AI OCR 
TaxTMI 
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2023 (1) TMI 644
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.... Advocates for respondent No.3. Mr. Kapil Sibal, Sr. Advocate with Mr. Rishi Agarwal, Mr. Parminder Singh and Mr. Pranjit Bhattacharya, Advocates for respondent No.1. Mr. V. P. Singh, Ms. Anindita Roy Chawdhury, Ms. Vatsala Rai and Ms. Simran Bhat, Advocates. Mr. Manmeet Singh, Ms. Nishtha Chaturvedi and Ms. Shatakshi Tripathi, Advocates for respondent No.4. JUDGMENT 1. The present Letters Patent Appeals, being LPA No. 37 & 43 of 2021 have been filed by Tata Steel BSL Ltd. (hereafter, "TSBL") and the Union of India (hereafter, "UoI") (collectively, "Appellants") respectively, impugning the Judgment and Order dated 26.11.2022 ("Impugned Judgment") rendered in W.P.(C) No. 8705 of 2019 titled Venus Recruiters Pvt. Ltd. vs. Union of India & Ors., wherein the Ld. Single Judge inter-alia held that an application filed under Section 43 of the Insolvency and Bankruptcy Code, 2016 ("IBC") for avoidance of preferential transactions cannot survive beyond the conclusion of corporate insolvency resolution process (hereafter, "CIRP"). Accordingly, the Appellants have sought before this Court that the Impugned Judgment be set aside. 2. The facts of the case leading up to the filing of th....
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....at 10% service charge was paid in lieu of manpower supply could have been preferential in nature. g. On 09.04.2018, the RP filed an application before the NCLT, being C.A.No.284(PB)/2018 in C.P. No. IB(201)PB/2017,under Section 25(2)(j), Sections 43 to 51 and Section 66 of the IBC wherein various transactions were enumerated as 'suspect transactions' with related parties ("avoidance application"). h. On 15.05.2018, NCLT approved the Resolution Plan of Tata Steel filed by the RP before the NCLT on 28.03.2018. On 18.05.2018, the Resolution Plan was implemented in finality and the new management being Tata Steel BSL Ltd., the Appellant herein assumed control of Bhushan Steel Limited. i. NCLT observed that CA-284(PB)/2018, i.e., the avoidance application, has been filed by RP on 09.04.2018 prior to the approval of the Resolution Plan and proceeded to issue notice to the respondent companies made party to the application. j. Parallelly, on 10.08.2018, the NCLAT upheld the Order dated 15.05.2018, passed by the NCLT approving the Resolution Plan of Tata Steel. k. Aggrieved by the Order of the NCLT issuing notice in the avoidance applica....
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.... to the Plan itself. Certainty and timeliness are the hallmark of the IBC, speeding up of the CIRP is a core objective of the IBC and the continuation of the jurisdiction of NCLT beyond what is permissible under the IBC is contrary to its ethos. Accordingly, in the opinion of the Ld. Single Judge the writ petition was maintainable. (B) RP being functus officio after CIRP 7. Since the question framed by Ld. Single Judge was whether an avoidance application could be heard after CIRP, at the instance of the RP, an inevitable corollary to this question is whether the RP becomes functus officio after resolution of the corporate debtor. The Ld. Single Judge observed that the role of the RP is an administrative one and not adjudicatory in nature. Thus, the RP cannot continue beyond an order under Section 31 of the IBC, as the CIRP comes to an end with a successful Resolution Plan having been approved unless there is a clause in the Resolution Plan to the contrary, permitting the RP to function for any specific purpose beyond the approval of the Resolution Plan. 8. It has been held that there is a "START and FINISH line for the Resolution Process" and the role of the RP is to mana....
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....te Debtor. The RP whose mandate has ended cannot indirectly seek to give a benefit to the Corporate Debtor, who is now under the control of the new management / Resolution Applicant, by pursuing such an application. It was held that allowing the adjudication of the avoidance application after resolution of the debtor tantamount to NCLT stepping in the shoes of the new management to decide what is good for it. The power to decide whether to continue an agreement vests with the new management after resolution. Therefore, any order with respect to suspect transactions would have to be passed prior to approval of the resolution plan. 12. It was further held that Section 26 of the IBC cannot be read in a manner so as to mean that an application for avoidance of transactions under Section 25(2)(j) can survive after the CIRP process. Once the CIRP process comes to an end, an application for avoidance of transactions cannot be adjudicated. The purpose of avoidance transactions is clearly for the benefit of the creditors of the Corporate Debtor in its erstwhile avatar and no benefit would come to the creditors after the Plan is approved. (D) Beneficiaries of avoidance applications ....
