2022 (6) TMI 872 - Tri - Insolvency and Bankruptcy

Approval of resolution plan - allegation of non consideration of undervalued transaction - reversal of effects of such avoidance transactions - rejection of Resolution Plan approved by Committee of Creditors - disqualification of Resolution Applicant i.e. Respondent no.1 and 2 u/s 29A of the Code - directions to pass order u/s 47 of the Code requiring Board to initiate disciplinary proceedings against Respondent no. 3 - HELD THAT - This bench is of the view that the Corporate Debtor is a registered MSME and the provisions of Section 240 A of the Code provide an exemption to the Successful Resolution Applicant from compliance with the provisions of Section 29A(c) and (h) of the Code. So, the resolution plan submitted by the resolution applicant is very much under the provisions of Code. Moreover, a clause of personal guarantee in the resolution plan will not extinguish the right of creditors to proceed against personal guarantors. Creditors are always at liberty to proceed against personal guarantor separately. The application under section 66 is to be filed only by the resolution professional or the liquidator. Moreover, the applicant herein is not a resolution professional and is only a dissenting financial creditor and in this capacity the Applicant has no right to file the present application. In any case, the present application is liable to be dismissed on the ground of maintainability also, since the transactions which were mentioned in the application under section 47 and section 66 does not qualify the criteria of undervalued or fraudulent transaction - Application dismissed.

Summary

Issues:
Application under sections 60(5), 66, 67, 47, and 73 of IBC read with Rule 11 of NCLT Rules against Resolution Applicant seeking various reliefs.

Analysis:
1. The applicant sought to declare avoidance transactions committed by the Respondents, reverse their effects, reject the resolution plan, disqualify the Resolution Applicant under Section 29A, and initiate disciplinary proceedings against another Respondent. The Applicant argued based on a Forensic Audit Report highlighting fictitious sales and undervalued transactions to misrepresent financial standings and defraud creditors.

2. The Applicant objected to the resolution plan approved by the Committee of Creditors, alleging disqualification of the Resolution Applicant under Section 29A. The Forensic Audit Report revealed discrepancies in sales entries and undervalued transactions not reported by the Resolution Professional, affecting the credibility of the resolution plan.

3. The Applicant raised concerns about a clause in the resolution plan regarding personal guarantees, citing a Supreme Court judgment emphasizing that approval of a resolution plan does not discharge personal guarantors' liabilities. The Applicant argued that such a clause could extinguish proceedings against personal guarantors, emphasizing the need to hold them accountable.

4. The Respondents contended that as the Corporate Debtor was an MSME entity, certain exemptions under Section 240 A of the Code applied to the Successful Resolution Applicant, justifying their compliance with the Code's provisions. They provided explanations for the discrepancies highlighted in the Forensic Audit Report, attributing them to typographical errors and ordinary business transactions.

5. The Respondents challenged the maintainability of the application under sections 31(1), 60(5), 66, 67, 47, and 73, arguing that Section 66 applications could only be filed by the resolution professional or liquidator. They emphasized that the Applicant, a dissenting financial creditor, lacked the right to file the application, and the transactions mentioned did not meet the criteria for undervalued or fraudulent transactions.

6. The Tribunal concluded that the application was to be dismissed as the Corporate Debtor being an MSME entity was exempt from certain provisions, the personal guarantee clause did not absolve liabilities, and the Applicant lacked standing to file under Section 66. The transactions cited did not meet the criteria for fraudulent or undervalued transactions, leading to the dismissal of the application.