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Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether the delay in filing the avoidance application by the resolution professional defeated the claim for relief. (ii) Whether the transfer of the right to use the trademark to the respondent was an undervalued related-party transaction liable to be avoided and reversed under the Insolvency and Bankruptcy Code, 2016.
Issue (i): Whether the delay in filing the avoidance application by the resolution professional defeated the claim for relief.
Analysis: The application was filed in the course of CIRP, and the record showed continuing non-cooperation from the suspended management, incomplete financial information, and difficulty in collating documents because of COVID-related restrictions. The objection based on the timelines for avoidance proceedings was not accepted as a bar to consideration of the application.
Conclusion: The objection based on delay was rejected.
Issue (ii): Whether the transfer of the right to use the trademark to the respondent was an undervalued related-party transaction liable to be avoided and reversed under the Insolvency and Bankruptcy Code, 2016.
Analysis: The transaction was preceded by a partnership arrangement, followed within a short period by a deed transferring the right to use the trademark for a nominal consideration, and was followed by a reconstitution of the partnership and exclusion of the corporate debtor. The transfer occurred within the look-back period, involved a related party, and was not treated as having been undertaken in the ordinary course of business. The transaction was therefore treated as falling within the avoidance framework for undervalued transactions, and the relief of vesting the trademark right back in the corporate debtor was considered necessary to support implementation of the resolution plan.
Conclusion: The transaction was held to be avoidable, and the right to use the trademark was withdrawn and vested in the corporate debtor.
Final Conclusion: The avoidance application succeeded, the impugned arrangements were terminated, and the trademark right was restored to the corporate debtor for the purpose of the resolution process.
Ratio Decidendi: A transfer of valuable asset rights to a related party for grossly inadequate consideration, outside the ordinary course of business and within the statutory look-back period, may be avoided under the IBC and reversed by restoring the asset to the corporate debtor.
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