Suspended director's challenge fails as auction purchaser gains right to continue avoidance proceedings under Regulation 44A

NCLAT Principal Bench dismissed appeal by suspended director challenging successful auction purchaser's right to prosecute avoidance application after acquisition plan approval. Tribunal held Regulation 44A permits continuation of avoidance proceedings even after liquidation closure, with proceeds distributed per established framework. Relying on precedent in Kapil Wadhawan case, court confirmed successful auction purchaser can substitute resolution professional's name to pursue avoidance applications. Suspended director's challenge failed as no grounds existed to interfere with lower court's substitution order allowing purchaser to continue proceedings.

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Issues Involved:
1. Eligibility of the Suspended Director to submit a Resolution Plan.
2. Approval and subsequent challenges to the Acquisition Plan.
3. Substitution of the Successful Auction Purchaser in place of the Resolution Professional to prosecute the avoidance application.
4. Legal standing of the Suspended Director to challenge the substitution order.
5. Applicability and interpretation of relevant sections of the Insolvency and Bankruptcy Code (IBC) and related regulations.

Summary:

1. Eligibility of the Suspended Director to submit a Resolution Plan:
The Corporate Debtor was admitted to Insolvency Resolution Process on 5th April 2018. The Appellant, a suspended director, submitted a Resolution Plan but was declared ineligible under Section 29A (h) of the IBC by the Resolution Professional. This decision was upheld by the Adjudicating Authority and affirmed by the Appellate Tribunal.

2. Approval and subsequent challenges to the Acquisition Plan:
In the liquidation process, the highest bid of Rs. 49.95 Crores by Respondents No. 2 to 5 was accepted, and their acquisition plan was approved by the Adjudicating Authority on 11th May 2022. The Appellant's application to reject this acquisition plan was dismissed by the Adjudicating Authority, the Appellate Tribunal, and the Hon'ble Supreme Court.

3. Substitution of the Successful Auction Purchaser in place of the Resolution Professional to prosecute the avoidance application:
The Application filed by Respondent No. 1 to substitute its name in place of the Resolution Professional in the avoidance application was allowed by the Impugned Order. The Appellant contended that the Successful Auction Purchaser cannot pursue the avoidance application, arguing that it is not in accordance with the IBC and its regulations.

4. Legal standing of the Suspended Director to challenge the substitution order:
The Tribunal noted that the Appellant, as a suspended director, has no locus to challenge the substitution order. The acquisition plan, which included provisions for the Successful Auction Purchaser to pursue the avoidance application, had already been approved and upheld by higher judicial authorities, making the Appellant's challenge untenable.

5. Applicability and interpretation of relevant sections of the Insolvency and Bankruptcy Code (IBC) and related regulations:
The Tribunal examined Sections 43, 45, and 66 of the IBC, and Regulation 44A of the IBBI (Liquidation Process) Regulation, 2016. It was clarified that the proceeds from avoidance applications form part of the liquidation estate. The Tribunal also referred to the Insolvency Law Committee Report, which stated that while creditors might file avoidance applications if the insolvency professional fails to do so, the Successful Resolution Applicant should not be permitted to file such applications. However, in this case, the avoidance application was already filed by the Resolution Professional, and the substitution was in line with the approved acquisition plan.

Conclusion:
The Tribunal dismissed the appeal, affirming that the Successful Auction Purchaser can prosecute the avoidance application as per the approved acquisition plan. The Appellant's contentions were found to be without merit, and the substitution order was upheld.

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