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Can proceedings under Section 66 of IBC, 2016 for fraudulent trading or wrongful trading be initiated against the third parties? – Royal India Corporation Ltd. Vs. Mr. Nandkishor Vishnupant Deshpande, RP for Royal Refinery Pvt. Ltd. and Ors. – NCLAT New Delhi

Hon’ble NCLAT held that as per provisions of Section 66(1) of IBC, the Adjudicating Authority can pass an order directing “any person”, who was party to carrying on the business of Corporate Debtor in such manner as to defraud creditors of the Corporate Debtor, or for any fraudulent purpose, to make him liable to make such contribution to the assets of the Corporate Debtor as it may deem fit. A plain reading clearly shows that action can be taken against ‘any person’ for recovery of amount involved in the fraudulent transaction.

Can proceedings under Section 66 of IBC, 2016 for fraudulent trading or wrongful trading be initiated against the third parties? – Royal India Corporation Ltd. Vs. Mr. Nandkishor Vishnupant Deshpande, RP for Royal Refinery Pvt. Ltd. and Ors. – NCLAT New Delhi Read Post »

Onerous responsibility of pursuing avoidance applications on Resolution Professional | CIRP and avoidance applications are a separate set of proceedings | Avoidance applications can continue even after completion of CIRP and approval of the resolution plan does not need to be put on hold – Ms. Amita Saurabh Bihani and Ors. v. E&G Global Estates Ltd. and Ors. – NCLAT New Delhi

Hon’ble NCLAT held that:
(i) The statutory construct of IBC clearly puts the onerous responsibility of pursuing avoidance applications on the RP. In terms of Section 25(2)(j) of the IBC, it is the duty of the RP to file appropriate applications for avoidance of transactions which fall under the ambit of preferential, fraudulent, undervalued or extortionate transactions.
(ii) CIRP and avoidance applications are, thus by their very nature, a separate set of proceedings. The scheme of the IBC reinforces this difference and thus adjudication of an avoidance application is independent of the resolution of the corporate debtor and can survive CIRP.
(iii) Simply because the Appellants have raised the issue of avoidance application, it does not stand to reason that the approval of the resolution plan needs to be put on hold or kept in abeyance.

Onerous responsibility of pursuing avoidance applications on Resolution Professional | CIRP and avoidance applications are a separate set of proceedings | Avoidance applications can continue even after completion of CIRP and approval of the resolution plan does not need to be put on hold – Ms. Amita Saurabh Bihani and Ors. v. E&G Global Estates Ltd. and Ors. – NCLAT New Delhi Read Post »

When Resolution Plan specifically empowers Successful Resolution Applicant to pursue the avoidance applications, the said provisions of the Plan shall bind everyone including the erstwhile Administrator/RP – Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors. – NCLAT New Delhi

(i) The first submission raised by the learned Counsel for the Appellant is that after completion of the CIRP, avoidance applications, which are not decided by that time, becomes infructuous and cannot be proceeded any further. NCLAT held that Section 26 itself gives clear legislative intent that avoidance applications are different stream than the stream of insolvency resolution process. We may also notice provision of Section 36, sub-section (3) (f), which also gives clear indication of the statutory scheme that even after completion of the CIRP, the statute envisages recoveries through proceedings for avoidance transactions.
(ii) Another submission which has been pressed by the learned Counsel for the Appellant is that Successful Resolution Applicant cannot pursue the avoidance applications and if at all, the avoidance applications can be pursued, it could have been only by the RP and that in the present case the Administrator. NCLAT held that when Resolution Plan specifically empowers the Successful Resolution Applicant to pursue the avoidance applications, the said provisions of the Plan shall bind everyone including the erstwhile Administrator. The submission of the learned Counsel for the Appellant cannot be accepted that it is the erstwhile Administrator/ RP, who could alone, if at all, pursue the avoidance application.

When Resolution Plan specifically empowers Successful Resolution Applicant to pursue the avoidance applications, the said provisions of the Plan shall bind everyone including the erstwhile Administrator/RP – Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. & Ors. – NCLAT New Delhi Read Post »

Transactions of giving huge amount without any security interest or bank guarantee and subsequently writing off the same from the book can only be termed as fraudulent transactions – Shri Baiju Trading and Investment Pvt. Ltd. Vs. Mr. Arihant Nenawati (Liquidator for Royal Refinery Pvt. Ltd.) & Ors. – NCLAT New Delhi

NCLAT observes that in 2019 such huge loan was all of a sudden written off by the Respondent Nos. 2 & 3 from the books of the Corporate Debtor and evidently the Appellant is the principal/sole beneficiary. The plea of the Appellant made before us that it is a Corporate Debtor who has written off and not by the Appellant and therefore the Appellant should not be held liable for fraudulent transactions under Section 66 is not convincing at all. It is a matter of common prudence that if the money is written off from the books of the Corporate Debtor, there is hardly any chance for the management/ successor/ Resolution Professional to recover the same from the Appellant. There is no explanation which we can take into account either from the submissions of the Appellant or Respondent Nos. 2 & 3 as to why such write off was necessary and circumstances which led to this write off. Such transactions of giving huge amount to unconnected/unrelated parties and apparently without any security interest or bank guarantee as collateral security in favour of the Corporate Debtor and subsequently writing off the same from the book can only be termed nothing else but as fraudulent transactions done with the intent to defraud the creditors of the Corporate Debtor. From the averments as well from the records made available, this Appellate Tribunal tend to agree with the Adjudicating Authority that the nature of the transactions are covered squarely under Section 66 of the Code, 2016.

Transactions of giving huge amount without any security interest or bank guarantee and subsequently writing off the same from the book can only be termed as fraudulent transactions – Shri Baiju Trading and Investment Pvt. Ltd. Vs. Mr. Arihant Nenawati (Liquidator for Royal Refinery Pvt. Ltd.) & Ors. – NCLAT New Delhi Read Post »

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.

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 Read Post »

Whether an application for avoidance of a Preferential Transaction, though filed prior to the Resolution Plan being approved, can be heard & adjudicated by the NCLT, at the instance of the RP, after the approval of the Resolution Plan – M/s Venus Recruiters Pvt. Ltd. Vs. Union of India and Ors. – High Court of Delhi

An 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. The NCLT also has no jurisdiction to entertain and decide avoidance applications, in respect of a Corporate Debtor which is now under a new management unless provision is made in the final Resolution Plan.
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.

Whether an application for avoidance of a Preferential Transaction, though filed prior to the Resolution Plan being approved, can be heard & adjudicated by the NCLT, at the instance of the RP, after the approval of the Resolution Plan – M/s Venus Recruiters Pvt. Ltd. Vs. Union of India and Ors. – High Court of Delhi Read Post »

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