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....equirement of the IBC, as is evident from the wordings of Section 25(2)(j), is that the RP is only required to file an avoidance application and that burden has been discharged in the present matter. By virtue of Section 26, it becomes abundantly clear that while the RP during his/her tenure is to collate information and basis the same file an Avoidance Application during CIRP, the same need not be completed during CIRP and neither will the pendency of the same delay and/or affect the CIRP. 16. It was further contended that it flows from Section 26 that the timelines envisaged under the IBC for the purposes of CIRP cannot be extended to proceedings borne out of avoidance applications. Timelines within IBC and its rules and regulations (for instance, Regulations 35A and 40A of the CIRP Regulations, 2016) are indicative in nature, endeavoring to make the whole process time efficient whereas proceedings under the IBC are more often than not, subject to extensions granted by NCLT, as had been done in the present matter as well vide the Order dated 21.12.2017. Attention of this Court was drawn to Chapter 3 of the ILC Report dated 20.02.2020, which states that proceedings for avoidabl....
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....CLT or IBBI deciding the Resolution professional rights, duties and remuneration. 19. Mr. Srinivasan proceeds to submit that the ILC report in Para 2 of Chapter 3 suggests that the Adjudicating Authority should decide whether the recoveries from actions filed against improper trading or to avoid transactions should be applied for the benefit of the creditors of the corporate debtor, the successful resolution applicant or other stakeholders. The IBBI itself recommends the Resolution Applicant to pursue the avoidance proceedings if CIRP ends with a Resolution Plan. He submits that the Ld. Single Judge has erred in observing that that the purpose of avoidance of transactions is for the benefit of the creditors of the Corporate Debtor and that no benefit would come to the creditors after the Plan is approved. He submits that the approval of the Plan has no nexus with benefits to creditors as: - (i) Section 26 provides for avoidance applications to not have effect on CIRP, (ii) Avoidance applications continue beyond CIRP and the Resolution Applicant may pursue it, (iii) Therefore, benefits can be distributed to creditors or RA or (iv) the NCLT may ....
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....vs Satyawati Tondon &Ors, AIR 2010 SC 3413; & Assistant Collector of Central Excise, Chandan Nagar, West Bengal v. Dunlop India Ltd. and others, (1985) 1 SCC 260. 23. The RP is discharging a statutory function while forming an opinion that a transaction should be avoided under the provisions of the code. It is performing a statutory function for initiating proceedings in this regard before the NCLT. The avoidance proceedings are not personal to the insolvency professional acting as the RP. A perusal of the nature of orders that can be passed under Section 44, suggests that the immediate recipient of the outcome of the avoidance proceedings is the corporate debtor. Therefore, after the conclusion of the CIRP, the office of the RP does not become functus officio and the avoidance proceedings do not come to an end. 24. He proceeds to submit, even if for sake of arguments, it is presumed that the RP becomes functus officio, the NCLT can still decide those applications. The statutory duty imposed upon on the RP is to file avoidance applications in terms of Section 25(2)(j). Once it is established that the RP discharged this statutory burden, the avoidance proceedings will survive ....
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....ain transactions, first, for the benefit of the creditors in general and a fair allocation of an insolvent debtor's assets to the creditors and second, to create a fair commercial conduct before declaration of insolvency and having deterrent effect to discourage creditors from pursuing individual remedies in the period leading up to insolvency. The implications of these provisions are restricting the right of parties to such transactions to benefit the same by sending the proceeds back to the corporate debtor also incidentally benefitting creditors. In the present case, the avoidance proceedings are subsisting after approval of the resolution plan by the NCLT and conclusion of CIRP. While incidental benefits to the creditors during the CIRP does not exist anymore, such proceedings do not become infructuous as parties to such impermissible preferential transactions are still benefiting out of the same. III. Resolution Professional 28. Mr. Manmeet Singh, Ld. Counsel for the RP has made limited submissions, expressing concurrence with the stance adopted by Tata Steel BSL Ltd. and the Union of India. He submits that the Respondent No. 1 cannot be allowed to go scot-free merely be....
