TaxTMI 
TaxTMI 
2023 (5) TMI 663
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard together and are being disposed of by this common judgment. 2. Brief background facts giving rise to these Appeals need to be noted to appreciate the issues and contentions raised in these Appeals, are as follows: (i) The Reserve Bank of India ("RBI") in exercise of its powers under Section 45-IE of the Reserve Bank of India Act, 1934 superseded the Board of Directors of Dewan Housing Finance Corporation Limited ("DHFL") and appointed one Mr. R. Subramaniakumar as the Administrator of DHFL. On an Application filed by RBI against Dewan Housing Finance Corporation Ltd. before Adjudicating Authority under the provisions of Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code") and Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (for short "Rules 2019"), the Adjudicating Authority admitted the petition by order dated 03.12.2019 and confirmed the appointment of Administrator of DHFL to perform all functions of the Resolution Professional ("RP") under the Code and to conduct the Corporate Insolvency Resolution Process ("CIRP") of the Corporate Debtor - D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....trator of the Corporate Debtor in the I.A. No.338 of 2021 such that the Applicant, being the Corporate Debtor in its new avatar under the name "Piramal Capital & Housing Finance Limited" may be substituted in the place of Mr. Subramaniakumar, the erstwhile Administrator of the Corporate Debtor. c. That this Hon'ble Tribunal be pleased to pass any such orders or grant any other reliefs that this Hon'ble Tribunal may deem fit in the interest of justice and equity." (iv) The Appellant filed an affidavit in reply to the aforesaid Application, raising various objections to the Application. Rejoinder affidavit was also filed by Respondent No.1 to the reply submitted by Appellant. Both parties also filed written submissions in support of their respective contentions. The Adjudicating Authority passed order dated 09.02.2023. IA No.3128 of 2022 filed by Piramal in IA No.338 of 2021 was allowed by following order: "1. The present Application IA 3128 of 2022 has been filed by the Applicant seeking amendment of the memorandum of parties in the IA 338 of 2021 and all necessary consequential amendments to the IA 338 of 2021. 2. The Applicant has also prayed to subst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....021, which has been allowed. Company Appeal (AT) (Ins.) No.452 of 2023 has been filed against the order dated 09.02.2023 passed in IA No.187 of 2022 filed by Piramal seeking amendment in the Memorandum of Parties in IA No.1912 of 2020, which has been allowed; Company Appeal (AT) (Ins.) No.512 of 2023 has been filed against the order dated 09.02.2023 passed in IA No.188 of 2022 filed by Piramal seeking amendment of the Memorandum of Parties in IA No.1639 of 2022, which has been allowed. Facts and issues raised in all these Appeals being similar in nature, it is sufficient to refer to the record of Company Appeal (AT) (Ins.) No.437 of 2023 for deciding all these Appeals. 4. We have heard learned Senior Counsel for the Appellant as well as learned Senior Counsel appearing for Respondent No.1. 5. The learned Senior counsel for the Appellant challenging the order contends that after completion of the CIRP and after approval of the Resolution Plan, avoidance applications could not have been allowed to continue and the order of Adjudicating Authority permitting continuance of the avoidance applications by Resolution Applicant is not in accordance with law. It is submitted that Succe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for the purpose of prosecuting the avoidance applications. All applications were heard jointly on several dates and Adjudicating Authority afforded the parties an effective opportunity of hearing and permitted the parties to file detailed reply, rejoinder and written Submissions. The Appellant has filed the propositions in brief on the Authority of Successful Resolution Applicant to prosecute avoidance applications on behalf of Respondent No.1. 7. We have considered the submission of learned Counsel for parties and have perused the record. 8. We may first notice relevant provisions of the Code and the Regulations relating to the avoidance application. Section 25, sub-section (2) enumerates the duties of RP. Section 25, sub-section (2) provides: "25. Duties of resolution professional. - (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;" 9. Section 26 of the Code provides: "26. Application for avoidance of transactions not to affect proceedings. - The filing of an avoidance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re the seventy-fifth day of the insolvency commencement date, the resolution professional shall form an opinion whether the corporate debtor has been subjected to any transaction covered under sections 43, 45, 50 or 66. (2) Where the resolution professional is of the opinion that the corporate debtor has been subjected to any transactions covered under sections 43, 45, 50 or 66, he shall make a determination on or before the one hundred and fifteenth day of the insolvency commencement date. (3) Where the resolution professional makes a determination under sub-regulation (2), he shall apply to the Adjudicating Authority for appropriate relief on or before the one hundred and thirtieth day of the insolvency commencement date. (3A) The resolution professional shall forward a copy of the application to the prospective resolution applicant to enable him to consider the same while submitting the resolution plan within the time initially stipulated. (4) The creditors shall provide to the resolution professional, relevant extract from the audits of the corporate debtor, conducted by the creditors such as stock audit, transaction audit, forensic audit, et....