Limitations on NCLT's Jurisdiction Over Avoidance Applications Post-Resolution Plan Approval Under IBC

Introduction

The case of Venus Recruiters Private Limited v. Union Of India adjudicated by the Delhi High Court on November 26, 2020, addresses a pivotal question under the Insolvency and Bankruptcy Code, 2016 (IBC). The matter revolves around whether the National Company Law Tribunal (NCLT) retains jurisdiction to hear avoidance applications filed under Section 43 of the IBC after the approval of a Resolution Plan by the Committee of Creditors (CoC). Specifically, it examines the role and jurisdictional limits of the Resolution Professional (RP) post-resolution and the survivability of avoidance applications beyond the conclusion of the Corporate Insolvency Resolution Process (CIRP).

Summary of the Judgment

In this case, Venus Recruiters Pvt. Ltd., a manpower contractor, challenged the proceedings initiated by the former RP of Bhushan Steel Ltd. (now Tata Steel BSL Ltd.) before the NCLT, seeking a writ to declare these proceedings void. The core issue was whether an application under Section 43 for the avoidance of preferential transactions could be entertained after the Resolution Plan had been approved. The Delhi High Court examined the statutory framework of the IBC, the specific roles of RPs, and relevant regulations to determine whether the NCLT had jurisdiction in this scenario. The court concluded that once the Resolution Plan is approved and the CIRP concludes, the RP's role ceases, and the NCLT lacks jurisdiction to entertain such avoidance applications post-resolution, thereby quashing the proceedings as sought by the petitioner.

Analysis

Precedents Cited

The judgment references several key cases and regulatory documents to bolster its analysis:

• M/S. Innoventive Industries Ltd. v. Icici Bank & Anr. [(2018) 1 SCC 407] - Highlighted the importance of timely conclusion of CIRP.
• Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta [Civil Appeal No. 8766-67 of 2019] - Emphasized the finite role of RPs and the streamlined process under IBC.
• S.P. Jain v. Kalinga Tubes Ltd. [AIR 1965 SC 1535] - Discussed the admissibility of petitions that serve the company's interests.
• IOCL v. UOI & Ors. [W.P.(C) 13775/2019] - Addressed the non-maintainability of writ petitions when alternative remedies exist.
• Pioneer Urban Land & Infrastructure Ltd. & Anr. v. UOI & Ors. [(2019) 8 SCC 416] - Focused on the interpretation of IBC provisions in favor of the statute’s objectives.

Legal Reasoning

The court's reasoning hinged on interpreting the scope and limitations of the RP’s role under the IBC. Key points include:

• Finite Role of RP: The RP's mandate is confined to managing the CIRP until the approval of the Resolution Plan. Post-approval, the RP becomes functus officio, meaning they have no further powers.
• Jurisdiction of NCLT: Post-resolution, the NCLT’s jurisdiction is limited to matters arising from the Resolution Plan itself. It cannot entertain applications related to avoidance of preferential transactions as these should have been addressed within the CIRP timelines.
• Regulatory Framework: Sections 43 and 44 of the IBC, along with the 2016 CIRP Regulations, establish that avoidance applications must be filed and adjudicated within specific timeframes during the CIRP.
• Finality of Resolution: Once the Resolution Plan is approved, the new management takes full control, and any further transactions or litigations should be handled outside the purview of the IBC framework, relying instead on general civil or contractual remedies.

Impact

This judgment reinforces the streamlined, time-bound objectives of the IBC by ensuring that once the CIRP concludes with a Resolution Plan, the processes do not drag indefinitely due to post-resolution litigation. It underscores the importance of adhering to statutory timelines and clarifies the boundaries of judicial intervention post-resolution, thereby providing clarity to insolvency practitioners and corporate entities alike. Future cases will likely reference this judgment to assert the finality of Resolution Plans and limit post-resolution judicial inquiries into avoidance applications.

Complex Concepts Simplified

Corporate Insolvency Resolution Process (CIRP)

CIRP is a legal process under the IBC aimed at restructuring a financially distressed company to maximize the value of its assets for the benefit of creditors. It involves the appointment of an RP to manage the company's affairs, form a Resolution Plan, and obtain approval from the CoC and NCLT.

Resolution Professional (RP)

An RP is a licensed insolvency professional appointed to oversee and manage the CIRP. Their duties include managing operations, evaluating claims, facilitating the formulation of a Resolution Plan, and ensuring compliance with the IBC provisions. Their authority ceases once the Resolution Plan is approved.

Avoidance Application Under Section 43

This allows the RP or liquidator to seek reversal of preferential transactions that may have unfairly benefited certain creditors before the insolvency. Such applications must be filed within specific timelines during the CIRP.

Conclusion