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....C while recording the serious problems under the previous legal framework. Therefore, the wordings of Section 26, when accorded literal interpretation, the phrase "shall not affect the proceedings of the corporate insolvency resolution process" is construed to mean that the CIRP proceedings shall be parallel to the Avoidance proceedings. He states that the Appellants seek to introduce the word "by" and change the phrase to "shall not be affected by the proceedings of the corporate insolvency resolution process". In his view, this misconceived interpretation alters the entire meaning of section 26 of the IBC since by means of Section 26 of the IBC, the Parliament has retained the focus of the proceedings before the Ld. Adjudicating Authority only to the CIRP process. With the interpretation advanced by the Appellants the focus is shifted to Avoidance Application which was never the intention of the Parliament. 32. He further submits that it has been admitted by the RP itself he became functus officio upon conclusion of CIRP. He has also relied upon various provisions of the IBC to contend that the tenure of the RP cannot be extended beyond CIRP. Attention of this Court was drawn ....
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....el BSL Ltd. was always a going concern and the Venus' contract did not affect its status. 35. Therefore, applying the provisions of Sections 43 and 44 of the IBC in the context of a Corporate Debtor post resolution amounts to creating a class of companies that stands apart from other going concerns, without any intelligible differentia. Applying such special provisions post the CIRP Process also does not bear nexus with the objects of the IBC, as: (i) it is neither in furtherance of insolvency resolution nor in furtherance of liquidation; and (ii) the value, if any, resulting from the avoidance of preferential transactions would not in any manner enhance realization of dues by the creditors. Object and purpose of the IBC 36. Before dealing with issues raised before us in the present LPAs, we consider it appropriate to discuss and analyze the object and purpose of the IBC in general and the intent behind the provisions pertaining to avoidable transactions specifically. The Apex Court had the occasion to analyze the IBC in its judgment in the case of Innoventive Industries Ltd (supra), wherein it was observed as under: - "12. ......The Statement of Objects and Reaso....
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....Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, the Income Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited....
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....nd financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme - workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are 38 not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. [See ArcelorMittal (supra) at paragraph 83, footnote 3]. 12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate deb....
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....d the observations of this Court, we may now take an overview of the scheme and structure of the relevant parts of the Code. Part I thereof contains the provisions regarding title, extent, commencement and application of the Code as also defines various expressions used and employed in the Code. Different provisions have come into force on different dates, as permissible under proviso to sub-section (3) of Section 1. Part II of the Code deals with insolvency resolution and liquidation for corporate persons. Chapter I of Part II makes provision for its applicability and also defines various expressions used in this Part (Sections 4 and 5). Chapter II of Part II contains the provisions for corporate insolvency resolution process in Sections 6 to 32 whereas Chapter III of this Part II contains the provisions for liquidation process in Sections 33 to 54. 16.3. Though the provisions relating to 'preferential transactions and relevant time' (in Section 43 of the Code) occur in Chapter III of Part II, relating to liquidation process, but such provisions being for avoidance of certain transactions and having bearing on the resolution process too, by their very nature, equally oper....
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....ditors directly. Therefore, these provisions, largely endeavor to enhance the pool of assets of the corporate debtor available for either making it a lucrative prospect for a Resolution Applicant or in the event of liquidation, for distribution among creditors. The avoidance of these transactions essentially prevents unjust enrichment of one party at the expense of a creditor. 42. It is pertinent to note that by its very nature, an Avoidance Application may take more time in adjudication especially in cases where multiple parties are highlighted as having possibly entered into transactions with the corporate debtor in forensic audit reports and there may be situations where the third parties including related parties of the corporate debtor may heavily contest such applications. Further, adjudication of such applications requires proper examination of facts as opposed to making mere objective determinations (as is the case with CIRP). It is discernible that an application for avoidance transactions is against the promoters/directors/related parties, however the resolution/liquidation is for the Corporate Debtor. In the Appellants' view, Section 26 of the IBC exists as an acknowl....
