Avoidance applications under IBC can be heard after conclusion of CIRP and benefits derived from adjudication will be appropriated by Creditors and Resolution Professional will pursue the avoidance applications since he is only functus officio vis-à-vis CIRP and not avoidance applications – Tata Steel BSL Ltd. Vs. Venus Recruiterprivate Ltd. & Ors – Delhi High Court
Hon’ble set aside the impugned order of single judge bench and held that:
(a) the timelines under CIRP Regulation 35A are directory and not mandatory in nature. The premise of 35A timelines not being mandatory itself, adherence to Regulation 35A timelines cannot be required so strictly as to render the provisions of avoidable transactions redundant. There is also no time limit prescribed for the NCLT to adjudicate these applications.
(b) The provisions pertaining to avoidable transactions is to primarily benefit creditors. In cases where the Resolution Plan is silent on the treatment of any pending applications because such information could not be made available to the applicant, the creditors of the corporate debtor can still be the beneficiaries of the sum or properties that may be recovered from adjudication of an avoidance application.
(c) The benefit arising out of the adjudication of avoidance applications is not for the corporate debtor in its new avatar since it does not continue as a debtor and has gone through the process of resolution. This is public money, and, therefore, the amount that is received if and when transactions are avoided and receive the imprimatur of adjudicating authority must be distributed amongst the committee of creditors in a manner determined by the adjudicating authority.
(d) The scheme of the Act suggests that proceedings for unearthing such transactions are ancillary proceedings and the resolution of the corporate debtor need not be stalled due to pendency of such proceedings.
(e) The phrase “arising out of” or “in relation to” as situated under Section 60(5)(c) of the IBC is of a wide import and it is only appropriate that such applications are heard and adjudicated by the Adjudicating Authority, i.e., the NCLT or the NCLAT, as the case maybe, notwithstanding that the CIRP has concluded and the resolution applicant has stepped into the shoes of the promoter of the erstwhile corporate debtor.
(f) It follows that the RP will not be functus officio with respect to adjudication of avoidance applications.