PUFE-Extortionate Credit Transactions [Sec. 50 & 51]

While approving Resolution Plan, since 92% haircut and Transactional Auditor examined only two years, NCLT directs RP to examine the last 6 years Financial Statements/IT Returns/GST Returns/Cash Flow/Fund Flow Statements in detail – Rachna Jhunjhunwala, RP of Power Max (India) Pvt. Ltd. – NCLT Kolkata Bench

In the present case, total admitted claims are of Rs. 48.36 Crore, the liquidation value is Rs. 4.08 Crore and the value of the Resolution Plan is of Rs. 4.01 Crore, leading to a “haircut” of about 92%. The RP has appointed a transactional auditor who has examined only two financials’ years i.e., 2020-2021 and 2021-2022, and unaudited Trial Balance of 2022-2023 and came to conclusion that there are no avoidance transactions.

The Hon’ble NCLT Kolkata Bench, comprising of Ms. Bidisha Banerjee (Judicial Member) and Shri Arvind Devanathan (Technical Member) approving the Resolution Plan, has directed the Resolution Professional to examine the last 6 years Financial Statements, IT Returns, GST Returns, cash flow and fund flow statements in detail and place it before the CoC of the Corporate Debtor with appropriate justification and the basis for forming opinion that there were no avoidance transactions, in the form of a report. A copy of the said report also be filed with this Adjudicating Authority.

While approving Resolution Plan, since 92% haircut and Transactional Auditor examined only two years, NCLT directs RP to examine the last 6 years Financial Statements/IT Returns/GST Returns/Cash Flow/Fund Flow Statements in detail – Rachna Jhunjhunwala, RP of Power Max (India) Pvt. Ltd. – NCLT Kolkata Bench Read Post »

All about ‘Not Readily Realisable Assets(NRRA)’, valuation of PUFE Assets, who can pursue avoidance applications after assignment of NRRA, jurisdiction of NCLT after transfer of NRRA, When can NRRA be transferred to third party under Regulation 37A of Liquidation Regulations, 2017 – Inquest Fintech Pvt. Ltd. Vs. Ms. Maya Gupta Liquidator Rain Automotive India Pvt. Ltd. – NCLT New Delhi Bench Court-II

In this important judgment, NCLT New Delhi Bench Court-II comprising of Shri Ashok Kumar Bhardwaj and Shri L.N. Gupta has clarified various issues on transfer/assignment of ‘Not Readily Realisable Assets(NRRA)’ during the liquidation process under IBC such as:
(i) Valuation of “Not readily realisable assets” (NRRA) underlying the pending PUFE Applications are contingent assets
(ii) Who can pursue avoidance /PUFE Applications after the assignment of NRRA?
(iii) Objective of avoidance/ PUFE applications filed u/s 43, 45, 50, and 66 of IBC 2016
(iv) Whether Adjudicating Authority has jurisdiction to adjudicate the Avoidance/ PUFE Applications pursued by a Third Party or an Assignee when even the proceedings under Sections 43, 45, 50, and 66 are not concluded?
(v) When NRRA can be assigned/transferred to third party u/r 37A of the Liquidation Regulations?

All about ‘Not Readily Realisable Assets(NRRA)’, valuation of PUFE Assets, who can pursue avoidance applications after assignment of NRRA, jurisdiction of NCLT after transfer of NRRA, When can NRRA be transferred to third party under Regulation 37A of Liquidation Regulations, 2017 – Inquest Fintech Pvt. Ltd. Vs. Ms. Maya Gupta Liquidator Rain Automotive India Pvt. Ltd. – NCLT New Delhi Bench Court-II Read Post »

Approval of Resolution Plan for Jaypee Infratech Ltd. – Mr. Anuj Jain Interim RP Jaypee Infratech Ltd. Vs. Suraksha Realty Ltd. – NCLT Special Bench