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.... nature, as has been vehemently contended on behalf of Respondent No. 1, it sheds light on the import and purpose of Section 26 from a legislative perspective and provides constructive guidance on the treatment of avoidance applications after conclusion of CIRP. 46. It has also been brought to our attention that in the interregnum, the ILC has published a Report in May, 2022 wherein it has made certain salient observations and recommendations on the issue of survival of avoidance applications after CIRP. The relevant excerpts of the same are reproduced hereunder: - "2.19. Independence of proceedings for avoidance of transactions and improper trading It was brought to the notice of the Committee that there is confusion regarding whether proceedings for avoidance of transactions and improper trading can continue after approval of a resolution plan in CIRP. This comes in the wake of a recent decision of the Delhi High Court in Venus Recruiters Private Limited v. Union of India 21 wherein the Court inter alia opined that the applications in respect of avoidable transactions do not survive beyond the conclusion of the CIRP and once the CIRP itself comes to an end, an applica....
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.... properly document all its past transactions. Further, the resolution professional is also required to assess if a suspicious transaction would meet the requirements of the requisite avoidable transaction or improper trading as set out in the Code. The Supreme Court has laid down a "volumetric as also gravimetric analysis" that the resolution professional has to undertake prior to filing an application with the Adjudicating Authority for setting aside avoidable transactions. Not only the investigation and filing, but the adjudication of such transactions is also a lengthy process. Findings of avoidable transactions and improper trading are not purely objective assessments and involve answering questions of both law and fact. For instance, ascertaining a preference transaction would include determining if a particular transaction falls within the legal fiction created under Section 43(2), or within the exclusions under Section 43(3), etc. Consequently, it may be very difficult to conclude proceedings for avoidance of transaction or improper trading within the 330-day time limit for CIRP. • Second, where avoidance applications would be considered infructuous if ....
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....ling and adjudication of an avoidance application as per applicable law 47. Section 25 of the IBC enlists the duties to be discharged by the RP. Section 25(2)(j) requires the RP to file an application for avoidance of transactions in accordance with Chapter III. Relevant portion of Section 25 is reproduced below: - "25. Duties of resolution professional. - (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: ..................... (j) file application for avoidance of transactions in accordance with Chapter III, if any; ....................." 48. Regulation 35A of the CIRP Regulations, 2016 provides guidance in respect of the manner in which the RP ought to file such applications. It is imperative to note that the IBBI has inserted clause (3A) and (4) to Regulation 35A vide amendments dated 16.09.2022 and 14.06.2022, respectively, after which Regulation 35A reads as follows: - ....
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....make sure that an avoidance application is determined and filed at the earliest to facilitate resolution of the Corporate Debtor. The insertion of clause 3A to Regulation 35A requires that copies of such an application is provided to the prospective applicants to ensure that such transactions are factored in their plans at the time of submission. The amended Regulation makes it amply clear that an avoidance application can be pending even beyond the submission of the Resolution Plan. This is consistent with our findings in respect of the nature of such proceedings, which require proper scrutiny of facts and law and are likely to meet resistance, thereby being likely to last beyond the conclusion of CIRP. 52. Even otherwise, a perusal of other regulations also makes it clear that the IBC and extant regulations have envisaged since inception that avoidance applications can survive the successful resolution of the Corporate Debtor. Regulation 36 provides for the preparation of an Information Memorandum. Details of avoidable transactions can be made a part of the Information Memorandum to be prepared by the RP. During the pendency of the present LPAs, the IBBI also inserted Regulati....
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....n narrowed down by the Ld. Single Judge to mean that applications/petitions must only pertain to CIRP and after conclusion of CIRP, no issue survives for consideration of the NCLT, making NCLT functus officio in respect of any application/petition with respect to erstwhile corporate debtor. 58. Mr. Srinivasan submitted on behalf of Tata Steel BSL Ltd. that avoidance applications are filed as per the provisions of the IBC and accordingly it is the Ld. NCLT that is the appropriate and concerned forum for the same and Sections 44, 48, 49, 51, 66 and 67 categorically provide for the NCLT to pass orders in the avoidance applications. In similar vein, Ld. ASG has also submitted that the purpose and intent of the IBC being to serve as a complete code in respect of insolvency laws, the language of Section 60(5) has to be given wide import. 59. It is evident from the judgments of the Honorable Supreme Court in the Swiss Ribbons (supra) and Innoventive Industries (supra) that the one of the primary objectives of the IBC was to bring insolvency laws in India under a single, unified umbrella. 60. At this juncture, we must also refer to the judgment of the Hon'ble Supreme Court in Guja....
