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TMI Blog2022 (1) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... ruiters do not deal with the situation when the COC gives up the proceeds of avoidance transactions to the Resolution Applicant in exchange for a higher upfront amount - We are fully convinced with the argument advanced by the Appellants Counsel that the ratio of the 'Venus Recruiters' case applies to the facts of this case. Further, the ratio laid down by the Hon'ble Delhi High Court is that of the constitutional court directly answering the issues before the NCLT was binding on the AA/ NCLT. Based on the different judgements of the Hon ble Supreme Court, it is undisputed that NCLT/NCLT has to adopt a hands-off approach and should not undertake a judicial review of the COC s commercial wisdom exercised. However, the question arises as to what can be considered commercial wisdom. Commercial wisdom is not defined anywhere. What would be treated under commercial wisdom can be inferred from the powers given to COC under the code. Thus, while the Adjudicating Authority cannot interfere on merits with the commercial decision taken by the Committee of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority of payment under Section 53 after all other debts owed by the Corporate Debtor - The phrase in relation to a person who is a creditor of the Corporate Debtor and the other expression shall rank in the order of priority of payment under Section 53 used in Sub-section 2 of Section 67 of the Insolvency and Bankruptcy Code indicate that recoveries from avoidance transaction should be distributed among the creditors in order of priority given under Section 53 of the Code. Therefore, it cannot be the discretion of the Committee of Creditors to negotiate the terms against the statutory provision of the Code. However, language erred in Section 67 indicates that recoveries made under Section 66 could go only to the creditors of the Corporate Debtor. FROM TIME TO TIME, the US courts have observed that any recovery from avoidance actions must be equitably distributed to the debtor's creditors, according to the dictates of the code. The only judgment that squarely covers the facts of the present case is the Venus Judgement of the Delhi High Court. Therefore, the contention that the Venus Judgement is not applicable or is distinguishable is incorrect and an afterthought - A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms Misha Rohatgi Mohta, Mr Devansh Srivastava, Ms Priyanka Vora, Mr Mihir Kamdar, Mr Manik Joshi, Mr Rahul Sarda, Mr Arvind Lakhawat, Mr Mantul Bajpai, Mr Anupam Lal Das, and Mr Vrushabh Vig, Advocates. For Respondent: Dr Abhishek Manu Singhvi and Mr Ashish Dholakia, Sr Advocates with Mr Ketan Gaur, Ms Lisa Mishra, Mr Vishal Hablani and Mr Avishkar Singhvi, Mr Ashish Bhan, Mrs Chitra Rentala, Mr Aayush Mitruka, Ms Samriddhi Shukla, Mr Ramji Srinivasan, Sr Advocate with Ms Madhavi Khanna, Ms Rajshree Chaudhary, Ms Saloni Kapadia, Mr Animesh Bisht, Mr Raunak Dhillon and Mr Shubhankar Jain, Advocates JUDGMENT Per; V. P. Singh, Member (T) 1. These three Appeals emanate from the Common Order dated 07.06.2021 passed by the Adjudicating Authority/National Company Law Tribunal, Mumbai Bench, Mumbai in IA No 623 of 2021 in IA 449 of 2021 Company Petition (IB) No. 4258/MB/2019, whereby the Adjudicating Authority has rejected IA No. 623/2021 under Section 60 (5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I B Code') filed for rejecting IA No. 449/2021 Applied for approval of Resolution Plan. The Parties are represented by their original status in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 2020, under Section 60 (5) 66 of the Code. The Application is about certain irregularities in loan disbursements towards the development of SRA projects undertaken by DHFL in the past. The amount involved therein is ₹12,705.53 crores. III. 3rd Application was filed on October 5 2020, under Sections 45, 46, 49, 60(5) and 66 of the Code. The Application is in relation to the undervalued and fraudulent nature of certain agreements entered into by the Company at the time the Company sold its stake in Pramercia Life Insurance Limited to DHFL Investments Limited and certain ICDs given by the DHFL to ICD entities. The amount involved therein is ₹2,150.84 crores. IV. 4th, 5th and 6th Applications filed in December 2020 The Applications are about: a. Disbursement to specific entities in the form of loans against property and utilisation of the same towards premature redemption of certain NCDs, undertaken by DHFL in the past under Sections 43, 45 and 66 of the Code - as Application A . b. Diversion of excess funds from the account of DHFL for purchase of NAPHA Building under Section 66 of the Code as Application B . c. Fraudulent and undervalued advancement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.12.2020 ICD 45 and 66 71 9 80 7. 03.02.2020 DLAP Loans 45, 60(5) 66 4793 766 5559 8. 20.02.2021 OLPL Loans 45, 60(5) 66 5382 800 6182 Total filed Total figures in crores 38161 6889 45050 3. As for as the Appellant/applicant is concerned, the Administrator has admitted the claim of Rs.224.05 crores (including interest). Accordingly, the applicant was classified as a Financial Creditor and thereby entitled to a seat on the COC. Therefore, M/S Catalyst Trusteeship Limited ( catalysts ) was appointed as the Debenture Trustee for the secured NCDs held by the applicant and other debenture holders. In its capacity as the Debenture Trustee, it has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese avoidance applications and all proceedings arising from the orders passed therein. The Adjudicating Authority disposed of the said Application with the observations as under; 2. As far as the claims of avoidance transactions, CoC has consciously decided that the money realised through these avoidance transactions would accrue to the members of the CoC and at the same time they have also consciously decided after lot of deliberations, negotiations that the monies realised if any under Section 66 of IBC i.e Fraudulent Transactions, CoC has ascribed the value of Rs.1 and if any positive money recovery the same would go to the Resolution Applicant/future Corporate Debtor. 3. CoC is comprised of 77 Financial Creditors and deliberations they have protected their interest and ascribed the value based on their Commercial Wisdom and Adjudicating Authority has limited jurisdiction to interfere with the same as per various judgments quoted in the detailed order passed in IA 449/2021 (Approving the Resolution Plan). During the course of various hearings Learned Senior Counsels appearing for the Administrator, CoC, Successful Resolution Applicant submitted that after hard bar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case. 7. Based on the above submissions, rival contentions the Adjudicating Authority is of the confirmed view that CoC has already taken a conscious decision comprising of 77 members; therefore we restrain from making any comments and sending the Plan back to CoC as pleaded by the applicant in IA 623 of 2021. Accordingly, IA No.623 of 2021 is dismissed and no order as to cost. (verbatim copy) 4. Appellants Submission 4.1 The present Appeal raises an important legal issue viz. whether Successful Resolution Applicant can appropriate recoveries from avoidance applications filed u/s 66 of the Insolvency and Bankruptcy Code, 2016? 4.2 The Appellant's case is that the said issue is covered in favour of the Appellant by the judgement dated November 26, 2020, passed by the Hon'ble Delhi High Court in the case of Venus Recruiters Private Limited versus Union of India. However, despite the same, the learned NCLT has dismissed the said, IA 623 of 2021 filed in IA 449/MB/C-II/2019 in CP 4258/MB/C-II/2019 without giving any reasons and by misreading and miss applying the order dated March 15 2021, passed by this Tribunal in the case of Interrups Inc versus Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of the Resolution Applicant after the Resolution was complete. 4.9 The question before the learned NCLT inter alia was; whether the stipulation in DHFL's Resolution Plan of recoveries from various transactions in enuring to the benefit of Respondent No. 2 amounted to illegality (as alleged by the Appellant before the NCLT); whether the same was within the commercial domain of the COC (as urged by the Respondent before the learned NCLT). Further, if it was illegality, could it be saved by any majority strength within the CoC voting in favour of the Resolution Plan? 4.10 Furthermore, before approving a Resolution Plan under Section 31 (1) of the Code, the learned NCLT is statutorily mandated to examine that the Resolution Plan does not contravene any of the provisions of the law. Therefore, illegality in a Resolution Plan cannot be saved by the argument of such illegality being a commercial decision within the commercial wisdom of COC. 4.11 Appellant alleges that after hearing IA No. 623 of 2021 on eight occasions over more than one month, the learned NCLT has, in the impugned order, not dealt with any of the submissions/arguments of the Appellant. In the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant after the Resolution was complete. 