2021 (4) TMI 522 - Tri - Insolvency and Bankruptcy

Related party transactions or not - Preferential transactions - seeking directions to the related parties to pay back the amount to the Company - Section 43(1) of Insolvency and Bankruptcy Code, 2016 - HELD THAT - In the present case, the impugned transactions are between the Respondents erstwhile Directors of the Corporate Debtor and Corporate Debtor. The Applicant s case is that these transactions are preferential in nature because the amount was advanced by the Corporate Debtor to the Respondents and Land Sale Agreement was also made between them. However, the Applicant failed to prove that these transactions made by the Corporate Debtor were preferential in nature, by producing any document. According to the Applicant SVAR and Associates conducted Audit and filed a Report, but that was not produced along with the Application. Similarly, in order to prove the time period of transaction held prior to two years from the date of commencement of CIRP, nothing was placed on record to that extent also. Thus the contention of the Applicant as to this transaction being preferential transaction, under Section 43 of I B Code, cannot be accepted. Even otherwise, while relying on Regulation 35 A of CIRP Regulations a specific timeline has been provided, by which the Resolution Professional has to form an opinion if the Corporate Debtor has been subjected to any of the objectionable transactions - The objectionable transactions including preferential transactions cannot be an unending process. The examination has to commence on the insolvency commencement date. The Resolution Professional has to form an opinion by the 75th day of commencement of CIRP. If the Resolution Professional comes to the conclusion that the Corporate Debtor has been subject to preferential transactions, the determination has to be made by the 115th day commencement of CIRP. On verification of the records, it is seen that even though an Application for avoidance of preferential transactions has been filed by the Applicant on 04.01.2021 after curing the defects , he did not press for the same on 08.01.2021 the date when the Resolution Plan was approved. Once a Resolution Plan is approved, the Corporate Debtor is managed by a new management and the Resolution Professional becomes functus officio - not taking timely action in the matter of avoidance of Preferential Transactions is a fault on the side of the Resolution Professional, because without insisting for orders in the Application for avoidance of Preferential Transactions, the Resolution Professional agreed to proceed the matter and obtained approval of the Resolution Plan. Now at this belated stage, without following the timeline prescribed in Regulation 35 A, the former Resolution Professional cannot seek any relief in respect of preferential transaction that too without providing any documents with reference to Preferential Transactions. This Tribunal cannot entertain the prayers of the former Resolution Professional for a direction to the related parties to pay back the amount to the Company - Application dismissed.

Summary

Issues:
1. Declaration of transactions as related party transactions and seeking repayment.
2. Examination of preferential transactions under Section 43 of I&B Code, 2016.
3. Dispute regarding preferential transactions between Corporate Debtor and Respondents.
4. Compliance with timelines for identifying objectionable transactions.
5. Role of Resolution Professional in addressing preferential transactions.
6. Application for avoidance of preferential transactions post-approval of Resolution Plan.

Analysis:
1. The Applicant sought a declaration that transactions from 29.11.2017 to 28.11.2019 were related party transactions and requested related parties to repay the Company. The Applicant highlighted related party transactions and a Land Sale Agreement involving the Company.

2. The Tribunal examined the preferential transactions under Section 43 of the I&B Code, focusing on transactions benefiting creditors beyond normal distribution. The relevant time periods for related and unrelated parties were delineated.

3. The dispute involved transactions between the Corporate Debtor and Respondents, alleged as preferential. The Respondents contended that outstanding dues exceeded the alleged preferential transactions, justifying their entitlement to repayment.

4. The judgment emphasized compliance with timelines for identifying objectionable transactions, citing Regulation 35A mandating Resolution Professionals to assess such transactions within specific deadlines.

5. The Resolution Professional's role in addressing preferential transactions was scrutinized. The Applicant's failure to substantiate preferential nature of transactions with proper documentation was noted, impacting the acceptance of the claim.

6. Post-approval of the Resolution Plan, the Application for avoidance of preferential transactions was not pursued in a timely manner. The Tribunal highlighted the Resolution Professional's lapse in adhering to prescribed timelines and the inability to seek relief for preferential transactions without proper documentation.

In conclusion, the Tribunal dismissed the Application, citing the Resolution Professional's failure to meet regulatory timelines and provide sufficient evidence to establish preferential transactions, ultimately leading to the rejection of the claim for repayment from related parties.