugning the Judgment and Order dated 26.11.2022 ( Impugned Judgment ) rendered in W.P.(C) No. 8705 of 2019 titled Venus Recruiters Pvt. Ltd. vs. Union of India Ors ., wherein the Ld. Single Judge inter-alia held that an application filed under Section 43 of the Insolvency and Bankruptcy Code, 2016 ( IBC ) for avoidance of preferential transactions cannot survive beyond the conclusion of corporate insolvency resolution process (hereafter, CIRP ). Accordingly, the Appellants have sought before this Court that the Impugned Judgment be set aside. 2. The facts of the case leading up to the filing of the present LPAs are set out hereinbelow: a. Upon default in repayment of its credit facilities, State Bank of India ( SBI ) filed a petition, being C.P. No. (IB) 201(PB)/2017 under Section 7 of the IBC before the NCLT seeking initiation of CIRP of M/s Bhushan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us transactions were enumerated as 'suspect transactions' with related parties ( avoidance application ). h. On 15.05.2018, NCLT approved the Resolution Plan of Tata Steel filed by the RP before the NCLT on 28.03.2018. On 18.05.2018, the Resolution Plan was implemented in finality and the new management being Tata Steel BSL Ltd., the Appellant herein assumed control of Bhushan Steel Limited. i. NCLT observed that CA-284(PB)/2018, i.e., the avoidance application, has been filed by RP on 09.04.2018 prior to the approval of the Resolution Plan and proceeded to issue notice to the respondent companies made party to the application. j. Parallelly, on 10.08.2018, the NCLAT upheld the Order dated 15.05.2018, passed by the NCLT approving the Resolution Plan of Tata Steel. k. Aggrieved by the Order of the NCLT issuing notice in the avoidance application, the Respondent filed W.P.(C) 8705 of 2019 before the Ld. Single Judge seeking issuance of a writ declaring the proceedings borne out of the avoidance application, pending before the NCLT, as void and non-est since CIRP had concluded and the successful Resolution Applicant, Tata Steel Limited had assumed control o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (B) RP being functus officio after CIRP 7. Since the question framed by Ld. Single Judge was whether an avoidance application could be heard after CIRP, at the instance of the RP, an inevitable corollary to this question is whether the RP becomes functus officio after resolution of the corporate debtor. The Ld. Single Judge observed that the role of the RP is an administrative one and not adjudicatory in nature. Thus, the RP cannot continue beyond an order under Section 31 of the IBC, as the CIRP comes to an end with a successful Resolution Plan having been approved unless there is a clause in the Resolution Plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the Resolution Plan. 8. It has been held that there is a START and FINISH line for the Resolution Process and the role of the RP is to manage affairs of the corporate debtor during this process and not thereafter. After enactment of proviso to Section 23, the mandate of the RP was extended until approval of the plan or appointment of liquidator, making it clear that RP s authority is limited. Proviso to Section 23(1) sets an outer limit for its functioning. In view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to NCLT stepping in the shoes of the new management to decide what is good for it. The power to decide whether to continue an agreement vests with the new management after resolution. Therefore, any order with respect to suspect transactions would have to be passed prior to approval of the resolution plan. 12. It was further held that Section 26 of the IBC cannot be read in a manner so as to mean that an application for avoidance of transactions under Section 25(2)(j) can survive after the CIRP process. Once the CIRP process comes to an end, an application for avoidance of transactions cannot be adjudicated. The purpose of avoidance transactions is clearly for the benefit of the creditors of the Corporate Debtor in its erstwhile avatar and no benefit would come to the creditors after the Plan is approved. (D) Beneficiaries of avoidance applications 13. The Ld. Single Judge relied upon Clause 2.4 of the ILC Report dated 20.02.2020 to show that the IBC envisages that the successful Resolution Applicant cannot be permitted to file an avoidance application, as the same was not factored into the bid. Therefore, the Resolution Applicant whose Resolution Plan is approved itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and basis the same file an Avoidance Application during CIRP, the same need not be completed during CIRP and neither will the pendency of the same delay and/or affect the CIRP. 16. It was further contended that it flows from Section 26 that the timelines envisaged under the IBC for the purposes of CIRP cannot be extended to proceedings borne out of avoidance applications. Timelines within IBC and its rules and regulations (for instance, Regulations 35A and 40A of the CIRP Regulations, 2016) are indicative in nature, endeavoring to make the whole process time efficient whereas proceedings under the IBC are more often than not, subject to extensions granted by NCLT, as had been done in the present matter as well vide the Order dated 21.12.2017. Attention of this Court was drawn to Chapter 3 of the ILC Report dated 20.02.2020, which states that proceedings for avoidable transactions should be initiated by the RP during the CIRP or liquidation process and prescriptive timelines for initiating such proceedings may not be necessary. The Report further states that resolution plans may provide for preservation of claims