4.14 The Appellant adverted to the observations of the Hon'ble Supreme Court in paragraphs 10, 11, 13, 14, 18 to 20, 22 and 24 to 27 in the case of Asst Commissioner, Commercial Tax Department versus Shukla and Brothers, reported in (2010) 4 SCC 785. The ratio of the above judgement is that ; a) Recording of reasons is an essential feature of the dispensation of justice, and the requirement of recording reasons is applicable with greater rigour to judicial proceedings; b) Non-recording of reasons causes prejudice to the affected party and hampers the proper administration of justice; c) In furtherance of principles of natural justice, the authority should give reasons for arriving at a conclusion showing the proper Application of mind; d) A litigant has a legitimate expectation of knowing the reasons for rejection of his claim/player, and the recording of reasons would also be for the benefit of the higher or the Appellate Court; e) It is no more res Integra in the stands unequivocally settled that Courts and Tribunals are required to pass reasoned judgements/orders. 5. Ist Respondents Submission Respondent subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IBC and the decision of the Supreme Court in Jaypee Kensington Boulevard Apartments Welfare Association Ors. v. NBCC (India) Lid Ors. (2027 SCC Online SC 253) ( Jaypee ) where it has categorically been stated that once a class has voted in favour of the Resolution Plan, a constituent of the class cannot be heard in opposition to the Plan by way of objection or Appeal. 6.4 Therefore, the Appellant is estopped from raising any objections to the Resolution Plan, which it has approved in the first place. This amounts to a case of approbation and reprobation, which cannot be permitted in the interest of the CIR process envisaged in the Code. Accordingly, the order of the Adjudicating Authority permitting Appellant to withdraw IA 2352 of 2020 cannot be read as permitting the Appellant to vote in favour of the Resolution Plan and, at the same time, object to the Resolution Plan. 6.5 APPELLANT CANNOT QUESTION COMMERCIAL WISDOM OF COC The current RFRP itself, and the clause in question, was formulated with the consent of the Appellant, which formed a part of the class of NCD holders which voted to amend the RFRP further to the 7th meeting of the CoC held on September 10, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 66 of the Code. It assigns a value (albeit nominal) to the same. 6.8 The creditors of the Corporate Debtor have, after several rounds of negotiations, in their commercial wisdom, considered the overall resolution amount proposed under the Resolution Plan and adopted the course of action that they believed was for their greatest benefit and would lead to value maximisation. This judgment and the commercial decision cannot now be second-guessed by the Appellant, especially after it has voted in favour of the Plan. (Committee of Creditors of Essar Steel India Limited Satish Kumar Gupta Ors. ((2020) 8 SCC 531), para 67; Jaypee, paras 202-203) 6.9 In any event, it is also incorrect to say that Respondent No. 3 will be unjustly enriched. Accordingly, the amount of INR 1 offered by Respondent No. 3 for the avoidance transactions under Section 66 of the Code must not be viewed in isolation but must be considered in the context of the overall resolution amount proposed. 6.10 The Appellant also impugns the voting process and alleges that the vote on the Resolution Plan ought not to have, as part of the same voting item, sought votes on both the Resolution Plan and waiver of devi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intain any challenge to the Resolution Plan as there is estoppel under law. Reliance is placed on the judgement of Hon'ble Supreme Court in Jaypee Kensington Boulevard Apartments welfare Association versus NBCC, (2021) SCC online SC 253) (Paras 131 and 135). 7.3 The conduct of the Appellant also attracts the doctrine of estoppel/acquiescence. One day before the voting window for the Resolution Plan opened on December 29, 2020, to January 14 2021), the Appellant filed IA No. 2352 of 2020, challenging the voting process/Resolution Plans. After that, the Appellant voted in favour of the Resolution Plan and withdrew IA 2352 of 2020 on January 15 2021. Reliance was placed on the judgement of Hon'ble Supreme Court in the case of Kalpraj Dharmshi v Kotak Investment Advisors Limited, (2021) SCC online SC 204, (Paras 113-115). 7.4 Respondent No. 3 further contends that the Appellant has failed to make any grounds under Section 61 (3) of the Code for interference with the Resolution Plan. 7.5 The CoC has further directed that the Resolution Plan is compliant with the law, and RFRP2 does not warrant any interference. 8. IIIrd Respondent s Submission (Committee of creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Resolution Plan, if they so wish. f) The Venus recruiters only provide that property or sum acquired under an avoidance application should form part of the Resolution Plan and consider such amounts and benefits. It does not deal with how these assets are to be dealt with, which is provided only in the Resolution Plan. g) The present Resolution Plan provides the manner and treatment of the benefit from the avoidance applications. The COC members have had negotiations and discussions on the said treatment, which has then been incorporated in the Resolution Plan. Hence, in the light of findings in Venus Recruiters, the Resolution Plan as it stands merits no interference. h) Further, this Appellate Tribunal has already considered the interpretation of Venus recruiters Judgement in the interrups Inc case, wherein this Hon'ble Tribunal recorded that the Resolution Plan contemplated continuation of avoidance applications post the approval of Resolution Plan and the proceeds from the avoidance applications being given to the Company and not to the creditors. i) The Resolution Plan is in line with the RFRP and was finalised and submitted by the Resolution Applicant after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s Resolution Plan of recoveries from Avoidance transactions enuring to the benefit to Resolution Applicant amounted to illegality? b) Whether the action of approving the resolution plan to give the benefit of avoidance transactions to the Resolution Applicant was within the domain of commercial domain of the CoC? c) Further if it was illegality, could it be saved by any majority strength within the CoC voting in favour of the Resolution Plan? d) Can the Successful Resolution Applicant appropriate recoveries from avoidance applications filed under Section 66 of the Insolvency and Bankruptcy Code, 2016? 9.1 The present Appeal challenges an order dated 07.06.2021 passed by the National Company Law Tribunal, Mumbai Bench (the NCLT ) approving the Resolution Plan for Dewan Housing Finance Corporation Ltd ( DHFL ) without deciding a legal issue viz. whether Respondent No.2 (Successful Resolution Applicant) can appropriate recoveries, if any, from avoidance applications filed by Respondent No. 1 under Section 66 of the Insolvency and Bankruptcy Code, 2016 (the Code ) involving amounts over Rs.Forty-five thousand crores at the cost of the DHFL's creditors, who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l review, the concept of reasoned orders/actions has been enforced equally by the foreign courts as by the courts in India. The administrative authority and tribunals are obliged to give reasons, absence whereof could render the order liable to judicial chastisement. Thus, it will not be far from an absolute principle of law that the courts should record reasons for their conclusions to enable the appellate or higher courts to exercise their jurisdiction appropriately and in accordance with law. It is the reasoning alone, that can enable a higher or an appellate court to appreciate the controversy in issue in its correct perspective and to hold whether the reasoning recorded by the court whose order is impugned, is sustainable in law and whether it has adopted the correct legal approach. To subserve the purpose of justice delivery system, therefore, it is essential that the courts should record reasons for their conclusions, whether disposing of the case at admission stage or after regular hearing. 27. By practice adopted in all courts and by virtue of judge-made law, the concept of reasoned judgment has become an indispensable part of basic rule of law and, in fact, is a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Tribunal believe that the said decision was taken with full knowledge of facts as regards the nature extent of the fraudulent transactions. 