TMI Blog2023 (5) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... cess - Admittedly, the liquidation process begins when no Resolution Plan is approved in CIRP. Continuance of the avoidance application is implicit by provision of Section 36, sub-section (3), sub-clause (f). What is contemplated in Section 36(3)(f) is also clear from CIRP process, which is reflected by Regulation 38(2)(d) of CIRP Regulations. Regulation 38 provides for Mandatory contents of the resolution plan. Regulation 38(2)(d) has been inserted by Notification dated 14.06.2022. The insertion of Regulation 38(2)(d) by the above amendment clearly makes the legislative intent clear that Resolution Plan shall provide manner in which proceedings in respect of avoidance transactions will be pursued after approval of Resolution Plan - The Division Bench in Venus Recruiter Pvt. Ltd. vs. Union of India [ 2020 (11) TMI 850 - DELHI HIGH COURT ] has clearly held that avoidance application is independent of the resolution of the Corporate Debtor and can survive the CIRP. We, thus, are of the view that argument of the Appellant that after conclusion of the CIRP by approval of the Resolution Plan, avoidance application becomes infructuous, cannot be accepted. Another submission whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Regulation 35A have been held to be not mandatory, however, the applications have to be filed in a reasonable time and any avoidance application, which is filed with inordinate delay can be refused to be entertained by the Adjudicating Authority. The submission which has been pressed by the learned Counsel for the Appellant is that avoidance applications, which were filed after approval of the Resolution Plan by the CoC, could not have been entertained. In the Code and the Regulations, there are no such provisions, which indicate that avoidance application filed after approval of the Plan by the CoC is to be rejected or not. It depends on the facts of each case and circumstances as to whether any application filed after approval of the Resolution Plan by the CoC can be considered or not. In the present case, the Resolution Plan has noted the pending avoidance applications. The present Appeals have been filed by the Ex-Promoter of the Dewan Housing Finance Corporation Finance Limited and allegation regarding fraudulent transactions were against the Ex-Promoters including the Appellant. The object of continuing the avoidance applications, even after the CIRP is the discovery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viders and Application to Adjudicating Authority) Rules, 2019 (for short Rules 2019 ), the Adjudicating Authority admitted the petition by order dated 03.12.2019 and confirmed the appointment of Administrator of DHFL to perform all functions of the Resolution Professional ( RP ) under the Code and to conduct the Corporate Insolvency Resolution Process ( CIRP ) of the Corporate Debtor Dewan Housing Finance Corporation Limited. (ii) The Administrator of DHFL/ RP as approved by the Adjudicating Authority vide order dated 03.12.2019 filed various Interlocutory Applications ( IA ) impugning certain transactions undertaken by the Corporate Debtor. Several IAs were filed by the then Administrator/ RP praying avoidance of different transactions undertaken by the Corporate Debtor in the CIRP of the Corporate Debtor. The Applications filed by the then Administrator were filed under Section 25(2)(j), 43, 44 and 66 of the Code. (iii) In the CIRP of the Corporate Debtor, Resolution Plan submitted by Piramal Capital Housing Finance Ltd. was approved by the Committee of Creditors ( CoC ) on 15.01.2021. After 15.01.2021, two further Applications were filed by the then Administrator. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated 09.02.2023. IA No.3128 of 2022 filed by Piramal in IA No.338 of 2021 was allowed by following order: 1. The present Application IA 3128 of 2022 has been filed by the Applicant seeking amendment of the memorandum of parties in the IA 338 of 2021 and all necessary consequential amendments to the IA 338 of 2021. 2. The Applicant has also prayed to substitute its name Piramal Capital Housing Finance Limited to be substituted in place of the erstwhile Administrator, Mr. Subramaniakumar. 3. The similar issue has been dealt in the IA 2852 of 2021. In view of the same, the present Application IA 3128 of 2022 is allowed and disposed of. (v) In the above order dated 09.02.2023, reliance on order passed in IA No.2852 of 2021 on the same date, i.e. 09.02.2023 in IA No.532 of 2022 in IA No.2852 of 2021 in IA No.721 of 2021 was placed and IA No.2852 of 2021 was allowed. IA No.532 of 2022 was filed praying to dismiss the Application. IA No.532 of 2022 and IA No.2852 of 2021 were filed in IA No.721 of 2021, which was filed by the Administrator on 10.02.2021 under Section 25(2)(j), 43, 44. All IAs filed by Piramal praying for substitution of its name in place of erst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the Appellant challenging the order contends that