2023 (7) TMI 1567 - AT - IBC

Supreme Court Validates Resolution Applicant's Right to Pursue Avoidance Applications Under Insolvency and Bankruptcy Code

The SC upheld the substitution of the Successful Resolution Applicant (SRA) in place of the Administrator for prosecuting avoidance applications under the ... Preferential transactions - Substitution of the Successful Resolution Applicant (SRA) in place of the Administrator for prosecuting applications under Sections 43 and 44 of the Insolvency and Bankruptcy Code (I&B Code) - HELD THAT:- The fact is that the application under Section 43 and 44 were filed against the Appellant subsequent to approval of the Resolution Plan which fact is not disputed. In the judgment APIL WADHAWAN VERSUS PIRAMAL CAPITAL & HOUSING FINANCE LTD. & ORS. [2023 (5) TMI 663 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI], the question as to whether with regard to applications filed subsequent to approval of the plan by the Successful Resolution Applicant can be prosecuted, was considered and it was held that 'The submission which has been pressed by the learned Counsel for the Appellant is that avoidance applications, which were filed after approval of the Resolution Plan by the CoC, could not have been entertained. In the Code and the Regulations, there are no such provisions, which indicate that avoidance application filed after approval of the Plan by the CoC is to be rejected or not. It depends on the facts of each case and circumstances as to whether any application filed after approval of the Resolution Plan by the CoC can be considered or not. In the present case, we noticed that Resolution Plan has noted the pending avoidance applications.' With regard to application filed subsequent to approval of plan by the CoC substitution of Successful Resolution Applicant in place of the Administrator was approved by NCLT which was also upheld by this Appellate Tribunal - In this case, the submission of learned counsel for the Appellant is that the transaction which have assailed against Appellant are on different footing and not impugned under Section 66, hence, they were required to be objectively considered by the Adjudicating Authority and it was only Administrator who could have objectively prosecuted. Conclusion - The substitution of the SRA in place of the Administrator upheld. Appeal disposed off. ISSUES PRESENTED and CONSIDEREDThe primary legal questions considered in the judgment are:Whether the substitution of the Successful Resolution Applicant (SRA) in place of the Administrator for prosecuting applications under Sections 43 and 44 of the Insolvency and Bankruptcy Code (I&B Code) is permissible, especially when the applications were filed after the approval of the Resolution Plan by the Committee of Creditors (CoC).Whether the terms of the Resolution Plan allow or empower the SRA to prosecute avoidance applications under Sections 43 and 44.Whether the applications filed subsequent to the approval of the Resolution Plan can be entertained and prosecuted by the SRA.Whether the Appellant's rights to set off against the Corporate Debtor as per the agreement were violated due to the substitution.ISSUE-WISE DETAILED ANALYSISSubstitution of SRA in place of Administrator:The relevant legal framework involves Sections 43 and 44 of the I&B Code, which deal with the avoidance of preferential transactions. The Court considered the precedent set by the judgment in 'Kapil Wadhawan vs. Piramal Capital & Housing Finance Ltd. & Ors.', which upheld the substitution of the SRA in place of the Administrator for prosecuting avoidance applications.The Court interpreted the provisions of the I&B Code and the Resolution Plan, concluding that the substitution was permissible and within the legal framework. The Court reasoned that the provisions of the plan authorized the SRA to prosecute preferential transactions, and the substitution was in line with the I&B Code and Regulations.Key evidence included the terms of the Resolution Plan, which noted pending avoidance applications, suggesting that the SRA was empowered to pursue these applications. The Court applied the law to the facts by considering the timeline and circumstances under which the applications were filed and concluded that the substitution was valid.The Court addressed competing arguments by the Appellant, who contended that the substitution was improper due to the timing of the applications and the nature of the transactions. However, the Court found that there were no provisions in the Code or Regulations mandating the rejection of applications filed after the Plan's approval.Terms of the Resolution Plan:The Court examined whether the Resolution Plan provided for the prosecution of avoidance applications by the SRA. The Court found that the plan did authorize such actions, as evidenced by the precedent case and the plan's provisions.The Appellant argued that the plan did not explicitly provide for the prosecution of applications by the SRA, but the Court concluded otherwise, referencing the earlier judgment that upheld the SRA's authority in similar circumstances.Applications filed post-approval of the Resolution Plan:The Court considered whether applications filed after the CoC's approval of the Resolution Plan could be entertained. It referred to the precedent case, which established that the timeline for filing avoidance applications is not mandatory, and such applications can be considered based on the facts and circumstances of each case.The Court concluded that there was no legal basis to reject applications filed after the Plan's approval, as long as they were filed within a reasonable time and were noted in the Resolution Plan.Appellant's rights to set off:The Appellant claimed a right to set off against the Corporate Debtor, arguing that the substitution violated this right. However, the Court did not find any merit in this argument, as the substitution was deemed lawful and within the framework established by the I&B Code and the Resolution Plan.SIGNIFICANT HOLDINGSThe Court upheld the substitution of the SRA in place of the Administrator, citing the precedent set in the 'Kapil Wadhawan' case. The judgment emphasized that the provisions of the Resolution Plan authorized the SRA to prosecute avoidance applications, and such substitution was permissible under the I&B Code.The Court stated, 'The timeline for filing avoidance application under Regulation 35A have been held to be not mandatory... It depends on the facts of each case and circumstances as to whether any application filed after approval of the Resolution Plan by the CoC can be considered or not.'Core principles established include the flexibility in the timeline for filing avoidance applications and the validity of substituting the SRA in place of the Administrator for prosecuting such applications. The final determination was that the substitution was lawful, and the Appellant's arguments against it were not upheld.The Appeals were disposed of with the clarification that the Appellant could raise all available pleas during the consideration of their preferential application on merits, and no opinion was expressed on the merits of the preferential applications themselves.