9.7 Hon'ble Delhi High Court, in the above case, has held that avoidance applications are meant to give benefit to the creditors of the Corporate Debtor and not for the Corporate Debtor in its new avatar after the approval of the Resolution Plan. It was further held that avoidance applications were also not for the benefit of the Resolution Applicant after the Resolution was complete. 9.8 The Appellant contends that on the grounds mentioned below, which are in the alternative and without prejudice to each other, IInd Respondent s Resolution Plan be sent back to the CoC for reconsideration and resubmission after complying with the provisions of the Code: i. The stipulation in Respondent No.2's Resolution Plan that benefit of recoveries from Section 66 avoidance transactions ought to go to Respondent No. 2 is contrary to the provisions of the Code; ii. That the said stipulation is contrary to the provisions of the Code is also clear from a meaningful reading of Venus Judgement of the Delhi High Court, which has inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement of the Delhi High Court is distinguishable and not applicable to the facts of the present case. Impact of Venus Judgement 9.11 It is essential to point out that both parties are claiming that Venus judgment supports their case. The Appellant relies on the observations of the Hon'ble High Court in Para 73, and Respondent relies on Paras 3 and 77 of the said judgement in their favour. 9.12 The learned Senior Counsel for the Respondent adverted to the observations of the Hon ble High Court of Delhi in paragraphs 3 and 77 of the judgement in Venus Recruiters Private Limited v. Union of India, reported in 2020 SCC OnLine Del 1479 Hon'ble High Court of Delhi has held that; 3. The question that has arisen is whether, under the Insolvency and Bankruptcy Code, 2016 (hereinafter, 'IBC'), 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. The jurisdiction of the NCLT to hear applications under Section 43 after the approval of the Resolution Plan, is thus under challenge. 77. Moreover, an RP cannot con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that : 9. -----The Code provides for time-bound resolution of a company and entertaining and EOI at this stage will make a mockery of the entire scheme of the Code. The Adjudicating Authority has limited jurisdiction to either approve the Resolution Plan or reject the Resolution Plan if it is not compliant with law, no more or no less. Pendency of avoidance applications does not vitiate the approved JSW Plan. Interups has contended that CA 613 (PB)/ 2019 titled Mr. Kuldeep Kumar Bassi Vs. Mr. Pradeep Aggarwal Ors. (CA 613) which includes time exclusion had to be decided before the plan approval application. Interups reliance on Delhi High Court's Judgment dated 26.11.2020 in Venus Recruiters Private Limited Vs. Union of India Ors. (W.P. No. 8705 of 2019) ( Delhi High Court Judgment ) is misplaced, as it has not held that a resolution plan approved by an Adjudicating Authority will be vitiated / liable to be set aside if an avoidance application is kept pending while the resolution plan approval application is decided. Further in para 89 of the Delhi High Court Judgment it has been held that the NCLT also has no jurisdiction to entertain and decide avoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher upfront amount. 9.17 Respondents counsel vehemently argued that in the instant case, COC gives the proceeds of avoidance transaction to the Resolution Applicant in exchange for the higher upfront amount. 9.18 In response to the argument of Respondent's Counsel, Appellant submits that the NCLT misread and misapplied the ratio of the order dated March 15, 2021, passed by this Hon'ble Tribunal in the case of 'Interups Inc' (supra). It is wrongly observed that this Hon'ble Appellate Tribunal in 'Interups Inc' held that judgement in the case of 'Venus Recruiters Private Limited' (supra) was misplaced.' What has been held by this Hon'ble Tribunal in para 9 of its order dated 15th March 2021 is that the reliance of the Appellant's, in that case, on the judgement of Hon'ble Delhi High Court in the case of Venus Recruiters Pvt Ltd was misplaced. Thus the Hon'ble Delhi High Court found on facts that the ratio laid down by Hon'ble Delhi High Court in the case of Venus Recruiters Private Limited (supra) was inapplicable to the case of Interups Inc (supra). 9.19 In the Venus case, the petitioner was aggrieved by an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions defrauding creditors and extortionate credit transactions and observed that the purpose of avoidance of such transactions was to ensure that the insolvency/liquidation process was fair to creditors., paragraph 52 of the Venus judgement 9.23 The Hon ble High Court framed the questions before it. One of the questions framed was who would get the benefit of an adjudication of the avoidance application after the approval of the Resolution Plan?. , paragraph 59 of the Venus judgement 9.24 In light of the above facts and the question framed by the Hon ble High Court that it was held that an avoidance application is not meant for the benefit of the Corporate Debtor in its new avatar after the approval of the resolution plan and that the plan would have to take into consideration such amount. It further held that the resolution plan would have to take into consideration such amounts and the benefits which can be given to the Corporate Debtor for the benefit of the CoC., paragraph 73 of the Venus judgement 9.25 The Hon ble court further observed that the avoidance applications were neither for the benefit of the resolution applicant nor the company after the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the Adjudicating Authority in terms of Sections 43, 45, 47, 49, 50 or 66 of the IBC, and any amount is received by the Administrator or the Resolution Applicant/Corporate Debtor (as the case may be) in accordance with such decision of the Adjudicating Authority, such sums shall be for the benefit of the creditors and shall be a pass-through amount to the creditors. 9.30 Thus, originally, it was envisaged by Respondent Nos.1 and 3 that any recoveries from transactions avoided/set aside under Sections 43 to 51 and 66 of the Code would enure to the benefit of DHFL's creditors and that the prospective applicants will not receive any benefits therefrom. 9.31 Four entities viz. Respondent No. 2 herein, India Opportunities Investments Singapore Pte. Ltd. ( Oak tree ), Adani Properties Private Limited ( Adani ) and M/s SC Lowy Primary Investments Limited ( SC Lowy ) expressed interest in submitting Resolution Plans. 9.32 After that, realising that the substantial value of DHFL was locked up in the avoidance applications filed by Respondent No. 1 as above and further realising that there was sufficient evidence in the form of news report of Cobrapost.com , forensic aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all potential future recovery from such transactions may be retained only by the PRAs and on this basis, to increase the upfront value they ascribe to the loan assets. At this juncture, the administrator and the COC counsel sought views from the members of the COC in this regard. The representative from Catalyst Trusteeship Limited, CTL expressed concern as to why this issue could not be envisaged raised at the time of drafting of the RFRP. The administrator respondent that the quantum of the complexities and value of the transactions were not known at the time of drafting RFRP and hence the situation could not be foreseen by the stretch of imagination at that time. Further, these facts were unearthed by the avoidance audit, which is subsequent. The representative from SBI concurred with the views of administrator and informed that this could not have been envisaged in the initial period. After due deliberation amongst the several CoC members, it was agreed that the RFRP may be suitably modified to incorporate the language which is in mutual interest of the CoC members and the Resolution Applicant, which would incorporate that the PRAs may ascribe a value to the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge in the total resolution amount. 2.14.5 The resolution applicant ascribes nil value in respect of any transactions that may be provided/set aside by the NCLT in terms of section 66 of the IBC. Accordingly, any amount received by the company as a result of such orders shall be distributed, net of taxes, to the financial creditors pro-rata to the extent of 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 IBC and such action of the COC shall be accepted by the resolution applicant, subject to there being no change in the total resolution amount. 