Imp. Rulings - Avoidance Applications & Forming an Opinion by RP
Index;
NCLT Kolkata (30.06.2022) in Kshitiz Chhawchharia vs. Madhumalati Merchandise Private Limited & Ors [I.A. (IB) No. 346/KB/2019 In CP(IB) No. 349 /KB/2017]
NCLT Kolkata (06.05.2022) in Jitendra Lohia vs. Nikhil Chowdhury and others [I.A.(IB) No. 208/KB/2021INC.P (IB) No.204/KB/2019]
SCI (2015.01.09) Sunil Bharti Mittal Vs. CBI [2015 INSC 18, (2015) 4 SCC 609]
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1). NCLT Kolkata (30.06.2022) in Kshitiz Chhawchharia vs. Madhumalati Merchandise Private Limited & Ors [I.A. (IB) No. 346/KB/2019 In CP(IB) No. 349 /KB/2017] held that;
6.7. ``According to regulation 35A(1) of the CIRP Regulations, 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 on or before the seventy-fifth day of the insolvency commencement date. According to the regulation 35A(2), on or before the one hundred and fifteenth day of the insolvency commencement date, the Resolution Professional is also required to make a determination to that effect.
6.8. Further, Regulation 35A(3) of the CIRP Regulations provides that upon making such determination under regulation 35A(2), the Resolution Professional shall apply to the Adjudicating Authority for the appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date. In this case, the one hundred and thirty fifth day is on 23 May 2018. The instant application being IA. (IBC) 346/KB/2019 has been filed on 20 March 2019, thus making it clear that the Applicant has not complied with the provisions of regulation 35A within the timeline provided therein.
6.9. Even if we go by the decision of the Hon’ble NCLAT in Aditya Kumar Tibrewal RP Vs. Om Prakash Pandey, Suspended Director 2 that the timeframe is directory, we do not see any “determination” within the meaning of regulation 35A of the CIRP Regulations. Therefore, we will not act as court of first instance to determine the nature of the transactions mentioned hereinabove.
6.1 In light of the above facts and circumstances, the adjudicating Authority is satisfied that the instant application is not maintainable and the same is therefore rejected. “
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2). NCLT Kolkata (06.05.2022) in Jitendra Lohia vs. Nikhil Chowdhury and others [I.A.(IB) No. 208/KB/2021INC.P (IB) No.204/KB/2019] wherein it was held;
# 16. ``We have carefully seen the averments of the application and corresponding reply of the respondents. We have noticed that the allegations made in application do not constitute anything actionable against the respondents. It was the duty of the RP to come to conclusive determination before filing an application with the Adjudicating Authority. Simply by repeating the extracts or observations made in the forensic auditors report, the RP could not make an independent determination about the nature of transactions as required by Regulation 35A (2) of the CIRP Regulations.’’
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3). SCI (2015.01.09) Sunil Bharti Mittal Vs. CBI [2015 INSC 18, (2015) 4 SCC 609] held that;
”47. . . . . . . It is these words which amply suggest that an opinion is to be formed only after due application of mind that there is sufficient basis for proceeding against the said accused and formation of such an opinion is to be stated in the order itself. The order is liable to be set aside if no reason is given therein while coming to the conclusion that there is prima facie case against the accused, though the order need not contain detailed reasons. A fortiori, the order would be bad in law if the reason given turns out to be ex facie incorrect.”
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Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
# 35A. Preferential and other transactions.
(1) On or before 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 profesional 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 95[***].
(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, etc.
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Analysis
1. As per Regulations read with the decisions of the coordinate benches of NCLT (Doctrine of Binding Precedent) it is mandatory for RP (Resolution Professional) to form an opinion and make a determination before filing an avoidance application.
2. RP’s report of forming an opinion & determination must exhibit application of mind with sufficient reasons for filing of avoidance application, as ruled by Hon’ble Supreme Court in the matter of Sunil Bharti Mittal Vs. CBI [2015 INSC 18, (2015) 4 SCC 609]
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Template counter/defence;
Miscellaneous/Other binding precedents, impugning the maintainability of the captioned IA -
a. RP’s Report of opinion & determination (Statutory requirement Section 43 read with CIRP Regulation 35) are missing in the present case.