after completion of the CIRP and after approval of the Resolution Plan, avoidance applications could not have been allowed to continue and the order of Adjudicating Authority permitting continuance of the avoidance applications by Resolution Applicant is not in accordance with law. It is submitted that Successful Resolution Applicant cannot continue prosecution of the avoidance applications since the RP is persona designate under the Code, whose power and duties cannot be delegated. It is submitted that judgment of the Delhi High Court in TATA Steel BSL Ltd. vs. Venus Recruiter Pvt. Ltd. Ors. decided on 13.01.2023 is not authority for the proposition that Successful Resolution Applicant can prosecute the avoidance applications after completion of the CIRP. It is submitted that impugned order is contrary to the decision of the Delhi High Court in Tata Steel BSL Ltd. (Supra). The Successful Resolution Applicant, who has different legal interests from the Administrator, cannot be substituted in place of Administrator/ RP. The Piramal Successful Resolution Applicant has vested interest in the outcome and it would act in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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; 9. Section 26 of the Code provides: 26. Application for avoidance of transactions not to affect proceedings. - The filing of an avoidance application under clause (j) of sub-section (2) of section 25 by the resolution professional shall not affect the proceedings of the corporate insolvency resolution process. 10. The legislative scheme delineated by Section 26 clearly indicates that avoidance applications are not to affect the proceeding of the CIRP. The avoidance application has been treated to be in different stream than the proceedings of the CIRP, Section 26 itself indicates that avoidance application shall not affect the proceedings of CIRP and it can continue even after completion of the CIRP. 11. Regulation 35A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (for short CIRP Regulations ) and Section 43 of the Code deals with Preferential transactions and relevant time . Section 43, sub-sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e him to consider the same while submitting the resolution plan within the time initially stipulated. (4) The creditors shall provide to the resolution professional, relevant extract from the audits of the corporate debtor, conducted by the creditors such as stock audit, transaction audit, forensic audit, etc. 14. The above provisions clearly indicate that statutory scheme of the Code is that preferential transaction, undervalued transaction or fraudulent transactions have to be brought into the notice of the Adjudicating Authority by an application filed by the Resolution Professional/ Liquidator. The statutory scheme clearly states the its the duty of Resolution Professional/ Liquidator to determine the nature of transactions and file an appropriate application. One conclusion is thus inescapable that applications referred to in Section 43, 45 and 66 have to be filed by the RP before the Adjudicating Authority. In the present case, as noticed above, Administrator appointed by the Reserve Bank of India and approved by the Adjudicating Authority to function as RP of the Dewan Housing Finance Corporation Ltd. the Corporate Debtor, has filed all avoidance applications in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertion of Regulation 38(2)(d) by the above amendment clearly makes the legislative intent clear that Resolution Plan shall provide manner in which proceedings in respect of avoidance transactions will be pursued after approval of Resolution Plan. We may also refer to the recent judgment of the Delhi High Court in TATA Steel BSL Ltd. vs. Venus Recruiter Pvt. Ltd. Ors. (2023) SCC OnLine Del 155 decided on 13.01.2023 where it has been held that avoidance application can be heard after conclusion of CIRP. The learned single Judge in Venus Recruiter Pvt. Ltd. vs. Union of India, against which Appeal was filed before the Division Bench had taken a view that avoidance application cannot be allowed to continue after approval of Resolution Plan in event no provision is made to that effect in the Resolution Plan. The view taken by the learned single Judge has been disapproved by the Division Bench. In paragraph 80, following has been held by the Division Bench: 80. The Ld. Single Judge operates on the assumption that the sum or property acquired upon adjudication of the avoidance application will be appropriated by the corporate debtor in its new avatar. As laid down above, the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. 89. The concern of Union of India is that if the interpretation of the learned Single Judge is accepted then persons who were responsible for the corporate debtor to go into liquidation because of unscrupulous transactions will get away with their deeds. The submission that the scheme of IBC is not purely commercial in nature and the purpose of the Act which is also to ensure that public money is brought back into the system is not unfounded. 