9.37 Further, in the Piramal resolution plan-options 2nd group A dated 17 November 2020 (Page 300 of Appeal Paper book) 2.14.2 Given that these transactions primarily pertain to group B and group C, which are to be carved out of the company pursuant to section 9.1.3 of part A (financial proposal), the resolution applicant attributes NIL value to the transactions. Accordingly, any amount received by the company as a result of such ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant. The resolution applicant ascribes a value of INR 1 in respect of avoidance transactions pertaining to section 66 of the IBC. 2.14.3 any claim from any counterplay of the aforesaid transactions (in future) arising due to reversal of any such transactions shall stand extinguished. 9.39 Piramal Resolution Plan options 2nd group A dated 14 December 2020 quoted at page 303 is reproduced below for ready reference; 2.14.2 Given that these transactions primarily pertain to group B and group C after, which are to be carved out of the company pursuant to section 9.1.2 of part a (financial proposal), the resolution applicant attributes nil value to these transactions. Accordingly, any amount received by the company as a result of such orders shall be distributed, net of taxes, to the financial creditors pro-rata to the extent of 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 IBC and such decision or of the COC shall be accepted by the resolution applicant, subject to there bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication is not meant for the Company or the Resolution Applicant but for the benefit of the creditors of the Corporate Debtor. Respondent No. 1 requested the Resolution Applicants to align the condition in their respective proposed plans with the requirement under the RFRP. 9.42 Resolution Plan of Respondent No. 2 (SRA) dated 22nd December 2020 (Option I) 2.13.2. The Resolution Applicant intends to pursue, on a best efforts basis, the application(s) filed by the Administrator before the NCLT in respect of these Avoidance Transactions. Any positive monetary recovery received by the Company as a result of orders passed in relation to the Avoidance Transactions shall be distributed, net of costs and expenses (including taxes), to the Financial Creditors 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 IBC) and such decision of the CoC shall be accepted by the Resolution Applicant, subject to their being no change in the Total Resolution Amount. 2.13.3. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations filed by Respondent No. 1, the modified treatment is not in accordance with the provisions of the Code and/or the RFRP. 9.47 The appellant contends that by email dated 24th December 2020, the Applicant invited the attention of Respondent No. 1 to a legal opinion on the issue of entitlement of recoveries from avoidance applications. Appellants contention about Valuation reports, obtained by Respondent No. 1 9.48 Respondent No. 1 appointed two valuers viz. M/s RBSA Valuation Advisors LLP and M/s Kapil Maheshwari to determine the fair value and the liquidation value of DHFL in accordance with the CIRP Regulations. Rather than ascribing some reasonable and realistic value to the assets/money that may be recovered by pursuing the avoidance applications referred to above, these valuers ascribed Nil value to these avoidance applications and did not consider filing these avoidance applications. As a result, the fair value and the liquidation value of DHFL were suppressed. Instead of calling for fresh valuations after taking into consideration the correct value locked up in the avoidance applications, Respondent No. 1 persisted with these valuations to the detriment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process. In any event, the mere fact that the Applicant has voted in a particular manner in the resolution process is no ground to condone illegalities in DHFL's Corporate Insolvency Resolution Process. 9.52 The learned senior counsel for respondent vehemently argued that NCD holders as a class approved Resolution Plan, the appellant as an individual NCD holder could not maintain any challenge to the Resolution Plan as there is estoppel under law. 9.53 Respondent placed reliance on the observations of the Hon ble Supreme Court in case of Jaypee Kensington Boulevard Apartments Welfare Association Ors. Vs. NBCC (India) Ltd, reported in 2021 SCC OnLine SC 253, wherein it is observed that; 131. The word payment , as defined in Black's Law Dictionary was also analysed by NCLT and it was stated that the obligation has to be seen and in the instant case, the obligation was repayment of money lent along with interest. It was observed, that the dissenting financial creditors were to be paid in cash not just by virtue of Section 53 of the Code but also by virtue of the terms and conditions of the agreement between JIL and the dissenting financial creditor, in the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal filed by other associations, that the homebuyers have the locus standi to file an appeal even though they belong to a class of creditors represented through an authorised representative, who voted in favour of the resolution plan of NBCC. This association of dissatisfied homebuyers submits that sub- section (3A) of Section 25A of the Code is only intended to iron out the logistical issues and technical difficulties which arise due to the large number of creditors; and the mere fact that more than 51% of the homebuyers voted in favour of the resolution plan cannot take away the statutory right of appeal. 423. Specific provisions have been made for voting on behalf of a class of creditors in terms of clause (b) of sub-section (6A) of Section 21 by the authorised representative. The rights and duties of the authorised representative of financial creditors are also delineated in Section 25A of the Code and any doubt, as to how he would vote and how his vote is counted, is put to rest by insertion of sub-section (3A) to Section 25A, which provides that notwithstanding anything to the contrary contained in sub-section (3), the AR shall cast his vote on behalf of all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyers, the operation of sub-section (3A) of Section 25A of the Code is that their authorised representative is required to vote on the resolution plan in accordance with the decision taken by a vote of more than 50% of the voting share of the homebuyers; and this 50% is counted with reference to the voting share of such homebuyers who choose to cast their vote for arriving at the particular decision. Once this process is carried out and the authorised representative has been handed down a particular decision by the requisite majority of voting share, he shall vote accordingly and his vote shall bind all the homebuyers, being of the single class he represents. 429. A rather overambitious attempt has been made by the homebuyers who have filed separate appeal (T.C. No. 242 of 2020) to refer to the percentage of voting share of homebuyers and it has been suggested that out of the total voting share of homebuyers i.e., 57.66%, the assenting voting share was only 34.10%, whereas 22.51% abstained and 1.05% dissented. It is submitted that roughly, for every 3 homebuyers who voted for NBCC, 2 had dissented/abstained. Even assuming the percentage as stated by these appellants to be cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of approval of the resolution plan of NBCC; and once having voted so, any particular constituent of that class cannot be heard in opposition to the plan by way of objection or appeal. The statute, that is IBC, has itself provided for estoppel against any such attempted opposition to the plan by a constituent of the class that had voted in favour of approval. 435. To sum up this part of discussion, in our view, after approval of the resolution plan of NBCC by CoC, where homebuyers as a class assented to the plan, any individual homebuyer or association cannot maintain any challenge to the resolution plan nor could be treated as carrying any legal grievance. 