Avoidance applications under insolvency law: filing timelines are directory, and fraud-based claims are not barred by the undervalued-transaction period.

Procedural timelines for avoidance applications under Regulation 35A were held to be directory, so delay beyond the 135th day did not by itself justify rejection. The period in Section 46 applies only to undervalued transactions and could not be extended to bar applications under Sections 49 and 66 concerning transactions defrauding creditors or wrongful trading. The pleadings were found sufficiently specific, alleging undervaluation, creditor evasion, related-party payments, and lack of creditor consent. On that basis, threshold rejection was unsustainable, and the insolvency forum retained power to examine the application on merits despite a parallel civil suit.

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Issues: (i) Whether the timeline under Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for filing avoidance applications is mandatory or directory. (ii) Whether applications alleging transactions under Sections 49 and 66 of the Insolvency and Bankruptcy Code, 2016 are barred by the period in Section 46 of the Insolvency and Bankruptcy Code, 2016. (iii) Whether the resolution professional's application contained sufficient pleadings of fraud and fraudulent transaction. (iv) Whether the rejection of the application was unsustainable.

Issue (i): Whether the timeline under Regulation 35A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 for filing avoidance applications is mandatory or directory.

Analysis: The time limits in Regulation 35A were examined in the context of the object of the insolvency framework and the settled principle that procedural timelines governing statutory duties do not automatically become mandatory merely because the word "shall" is used. The Court applied the approach that procedural prescriptions meant to advance the process and protect the corporate debtor and creditors should not be construed so rigidly as to defeat substantive adjudication of avoidable or fraudulent transactions, especially where delay is explained by circumstances such as non-cooperation by suspended management.

Conclusion: The timeline under Regulation 35A is directory and not mandatory. An application filed beyond the 135th day is not liable to rejection solely for that reason.

Issue (ii): Whether applications alleging transactions under Sections 49 and 66 of the Insolvency and Bankruptcy Code, 2016 are barred by the period in Section 46 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The Court distinguished between undervalued transactions governed by Sections 45 and 46 and transactions defrauding creditors under Section 49 and fraudulent trading or wrongful trading under Section 66. It held that Section 46 supplies a relevant period only for applications to avoid undervalued transactions and cannot be imported into proceedings under Section 49 or Section 66, which operate on a different statutory footing. The statutory scheme, including Section 69, supported this distinction.

Conclusion: Applications under Sections 49 and 66 are not barred merely because they are filed beyond the period mentioned in Section 46.

Issue (iii): Whether the resolution professional's application contained sufficient pleadings of fraud and fraudulent transaction.

Analysis: The pleadings were read as a whole and found to contain specific averments that the lease transaction was undervalued, designed to keep assets beyond the reach of creditors, and carried out to defraud creditors under Sections 49 and 66. The application also contained allegations regarding related-party payments and lack of creditor consent. The absence of replies from the respondents was also noted, and adverse inference was considered relevant in the circumstances.

Conclusion: The application did contain substantial and specific pleadings of fraud and fraudulent transaction.

Issue (iv): Whether the rejection of the application was unsustainable.

Analysis: Since the application was not barred by Regulation 35A or Section 46 and contained sufficient pleadings to justify examination on merits, the adjudicating authority ought not to have rejected it at the threshold. The pendency of a civil suit concerning the lease was held to be of no impediment to the insolvency forum's statutory power to examine avoidable and fraudulent transactions for the benefit of the corporate debtor and creditors.

Conclusion: The rejection of the application was unsustainable.

Final Conclusion: The impugned rejection order was set aside and the avoidance application was revived for consideration on merits in accordance with law.

Ratio Decidendi: Procedural timelines governing avoidance applications under insolvency regulations are directory where rigid enforcement would defeat substantive adjudication, and the period prescribed for undervalued transactions cannot be extended to bar applications concerning fraudulent transactions under Sections 49 and 66.

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