19. The Division Bench has recorded its conclusion in paragraph 90, which is as follows: 90. 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 the ground reality, the assets and the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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, scot-free. Money borrowed from creditors is essentially public money and the same cannot be appropriated by private parties by way of suspect arrangements. Therefore, in cases such as the present one, wherein such transactions could not be accounted, the Adjudicating Authority will continue to hear the application. Such benefit cannot be given in cases where the RP had already applied for prosecution of avoidance applications and the applicant ought to have been cognizant of pending avoidance applications but did not account for the same in its resolution plan. d) It follows that the RP will not be functus officio with respect to adjudication of avoidance applications in a situation, as described hereinabove. There being a clear demarcation between the scope and nature of the CIRP and avoidance application within the scheme of the IBC, the RP can continue to pursue such applications. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Successful Resolution Applicant. The Successful Resolution Applicant is not exercising any delegated powers of RP, hence, the argument that RP being persona designate, has no relevance in the present case. The Adjudicating Authority in the present case has substituted the Piramal Successful Resolution Applicant relying on provisions of the Resolution Plan. The Adjudicating Authority while approving the Resolution Plan vide its order dated 07.06.2021 has noted the provisions of the Plan, which empowers the Resolution Applicant to pursue the avoidance application. In order passed by the Adjudicating Authority dated 07.06.2021, following has been stated: i. Under Section 2.13.2 of Part A of the Resolution Plan, the Successful Resolution Applicant has provided that it intends to pursue, on a best efforts basis, the application(s) filed by the Administrator before this Hon ble Tribunal in respect of these Avoidance Transactions (as defined in the Resolution Plan). Any positive monetary recovery received by the Corporate Debtor as a result of orders passed in relation to the Avoidance Transactions hall be distributed, net of costs and expenses (including taxes), to the Financial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Plan. When Resolution Plan specifically empowers the Successful Resolution Applicant to pursue the avoidance applications, the said provisions of the Plan shall bind everyone including the erstwhile Administrator. The submission of the learned Counsel for the Appellant cannot be accepted that it is the erstwhile Administrator/ RP, who could alone, if at all, pursue the avoidance application. This argument has to be rejected in view of the specific clause, permitting the Successful Resolution Applicant to pursue the application. 23. Another argument advanced by the learned Counsel for the Appellant is that two applications filed by the Administrator were after Resolution Plan was voted on 15.01.2021. The learned Counsel for the Appellant has referred to two IAs, which are subject matter of Company Appeal (AT) (Insolvency) Nos.451 of 2023 and 439 of 2023, which according to the Appellant were not even filed till the date Resolution Plan was voted, i.e. 15.01.2021. The submission of the learned Counsel for the Appellant is that any avoidance application, which has been filed subsequent to approval of the Plan cannot be pursued and the order of the Adjudicating Authority substituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions and permitting such preferential undervalued and fraudulent transactions to continue, will be depriving the benefit of such transactions to the creditors, which is not the intent of the statutory scheme. The submission advanced on behalf of Union of India questioning the interpretation of learned single Judge in Venus Recruiter Pvt. Ltd. was accepted by the Division Bench and in paragraph 89 of the judgment, following has been observed: 89. The concern of Union of India is that if the interpretation of the learned Single Judge is accepted then persons who were responsible for the corporate debtor to go into liquidation because of unscrupulous transactions will get away with their deeds. The submission that the scheme of IBC is not purely commercial in nature and the purpose of the Act which is also to ensure that public money is brought back into the system is not unfounded. 27. We, thus, are of the view that the impugned order has rightly permitted the Piramal Successful Resolution Applicant to pursue the avoidance applications, which were filed by the erstwhile Administrator and were pending before the Adjudicating Authority. We do not find any error in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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