436. Once we have held that these dissatisfied homebuyers and associations are not entitled to put up any challenge to the resolution plan contrary to the decision of the requisite majority of their class, all their objections are required to be rejected outright. Yet, in the interest of justice, we have examined these objections to find if there be any aspect worth consideration within the periphery of Section 30(2) of the Code. We find none. 9.54 Based on the above judgment of the Hon ble Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w; 436. Once we have held that these dissatisfied homebuyers and associations are not entitled to put up any challenge to the resolution plan contrary to the decision of the requisite majority of their class, all their objections are required to be rejected outright. Yet, in the interest of justice, we have examined these objections to find if there be any aspect worth consideration within the periphery of Section 30(2) of the Code. We find none. 9.58 Hon ble Supreme Court, while considering the case of dissatisfied homebuyers and associations, had observed that the challenge to the resolution plan contrary to the decision of the requisite majority of their class is required to be rejected outright. However, Hon ble Supreme Court further goes on to observe that in the interest of justice, they have examined the objections to find if there be any worth aspect consideration within the periphery of Section 30 (2) of the Code. 9.59 A mandatory statutory duty has been cast upon the Adjudicating Authority, in terms of Section 31 read with Section 30(2) of the Code, to ensure that a resolution plan placed before it for approval is compliant with the provisions of law. Despite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he avoidance applications. The law is flexible on whether the creditors or the resolution applicant should enjoy the benefits of the avoidance applications subject to the provisions of the resolution plan. As such, the COC, in its commercial assessment of the assets of the erstwhile Corporate Debtor, decided to give up the recoveries (if any) from the avoidance applications under Section 66 of the code to the SRA in exchange for a higher front resolution amount. It is settled law that the treatment of recoveries arising out of avoidance application is a matter of commercial wisdom of the COC. 9.62 The respondent places reliance on this Appellate Tribunal's judgment in the case of JSW Steel Ltd. v. Mahender Kumar Khandelwal ..., reported in 2020 SCC OnLine NCLAT 431 decided on 17th Feb 2020. In the above case, it has been observed that; 145. Therefore, Para 128(i) of the impugned order ought not to have modified the specific inter se understanding between the Committee of Creditors and the Appellant on sharing of such proceeds, which has been recorded in Para 13 of the Addendum Letter and forms a part of the Resolution Plan . Further, since this is a matter which rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents which has now been forsaken. Besides, the commercial wisdom of CoC has been given paramount status without any judicial intervention, for ensuring completion of the stated processes within the timelines prescribed by the I B Code. There is an intrinsic assumption that financial creditors are fully informed about the viability of the corporate debtor and feasibility of the proposed resolution plan. They act on the basis of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject-matter expressed by them after due deliberations in CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made non-justiciable. 55. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan as approved by the requisite per cent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and common law principles governing contracts, save and except for the specific prohibitions and deeming fictions under the IBC. Regulation 39(3) of CIRP regulations, as it stood before the IBBI (CIRP) (Fourth Amendment) Regulations 2020 and applicable to the three appellants before us, enabled a framework where a draft Resolution Plan would involve several rounds of negotiations and revisions between the Resolution Applicant and the CoC, before it is approved by the latter and submitted to the Adjudicating Authority. However, this statutorily-enabled room for commercial negotiation is not enough to over-power the other elements of regulation that detract from the view that CoC-approved Resolution Plans are contracts. CoC-approved Resolution Plans, before the approval of the Adjudicating Authority under Section 31, are a function and product of the IBC's mechanisms. Their validity, nature, legal force and content is regulated by the procedure laid down under the IBC, and not the Contract Act. The voting by the CoC also occurs only after the RP has verified the contents of the Resolution Plan and confirmed that it meets the conditions of the IBC and the regulations therein. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brings about a quietus to the CIRP. Enabling Resolution Applicants to seek remedies that are not specified by the IBC, by seeking recourse to the Contract Act would be antithetical to the IBC's insolvency regime. The elements of contractual interpretation can be relied upon to construe the language of the terms of the Resolution Plan, in the event of a dispute, but not to re-fashion and distort the mechanism of the IBC altogether. This Court in Laxmi Pat Surana v. Union Bank of India has held that the IBC is a self-contained Code. Thus, importing principles of any other law or a statute like the Contract Act into the IBC regime would introduce unnecessary complexity into the working of the IBC and may lead to protracted litigation on considerations that are alien to the IBC. To give an example, the CoC can forfeit the PBG furnished by the successful Resolution Applicant under certain circumstances in terms of the RFRP and Resolution Plan including, inter alia, on the ground that the Resolution Applicant has failed to implement the resolution or has contributed to its failure. Regulation 36B (4A) of CIRP regulations provides for the furnishing of such performance security once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court has held that; 29. The function of the Adjudicating Authority under Section 31 is to determine whether the resolution plan as approved by the CoC under Section 30(4) meets the requirements under Section 30(2). If the Adjudicating Authority is satisfied that the resolution plan, as approved, meets the requirements under sub-Section (2) of Section 30, it shall by order approve the resolution plan which shall then be binding on the Corporate Debtor and all stakeholders, including those specifically spelt out: 31.(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Authority to entertain an appeal against an approved resolution plan is defined by sub-Section (3) of Section 61. Now, it is in this context, that the consistent principle of law which has been laid down is that neither the Adjudicating Authority nor the Appellate Authority can enter into the commercial wisdom underlying the approval granted by the CoC to the resolution plan. The commercial wisdom of the CoC in its collegial capacity is, hence, not justiciable. 37. In K Sashidhar (supra), Justice A M Khanwilkar, speaking for the two-Judge Bench, held: 57. On a bare reading of the provisions of the I B Code, it would appear that the remedy of appeal under Section 61(1) is against an order passed by the adjudicating authority (NCLT) , which we will assume may also pertain to recording of the fact that the proposed resolution plan has been rejected or not approved by a vote of not less than 75% of voting share of the financial creditors. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction and authority in NCLT or NCLAT as noticed ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Court, also held (in paragraph 62) that the legislative history of the IBC indicated that there is a contra indication that the commercial or business decisions of financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority . 39. The above principles have been re-emphasised and taken further by a three-Judge Bench in Essar Steel India Limited (supra). The Court, speaking through Justice R F Narminan, held: 73. There is no doubt whatsoever that the ultimate discretion of what to pay and how much to pay each class or sub-class of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution plan as approved by the Committee of Creditors has met the requirements referred to in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of the Code a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ph 73 of the decision in Essar Steel India Limited (supra) clarify that once the Adjudicating Authority is satisfied that the CoC has applied its mind to the statutory requirements spelt out in sub-Section (2) of Section 30, it must then pass the resolution plan. The decision also emphasises that equitable treatment of creditors is equitable treatment only within the same class. In this context, the judgment contains an elaborate foundation on the basis of which it has held that financial creditors belong to a class distinct from operational creditors. This distinction was emphasised in the earlier decision in Swiss Ribbons (supra), where a two-Judge Bench of the Court, speaking through Justice R F Nariman, observed: 51. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganisation of the corporate debtor's business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n conformity with the provisions of the IBC and the Regulations under the enactment.: Since an insolvency regime cannot fully protect the interests of all parties, some of the key policy choices to be made when designing an insolvency law relate to defining the broad goals of the law (rescuing businesses in financial difficulty, protecting employment, protecting the interests of creditors, encouraging the development of an entrepreneurial class) and achieving the desired balance between the specific objectives identified above. Insolvency laws achieve that balance by reapportioning the risks of insolvency in a way that suits a State's economic, social and political goals. As such, an insolvency law can have widespread effects in the broader economy. 50. Hence, once the requirements of the IBC have been fulfilled, the Adjudicating Authority and the Appellate Authority are duty bound to abide by the discipline of the statutory provisions. It needs no emphasis that neither the Adjudicating Authority nor the Appellate Authority have an unchartered jurisdiction in equity. The jurisdiction arises within and as a product of a statutory framework. G Conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idhar v. Indian Overseas Bank : (2019) 12 SCC 150 and Maharashtra Seamless Limited v. Padmanabhan Venkatesh : (2020) 11 SCC 467, summarised the principles as follows:- 77. In the scheme of IBC, where approval of resolution plan is exclusively in the domain of the commercial wisdom of CoC, the scope of judicial review is correspondingly circumscribed by the provisions contained in Section 31 as regards approval of the Adjudicating Authority and in Section 32 read with Section 61 as regards the scope of appeal against the order of approval. 77.1. Such limitations on judicial review have been duly underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised by the CoC. The limited judicial review available to Adjudicating Authority lies within the four corners of Section 30(2) of the Code, which would essentially be to examine that the resolution plan does not contravene any of the provisions of law for the time being in force, it conforms to such other requiremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al review cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction. In other words, in the scheme of IBC, every dissatisfaction does not partake the character of a legal grievance and cannot be taken up as a ground of appeal. 9.69 Further, in case of Ngaitlang Dhar v. Panna Pragati Infrastructure Pvt. Ltd., 2021 SCC OnLine SC 1276 Hon ble Supreme Court has observed that; 17. Shri Abhijeet Sinha, learned counsel appearing on behalf of the respondent No. 1-PPIPL would submit that there is a distinction between the decision of the CoC and the procedure adopted by the RP and the CoC to arrive at that decision. He submitted that though a final decision of the CoC cannot be a matter of challenge on the ground that the commercial wisdom of the CoC should not be interfered with, yet if there is a material irregularity in the procedure adopted by the RP, an appeal under Section 61(3) of the IBC would be tenable. He submitted that the RP acted with undue haste in the present matter. Learned counsel submitted that in the proceedings of the meeting of the CoC, held on 11-12th February, 2020, the Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scope of the words material irregularity , as are found in Section 115 of the Civil Procedure Code, 1908: Reference may also be made to the observations of Bose, J. in his order of reference in Narayan Sonaji v. Sheshrao Vithoba [AIR 1948 Nag 258] wherein it was said that the words illegally and material irregularity do not cover either errors of fact or law. They do not refer to the decision arrived at but to the manner in which it is reached. The errors contemplated relate to material defects of procedure and not to errors of either law or fact after the formalities which the law prescribes have been complied with. 34. In the present case, leave apart, there being any material irregularity , there has been no irregularity at all in the process adopted by the RP as well as the CoC. On the contrary, if the CoC would have permitted the PPIPL to participate in the process, despite it assuring the other three prospective Resolution Applicants in its meeting held on 11-12th February, 2020, that the absentee prospective Resolution Applicant (PPIPL) would be excluded from participation, it could have been said to be an irregularity in the procedure followed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Committee of Creditors has taken into account the fact that the Corporate Debtor needs to keep going as a going concern during the insolvency resolution process; that it needs to maximize the value of its assets; and that the interests of all stakeholders including operational creditors have been taken care of. Suppose the Adjudicating Authority finds that the aforesaid parameters have not been kept in view on a given set of facts. In that case, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. 9.71 In case of Ngaitlang Dhar v. Panna Pragati Infrastructure Pvt. Ltd., 2021 SCC OnLine SC 1276 Hon ble Supreme Court has observed that under Section 61(3)(ii) of the IBC, an appeal would be tenable if there has been a material irregularity in exercise of the powers by the RP during the corporate insolvency resolution period. It is trite law that commercial wisdom of the CoC has been given paramount status without any judicial intervention for ensuring completion of the processes within the timelines prescribed by the IBC. It has been consistently held that it is not open to the Adjudicating Authority ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent powers under Rule 11 of the NCLT Rules 2016 must be closely scrutinised for broader compliance with the insolvency framework and its underlying objective. 9.74 In the instant case, respondents claim that Section 66 of the insolvency and Bankruptcy Code 2016 does not impede the resolution applicant's rights to avail the proceeds from the avoidance applications. Indeed, this Code does not have any provision restricting the resolution applicant to avail the benefits of avoidance proceedings initiated under Section 66. However, if there is no restriction, it can t be presumed that the code authorises the resolution applicant for the same. 9.75 The Appellants relying on the judgement of Hon ble Delhi High Court in the case of Venus Recruiters (supra), contends that the avoidance applications are meant to give benefit to the creditors of the Corporate Debtor and not for the Corporate Debtor in its new avatar after the approval of the Resolution Plan. 9.76 The question of whether the stipulation of future recoveries from Section 66 avoidance applications being retained by the Successful Resolution Applicant s amounts to illegality or whether the same is within the commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of International Insolvency, By Philip R Wood CHAPTER 17 AVOIDANCE OF PREFERENCES Introduction Policies of the avoidance of preferences 17-001 All developed bankruptcy laws provide for the recapture of assets transferred by the debtor in the twilight suspect period prior to the commencement of formal insolvency proceedings. The fundamental and universal requirements qualifying a transaction as preferential are that the transaction: prejudices other creditors of the debtor, occurs while the debtor is actually insolvent or renders him insolvent, and occurs in a suspect period prior to the formal opening of insolvency proceedings. The first item is always required. The other two are usually required but there are exceptions. The objectives are as follows: Fraud The main and original object is to prevent the debtor from fraudulently concealing or transferring his assets beyond the reach of his creditors when he knows that his own insolvency is looming. This is the true fraudulent conveyance or transfer and often carries an element of dishonesty. 17-006 Who invokes the Avoidance In most jurisdictions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or cash in lieu (especially if it would be overburdensome to require the re-transfer of goods, securities or other property already abroad or readily available elsewhere in the market or where the transfer was at an undervalue but not wholly a gift), or the release of preferential security. In the United States, BC 1978 s 550 allows either recovery in specie or money's worth in damages, at the court's option. The questions of accounting for income or interest and improvements, and the time of valuation (time of transfer or time of recovery action--the transferee may have sold for less) must be dealt with. There are usually time limits on the recovery actions ranging from one year (Austria) upwards. UNCITRAL-World Bank Group Judicial Capacity-Building Initiative on International Best Practices in Insolvency Law Questions Answers Consequences of avoidance Can the outcome of an avoidable transaction be given to the Successful Resolution Applicant? Ans ; See recommendations 93 and 98 of the UNCITRAL Legislative Guide on Insolvency Law and their accompanying commentary that, in particular, state that the most common approach is to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy Law Committee dated February, 2020 CHAPTER 3: RECOMMENDATIONS REGARDING ACTIONS AGAINST AVOIDABLE TRANSACTIONS AND IMPROPER TRADING IN THE CORPORATE INSOLVENCY RESOLUTION AND LIQUIDATION PROCESSES; 1.4 The Committee first analysed the purpose of avoiding transactions and penalising improper trading actions. It was highlighted that though they may often be linked to preservation of commercial morality, they are primarily aimed at swelling the asset pool available for distribution to creditors. The underlying policy of such proceedings is to prevent unjust enrichment of one party at the expense of other creditors. 