and manner of pursuing these proceedings after the plan is oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be applied for the benefit of the creditors of the corporate debtor, the successful resolution applicant or other stakeholders. The IBBI itself recommends the Resolution Applicant to pursue the avoidance proceedings if CIRP ends with a Resolution Plan. He submits that the Ld. Single Judge has erred in observing that that the purpose of avoidance of transactions is for the benefit of the creditors of the Corporate Debtor and that no benefit would come to the creditors after the Plan is approved. He submits that the approval of the Plan has no nexus with benefits to creditors as: - (i) Section 26 provides for avoidance applications to not have effect on CIRP, (ii) Avoidance applications continue beyond CIRP and the Resolution Applicant may pursue it, (iii) Therefore, benefits can be distributed to creditors or RA or (iv) the NCLT may decide who the benefits ought to be accorded to 20. It has also been submitted that if the Impugned Judgment is allowed to continue, it will directly result in all pending Avoidance Applications post CIRP being rendered infructuous thereby destroying the relevant provisions of the IBC, making avoidance applications nugatory, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming a statutory function for initiating proceedings in this regard before the NCLT. The avoidance proceedings are not personal to the insolvency professional acting as the RP. A perusal of the nature of orders that can be passed under Section 44, suggests that the immediate recipient of the outcome of the avoidance proceedings is the corporate debtor. Therefore, after the conclusion of the CIRP, the office of the RP does not become functus officio and the avoidance proceedings do not come to an end. 24. He proceeds to submit, even if for sake of arguments, it is presumed that the RP becomes functus officio, the NCLT can still decide those applications. The statutory duty imposed upon on the RP is to file avoidance applications in terms of Section 25(2)(j). Once it is established that the RP discharged this statutory burden, the avoidance proceedings will survive the CIRP. The reason for the same, in his opinion is, that the resolution plan cannot be linked with adjudication of avoidance transactions which is discernible from the fact that Section 12 of the Code provides time lines for completion of CIRP and the term CIRP has been defined under regulation 2(e) of CIRP Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leading up to insolvency. The implications of these provisions are restricting the right of parties to such transactions to benefit the same by sending the proceeds back to the corporate debtor also incidentally benefitting creditors. In the present case, the avoidance proceedings are subsisting after approval of the resolution plan by the NCLT and conclusion of CIRP. While incidental benefits to the creditors during the CIRP does not exist anymore, such proceedings do not become infructuous as parties to such impermissible preferential transactions are still benefiting out of the same. III. Resolution Professional 28. Mr. Manmeet Singh, Ld. Counsel for the RP has made limited submissions, expressing concurrence with the stance adopted by Tata Steel BSL Ltd. and the Union of India. He submits that the Respondent No. 1 cannot be allowed to go scot-free merely because the RP is rendered functus officio under Sections 30, 31 of the Code. He further submits that there exists no requirement for the RP to pursue the avoidance application and the same can be done by the Corporate Debtor upon the successful resolution of the CIRP. The Corporate Debtor being the beneficiary of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Avoidance proceedings. He states that the Appellants seek to introduce the word by and change the phrase to shall not be affected by the proceedings of the corporate insolvency resolution process . In his view, this misconceived interpretation alters the entire meaning of section 26 of the IBC since by means of Section 26 of the IBC, the Parliament has retained the focus of the proceedings before the Ld. Adjudicating Authority only to the CIRP process. With the interpretation advanced by the Appellants the focus is shifted to Avoidance Application which was never the intention of the Parliament. 32. He further submits that it has been admitted by the RP itself he became functus officio upon conclusion of CIRP. He has also relied upon various provisions of the IBC to contend that the tenure of the RP cannot be extended beyond CIRP. Attention of this Court was drawn Section 23(1) read with the Proviso which, as argued by Mr. Sibal, demonstrates that the role of the Resolution Professional is confined to: (i) conduct of the CIRP; (ii) managing the operations of the corporate debtor during the CIRP period; and (iii) if a resolution plan has been submitted to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible differentia. Applying such special provisions post the CIRP Process also does not bear nexus with the objects of the IBC, as: (i) it is neither in furtherance of insolvency resolution nor in furtherance of liquidation; and (ii) the value, if any, resulting from the avoidance of preferential transactions would not in any manner enhance realization of dues by the creditors. Object and purpose of the IBC 36. Before dealing with issues raised before us in the present LPAs, we consider it appropriate to discuss and analyze the object and purpose of the IBC in general and the intent behind the provisions pertaining to avoidable transactions specifically. The Apex Court had the occasion to analyze the IBC in its judgment in the case of Innoventive Industries Ltd (supra), wherein it was observed as under: - 12. The Statement of Objects and Reasons of the Code reads as under: Statement of Objects and Reasons. There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, the Income Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013. 