Home » Between The Lines » NCLAT: Avoidance application can continue after the completion of CIRP

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The National Company Law Appellate Tribunal, New Delhi Bench (“NCLAT”), in the matter of Kapil Wadhawan v. Piramal Capital and Housing Finance Limited and Others [Company Appeal (AT) (Insolvency) Nos. 437, 439, 441, 442, 445, 451, 452 and 512 of 2023], held that avoidance applications can continue even after completion of Corporate Insolvency Resolution Process (“CIRP”).


The Reserve Bank of India (“RBI”), in exercise of its powers under Section 45-IE (Supersession of Board of directors of non-banking financial company (other than Government Company)) of the Reserve Bank of India Act, 1934, superseded the board of directors of Dewan Housing Finance Corporation Limited (“Corporate Debtor”) and appointed Mr. R. Subramaniakumar as the administrator of the Corporate Debtor (“Administrator”).

An application was filed by RBI against the Corporate Debtor before the National Company Law Tribunal, Mumbai Bench (“NCLT”), under the provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The said application was admitted by NCLT vide order dated December 3, 2019, and confirmed the appointment of Administrator for performing all the functions of a resolution professional under IBC and for conducting the CIRP of the Corporate Debtor.

The Administrator filed various interlocutory applications for avoidance of different transactions undertaken by the Corporate Debtor in the CIRP of the Corporate Debtor. The Committee of Creditors (“CoC”) on January 15, 2021, approved the resolution plan submitted by Piramal Capital and Housing Finance Limited (“Successful Resolution Applicant (SRA)/ Respondent”). Post approval of the resolution plan by the CoC, an application was filed by the Administrator before NCLT for approval of the resolution plan, which was approved by the NCLT vide an order dated June 7, 2021.

The clause no. 2.13 of the resolution plan stated that SRA will pursue avoidance applications preferred by the Administrator. In accordance with the said clause, SRA filed different interlocutory applications to amend the memorandum of parties and to substitute itself in the place of the Administrator for pursuing the transaction application. An affidavit was filed by Mr. Kapil Wadhawan, who was an ex-promoter of the Corporate Debtor (“Appellant”), in reply to the applications by SRA and raised various objections to the said application.

However, the interlocutory applications filed by the SRA seeking amendment of the memorandum of parties and substitution of its name was allowed by NCLT vide an order dated February 9, 2023 (“Impugned Order”). Consequently, aggrieved by the same, Appellant filed the present appeal, before the NCLAT challenging the Impugned Order.


Whether SRA can pursue an avoidance application under IBC by substituting the Administrator.


Contentions of the Appellant:

The Appellant advanced an argument that two applications filed by the Administrator were after the resolution plan was voted on January 15, 2021.

It was contended by the Appellant that the Impugned Order, permitting continuance of the avoidance applications by SRA, is not in accordance with law as once CIRP is completed and the resolution plan is approved, avoidance applications could not have been allowed to continue. Thus, the Impugned Order deserves to be set aside.

The Appellant submitted that since SRA is having different legal interests as opposed to the Administrator, therefore it cannot be substituted in place of Administrator. SRA holds vested interest in the outcome of the avoidance application so it would act in its own interest, contrary to a resolution professional/ administrator, who plays an impartial role under IBC.

Contentions of the Respondent:

It was submitted by the Respondent that the Appellant has no locus to challenge the Impugned Order. The substitution order merely permits the Respondent for pursuing the avoidance applications pending before the NCLT.

The Respondent had put forth that the avoidance applications can continue after the completion of CIRP and CIRP is completely different from proceedings for avoidance applications. Additionally, the resolution professional is not a persona designate under IBC for the purpose of prosecuting the avoidance applications.

Observations of the NCLAT

NCLAT placed reliance on the Sections 25 (Duties of resolution professional) and 26 (Application for avoidance of transactions not to affect proceedings) of IBC. It was observed by the NCLAT that Section 26 of IBC indicates that an avoidance application can continue even after completion of the CIRP as CIRP is not affected by an avoidance application. NCLAT also took into consideration the statutory scheme of IBC as enshrined under Regulation 35A (Preferential and other transactions) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, Sections 43 (Preferential transactions and relevant time), 45(1) (Avoidance of undervalued transactions) and 66(1) (Fraudulent trading or wrong trading) of IBC and held that preferential transactions, undervalued transactions or fraudulent transactions has to be brought to the notice of NCLT by an application filed by the resolution professional/ liquidator.

NCLAT relied on the case of Tata Steel BSL Limited v. Venus Recruiter Private Limited and Others [(2023) SCC OnLine Del 155], wherein the Delhi High Court held that avoidance application can be heard after conclusion of CIRP.

It was also noted by the NCLAT that under IBC and related regulations, there exist no such provisions which indicates that avoidance application filed after approval of the resolution plan by the CoC is to be rejected or not and thus it is dependent on the facts and circumstances of each case.

Decision of NCLAT

NCLAT upheld the Impugned Order and ruled that NCLT has rightly permitted SRA to pursue the avoidance applications, which were filed by Administrator and were pending before NCLT. Further, it was held by the NCLAT that the avoidance applications can continue even after the CIRP.

VA View:

The legislative scheme of Section 26 of IBC makes it clear that CIRP is not affected by the avoidance applications in any manner and therefore it can even continue post CIRP. The nature of transactions (such as preferential undervalued and fraudulent transactions, etc.) is determined by the resolution professional or a liquidator, who accordingly files an appropriate application to the NCLT.

The avoidance applications are different from CIRP and even after the completion of the CIRP, the statute envisages recoveries through proceedings for avoidance transactions. The object behind continuation of the avoidance applications, post the CIRP is for discovering of dubious transactions. Therefore, permitting such preferential undervalued and fraudulent transactions to continue would result in depriving the benefit of these transactions to the persons who wrongfully derived benefit from such transactions.

For any query, please write to Mr. Bomi Daruwala at [email protected]