Summary of judgment of NCLT (total 365 pages judgment) in approval of Resolution Plan of Consortium of M/s. Suraksha Realty Limited and M/s. Lakshdeep Investments and Finance Private Limited for Jaypee Infratech Limited (JIL) (Corporate Debtor) is now available in IBC Laws database.
Following are silent points of the summary:
• (1) Whether a Secured Creditor is entitled to choose the security interest of its own choice for enforcing?
• (2) Whether dissenting secured creditors have right to recover cost of enforcing security interest in case of enforced security interest?
• (3) Whether a Secured Creditor can be treated as an Unsecured Creditor and will be entitled to both the benefits under Section 53(1)(b)(ii) and Section 53(1)(d) both simultaneously??
• (4) Whether YEIDA is Secured Creditors as per Rainbow Decision?
• (5) Whether a Resolution Plan would have given immunity to the personal guarantors from that debt?
• (6) Whether Personal Guarantor has right to subrogation?
• (7) Other such as termination of the maintenance agreement etc.
Further, the Successful Resolution Applicant (SRA)/Suraksha has sought for 38 “Reliefs and Concessions”, some are: (i) Legal proceedings relating to Income Tax, (ii) Waived all the procedural requirements in terms of Section 66, Section 42, Section 62, Section 71 of the CA, 2013 in relation to reduction of share capital of the Corporate Debtor, (iii) Waiver from payment of stamp duty (iv) Non-compliances of the Corporate Debtor or further claims of the Governmental Authorities, (iv) Regularization all the loan accounts of the Corporate Debtor (v) Withdraw all legal proceedings, (vi) Initiation of any investigations, actions or proceedings against the Corporate Debtor, (vi) Resolution Applicants reserve their right to institute any investigation pertaining to any transaction(s) carried out by the ex-management of the Corporate Debtor, (vii) Necessary permissions or approvals under the Banking Regulation Act 1949, (vii) claim set-off of the entire Minimum Alternate Tax (MAT) credit as available to the Corporate Debtor, against the normal income-tax (viii) Losses already lapsed/not lapsed as on the Approval Date should be allowed to be carried forward, (ix) Capital gains/business income to the Corporate Debtor, (x) past litigations pending (xi) Waived of penalty (xii) Removal of the existing auditors of the Corporate Debtor etc.

Approval of Resolution Plan for Jaypee Infratech Ltd. – Mr. Anuj Jain Interim RP Jaypee Infratech Ltd. Vs. Suraksha Realty Ltd. – NCLT Special Bench Read Post »

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court

Hon’ble High Court held that in legislature wisdom and as apparent from the text of 66(1) it is clear that firstly it confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful. Secondly section 66(1) contemplates an application thereunder only by the resolution professional and by none other. Thirdly section 66 (1) also restricts the power of NCLT subject to being satisfy with pre-requisite that any business of the corporate debtor has been carried on with intent to defraud creditors or the corporate debtors or for any fraudulent purpose and if satisfied it powers to pass an order is only against such person who are responsible for the conduct of such fraudulent business of the corporate debtor with mens rea to make them personally liable to make such contributions to the assets of the corporate debtor as it may deem fit.

Section 66(1) of IBC confers no jurisdiction but declaring any transaction as void, even if fraudulent, but confers jurisdiction on NCLT to fix the liabilities on the persons responsible for conducting business of corporate debtor which is fraudulent or wrongful – Smt. Sudipa Nath Vs. Union of India – Tripura High Court Read Post »

Legal Representatives (LRs) including widow of deceased Promoter/Director of Corporate Debtor should be impleaded as a party in application under Section 43, 45, 50 & 66 of the IBC for avoidance of transactions – Arvind Garg Liquidator of Carnation Auto India Pvt. Ltd. Vs. Jagdish Khattar & Ors. – NCLAT New Delhi

In this case, Counsel for the Promoter/Director of Corporate Debtor(Respondent No. 1) has argued that widow of Respondent No. 1 should not be impleaded as LRs as she has no interest in this case. She has also submitted that the Appellant has sought relief pertaining to Section 66 and 67, which is a personal to the deceased Respondent No. 1. NCLAT held that Legal Representatives is not defined in the Code. Therefore, reference could be had to the definition provided to it in the Civil Procedure Code Section 2(11) and according to the this, a person who in law represents the estate of a deceased person and the person who intermeddles with the estate of the deceased are the LRs. The widow Ms. Kiran Khattar definitely represent the estate of the deceased in view of the fact that she is in class I heir as per schedule-I of Section 8 of the Hindu Succession Act, 1956 and insofar as Section 66 and 67 of the Code are concerned, the impact of the said provision about the transfer of the estate arising out of the fraudulent transaction is to be seen only after impleadment.