5. The Code seeks to achieve the above objectives. The Hon ble Apex Court further observed: - 13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are 38 not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. [See ArcelorMittal (supra) at paragraph 83, footnote 3]. 12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r proviso to sub-section (3) of Section 1. Part II of the Code deals with insolvency resolution and liquidation for corporate persons. Chapter I of Part II makes provision for its applicability and also defines various expressions used in this Part (Sections 4 and 5). Chapter II of Part II contains the provisions for corporate insolvency resolution process in Sections 6 to 32 whereas Chapter III of this Part II contains the provisions for liquidation process in Sections 33 to 54. 16.3. Though the provisions relating to preferential transactions and relevant time (in Section 43 of the Code) occur in Chapter III of Part II, relating to liquidation process, but such provisions being for avoidance of certain transactions and having bearing on the resolution process too, by their very nature, equally operate over the corporate insolvency resolution process, and hence, the resolution professional is obligated, by virtue of clause (j) of subsection (2) of Section 25 of the Code, to file application for avoidance of the stated transactions in accordance with Chapter III. That being the position, Section 43 of the Code comes into full effect in CIRP too. (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 42. It is pertinent to note that by its very nature, an Avoidance Application may take more time in adjudication especially in cases where multiple parties are highlighted as having possibly entered into transactions with the corporate debtor in forensic audit reports and there may be situations where the third parties including related parties of the corporate debtor may heavily contest such applications. Further, adjudication of such applications requires proper examination of facts as opposed to making mere objective determinations (as is the case with CIRP). It is discernible that an application for avoidance transactions is against the promoters/directors/related parties, however the resolution/liquidation is for the Corporate Debtor. In the Appellants view, Section 26 of the IBC exists as an acknowledgment of the fact that avoidance applications ought to be separated from CIRP. (b) Import of Section 26 43. At this juncture, it is imperative to advert to Section 26 of the IBC which states as follows: - 26. Application for avoidance of transactions not to affect proceedings. The filing of an avoidance application under clause (j) of sub-section (2) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n it has made certain salient observations and recommendations on the issue of survival of avoidance applications after CIRP. The relevant excerpts of the same are reproduced hereunder: - 2.19. Independence of proceedings for avoidance of transactions and improper trading It was brought to the notice of the Committee that there is confusion regarding whether proceedings for avoidance of transactions and improper trading can continue after approval of a resolution plan in CIRP. This comes in the wake of a recent decision of the Delhi High Court in Venus Recruiters Private Limited v. Union of India 21 wherein the Court inter alia opined that the applications in respect of avoidable transactions do not survive beyond the conclusion of the CIRP and once the CIRP itself comes to an end, an application for avoidance of transactions cannot be adjudicated. 2.20. The Code does not provide a deadline for the initiation of proceedings for avoidance of transactions and improper trading (in the context of both CIRP and liquidation). Once filed, the Code also does not prescribe a time limit for conclusion of such proceedings. The CIRP Regulations, however, provide that the resolution p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the Adjudicating Authority for setting aside avoidable transactions. Not only the investigation and filing, but the adjudication of such transactions is also a lengthy process. Findings of avoidable transactions and improper trading are not purely objective assessments and involve answering questions of both law and fact. For instance, ascertaining a preference transaction would include determining if a particular transaction falls within the legal fiction created under Section 43(2), or within the exclusions under Section 43(3), etc. Consequently, it may be very difficult to conclude proceedings for avoidance of transaction or improper trading within the 330-day time limit for CIRP. Second, where avoidance applications would be considered infructuous if they have not been concluded before the approval of a resolution plan under Section 31. This would mean that if avoidance proceedings have not been completed before approval of resolution plan, such proceedings shall abate. Since investigation and adjudication of avoidable transactions are often time-consuming, this may allow corporate debtors an escape from reversal of suspicious pre-commencement transactions and pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: (j) file application for avoidance of transactions in