Sherisha Technologies Pvt. Ltd. vs Shri S A Prem Kumar and Ors. - The same analogy as in Kapil Wadbawan's case (supra) shall be applicable with regard to the prosecution by the Successful Auction Purchaser in liquidation estate when the asset of the corporate debtor has been sold as a going concern and acquisition plan submitted by Successful Auction Purchaser has been approved by the Adjudicating Authority. Hence, the substitution of the successful bidder of NRRA in the avoidance application can be allowed to give effect to provisions of the Code.

  NCLT Chennai-1 (2025.01.10) in Sherisha Technologies Pvt. Ltd. vs Shri S A Prem Kumar and Ors. [(2025) ibclaw.in 50 NCLT, IA(IBC)/1575/CHE/2023 in IA(IBC)/683/CHE/2021 in CP(IB)/756/ CHE/2021] held that;.

• Regulation 44A deals with the treatment of transaction avoidance which itself contemplates that there can be a position regarding the prosecution of avoidance application even after the resolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed.

• Where after considering the submissions, provisions of the Code, as well as the Regulations and the Judgment of Hon’ble Delhi High Court in TATA Steel BSL Ltd. vs. Venus Recruiter Pvt. Ltd. & Ors.,, MANU/NL/0453/2023, the Hon'ble NCLAT has held that the Successful Resolution Applicant can be allowed to prosecute the avoidance application.

• The same analogy as in Kapil Wadbawan's case (supra) shall be applicable with regard to the prosecution by the Successful Auction Purchaser in liquidation estate when the asset of the corporate debtor has been sold as a going concern and acquisition plan submitted by Successful Auction Purchaser has been approved by the Adjudicating Authority. Hence, the substitution of the successful bidder of NRRA in the avoidance application can be allowed to give effect to provisions of the Code.

Blogger’s Comments; In the above judgement the substitution of the successful bidder of NRRA in the avoidance application has been restricted to the successful bidder who has acquired the CD as a going concern. Thus Avoidance Applications (NRRA) has to be auctioned as a package with the CD as a going concern. However the concerned regulations do not provide for such restrictions.

• 37A. Assignment of not readily realisable assets.

• (1) A liquidator may assign or transfer a not readily realisable asset through a transparent process, in consultation with the stakeholders’ consultation committee in accordance with regulation 31A, for a consideration to any person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor.

• Explanation. — For the purposes of this sub-regulation, “not readily realisable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions referred to in sections 43 to 51 and section 66 of the Code.

• XXXX

• 44A. Treatment of avoidance of transaction.

• The liquidator shall, on the advice of the consultation committee, provide in the application along with the final report filed under regulation 45 for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the dissolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed.

Excerpts of the Order;

IA(IBC)/1575/CHE/2023 has been filed seeking the following reliefs: (a) to allow the present application (b) to allow M/s. Sherisha Technologies Private Limited to be substituted as the ‘Applicant’ in IA(IBC)/683/CHE/2021 such that M/s.Sherisha Technologies Private Limited is able to pursue and continue with IA(IBC)/683/CHE/2021 (c) to grant leave to amend the memo of parties in IA(IBC)/683/CHE/2021 as per prayer b and take the amended memo of parties on record; (d) to pass any other order(s) which this Hon’ble Adjudicating Authority may deem fit in the facts and circumstances of the present case. 

FACTS OF THE CASE: 

# 2. It is stated that the applicant is a Private Limited Company incorporated on 22.01.2010 under the Companies Act, 1956 having its registered office at New No.1/171, Old Mahabalaipuram Road, Thiruporur Village, Kancheepuram, Tamil Nadu – 603 110. 

# 3. The Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor was initiated by this Tribunal on 18.10.2019 and Mr. Mr. R. Venkatakrishnan was appointed as an Interim Resolution Professional of the Corporate Debtor. On 15.11.2019, Mr. R Venkatakrishnan was replaced and Mr. Amier Hamsa Ali Abbas Rawther was appointed as the Resolution Professional ("Resolution Professional") of the Corporate Debtor. 

# 4. It is stated that Liquidation was ordered against the Corporate Debtor on 19.09.2022 and Mr.K.Sivalingam was appointed was appointed as the Liquidator. 

