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2020 (11) TMI 850 - HC - Insolvency and BankruptcyJurisdiction of the NCLT to hear applications under Section 43 after the approval of the Resolution Plan - Whether an application filed under Section 43 for avoidance of preferential transactions can survive beyond the conclusion of the resolution process and the role of the RP in filing/pursuing such applications? Structure of the IBC 2016 and Role of Resolution Professionals - HELD THAT - Under Section 31, if the NCLT is satisfied with the Resolution Plan, it shall approve the same which shall be binding on the Corporate Debtor, all its employees, members, creditors, Central and State Governments, including all local authorities to whom dues may be owed, and all other stakeholders and guarantors. The NCLT has to also satisfy itself that the Resolution Plan has sufficient provisions for its implementation. Once a Resolution Plan is approved, the moratorium order under Section 14 shall cease to have effect and the RP shall forward all the records relating to the CIRP and the Resolution Plan to the Board to be recorded on its database. Thus, the role of a RP comes to an end here. Applications for Avoidance Transactions - HELD THAT - Similar is the situation in respect of undervalued transactions, transactions defrauding creditors and extortionate credit transactions. In the present case however, this Court is only concerned with preferential transactions - A perusal of Section 43, would show that not all transactions with related or unrelated parties would fall within this category. The same is limited by time. In relation to a related party, the transaction would be preferential if it has taken place two years before the insolvency commencement date and if it has put such party in a beneficial position as against other creditors, sureties or guarantors. In case of an unrelated party, the period is one year. Chronology of Events - HELD THAT - This Court had entertained the writ petition as there were fundamental issues of jurisdiction which were raised by the Petitioner. Vide order dated 23rd August, 2019, parties were directed to seek an adjournment before the NCLT. The said order continues till date - The matter was part-heard, when court hearings had been suspended due to the lockdown caused by pandemic. Thereafter, the matter was reheard in September, 2020. In the meantime, on 26th March, 2020, the erstwhile Corporate Debtor, now managed by Tata Steel Ltd i.e. Tata Steel BSL Ltd. informed the Petitioner that the contract between them expired on 31st March, 2020 and would not be renewed. Findings and Conclusions - HELD THAT - While the IBC itself does not fix any time limits for filing of avoidance applications in respect of any transactions, the 2016 CIRP Regulations in Chapter X clearly stipulate the structure and methodology for dealing with objectionable transactions. Under Regulation 35A, as amended with effect from 3rd July, 2018, a specific timeline has been provided, by which the RP has to form an opinion if the Corporate Debtor has been subjected to any of the objectionable transactions. The time limit prescribed earlier was 105 days from the insolvency commencement date, which has now been reduced to the 75th day from the insolvency commencement date - A conjoint analysis of Sections 43 and 44 read with the applicable Regulations clearly shows that the assessment by the RP of the objectionable transactions including preferential transactions cannot be an unending process. The examination has to commence on the insolvency commencement date. The RP has to form an opinion by the 105th day (pre-amendment) and 75th day (post-amendment). If the RP comes to the conclusion that the Corporate Debtor has been subject to preferential transactions, the determination has to be made by the 115th day. The RP also has to apply to the NCLT for appropriate relief on or before the 135th day. RP cannot continue to file applications in an indefinite manner even after the approval of a Resolution Plan under Section 31. The role of a RP is finite in nature. He or she cannot continue to act on behalf of the Corporate Debtor once the Plan is approved and the new management takes over. To continue a RP indefinitely even beyond the approval of the Resolution Plan would be contrary to the purpose and intent behind appointment of a RP. The Resolution Professional (RP), as the name itself suggests has to be a person who would enable the resolution. The role of the RP is not adjudicatory but administrative in nature. Thus, the RP cannot continue beyond an order under Section 31 of the IBC, as the CIRP comes to an end with a successful Resolution Plan having been approved. This is however subject to any clause in the Resolution Plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the Resolution Plan. In the present case, no such clause has been shown to exist. The Resolution Applicant whose Resolution Plan is approved itself cannot file an avoidance application. The purpose is clear from this itself i.e., that the avoidance applications are neither for the benefit of the Resolution Applicants nor for the company after the resolution is complete. It is for the benefit of the Corporate Debtor and the CoC of the Corporate Debtor. The RP whose mandate has ended cannot indirectly seek to give a benefit to the Corporate Debtor, who is now under the control of the new management/Resolution Applicant, by pursuing such an application. The ultimate purpose is that any benefit from a preferential transaction should be given to the Corporate Debtor prior to the submission of bids and not thereafter. The fact that the new management can take a decision in respect of any agreement which is deemed to be not beneficial to it also supports the interpretation that after the Plan is approved, the company is completely in the hands of the new management and neither the NCLT nor the RP has any right or power in respect of the said company. As can be seen in the present case, the Corporate Debtor in its new avatar has terminated the agreement with the Petitioner. The above discussion is only in the context of Resolution processes and would however not apply in case of liquidation proceedings. In the case of a liquidation process, the situation may be different inasmuch as the liquidator may be able to take over and prosecute applications for avoidance of objectionable transactions. The benefit of orders passed in respect of such transactions may be passed on to the Corporate Debtor which may assist in liquidating the company at the final stage. However, that is not the case in the present petition. The order of the NCLT impleading the Petitioner and any consequential orders are liable to be set aside - Petition allowed.