Legal Representatives (LRs) including widow of deceased Promoter/Director of Corporate Debtor should be impleaded as a party in application under Section 43, 45, 50 & 66 of the IBC for avoidance of transactions – Arvind Garg Liquidator of Carnation Auto India Pvt. Ltd. Vs. Jagdish Khattar & Ors. – NCLAT New Delhi Read Post »

When there are specific remedies available to RP/Corporate Debtor to recover the dues of the CD, RP cannot short-circuit and bring a claim before this Adjudicating Authority taking advantage of Section 19(2) of the IBC, 2016 – Mr. Bhim Sain Goyal RP Vs. Myntra Designs Pvt. Ltd. – NCLT New Delhi Bench Court-II

In the present application, which has been filed under Section 19(2) of the IBC, 2016, the RP is seeking recovery of the dues of the Corporate Debtor pertaining to pre-CIRP period.
NCLT held that when there are specific remedies available to the RP/Corporate Debtor to recover the dues of the CD, he cannot short-circuit the same and bring a claim before this Adjudicating Authority taking advantage of Section 19(2) of the IBC, 2016. In our considered view, the recovery of the pre-CIRP dues can only be made, if Application is filed under Section 43,45,50 or Section 66 of IBC, 2016, as the facts of the case may be, as per the relevant criteria stipulated thereunder or if the claim is not falling under any of the above Sections, the Applicant/RP may approach the Civil Courts for recovery.

When there are specific remedies available to RP/Corporate Debtor to recover the dues of the CD, RP cannot short-circuit and bring a claim before this Adjudicating Authority taking advantage of Section 19(2) of the IBC, 2016 – Mr. Bhim Sain Goyal RP Vs. Myntra Designs Pvt. Ltd. – NCLT New Delhi Bench Court-II 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 »

Role of a Resolution Professional, much less of the Erstwhile Resolution Professional is that he cannot proceed any further, after the Resolution Plan is approved by the Adjudicating Authority – M/s. Regen Powertech Pvt. Ltd. Rep. by Erstwhile RP Vs. M/s. Veeral Controls Pvt. Ltd. & 3 oths. – NCLAT Chennai

Adjudicating Authority held that it must be borne in mind that CIRP in the instant case had attained finality and that the Resolution Professional became functus officio and he cannot file / prefer / pursue any Application on behalf of the Company. It is only be to the new Management of the Corporate Debtor, which is responsible to file such an application. It cannot be brushed aside that Section 23 of the IBC clearly envisages the Role of a ‘Resolution Professional in managing the affairs of the Corporate Debtor, during the Resolution Process and not, thereafter. In terms of the Resolution Plan furnished from the Approval Date, the CoC/ Financial Creditors to take the application to its logical conclusion and viewed in that perspective, the Applicant / Resolution Professional has no Locus standi in the subject matter, in issue.
It is an established fact that the IRP /Resolution Professionals are required to play their part, as per the ingredients of the IBC. They are to provide for a mechanism in aid to benefit of the Corporate Debtor not only during the interregnum period of Insolvency but also till the Resolution Process is completed. Suffice it for this Tribunal to make a pertinent mention that the Role of a Resolution Professional, much less of the Erstwhile Resolution Professional is that he cannot proceed any further, after the Resolution Plan is approved by the Adjudicating Authority.

Role of a Resolution Professional, much less of the Erstwhile Resolution Professional is that he cannot proceed any further, after the Resolution Plan is approved by the Adjudicating Authority – M/s. Regen Powertech Pvt. Ltd. Rep. by Erstwhile RP Vs. M/s. Veeral Controls Pvt. Ltd. & 3 oths. – NCLAT Chennai Read Post »

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