accordance with Chapter III, if any; 48. Regulation 35A of the CIRP Regulations, 2016 provides guidance in respect of the manner in which the RP ought to file such applications. It is imperative to note that the IBBI has inserted clause (3A) and (4) to Regulation 35A vide amendments dated 16.09.2022 and 14.06.2022, respectively, after which Regulation 35A reads as follows: - 35A. Preferential and other transactions. (1) On or before the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66. (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under sections 43, 45, 50 or 66, he shall make a determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsistent with our findings in respect of the nature of such proceedings, which require proper scrutiny of facts and law and are likely to meet resistance, thereby being likely to last beyond the conclusion of CIRP. 52. Even otherwise, a perusal of other regulations also makes it clear that the IBC and extant regulations have envisaged since inception that avoidance applications can survive the successful resolution of the Corporate Debtor. Regulation 36 provides for the preparation of an Information Memorandum. Details of avoidable transactions can be made a part of the Information Memorandum to be prepared by the RP. During the pendency of the present LPAs, the IBBI also inserted Regulation 38(2)(d) which mandates that all Resolution Plans to be submitted before NCLT for approval on or after 14.06.2022 must provide for treatment of avoidance applications. 53. Therefore, the general position of law is that an avoidance application will survive the CIRP if all suspect transactions and applications filed in their respect have been accounted for in the Resolution Plan. Ultimately, all details of such pending applications are required to be placed before the NCLT for approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forum for the same and Sections 44, 48, 49, 51, 66 and 67 categorically provide for the NCLT to pass orders in the avoidance applications. In similar vein, Ld. ASG has also submitted that the purpose and intent of the IBC being to serve as a complete code in respect of insolvency laws, the language of Section 60(5) has to be given wide import. 59. It is evident from the judgments of the Honorable Supreme Court in the Swiss Ribbons (supra) and Innoventive Industries (supra) that the one of the primary objectives of the IBC was to bring insolvency laws in India under a single, unified umbrella. 60. At this juncture, we must also refer to the judgment of the Hon ble Supreme Court in Gujarat Urja Vikas Nigam Ltd. vs. Amit Gupta, (2021) 7 SCC 209, wherein the Hon ble Supreme Court has, in a comprehensive manner, interpreted and laid down the scope and import of the phrase arising out of and in relation to in the specific context of Section 60(5)(c) of the IBC. It was held: - I.1. Section 60(5)(c): arising out of and in relation to 49. It has been submitted before us on behalf of the appellant that NCLT does not have any inherent powers, and its exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 60(5) bear a flavour of resemblance to the provisions which were contained in sub-section (2) of Section 446 [ Sub-section (2) of Section 446 provides as follows: 446. (2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under Section 391 by or in respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. ] of the Companies Act, 1956, which correspond now to Section 280 [Section 280 of the Companies Act, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statute, the context in which the words are used and the purpose of the underlying provision. Therefore, while construing of Section 60(5), a starting point for the analysis must be to decipher parliamentary intent based on the object underlying the enactment of IBC. The Statement of Objects and Reasons leading up to the enactment to IBC conveys a strong sense of the intent of the legislature. According to it: Statement of Objects and Reasons.- There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings from judicial aspects. 57. In the decision of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , where the challenge was to the constitutional validity of some provisions of IBC, the judgment by R.F. Nariman, J. contains a section titled Prologue : the pre-existing state of the law . The problems which arise from multiplicities of statutes and fora in the erstwhile regime were noticed (at SCC pp. 41-42, para 14) in the report of the Bankruptcy Law Reforms Committee (2015) ( BLRC ): 14. The current state of the bankruptcy process for firms is a highly fragmented framework. Powers of the creditor and the debtor under insolvency are provided for under different Acts. It is problematic that these different laws are implemented in different judicial fora. Cases that are decided at the tribunal/BIFR often come for review to the High Courts. This gives rise to two types of problems in implementation of the resolution framework. The first is the lack of clarity of jurisdiction. In a situation where one forum decides on matters relating to the rights of the creditor, while another decides on those relating to the rights of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner. Pursuing this theme in Innoventive [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] this Court observed that : (SCC p. 422, para 13) 13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. The principle was reiterated in ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] where this Court held that : (SCC p. 88, para 84) 84. The non obstante clause in Section 60(5) is designed for a different purpose : to ensure that NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings. Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the NCLT is the Adjudicating Authority in relation to insolvency and liquidation of corporate persons. Section 60(5)(c) provides that the NCLT has the jurisdiction to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings. The Committee noted that the phrases in relation to or arising out of are of wide import, thereby extending the jurisdiction of the NCLT on subject matters related to the insolvency resolution of the corporate debtor. Further, the phrase entertain or dispose of suggests that the jurisdiction of the NCLT is not limited to entertaining a question of law or fact. Instead, it extends to disposal of such proceedings. Given this, the Committee felt that Section 60 read with Section 26 allows the NCLT to adjudicate over proceedings related to avoidable transactions and improper trading even after the conclusion of the CIRP. Consequently, it agreed that amendments to Section 60 may not be required in this regard. 62. In light of the aforesaid, it becomes evident that the phrase arising out of and in relation to is to be given wide import. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery. That it has become necessary, even now, for us to repeat this admonition is indeed a matter of tragic concern to us. Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters. We can also take judicial notice of the fact that the vast majority of the petitions under Article 226 of the Constitution are filed solely for the purpose of obtaining interim orders and thereafter prolong the proceedings by one device or the other. The practice certainly needs to be strongly discouraged. 65. Similarly, while dealing with the issues regarding writ petitions under Article 226 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up. 13. In Titaghur Paper Mills Co. Ltd. v. State of Orissa [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] this Court observed: (SCC pp. 440-41, para 11) 11. It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford [(1859) 6 CBNS 336 : 141 ER 486] in the following passage: (ER p. 495) There are three classes of cases in which a liability may be established founded upon a statute. But there is a third class viz. where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. The remedy provided by the statute must be followed, and it is not competent to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciple and observed: (SCC p. 653, para 8) 8. Before we discuss the correctness of the impugned order, we intend to remind ourselves the observations made by this Court in Munshi Ram v. Municipal Committee, Chheharta [(1979) 3 SCC 83 : 1979 SCC (Tax) 205]. In the said decision, this Court was pleased to observe that: (SCC p. 88, para 23) 23. [when] a revenue statute provides for a person aggrieved by an assessment thereunder, a particular remedy to be sought in a particular forum, in a particular way, it must be sought in that forum and in that manner, and all the other forums and modes of seeking [remedy] are excluded. 15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case [AIR 1964 SC 1419], Titaghur Paper Mills case [Tita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. (1) The amount payable under a resolution plan (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan. (1A)A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. (IB) A resolution plan shall include a statement giving details if the resolution applicant or any of its related parties has failed to implement or contributed to the failure of implementation of any other resolution plan approved by the Adjudicating Authority at any time in the past. (2) A resolution plan shall provide (a) the term of the plan and its implementation schedule; (b) the management and control of the business of the corporate debtor during its term; and (c) adequate means for supervising its implementation. (d) provides for the manner in which proceedings in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.06.2022, the Resolution Plan must also take into account all the dubious transactions does not give any less credence to the fact that such plans which have been approved by the Creditors prior to 14.06.2022, the NCLT will have jurisdiction to the application by the Resolution Professional for setting aside certain transactions so that the money can be recovered through the account of the Committee of Creditors. The argument of the learned Counsel for the Tata Steel BSL Ltd. that the money must come to the coffers of the company cannot be accepted because the price that has been offered by the Resolution applicant is a commercial decision. He has accepted to take over the entity at a particular price. He cannot be a beneficiary of that amount because that amount was actually paid by the Committee of Creditors which is a public money. Resolution Process is for the corporate debtor and also to ensure that the Committee of Creditors are not put to a loss because the amount lost by the Committee of Creditors is principally public money. 71. Ld. Senior Counsel appearing on behalf of Respondent No. 1 has argued that by virtue of insertion of the said clause, the dispute does not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s because Regulation 35A pertains merely to the RP discharging his statutory burden of filing an avoidance application within an outer limit of 135 days from the commencement of the CIRP. This timeline takes date of commencement of CIRP as the reference point. However, the CIRP process itself is not strictly or mandatorily bound by its own timelines. The same has been held by the Hon ble Apex Court in Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531. 