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.... "When the question arises as to the meaning of a certain provision in a statute, it is not only legitimate but proper to read that provision in its context. The context here means, the statute as a whole, the previous state of the law, other statutes in pari materia, the general scope of the statute and the mischief that it was intended to remedy." 54. Bearing in mind the above caution, it may be of relevance to discuss the interpretation of similar provisions in other insolvency laws. Textually, the provisions of Section 60(5) bear a flavour of resemblance to the provisions which were contained in sub-section (2) of Section 446 [ Sub-section (2) of Section 446 provides as follows: "446. (2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a) any suit or proceeding by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under Section 391 by or in respect of the company; (d) any question of prioritie....
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....aw or fact. These words bear a striking resemblance to the provisions of Section 60(5)(c) of IBC. But textually similar language in different enactments has to be construed in the context and scheme of the statute in which the words appear. The meaning and content attributed to statutory language in one enactment cannot in all circumstances be transplanted into a distinct, if not, alien soil. For, it is trite law that the words of a statute have to be construed in a manner which would give them a sensible meaning which accords with the overall scheme of the statute, the context in which the words are used and the purpose of the underlying provision. Therefore, while construing of Section 60(5), a starting point for the analysis must be to decipher parliamentary intent based on the object underlying the enactment of IBC. The Statement of Objects and Reasons leading up to the enactment to IBC conveys a strong sense of the intent of the legislature. According to it: "Statement of Objects and Reasons.-There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Comp....
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....e powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code." xxx 56.9. IBC, in a clear departure from the past, separates commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. 57. In the decision of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , where the challenge was to the constitutional validity of some provisions of IBC, the judgment by R.F. Nariman, J. contains a section titled "Prologue : the pre-existing state of the law". The problems which arise from multiplicities of statutes and fora in the erstwhile regime were noticed (at SCC pp. 41-42, para 14) in the report of the Bankruptcy Law Reforms Committee (2015) ("BLRC"): "14. ... The current state of the bankruptcy process for firms is a hi....
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....he establishment of a single forum to deal with matters of insolvency, which were distributed earlier across multiple fora. In the absence of a court exercising exclusive jurisdiction over matters relating to insolvency, the corporate debtor would have to file and/or defend multiple proceedings in different fora. These proceedings may cause undue delay in the insolvency resolution process due to multiple proceedings in trial courts and courts of appeal. A delay in completion of the insolvency proceedings would diminish the value of the debtor's assets and hamper the prospects of a successful reorganisation or liquidation. For the success of an insolvency regime, it is necessary that insolvency proceedings are dealt with in a timely, effective and efficient manner. Pursuing this theme in Innoventive [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] this Court observed that : (SCC p. 422, para 13) "13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process." The principle was reiterated in ArcelorMittal [Arcel....
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....." 61. The ILC Report of May 2022 has documented the issue of jurisdiction of the Adjudication Authority, i.e., the NCLT and NCLAT in matters pertaining to avoidance applications after conclusion of CIRP. It has been stated: - "2.24. The Committee also considered if a consequential change would be required to clarify the jurisdiction of the Adjudicating Authority to entertain proceedings for avoidance of transactions and improper trading beyond the CIRP period. The language of Section 60 is couched in a wide manner, and all proceedings permissible under Part II of the Code are to be adjudicated by the NCLT. 2.25. As per Section 60(1), the NCLT is the Adjudicating Authority in relation to insolvency and liquidation of corporate persons. Section 60(5)(c) provides that the NCLT has the jurisdiction to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings. The Committee noted that the phrases "in relation to" or "arising out of" are of wide import, thereby extending the jurisdiction of the NCLT on subject matters related to the insolvency resolution o....