1.5 Therefore, these actions are taken to serve the Interests of the person receiving the recoveries. Due to this, many jurisdictions such as US and UK do not impose any obligation on the regulatory or other State bodies to undertake avoidance actions. State authorities in such jurisdictions utilise powers in relation to civil and criminal offences to carry on investigations of any wrongdoings by the Corporate Debtor instead. Based on this, the Committee agreed that it may not be appropriate for the IBBI to undertake investigation of avoidable transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors such as - the kind of transaction being avoided, party funding the action, assignment of claims (if any), creditors affected by the transaction or trading, etc. - may need to be taken into account when arriving at a decision regarding distribution of recoveries. Thus, it was recommended that instead of providing anything prescriptive in this regard, the decision on treatment of recoveries may be left the Adjudicating Authority. 3.3 Accordingly, the Adjudicating Authority should decide whether the recoveries that vest with the Corporate Debtor should be applied for the benefit of the creditors of the Corporate Debtor, the successful Resolution Applicant or other stakeholders. In arriving at this decision, the Adjudicating Authority may take note of the facts and circumstances of the case, along with the above listed factors. Additionally, the Committee agreed that if the recoveries are to be vested with the creditors, they may usually be distributed per the order of priorities provided in Section 53(1) of the Code, unless an alternate manner of distribution is deemed appropriate by the Adjudicating Authority. 9.84 The learned Senior Counsel for the respondent contends ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n process. It is specifically provided that the purpose of providing transactions and penalising improper trading actions are primarily aimed at swelling the asset pool available for distribution to creditors. The underlying policy of such proceedings is to prevent unjust enrichment of one party at the expense of other creditors. The provision under the code allows the adjudicating authority to restore the position prior to such transaction or trading by inter-area investing the recoveries with the Corporate Debtor. 9.88 The key aim of avoiding certain transactions is to avoid unjust enrichment of some parties in insolvency at the cost of all creditors. Thus, factual factors such as the kind of transaction being avoided, party funding the action, assignment of claims, creditors affected by transaction or trading may need to be considered when deciding on the distribution of recoveries. Thus, it was recommended that instead of providing anything prescriptive in this regard, the decision on the treatment of recoveries might be left to the adjudicating authority. Accordingly, the adjudicating authority should decide whether the recoveries that vest with the Corporate Debtor should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l tax department (supra) has clearly held that recording of reasons is an essential feature of the dispensation of justice. The requirement of recording reasons is applicable with greater rigour to judicial proceedings. Non-recording of reasons causes prejudice to the affected party and hampers the proper administration of justice. In furtherance of principles of natural justice, the authorities should give reasons for arriving at a conclusion showing the proper application of mind. A litigant has a legitimate expectation of knowing the reasons for rejection of its claim. The recording of reasons would also be for the benefit of the higher or the Appellate Court. 9.94 UNCITRAL; Model 6; Avoidance Transactions, Offences And Penalties, https//www.unicitral.org/pdf/English/texts/insolven/05-80722_Ebook.pdf/ 220. UNDERSTANDING THE IBC KEY JURISPRUDENCE AND PRACTICAL CONSIDERATIONS 2. Avoidance Transactions The UNCITRAL Legislative Guide on Insolvency Law defined avoidance provisions as provisions of the insolvency law that permit transactions for the transfer of assets or the undertaking of obligations prior to insolvency proceedings to be cancelled or otherwise rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resolution professional during the corporate insolvency resolution process, the Adjudicating Authority may by an order direct that a director or partner of the Corporate Debtor, as the case may be, shall be liable to make such contribution to the assets of the Corporate Debtor as it may deem fit, if- (a) before the insolvency commencement date, such director or partner knew or ought to have known that the there was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in respect of such Corporate Debtor; and (b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the Corporate Debtor.[(3) Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under sub-section (2), in respect of such default against which initiation of corporate insolvency resolution process is suspended as per Section 10-A.] Explanation.-For the purposes of this section a director or partner of the Corporate Debtor, as the case may be, shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory provision of the Code. However, language erred in Section 67 indicates that recoveries made under Section 66 could go only to the creditors of the Corporate Debtor. 9.98 The learned Senior Counsel for the respondent also referred to the judgement In re YAGERPHONE, LIMITED (000137 of 1933) page 392 Chancery Division (1935), reported in The Weekly Law Report, Chancery Division, 1935. Facts are taken from Judgement. In this case, During the winding-up proceeding, the sum is recovered from the creditor by the liquidator. The question arose whether the property of debenture holder is distributable among general creditors-under the companies act, 1929 (19 and 20Geo.5,c.23), section 265. The joint liquidators in the voluntary winding up of a company recovered a sum of money alleged to have been paid to a creditor by the company by way of fraudulent preference. A debenture holder took out a summons in the liquidation for an order that the money recovered from the creditor should be paid to the receiver of the property charged by the debenture; Held that the money did not become part of the company's General assets but was a sum of money received by the liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erning improper transfers even post completion of the resolution, stating that any such recovery will be additional security for the plan's fulfilment and increase the likelihood of the creditors receiving their future payments. 9.100 FROM TIME TO TIME, the US courts have observed that any recovery from avoidance actions must be equitably distributed to the debtor's creditors, according to the dictates of the code., In Re Yegerphone Ltd.[1935] Ch 392 England and Wales. 9.101 The UK courts have also reiterated a similar view- a sum recovered from a creditor who has been wrongly preferred enures for the benefit of the general body of creditors not for the benefit of the company or the holder of the floating charge. This is because it does not become part of the company s assets but is received by the liquidator impressed with a trust in favour of those creditors amongst whom he has to distribute the company's assets. 9.102 Such positive affirmation by the foreign courts evinces that the creditor of the Corporate Debtor are sole beneficiaries, and some direct benefit must ensure, in their favour. Accordingly, the proceeds may be distributed amongst them in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has further held that certainty and timelines being the hallmark of the Code coupled with the legislative intent in Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) regulations, 2016 implies that the prescribed timelines therein have a specific purpose. Therefore, an indefinite continuation of avoidance applications is bound to affect the creditors grievously. 