75. Secondly, while Regulation 35A endeavours to ensure that an avoidance application is determined and filed at the earliest to facilitate resolution of the Corporate Debtor, it does not envisage a situation where the RP is not able to form an opinion, make a determination or file an application as per the prescribed timeline. In the peculiar facts of this case, the RP did not have the requisite records to do so as per such timelines. The intent behind the insertion of clause 3A and 4 to Regulation 35A in fact appears to be that a resolution applicant is able to take cognizance of the avoidable transactions at the earliest. The duty cast by the IBC under Section 25(2) (j) is with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be recovered from adjudication of an avoidance application. The same is consistent with the scheme of the Code and in line with object sought to be achieved by it which inter-alia includes, increasing the availability of credit within the economy. (d) RP will pursue the avoidance applications since he is only functus officio vis- -vis CIRP and not avoidance applications 79. Upon this Court being satisfied that avoidance applications survive CIRP, a contentious issue that requires determination is as to who pursues such applications after conclusion of CIRP. 80. The flavour of Respondent No. 1 s argument is that it is the RP who files and pursues such applications and RP being rendered functus officio there is no agency or instrumentality within the IBC which can pursue such an application. This argument furthers Respondent No. 1 s stance on the issue of non-survival of avoidance applications on conclusion of CIRP. Appellants have submitted that a number of approaches can be taken in such a case. 81. During the course of arguments, the counsel appearing on behalf of the parties made various submissions in this regard. The Ld. Counsel for Tata Steel BSL Ltd. drew the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue(including the decision to file an application or an appeal)the matter(application/appeal)before the authorities(NCLT, NCLAT, Supreme Court or any other), if the CIRP ends with a Resolution Plan? Who would bear the expenses? Resolution Applicant; the cost shall be borne by it. 2. Who would pursue the matter before the authorities, if the CIRP ends with an order for Liquidation? Who would bear the expenses? Liquidator; the cost shall be part of liquidation process cost. 3. Who would pursue the matter before the authorities, the NCLT, the NCLAT or the Supreme Court, if Liquidation Process ends? Who would bear the expenses? The IBBI. The cost would be defrayed from the Insolvency and Bankruptcy Fund 82. Attention of this Court was also drawn to Chapter III, Para 2 of the ILC Report, which states: - The Adjudicating Authority should decide whether the recoveries from actions filed against improper trading or to avoid transactions should be applied for the benefit of the creditors of the corporate debtor, the successful resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h transactions are ancillary proceedings and the resolution of the corporate debtor need not be stalled due to pendency of such proceedings. The insolvency professional has to thoroughly examine the transactions which the corporate debtor has undertaken in the period prior to commencement of the period of insolvency proceedings. This is a very cumbersome process and more so in respect of companies whose books and records do not properly document all its past transactions. The resolution professional has to also assess if a suspicious transaction would meet the requirements that are necessary to be seen before terming it as a suspicious transaction. Not only the investigation but the adjudication of such transaction is a lengthy process and findings of these transactions by adjudicating authority involves answering questions on both law and fact and, therefore, it will be impossible to conclude these proceedings within the time frame laid down in the process. Since investigation and adjudication of these transactions are time consuming this cannot allow persons who were managing the corporate debtor to escape from reversal of these transactions. The time line given in the IBC cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, the former, being objective in nature, is time bound whereas the latter requires a proper discovery of suspect transactions that are to be avoided by the Adjudicating Authority. The scheme of the IBC reinforces this difference. Accordingly, adjudication of an avoidance application is independent of the resolution of the corporate debtor and can survive CIRP. c) The endeavour of the IBC and its rules and regulations is to ensure that all processes within the insolvency framework are time efficient. While the law mandates a resolution plan to necessarily provide for the treatment of avoidance applications if the same are pending at the time of submission of resolution plans, it cannot be accepted that avoidance applications will be rendered infructuous in situations wherein the resolution plan could not have accounted for avoidance applications due to exigencies that delayed initiation of action in respect of avoidable transactions beyond the submission of a resolution plan before the adjudicating authority. This is because such an interpretation will render the provisions pertaining to suspect transactions otiose and let the beneficiaries of such transactions walk away, s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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