A Division Bench of the Delhi High Court observed that avoidance applications under Insolvency and Bankruptcy Code (IBC) can be heard approval of Resolution Plan, thereby granting relief to Tata Steel BSL Limited.
The present appeal has been filed by Tata Steel BSL Ltd. (TSBL) and the Union of India, collectively, the appellants, impugning the Judgment and Order rendered in W.P.(C) No. 8705 of 2019 titled Venus Recruiters Pvt. Ltd. vs. Union of India & Ors., wherein the Single Judge inter-alia held that an application filed under Section 43 of the IBC for avoidance of preferential transactions cannot survive beyond the conclusion of Corporate Insolvency Resolution Process CIRP.
The concern of Union of India is that if the interpretation of the learned Single Judge is accepted then persons who were responsible for the corporate debtor to go into liquidation because of unscrupulous transactions will get away with their deeds. The submission that the scheme of IBC is not purely commercial in nature and the purpose of the Act which is also to ensure that public money is brought back into the system is not unfounded.
The Bench comprising Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad observed that “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” the Bench noted.
The Court also ordered the NCLT is to proceed ahead with the hearing of avoidance application. In accordance with Sections 44 to 51 of the IBC, 2016, the amount which is recovered can be distributed amongst the secure creditors in accordance with law as determined by the NCLT.
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