Issues Involved:
1. Jurisdiction of NCLT to hear applications under Section 43 of the IBC after the approval of the Resolution Plan. 2. Role and authority of the Resolution Professional (RP) post-approval of the Resolution Plan. 3. Timeliness and procedural requirements for filing avoidance applications. 4. Beneficiary of adjudicated avoidance applications post-approval of the Resolution Plan. 5. Availability of alternative remedies and maintainability of the writ petition. Detailed Analysis: 1. Jurisdiction of NCLT to Hear Applications Under Section 43 of the IBC After the Approval of the Resolution Plan: The primary issue addressed is whether the NCLT has jurisdiction to entertain and adjudicate avoidance applications after the approval of the Resolution Plan. The judgment concludes that the NCLT's jurisdiction is limited to insolvency resolution and liquidation. Once the Resolution Plan is approved and the new management takes over, the NCLT cannot entertain applications related to avoidance of preferential transactions. The court emphasizes that the benefit of such applications is meant for the creditors of the Corporate Debtor before the approval of the Resolution Plan, not for the Corporate Debtor under its new management. 2. Role and Authority of the Resolution Professional (RP) Post-Approval of the Resolution Plan: The court clarifies that the role of the RP is finite and administrative, ending with the approval of the Resolution Plan under Section 31 of the IBC. The RP cannot continue to act on behalf of the Corporate Debtor or file applications once the Resolution Plan is approved. The RP's mandate is to manage the affairs of the Corporate Debtor during the CIRP period, and this role ceases once the new management takes over. The court rejects the notion of a "Former RP" continuing to prosecute avoidance applications post-approval of the Resolution Plan. 3. Timeliness and Procedural Requirements for Filing Avoidance Applications: The judgment highlights the strict timelines prescribed under the IBC and the 2016 CIRP Regulations for the RP to form an opinion, determine, and file applications regarding objectionable transactions. The RP must submit these details within the CIRP period, and such applications should be resolved before the approval of the Resolution Plan. The court notes that the avoidance application in this case was filed after the CoC had approved the Resolution Plan, and the NCLT did not pass any orders on it at the time of approval. 4. Beneficiary of Adjudicated Avoidance Applications Post-Approval of the Resolution Plan: The court asserts that the benefit of any avoidance application is intended for the creditors of the Corporate Debtor and should be factored into the Resolution Plan. Once the Resolution Plan is approved, the benefit of such applications cannot be claimed by the new management or the Corporate Debtor in its new avatar. The court refers to the ILC Report, which states that the successful Resolution Applicant should not be permitted to file avoidance applications as it was not factored into their bid. 5. Availability of Alternative Remedies and Maintainability of the Writ Petition: The court addresses the preliminary objection regarding the availability of an alternative remedy under Section 60 and Section 61 of the IBC. It concludes that since the issue involves the fundamental question of jurisdiction, the writ petition is maintainable. The court emphasizes that the NCLT's jurisdiction is confined to the insolvency resolution process, and any continuation beyond the approval of the Resolution Plan would be contrary to the IBC's objectives. Conclusion: The High Court quashes the proceedings against the Petitioner before the NCLT under the avoidance application, stating that the NCLT lacks jurisdiction to entertain such applications post-approval of the Resolution Plan. The court underscores the finite role of the RP and the necessity for certainty and timeliness in the insolvency resolution process. The writ petition is allowed, and all pending applications are disposed of accordingly.
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