2022 (11) TMI 757 - AT - Insolvency and Bankruptcy

Approval of committee of creditors for certain actions - related parties transactions or not - Section 28 of IBC - HELD THAT - The Adjudicating Authority, while allowing the application has categorically found that no prior approval was taken from the CoC, therefore, action taken under Section 28(1) was void. It has categorically dealt with the argument raised by the Appellant before us that since the accounts were placed before the CoC and they did not raise any objection, therefore, it was deemed approval to hold that no such provision is there in Section 28, the finding recorded by the Adjudicating Authority in the impugned order is approved. Submissions made by the Appellant that they have rendered services and the erstwhile RP is to be blamed is not the subject matter of this application because the fact remains that the erstwhile RP made the payments to the present Appellants which has been ordered to be reimbursed regarding which no approval of the CoC was taken in terms of Section 28(3) of the Code. Appeal dismissed.

Summary

Issues Involved:
1. Applicability of Section 28 of the Insolvency and Bankruptcy Code, 2016 regarding related party transactions without prior approval of the Committee of Creditors.
2. Liability of the Appellants to reimburse the amount received from the erstwhile Resolution Professional without CoC approval.
3. Maintainability of the application filed for declaring related party transactions as void and seeking reimbursement.

Detailed Analysis:
1. The judgment revolves around an appeal filed by four Appellants against an order passed by the Adjudicating Authority, allowing an application under Section 28 of the Insolvency and Bankruptcy Code, 2016. The application sought reimbursement from the Appellants for payments made to related parties during the Corporate Insolvency Resolution Process (CIRP) without the requisite ratification by the Committee of Creditors (CoC). The Adjudicating Authority found that the payments were made without CoC approval, rendering them void under Section 28(4) of the Code.

2. The key issue addressed was the failure to obtain prior approval from the CoC for related party transactions, as mandated by Section 28 of the Code. The Adjudicating Authority held that any action taken by the Resolution Professional without CoC approval, as required under Section 28(3), would be considered void. The Appellants' argument that their services were rendered and the fault lay with the erstwhile Resolution Professional was dismissed, emphasizing the importance of CoC approval for transactions during the CIRP.

3. The judgment also delves into the maintainability of the application seeking reimbursement for unauthorized related party transactions. The Adjudicating Authority ruled in favor of the Applicant/Respondent No. 1, finding the transactions void due to the absence of CoC approval. The Appellants' contention that the CoC's failure to object deemed approval was rejected, affirming the necessity of complying with Section 28 provisions. The judgment dismissed the appeal, upholding the Adjudicating Authority's decision and emphasizing the significance of CoC approval for transactions during the CIRP.

In conclusion, the judgment underscores the criticality of obtaining prior approval from the Committee of Creditors for related party transactions during the Corporate Insolvency Resolution Process, as mandated by Section 28 of the Insolvency and Bankruptcy Code, 2016. Failure to adhere to this requirement renders such transactions void, highlighting the importance of following the statutory provisions to ensure transparency and accountability in insolvency proceedings.