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for 'Mandatory contents of the resolution plan'. Regulation 38, sub-regulation (2), sub-clause (d) provides as follows: "38(2)(d) provides for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed: Provided that this clause shall not apply to any resolution plan that has been submitted to the Adjudicating Authority under sub-section (6) of section 30 on or before the date of commencement of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022" 17. Regulation 38(2)(d) has been inserted by Notification dated 14.06.2022. The insertion of Regulation 38(2)(d) by the above amendment clearly makes the legislative intent clear that Resolution Plan shall provide manner in which proceedings in respect of avoidance transactions will be pursued after approval of Resolution Plan. We may also refer to the recent judgment of the Delhi ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alled 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 seen before terming it as a suspicious transaction. Not only the investigation but the adjudication of such transaction is a lengthy process and findings of these transactions by adjudicating authority involves answering questions on both law and fact and, therefore, it will be impossible to conclude these proceedings within the time frame laid down in the process. Since investigation and adjudication of these transactions are time consuming this cannot allow persons who were managing the corporate debtor to escape from reversal of these transactions. The time line given in the IBC cannot be used as a premium by the unscrupulous persons who have forced the corporate entity into insolv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 treatment of avoidance applications if the same are pending at the time of submission of resolution plans, it cannot be accepted that avoidance applications will be rendered infructuous in situations wherein the resolution plan could not have accounted for avoidance applications due to exigencies that delayed initiation of action in respect of avoidable transactions beyond the submission of a resolution plan before the adjudicating authority. This is because such an interpretation will render the provisions pertaining to suspect transactions otiose and let the beneficiaries of such....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance application is independent of the resolution of the Corporate Debtor and can survive the CIRP. We, thus, are of the view that argument of the Appellant that after conclusion of the CIRP by approval of the Resolution Plan, avoidance application becomes infructuous, cannot be accepted. 21. Another submission which has been pressed by the learned Counsel for the Appellant is that Successful Resolution Applicant cannot pursue the avoidance applications and if at all, the avoidance applications can be pursued, it could have been only by the RP and that in the present case the Administrator. It is submitted that RP is persona designate, whose jurisdiction cannot be delegated to any other person. The present is not a case where Successful Resolution Applicant is exercising any delegated powers of RP/ Administrator. In the present case, Resolution Plan envisages and specifically provides for pursuing of the applications by the Successful Resolution Applicant. The Successful Resolution Applicant is not exercising any delegated powers of RP, hence, the argument that RP being persona designate, has no relevance in the present case. The Adjudicating Authority in the present case has su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate Persons) (Second Amendment) Regulations, 2022, that is prior to 14.06.2022, however, in the present case, the Resolution Plan, which was submitted prior to the date, contained specific provision for continuance of avoidance applications by Successful Resolution Applicant, which provision in the Resolution Plan cannot be said to be contrary to any provisions of the Code or the Regulations. Regulation 38(2)(d), which is not specifically attracted with regard to Resolution Plan in question, however, legislative intendment, which has been brought in the Regulation, clarifies the law. The Resolution Plan has been approved by the Adjudicating Authority and by virtue of Section 30 and 31, the Resolution Plan approved by the Adjudicating Authority is binding on Corporate Debtor, its employees, Members, creditors, including Central and the State Government or any legal Authority, guarantors and other stake holders involved in the Resolution Plan. When Resolution Plan specifically empowers the Successful Resolution Applicant to pursue the avoidance applications, the said provisions of the Plan shall bind everyone including the erstwhile Administrator. The submission of the learned Counse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llant that delay in initiation of two applications, does not entitle the Successful Resolution Applicant to pursue the applications. As noted above, admittedly, the Administrator has filed all the avoidance applications and two applications, which have been specifically referred by the Appellant, were filed subsequent to 15.01.2021 have also been rightly permitted to be pursued by the Successful Resolution Applicant. It is to be noted that present is not a case that any avoidance applications have been filed after approval of the Resolution Plan by the Adjudicating Authority, i.e. after 07.01.2021. 26. As noted above, the present Appeals have been filed by the Ex-Promoter of the Dewan Housing Finance Corporation Finance Limited and allegation regarding fraudulent transactions were against the Ex-Promoters including the Appellant. The object of continuing the avoidance applications, even after the CIRP is the discovery of dubious transactions and permitting such preferential undervalued and fraudulent transactions to continue, will be depriving the benefit of such transactions to the creditors, which is not the intent of the statutory scheme. The submission advanced on behalf of ....