2021 (3) TMI 460 - Tri - Insolvency and Bankruptcy

Seeking directions to be passed upon Respondents to jointly and severally to repay the sum due to the Corporate Debtor - Section 44 of the Insolvency and Bankruptcy Code, 2016 - Maintainability of application after the Resolution Plan is approved. Whether the Resolution Professional has filed the application is in consonance with the Code and Regulations governing Corporate Insolvency Process? - HELD THAT - It is important to examine whether the RP has adhered to the timeframe in bringing the application for avoidance of preferential transactions under section 44 of the Code. From the table produced, it is clear that the timeline as provided in regulation 35A CIRP Regulations have not been adhered to. That RP has filed the application on the 389th day of the CIRP period. Moreover, the most vital essence of regulation 35A(3) of the CIRP Regulations is missing in the present case, i.e., the determination to be made by the RP that there are preferential transactions. The fact cannot be avoided that the RP had filed an application for approval of the Resolution Plan on 14.07.2020 and thereafter filed an application under Section 43 of the Code on 24.07.2020. The Resolution Plan was approved on 12.08.2020. On perusal of the order dated 12.08.2020, it is apparent that the RP had prayed for urgent hearing of the application for approval of the Resolution Plan. The RP was duty bound to file the application for preferential transaction within time and also seek for urgent hearing of the application before the plan is approved. Once the Resolution Plan is approved, the Corporate Debtor is managed by a new management and the RP becomes functus officio. An application for avoidance of preferential transaction cannot be carried on by the Resolution Professional on behalf of the Corporate Debtor. Whether this application can survive after the Resolution Plan is approved? - HELD THAT - The feeling is inescapable that the RP has filed the application under section 43 read with section 44 of the Code only to avoid adverse scrutiny on the part of the IBBI and not with any real intention to pursue the alleged preferential transactions to their logical end. That may be the only plausible reason for filing the section 43 application after filing the application for approval of resolution plan. Application dismissed.

Summary

Issues:
- Whether the Resolution Professional filed the application in compliance with the Code and Regulations governing Corporate Insolvency Process?
- Whether the application can survive after the Resolution Plan is approved?

Analysis:
Issue a: Compliance with Code and Regulations:
The Resolution Professional (RP) sought directions for the repayment of a sum by the Respondents to the Corporate Debtor under Section 44 of the Insolvency and Bankruptcy Code, 2016. The RP based the application on a forensic audit report indicating preferential transactions. The RP's application was challenged by Respondents 1 to 3, arguing that the RP did not form an independent opinion and relied solely on the auditor's observations. The Respondents also highlighted that the RP's application was filed after the Resolution Plan was approved, raising concerns about its validity.

Issue b: Survival of Application Post-Approval of Resolution Plan:
The timeline of events revealed that the RP filed the application for preferential transactions after the approval of the Resolution Plan. This raised doubts about the RP's intentions, as the application should have been filed before the plan's approval. The Tribunal noted that once the Resolution Plan is approved, the RP's role ends, and pursuing preferential transactions becomes challenging. Citing a High Court judgment, it was emphasized that such applications cannot be pursued post-approval of the Resolution Plan. The Tribunal concluded that the RP's application seemed to be a tactic to avoid scrutiny rather than a genuine pursuit of preferential transactions.

In light of the above analysis, the Tribunal dismissed the RP's application, stating that it should not be allowed. The decision was based on the RP's failure to adhere to the timeline, lack of independent determination of preferential transactions, and the filing of the application post-approval of the Resolution Plan. The Tribunal directed the Registry to inform all parties of the decision and issued instructions for further proceedings, if required.