# 5. It is stated that on 04.11.2022, the Liquidator issued a sale notice for sale of the Corporate Debtor as a "going concern" and invited expression of interest from the prospective bidders under the provisions of Chapter III of the Code and in accordance with Regulations 32 (e), 32A and 33 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 ("Liquidation Regulations"). On 14.12.2022, the Liquidator of the Corporate Debtor under the Liquidation Regulations issued a second sale notice for sale of the Corporate Debtor 'as a going concern ("option 1") or assets of the Corporate Debtor on a standalone basis ("option 2") ("Process Document"). 

# 6. It is stated that the Applicant submitted its expression of interest ("EOI") on 28.12.2022 along with supporting documents to the Liquidator for the purpose of participating in the e-auction to be conducted on 10.01.2023. Further, as required under the Process Document, an Earnest Money Deposit ("EMD") of INR 5,50,00,000 was also deposited to the satisfaction of the Liquidator. On 10 January 2023, the Applicant participated in the e-auction under Option 1 (Sale as going concern) for purchase of the Corporate Debtor as a going concern and was declared as a successful bidder. 

# 7. It is stated that the Applicant accordingly paid the entire sale consideration of Rs.75.80 Crores to the Liquidator and the Liquidator issued Sale Certificate in favour of the Applicant on 20.01.2023, transferring the Corporate Debtor to the Applicant as a 'going concern’. 

# 8. It is stated that on 17.04.2023, the Liquidator issued a sale notice cum public announcement for assignment/ transfer of 'Not Readily Realisable Asset' ("NRRA") of the Corporate Debtor under Regulation 37A of the Liquidation Regulations, being benefits of certain applications filed for avoidance of certain transactions with this Tribunal by the erstwhile Resolution Professional. Accordingly, on 15.05.2023, the e-auction for sale of Corporate Debtor's NRRA was conducted by the Liquidator and the Applicant emerged as the highest bidder in the said e-auction. 

# 9. It is stated that pursuant to the declaration of successful bidder, the Applicant paid the entire sale consideration of Rs.10 Lacs to the Liquidator for purchase of NRRA of the Corporate Debtor and on 10.06.2023, the Liquidator issued a 'Certificate Of Transfer/ Assignment Of Not Readily Realisable Assets' ("Certificate of Transfer/ Assignment") in favour of the Applicant under Clause 13 of Part I of the schedule to Liquidation Regulation, assigning/ transferring the NRRA to the Applicant. (A copy of the said Certificate of Transfer/Assignment is annexed as Annexure C of the Application.) 

# 10. It is stated that on the same date, an assignment deed dated 10th June 2023 ("Assignment Deed") was also entered between the Applicant and the Liquidator, by which the Liquidator (on behalf of the Corporate Debtor) sold, assigned, and transferred to the Applicant, all rights, title, and interest in and to the NRRA in favour of the Applicant. The Assignment Deed records: 

• "1.2 Assignor irrevocable agrees to grant, and hereby grants, the Assignee an unlimited, exclusive, irrevocable, perpetual right to use, exploit and commercialize in any manner known or in the future discovered and for whatever purpose, any rights to NRRA to the extent permitted by applicable law" 

• "2.3. The Assignee hereby accepts and confirms that he/ she be solely responsible for obtaining and carrying out necessary actions and obtaining necessary regulatory/ statutory/ third party approvals, no objections, permissions, or consents, if any, required under applicable law, in order to effectuate fully the purpose, terms and conditions of this Deed. However, the Assignor shall extend the required support, being provisions of necessary documents to the Assignee, for enabling substitution of Assignee in place of Assignor in the pending cases as listed in Annexure 1. The Assignee shall endeavour to do necessary filings before Adjudicating Authority to effect the substitution within 30 days of execution of this Assignment Deed". 