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....260 wherein the Apex Court has observed as under: 3. In Titaghur Paper Mills Co. Ltd. v. State of Orissa [(1983) 2 SCC 433 : 1983 SCC (Tax) 131 : 1983 Tax LR 2905 : (1983) 142 ITR 663 : (1983) 53 STC 315] A.P. Sen, E.S. Venkataramiah and R.B. Misra, JJ. held that where the statute itself provided the petitioners with an efficacious alternative remedy by way of an appeal to the Prescribed Authority, a second appeal to the tribunal and thereafter to have the case stated to the High Court, it was not for the High Court to exercise its extraordinary jurisdiction under Article 226 of the Constitution ignoring as it were, the complete statutory machinery. That it has become necessary, even now, for us to repeat this admonition is indeed a matter of tragic concern to us. Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations, as for instance where the very vires of the statute is in question or where private or public wrongs are so inextricably mixed up and the prevention of public injury and the vindication of public justice require it that recourse ....
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....IR 1964 SC 1419] this Court adverted to the rule of self-imposed restraint that the writ petition will not be entertained if an effective remedy is available to the aggrieved person and observed: (AIR p. 1423, para 7) '7. ... The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by the statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up.' 13. In Titaghur Paper Mills Co. Ltd. v. State of Orissa [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] this Court observed: (SCC pp. 440-41, para 11) '11. ... It is now well recognised that where a right or liability is cre....
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....ate of Maharashtra [(1999) 3 SCC 5] , C.A. Abraham v. ITO [AIR 1961 SC 609 : (1961) 2 SCR 765] , Titaghur Paper Mills Co. Ltd. v. State of Orissa [Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 : 1983 SCC (Tax) 131] , Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath and Sons [1992 Supp (2) SCC 312] , Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1] , Tin Plate Co. of India Ltd. v. State of Bihar [(1998) 8 SCC 272] , Sheela Devi v. Jaspal Singh [(1999) 1 SCC 209] and Punjab National Bank v. O.C. Krishnan [(2001) 6 SCC 569] .) 14. In Union of India v. Guwahati Carbon Ltd. [(2012) 11 SCC 651] this Court has reiterated the aforesaid principle and observed: (SCC p. 653, para 8) "8. Before we discuss the correctness of the impugned order, we intend to remind ourselves the observations made by this Court in Munshi Ram v. Municipal Committee, Chheharta [(1979) 3 SCC 83 : 1979 SCC (Tax) 205]. In the said decision, this Court was pleased to observe that: (SCC p. 88, para 23) '23. ... [when] a revenue statute provides for a person aggrieved by an assessment thereunder, a particular remedy to be sought in a particular ....
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.... only befitting that any petition or application arising out of the insolvency resolution or liquidation of a corporate person includes proceedings under Part III of the IBC. 68. However, we consider it apt to delve into the issues posed before us since they are important questions of law requiring our consideration. (b) Effect of Regulation 38(2)(d)of CIRP Regulations, 2016 69. During the course of hearing of the present LPAs, the IBBI amended the CIRP Regulations, 2016 to insert Clause (d) in Regulation 38(2) of the principal Regulation. The amendment was brought on 16.09.2022 w.e.f. 14.06.2022. The Regulation is reproduced hereunder: - "38. Mandatory contents of the resolution plan. (1) The amount payable under a resolution plan - (a) to the operational creditors shall be paid in priority over financial creditors; and (b) to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan, shall be paid in priority over financial creditors who voted in favour of the plan. (1A)A resolution plan shall include a statement as to how it has dealt with the inter....
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....n Professional becomes functous officio once the Committee of Creditors has accepted the Resolution Plan and which has been approved by the NCLT, cannot be accepted. If such an interpretation is accepted it will go against the very purpose of the IBC. The scheme of IBC is just not a commercial call taken by the Committee of Creditors. It was enacted by the legislature to ensure maximum recovery due to the creditors who had lent money to a corporate entity. The endeavour must always be to ensure maximum recovery of that money to the Committee of Creditors because it is public money and public cannot be made to suffer on account of dubious/nefarious transactions entered into by the company which has gone into the process of insolvency. The fact that after 04.06.2022, the Resolution Plan must also take into account all the dubious transactions does not give any less credence to the fact that such plans which have been approved by the Creditors prior to 14.06.2022, the NCLT will have jurisdiction to the application by the Resolution Professional for setting aside certain transactions so that the money can be recovered through the account of the Committee of Creditors. The argument of t....