9.108 It is also important to mention that the depositors of the DHFL are the rightful beneficiaries, if not owners, of the monies that have been siphoned off by the promoter directors of the Corporate Debtor. Unfortunately, such activities generally disadvantage creditors, especially small investors. 9.109 Regulation 37A of the IBBI (Liquidation Process) Regulations, 2016 (the Liquidation Process Regulations ), which empowers a Liquidator to assign or transfer a not readily realizable asset during the liquidation of a Corporate Debtor. The conspicuous absence of a similar provision in the CIRP Regulations, which permits assignment or transfer of recoveries from avoidance transactions to a resolution applicant, supports the case of the Appellant that such recoveries cannot be trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of S. B. Noronah v. Prem Kumari Khanna (1980) I SCC 52 Hon'ble Supreme Court has held that: 19. The doctrine of estoppel cannot be invoked to render valid a proceeding which the legislature has, on grounds of public policy, subjected to mandatory conditions which are shown to be absent: Where a statute, enacted for the benefit of a section of the public, imposes a duty of a positive kind, the person charged with the performance of the duty cannot by estoppel be prevented from exercising his statutory powers. A petitioner in a divorce suit cannot obtain relief simply because the respondent is estopped from denying the charges, as the court has a statutory duty to inquire into the truth of a petition. [ Halsbury's Laws of England , Fourth Edn., Vol 16, para 1515]. b) M/s Elson Machines Private Limited v. Collector of Central Excise 1989 Supp (1) SCC 671. In this case, Hon ble Supreme Court has held that; 10. The next submission on behalf of the appellant is that the classification lists had been approved earlier and the excise authority was estopped from taking a different view. Plainly there can be no estoppel against the law. The claim raised before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial creditors belonging to the class of homebuyers were challenging the commercial aspects the commercial wisdom in accepting the plan and not any illegality therein, which is clear from the following paragraphs of the judgement: a) Para 10.1/ pg. 14: Wish Town Home Buyers Welfare Society sought implementation of the projects but carried reservations on some of the terms of the resolution plan and also suggested that the plan of another resolution applicant Suraksha Realty was for better than that of NBCC . b) Para 10.2/ pg. 15: Jaypee Aman Owners Welfare Association was aggrieved of the projected dates of completion and proportional increase in delay, as provided in the Resolution Plan and sought penalty on account of delay. c) Para 10.4/ pg. 16: Jaypee Orchard Resident Welfare Society sought implementation of the projects but had its reservations on the terms of the Resolution Plan where the requisite compensation in relation to the delayed implementation of the project had not been provided in terms of RERA . d) Para 10.6/ pg. 17: One Mr. Ashok Chandra sought directions to determine adequate and fair compensation to be paid to homebuyers due to unreasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Counsel for the respondent, the appellant has drawn our attention towards a chart showing the detailed instances under which it was forced to withdraw its earlier application IA 2352 of 2021. Date Particulars Page Nos. 18 December 2020 RP Congress to all resolution applicant s that they need to align Resolution Plans with the Delhi High Court judgement. Page 320 of Appeal No. 454 of 2021 1. 24.12.2020 to 25.12.2020 18th CoC meeting held wherein it was decided that the Resolution Plans would be put to the vote of the CoC. 2. 21.121.2020 to At the appropriate time when the above decision to put the resolution plans to the vote was taken, this Hon'ble Tribunal, NCLT, was not available for judicial work (except Vacation Bench) due to Christmas vacation. 3. 28.12.2020 On the next working day (i.e. after the decision regarding putting the resolution plans to vote being taken in 18th CoC meeting), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a party to the I.A. This Hon'ble Tribunal was pleased to grant liberty to the Applicant to vote on the resolution plans without prejudice to its rights and contentions. 8. 14.01.2021 Pursuant to the liberty granted by this Hon'ble Tribunal, the Applicant voted on the resolution plans. The voting window closed. 9. 15.01.2021 The IA was listed and called out for hearing. However, due to the technical issues in connectivity, the hearing could not conclude, and the IA was adjourned to 21st January 2021. 10. 16.01.2021 The voting on the resolution plans was announced, and Respondent No. 2 was declared as a successful resolution applicant. 11. 21.01.2021 Since the voting had ended and Respondent No. 2 was declared a successful resolution applicant, the Applicant sought leave of this Hon'ble Tribunal to withdraw the IA No. 2352 of 2020 and file a comprehensive application to agitate all issues at the Section 31 stage. The Hon'ble Tribunal granted the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with various authorities. The case had nothing to do with avoidance applications and ascribing of' value to recoveries. Therefore, the assignment of the notional value of INR 1 to the claims of operational creditors in the Essar Steel Judgement case was in an entirely different factual background which is inapplicable to the facts of the present case. 9.126 It is pertinent to mention that company appeal (AT) (insolvency) 546 of 2021 is filed by the Air Force Group Insurance Society, Company Appeal AT/INS/759 and 760 is filed by U P State Power Sector Employees Trust, CA /AT/INS 760 of 2021 is filed by Uttar Pradesh State Power Corporation Contributory Provident Fund Trust on being aggrieved by the resolution plan. Many other Fixed Deposit Holders and Public Deposit Holders had filed their appeal against the same resolution plan. None of them is satisfied with the amount awarded under the resolution plan. Provident fund holders and Employees Provident fund trust had invested in fixed deposits of the financial service provider, i.e. corporate debtor DHFL. However, this Tribunal is not a court of equity, and every stakeholder abides by the terms of the approved resolution pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voidance transactions under Sections 43 to 51 of the Code to benefit DHFL's creditors. iv) However, the issue about the applicability of the Venus judgement in the facts of the case was an adjudicatory issue that required adjudication. The law does not permit COC to exercise judicial function. There is a vast difference between the exercise of Commercial Wisdom during CIRP and the exercise of adjudicatory powers by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. Law is well settled that Adjudicating Authority cannot interfere with the commercial wisdom of the COC provided approved by the required majority. Similarly, in the instant case, COC was not authorised to decide the applicability of Venus judgement on the facts of the case. 11. Admittedly in the instant case, the Administrator under statutory duties under Regulation 36B of the CIRP Regulations requested for Resolution Plan (RFRP). It was provided in the RFRP that any transaction is avoided or set aside in terms of Sections 43, 45, 47, 49, 50 or 66 of the Code, and any amount is received by the 1st Respondent, Resolution Applicant or the Corporate Debtor; such sums shall be for the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idance transaction to the resolution applicant. The Adjudicating Authority has stated that as far as the claims of avoidance transactions, COC has consciously decided that the money realised through these avoidance transactions would accrue to the members of the CoC. At the same time, they have also consciously decided after a lot of deliberations negotiations that money realised if any under Section 66 of the IBC, i.e. fraud and fraudulent transactions, CoC has ascribed the value of Rs.one and if any positive money recovery the same would go to the Resolution Applicant of the Corporate Debtor. Therefore, it cannot be considered the findings of the Adjudicating Authority. The COC was not empowered to exercise such Adjudicatory power and decide. Insolvency Law Committee Report, 2020, specifically provides that the key aim of providing certain transactions is to avoid unjust enrichment of some parties in the insolvency at the cost of all creditors. The underlying policy of such a proceeding is to prevent unjust enrichment of one party at the expense of other creditors. Thus, factual factors such as the kind of transactions being provided, party funding the action, assignment of cla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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