2021 (5) TMI 322 - Tri - Insolvency and Bankruptcy

Approval of Resolution Plan - RP has filed an application alleging preferential, undervalued and fraudulent transactions - alleged transactions in favour of related parties - HELD THAT - To file an application alleging preferential, undervalued and fraudulent transactions, the RP has to adhere to sections 43 and 46 of the Code read with regulation 35A of the CIRP Regulations. Section 43 and 46 envisage that the alleged transactions in favour of related parties should be within two preceding years, while in the case of non-related parties it should be within one year. Further, under regulation 35A the RP has to form an opinion whether there has been any avoidable transaction in the Corporate Debtor company on or before seventy-fifth day of the CIRP commencement date. Thereafter, on or before one hundred and fifteenth day of forming such opinion, the RP shall make a determination that the Corporate Debtor has been subjected to avoidable transaction. In the case at hand, the Applicant has failed to provide any date on which the purported avoidable transactions were made. Without any such date being mentioned, no conclusion can be given on whether such alleged transactions were made within the lookback period of two years, as envisaged under sections 43 and 46 of the Code, or beyond the said period. The determination to be made by the RP in terms of regulation 35A(2) is an independent determination to be made on the basis of the transactional auditor's report, and the CoC has no role to play in this. Therefore, to that extent, the act of the RP in placing the transactional auditor's report for discussion at the ninth meeting of the CoC was not proper. The IBC and the regulations envisage no such role for the CoC. The CoC's role is limited to granting approval for the appointment of the auditor and fixing the fee, and not to an analysis of the transactions. The latter, being a creditor of the corporate debtor, will be an interested party. Therefore, any resolution by the CoC will have the effect of influencing the RP in determining whether the transactions fall within the boundaries of avoidance transactions fit enough to file applications before the adjudicating authority for consideration. The RP cannot be permitted to ride piggyback on the CoC's decision. The facts and circumstances of the present application point only to one inescapable conclusion, that the application has been filed by the RP only to avoid any adverse scrutiny by the IBBI. That reason is not good enough to overcome major lacunae that the present application suffers from - The application does not deserve any consideration. Application dismissed.

Summary

Issues:
Application for alleged preferential, undervalued, and fraudulent transactions under the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

1. Alleged Transactions and Application Filing:
The application was filed by the Resolution Professional (RP) of a Corporate Debtor seeking orders on former Directors for specified transactions. The RP submitted a forensic audit report identifying preferential, undervalued, and fraudulent transactions. However, the Respondents argued that the application was time-barred, lacking specific transaction dates, and filed after the resolution plan approval.

2. Compliance with Code and Regulations:
The Tribunal analyzed sections 43 and 46 of the Code, emphasizing the need for adherence to timelines under regulation 35A of the CIRP Regulations. The RP failed to form an opinion on avoidable transactions within the stipulated period, leading to a delayed application without proper grounds for challenging the transactions.

3. Legal Precedent and Role of RP:
Referring to a Delhi High Court judgment, the Tribunal highlighted that RP's role ends after resolution plan approval. The RP cannot file avoidance applications indefinitely post-approval. The judgment emphasized that the RP's actions should not extend beyond the resolution plan approval, aligning with the legislative intent of the IBC.

4. Inherent Errors in the Application:
The Tribunal identified four major errors in the application, including non-compliance with Code sections, regulatory timelines, lack of RP's determination on avoidable transactions, and filing post-resolution plan approval. It emphasized the independent nature of RP's determinations and the limited role of the Committee of Creditors (CoC) in such matters.

5. Conclusion and Dismissal:
Based on the analysis and legal principles, the Tribunal dismissed the application, citing the lack of merit and adherence to statutory requirements. It concluded that the application was filed to avoid IBBI scrutiny, highlighting the need for proper compliance with Code provisions and regulations. The order was communicated to relevant parties and authorities for further action.

This detailed analysis of the judgment provides insights into the legal intricacies surrounding alleged transactions under the Insolvency and Bankruptcy framework, emphasizing the importance of procedural compliance and RP's role limitations post-resolution plan approval.