A judgment by the Delhi High Court has paved the way for allowing remission applications 200,000 crores which is stuck before the National Company Law Tribunal (NCLT). A division bench of the High Court has held that a waiver application can be continued even after the Corporate Insolvency Resolution Process (CIRP) of a company is over.
When an entity becomes insolvent, the Insolvency and Bankruptcy Code (IBC) stipulates that certain transactions must be avoided, known as avoidance or dilution transactions, to prevent them from affecting the financial position of the entity. Is.
As per the Code, the resolution professional is authorized to reverse a transaction of a corporate debtor before the IBC is invoked, if the professional believes that the transaction is for the purpose of diverting funds, provided the NCLT approves the move. Give approval
A bench headed by Chief Justice Satish Chandra Sharma and Justice Subramaniam Prasad said that CIRP and avoidance applications are, by their nature, separate proceedings. As an objective process, CIRP is time-bound, whereas the latter requires the adjudicating authority to search for suspicious transactions that should be avoided.
IBC reinforces this distinction. Accordingly, adjudication of avoidance application is independent of the resolution of the corporate debtor and CIRP can be avoided.
Experts said companies facing avoidance transactions include Tata Steel BSL Ltd, Dewan Housing Finance Corp, Jaypee Infra, Srei and Educomp.
“The countrywide curriculum reform has been brought about by the decision. People are entitled to continue with their action irrespective of any resolution,” said the senior advocate involved in the matter seeking anonymity. “All these petitions were kept in NCLT for a long time and can be revived ”
“Since this judgment has distinguished the scope of CIRP and avoidance transactions as separate proceedings and in view of the RP has been authorized to lead the applications pending before the Adjudicating Authority, the matters pending before the NCLT A more definite course of action may be conducted for the same, thereby paving the way for expeditious settlement,” said Sandeep Bajaj, Managing Partner, PSL Advocates & Solicitors.
The bench was hearing arguments on whether avoidance applications can be pursued even after the resolution process is over.
In the case of Tata Steel BSL Vs Venus Recruiter, the respondent had filed a writ petition before the High Court seeking to declare the avoidance applications as void as the findings of the CIRP. The Single Bench in November 2022 held that an application under Section 43 of the IBC cannot survive beyond the findings of the CIRP. The Division Bench has reversed the decision.
“Apart from the above, by clarifying that the benefit of such transaction shall be availed only by the members of the CoC, this decision will help to reduce any uncertainty that may weigh heavily in the minds of the members of the CoC while considering the scheme In the light of the treatment provided for dealing with avoidable transactions”, Bajaj said.
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