2023 (11) TMI 567 - AT - Insolvency and Bankruptcy

CIRP - Auction of the assets of corporate debtor as per Acquisition Plan - Liquidation - whether the Successful Auction Purchaser can prosecute the avoidance application after approval of the acquisition plan? - Appellant being the suspended Director - HELD THAT - The Regulation 44A deals with treatment of transaction avoidance which itself contemplates that there can be a position regarding prosecution of avoidance application even after resolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed. Regulation 44A relied on by Learned Counsel for the Appellant does not support his submission that avoidance application cannot be pursued by Successful Auction Purchaser. In the present case, the only issue concerning as to whether Successful Auction Purchaser can pursue the avoidance application. The question as to whether the Successful Resolution Applicant can be allowed to prosecute the application came for consideration before this Tribunal in Kapil Wadhawan Vs. Piramal Capital Housing Finance Ltd. Ors. 2023 (5) TMI 663 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI . In the above case also, Successful Resolution Applicant filed an application for substituting its name in place of Administrator/Resolution Professional which was allowed by the Adjudicating Authority. The Suspended Director of the Corporate Debtor had challenged the Order in this Tribunal. This Tribunal after considering the respective submissions, provisions of the Code as well as Regulations and the Judgment of Delhi High Court in TATA Steel BSL Limited Vs. Venus Recruiter Pvt. Ltd. 2023 (1) TMI 644 - DELHI HIGH COURT held that 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 Creditor pro rata to the extent the Financial Debt for Financial Creditors, provided that, the CoC may in its discretion adopt a different manner of distribution (which may take into account the order of priority amongst Financial Creditors as laid down in Section 53(1) of the Code) and such decision of the CoC shall be accepted by the Successful Resolution Applicant, subject to there being no change in the Total Resolution Amount. The issue as to whether the Successful Auction Purchaser can prosecute the avoidance application in place of Resolution Professional by substituting its name was not subject matter of the issue in the aforesaid case of 63 Moons Technologies Ltd. 2022 (1) TMI 1287 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH hence on the ground that civil appeal is pending before the Hon ble Supreme Court, hearing of the matter need not be deferred. Thus, no grounds have been made out at the instance of the Appellant to interfere with the order impugned - appeal dismissed.

Summary

Issues Involved:
1. Eligibility of the Suspended Director to submit a Resolution Plan.
2. Approval and subsequent challenges to the Acquisition Plan.
3. Substitution of the Successful Auction Purchaser in place of the Resolution Professional to prosecute the avoidance application.
4. Legal standing of the Suspended Director to challenge the substitution order.
5. Applicability and interpretation of relevant sections of the Insolvency and Bankruptcy Code (IBC) and related regulations.

Summary:

1. Eligibility of the Suspended Director to submit a Resolution Plan:
The Corporate Debtor was admitted to Insolvency Resolution Process on 5th April 2018. The Appellant, a suspended director, submitted a Resolution Plan but was declared ineligible under Section 29A (h) of the IBC by the Resolution Professional. This decision was upheld by the Adjudicating Authority and affirmed by the Appellate Tribunal.

2. Approval and subsequent challenges to the Acquisition Plan:
In the liquidation process, the highest bid of Rs. 49.95 Crores by Respondents No. 2 to 5 was accepted, and their acquisition plan was approved by the Adjudicating Authority on 11th May 2022. The Appellant's application to reject this acquisition plan was dismissed by the Adjudicating Authority, the Appellate Tribunal, and the Hon'ble Supreme Court.

3. Substitution of the Successful Auction Purchaser in place of the Resolution Professional to prosecute the avoidance application:
The Application filed by Respondent No. 1 to substitute its name in place of the Resolution Professional in the avoidance application was allowed by the Impugned Order. The Appellant contended that the Successful Auction Purchaser cannot pursue the avoidance application, arguing that it is not in accordance with the IBC and its regulations.

4. Legal standing of the Suspended Director to challenge the substitution order:
The Tribunal noted that the Appellant, as a suspended director, has no locus to challenge the substitution order. The acquisition plan, which included provisions for the Successful Auction Purchaser to pursue the avoidance application, had already been approved and upheld by higher judicial authorities, making the Appellant's challenge untenable.

5. Applicability and interpretation of relevant sections of the Insolvency and Bankruptcy Code (IBC) and related regulations:
The Tribunal examined Sections 43, 45, and 66 of the IBC, and Regulation 44A of the IBBI (Liquidation Process) Regulation, 2016. It was clarified that the proceeds from avoidance applications form part of the liquidation estate. The Tribunal also referred to the Insolvency Law Committee Report, which stated that while creditors might file avoidance applications if the insolvency professional fails to do so, the Successful Resolution Applicant should not be permitted to file such applications. However, in this case, the avoidance application was already filed by the Resolution Professional, and the substitution was in line with the approved acquisition plan.

Conclusion:
The Tribunal dismissed the appeal, affirming that the Successful Auction Purchaser can prosecute the avoidance application as per the approved acquisition plan. The Appellant's contentions were found to be without merit, and the substitution order was upheld.