43. Preferential transactions and relevant time -
(1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.
b. NCLAT (25.01.2024) in Gloster Cables Ltd. Vs. Fort Gloster Industries Ltd. & Ors..[Comp. App (AT) (Ins) No. 1343 of 2019] held that;
We have found that the legislature has used the different language in Section 43 and 45 of the Code because in Section 43, the RP or the liquidator has to form an opinion whereas in Section 45 the RP or the liquidator has to examine and then determine that the transaction in question were undervalued during the relevant period…
c. It is a settled position of law, that any opinion has to be formed after due application of mind and has to have a foundational basis in the act/ rules. In the facts of the present case an adverse opinion is sought to be enforced basis the reason which ex-facie is/are incorrect, the rigours of the law apply with a greater force, as is being ratiocinated of Hon’ble Supreme Court ruling in the matter of SCI (2015.01.09) Sunil Bharti Mittal Vs. CBI (2015) 4 SCC 609];
That an opinion is to be formed only after due application of mind that there is sufficient basis for accusatorial/adversarial proceeding to be pursued and formation of such an opinion is to be stated in the underlying order/document itself. And fortiori, the same would be bad in law if the reason given turns out to be ex facie incorrect to the governing act/regulation.
d. Bare reading of the captioned IA suggests; the applicant has abdicated the mandate of 35 A (1) of the CIRP Regulations, except for repeating the observations by the Forensic Auditor – hence the captioned application failing the test of 35 A (1) of the CIRP Regulations – the same is not maintainable. The relevant binding precedents capsulated infra:
NCLT Kolkata (06.05.2022) in Jitendra Lohia vs. Nikhil Chowdhury and others [I.A.(IB) No. 208/KB/2021 INC.P (IB) No.204/KB/2019] wherein it was held;
# 16. ``We have carefully seen the averments of the application and corresponding reply of the respondents. We have noticed that the allegations made in application do not constitute anything actionable against the respondents. It was the duty of the RP to come to conclusive determination before filing an application with the Adjudicating Authority. Simply by repeating the extracts or observations made in the forensic auditors report, the RP could not make an independent determination about the nature of transactions as required by Regulation 35 A (2) of the CIRP Regulations”.
# 17. We are not convinced by the way the RP has proceeded against the respondent by way of this application. The allegations and averments made in the application do not constitute any action or prompt this Adjudicating Authority to proceed against these respondents under the sections under which the application has been moved.
e. In the facts of the present case, para 4 of the captioned IA avers that the public announcement is dated: 20.04.2023 and the captioned IA is filed on 16.05.2024. Hence pertinent to rely upon the ruling of Hon’ble NCLT Kolkata, (30.06.2022) in Kshitiz Chhawchharia vs. Madhumalati Merchandise Private Limited & Ors [I.A. (IB) No. 346/KB/2019 In CP(IB) No. 349 /KB/2017]. Relevant ruling extracted subsequently;
6.7. ``According to regulation 35 A (1) of the CIRP Regulations, 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 on or before the seventy-fifth day of the insolvency commencement date. According to the regulation 35A (2), on or before the one hundred and fifteenth day of the insolvency commencement date, the Resolution Professional is also required to make a determination to that effect.
6.8. Further, Regulation 35A(3) of the CIRP Regulations provides that upon making such determination under regulation 35A(2), the Resolution Professional shall apply to the Adjudicating Authority for the appropriate relief on or before the one hundred and thirty-fifth day of the insolvency commencement date. In this case, the one hundred and thirty fifth day is on 23 May 2018. The instant application being IA. (IBC) 346/KB/2019 has been filed on 20 March 2019, thus making it clear that the Applicant has not complied with the provisions of regulation 35A within the timeline provided therein.
6.9. . ., we do not see any “determination” within the meaning of regulation 35A of the CIRP Regulations. Therefore, we will not act as court of first instance to determine the nature of the transactions mentioned hereinabove.
6.1 In light of the above facts and circumstances, the adjudicating Authority is satisfied that the instant application is not maintainable and the same is therefore rejected.
6.2 IA I.A. (IB) No. 346/KB/2019 is accordingly dismissed.
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