NCLT Can’t Adjudicate Avoidance Application Pursued By Third Party To Whom Debt Was Assigned U/S 43, 45, 50 And 66 Of IBC: NCLT Delhi

“However, if a debt is assigned to a Third Party or an Assignee under Sections 43, 45, 50, and 66 of IBC 2016, the application or claim cannot be deemed to be pursued by the Corporate Debtor. Moreover, the Avoidance/PUFE transactions underlying such applications pursued by a Third Party or an Assignee will cease to be an issue arising out of CIRP or Liquidation of the Corporate Debtor in terms of Section 60(5)(c), as the beneficiary of those proceedings or claims would be the Third Party or Assignee and recovery if any, would be realised and added to the asset pool of the Assignee. Furthermore, what was earlier a dispute between the “Corporate Debtor, Through RP/ Liquidator Vs. Respondents of PUFE Application”, will now, become a dispute between “an Assignee and Respondents of PUFE Applications, which will be dehors the insolvency proceedings of the Corporate Debtor.”

Background Facts

M/s Rain Automotive India Private Limited (“Corporate Debtor”) was admitted into the Corporate Insolvency Resolution Process (CIRP) by the NCLT. On 02.01.2020, the Corporate Debtor was sent into liquidation and a Liquidator was appointed.

The Liquidator filed three applications under Sections 45, 50 and 66 of IBC (IA-4978/2021, IA- 4981/2021 and IA-4995/2021), seeking avoidance of certain Preferential Undervalued Fraudulent and Extortionate (“PUFE”) transactions of the Corporate Debtor on the basis of a Transaction Audit Report. These applications are pending adjudication before the NCLT.

The amount to be realized through these avoidance applications amounted to Rs. 26,38,37,645/- in total.

Subsequently, the Liquidator assigned debt i.e. “Not Readily Realizable Assets” (“NRRA”) of the Corporate Debtor arising out of the avoidance applications, to Inquest Fintech Pvt. Ltd. (“Applicant/Assignee”) for a consideration amount of Rs. 50,000/-. Accordingly, a Deed of Assignment dated 19.11.2021 executed between the Liquidator and the Assignee.

The Assignee filed an application before the NCLT seeking its substitution in place of the Liquidator in the said three avoidance/PUFE applications.

NCLT Verdict

Avoidance applications not to be pursued by third party on behalf of RP or Liquidator

The Bench opined that the definition of a Financial Creditor and Operational Creditor under IBC includes an Assignee. Hence, an Assignee is entitled to file a petition under Section 7 or 9 of IBC as the case may be. Nonetheless, an Assignee or Third Party cannot file/pursue an application under 43, 45, 50, and 66 of IBC on behalf of the Resolution Professional or Liquidator.

NCLT cannot adjudicate avoidance application being pursued by a third party or assignee, none of whom represents the Corporate Debtor

It was opined that under Section 60(5)(a) of IBC, an application by or against the Corporate Debtor can be entertained by the NCLT. As per Section 60(5)(b) of IBC, a claim by or against the Corporate Debtor and its subsidiary outside India can be adjudicated.

Since proceedings under Sections 43, 45, 50, and 66 of IBC are instituted by Resolution Professional or Liquidator on behalf of the Corporate Debtor, it can be considered as application(s) by the Corporate Debtor. Nonetheless, if the debt is assigned to a third party under Sections 43, 45, 50 and 66 of IBC, then the application cannot be said to be pursued by the Corporate Debtor. Further, post assignment of debt the Assignee would be the beneficiary of the avoidance proceedings (recovery, if any) and not the Corporate Debtor. Therefore, such application would not come within ambit of Section 60(5) of IBC as it is not arising out of CIRP or liquidation of Corporate Debtor.

“However, if a debt is assigned to a Third Party or an Assignee under Sections 43, 45, 50, and 66 of IBC 2016, the application or claim cannot be deemed to be pursued by the Corporate Debtor. Moreover, the Avoidance/PUFE transactions underlying such applications pursued by a Third Party or an Assignee will cease to be an issue arising out of CIRP or Liquidation of the Corporate Debtor in terms of Section 60(5)(c), as the beneficiary of those proceedings or claims would be the Third Party or Assignee and recovery if any, would be realised and added to the asset pool of the Assignee. Furthermore, what was earlier a dispute between the “Corporate Debtor, Through RP/ Liquidator Vs. Respondents of PUFE Application”, will now, become a dispute between “an Assignee and Respondents of PUFE Applications, which will be dehors the insolvency proceedings of the Corporate Debtor.”

The Bench concluded that the NCLT has no jurisdiction to adjudicate an Avoidance/PUFE application pursued by a Third Party or an Assignee.

“In terms of Section 60(5) of IBC 2016, this Adjudicating Authority has no jurisdiction to adjudicate an Avoidance/PUFE application pursued by a Third Party or an Assignee i.e., a dispute between two third parties (i.e., the Assignee and Respondents of the Avoidance Applications, neither of whom represents the Corporate Debtor) which will be dehors the insolvency proceedings of the Corporate Debtor.”

The Bench declined to substitute the Assignee in place of Liquidator and dismissed the application.

Case Title: Ritu Tandon v M/s Rain Automotive India Private Limited

Case No.: Company Petition No. (IB)-1095(ND)/2019

Counsel For Applicant: Adv. Abhay Kaushik

Counsel For Respondent: Advs. Jitesh P. Gupta, Harsh Kumar, Amrita for Respondent No. 3, Adv. Chitranshul A. Sinha, Adv. Jaskaran S. Bhatia in IA. No. 4978/2021 for R-4, Adv. Rajat Chaudhary, Adv. Gautam Singhal, Adv. Deepali Thakran for Ex-Directors

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