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.... (i) Avoidance applications are required to be filed in terms of the timelines prescribed under Regulation 35A of the CIRP Regulations, 2016 and the details of such applications ought to be available before the NCLT at the time of the approval of the Resolution Plan under Section 31 of the IBC. (ii) An avoidance application is not meant to benefit the corporate debtor in its new avatar after the approval of the resolution plan. 74. The first prong on which the Impugned Judgment holds that avoidance applications, in facts of the present case, are infructuous is because they have not been filed as per the prescribed timelines. However, it is our understanding that the timelines under Regulation 35A are directory and not mandatory in nature. This is because Regulation 35A pertains merely to the RP discharging his statutory burden of filing an avoidance application within an outer limit of 135 days from the commencement of the CIRP. This timeline takes date of commencement of CIRP as the reference point. However, the CIRP process itself is not strictly or mandatorily bound by its own timelines. The same has been held by the Hon'ble Apex Court in Essar Steel India Ltd. Co....
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.... transaction is absolved on account of the avoidance application becoming infructuous after conclusion of CIRP, is undesirable. 78. The Ld. Single Judge operates on the assumption that the sum or property acquired upon adjudication of the avoidance application will be appropriated by the corporate debtor in its new avatar. As laid down above, the provisions pertaining to avoidable transactions is to primarily benefit creditors. While the Corporate Debtor ceases to exist in its erstwhile avatar, 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. The same is consistent with the scheme of the Code and in line with object sought to be achieved by it which inter-alia includes, increasing the availability of credit within the economy. (d) RP will pursue the avoidance applications since he is only functus officio vis-à-vis CIRP and not avoidance applications 79. Upon this Court being satisfied that avoida....
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.... the corporate insolvency resolution process. However, section 36(3)(f) provides that the liquidation estate shall comprise any asset or their value recovered through proceedings for avoidance of transactions. Further, the application may have been disposed of when the process was on, but an appeal against the order disposing the application may be pending when the process comes to an end. The issue that arises for consideration is by whom and how the applications would be taken to logical conclusion. 6. In view of the above, the specific issues that arise for consideration and the suggested way to deal with the mare as under: S.No. Issue Suggested Approach 1. Who would pursue(including the decision to file an application or an appeal)the matter(application/appeal)before the authorities(NCLT, NCLAT, Supreme Court or any other), if the CIRP ends with a Resolution Plan? Who would bear the expenses? Resolution Applicant; the cost shall be borne by it. 2. Who would pursue the matter before the authorities, if the CIRP ends with an order for Liquidation? Who would bear the expenses? Liquidator; the cost shall be part of liquidation process cost. 3.....
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....ring them under a single unified umbrella but also to enhance and improve the availability of credit with lending institutions. 86. Sections 43-51, 66 & 67 of the IBC lays down various transactions that may be avoided by the resolution professional and the actions that can be taken against erstwhile management for fraudulent transactions. These provisions are primarily aimed at swelling the asset pool available for distribution to creditors and preventing unjust enrichment of one party at the expense of other creditors. 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. The insolvency professional has to thoroughly examine the transactions which the corporate debtor has undertaken in the period prior to commencement of the period of insolvency proceedings. This is a very cumbersome process and more so in respect of companies whose books and records do not properly document all its past transactions. The resolution professional has to also assess if a suspicious transaction would meet the requirements that are necessary to be ....
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.... a manner determined by the adjudicating authority. 89. Conclusion a) 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. b) CIRP and avoidance applications, are, by their very nature, a separate set of proceedings wherein, the former, being objective in nature, is time bound whereas the latter requires a proper discovery of suspect transactions that are to be avoided by the Adjudicating Authority. The scheme of the IBC reinforces this difference. Accordingly, adjudication of an avoidance application is independent of the resolution of the corporate debtor and can survive CIRP. c) The endeavour of the IBC and its rules and regulations is to ensure that all processes within the insolvency framework are time efficient. While the law mandates a resolution plan to necessarily provide for the tre....