# 11. It is stated that with issuance of the Certificate of Transfer/ Assignment and the execution of the Assignment Deed, the NRRA of the Corporate Debtor irrevocably stands sold/assigned/transferred to the Applicant and Applicant is now entitled to all rights, title and interest in the said NRRA. Pertinently, as per the Certificate of Transfer/ Assignment and the Assignment Deed inter alia, following assets forming part of the NRRA have been sold/ assigned/ transferred in favour of the Applicant: 

# 12. It is stated that the Applicant understood that the Avoidance Application (IA 683 of 2021) was filed by the erstwhile Resolution Professional (Mr. Amier Hamsa Ali Abbas Rawther) of the Corporate Debtor, against certain preferential transactions undertaken by Respondent No. 1, 2, 3 in the Corporate Debtor. Pertinently, after the commencement of the liquidation process, the Liquidator filed an IA 1460 (CHE) of 2022 ("Impleadment Application"), seeking impleadment in the Avoidance Application. By order dated 06.02.2023, the Liquidator was allowed to be impleaded in the Avoidance Application. (A copy of the order has been attached herewith as Annexure-E.) It is stated that the Avoidance Application is pending adjudication before this Tribunal. The details of the applicant to the Avoidance Application, as per the 'Memo of Parties' (available on the NCLT website) in the Avoidance Application, are as follows 

• "Amier Hamsa Ali Abbas Rawther Resolution Professional For M/s Cauvery Power Generation Chennai Private Limited IP-PO 1727/2019-2020/12620 No R094, SBIOA Unit Enclave, Mambakkam PO, Near Sivan Temple, Thiruporur Thaluk, Chennai-600127 9930846070 mail: amierhamsa@gmail.com ….Applicant" 

# 13. It is stated that the Applicant understands that since the Liquidator has sought for the impleadment in the Avoidance Application, the Liquidator will also be a party to the said Application. The details of the Liquidator are: "K. Sivalingam Liquidator of Cauvery Powergeneration Chennai Private Limited, Flat No. 1603, Tulive Horizon Residences, Arunachalam Road, Saligramam, Chennai, Tamil Nadu 600093 ......Applicant” 

# 14. It is stated that as mentioned above, the Applicant has now taken over the Corporate Debtor as a 'going concern' and has also acquired the NRRAs of the Corporate Debtor including the Avoidance Application and the rights, title and interest in relation to the same. Thus, as per the Certificate of Transfer/ Assignment and the Assignment Deed, the Applicant is entitled to pursue the Avoidance Application and retain benefits (if any) arising from the Avoidance Application. 

# 15. Pursuant to Clause 2.3 of the Assignment Deed, the Applicant has filed the present Application seeking substitution of its name as the Applicant in IA (IBC) NO. 683/CHE/2021 ("Avoidance Application") to pursue and assist the Tribunal in adjudication of the same. The details of the Applicant for the purpose of its name substitution as an applicant in the Avoidance Application, are as followsSherisha Technologies Private Limited (Formerly Sun Edison Energy India Private Limited) Having its registered office at no. 1/171, Old Mahabalipuram Road, Thiruporur, Kancheepuram District, Chennai, Tamil Nadu-603110 

# 16. It is stated that the Applicant have sought leave to amend the memo of parties in IA(IBC)/683/CHE/2021 and seeks that the amended memo of parties be taken on record by this Tribunal. The amended memo of parties is annexed as Annexure F of the application. COMMON REPLY FILED BY R1 & R3 

# 17. The Respondents (R1 & R3) has filed a counter vide S.R.No.4413 dated 17.10.2023. 

# 18. The main bone of contention of the Respondents (R1 & R3) is that the NCLT is not vested with the jurisdiction to adjudicate avoidance applications pursued by any third parties or assignees, when adjudication is not complete in the said case. 

# 19. It is stated that only an application or proceeding "by or against the corporate debtor" can be entertained under Section 60(5)(a) of the Code by the NCLT. Further as per Section 60(5)(b) of the Code, only a claim by or against the Corporate Debtor and its subsidiary outside India can be adjudicated. Hence, avoidance application filed by the RP or the Liquidator under Section 43, 45, 50 and 66 of the Code can be considered against the Corporate Debtor, and consequently the NCLT will have the requisite jurisdiction to adjudicate. 

# 20. It is stated that if any pending avoidance application is assigned to a third party or an assignee, the said application cannot be pursued by the said third party or assignee, as the said proceeding would cease to be an issue arising out of CIRP or Liquidation of the Corporate Debtor in terms of Section 60(5)(c) of the Code, as the beneficiary of those proceedings would be the third party or assignee, and recovery if any would be realised and added to the asset pool of the third party or assignee. Furthermore, what was earlier a dispute between the "Corporate Debtor, through the RP/Liquidator vs. the Respondents of PUFE Applications", will now, become a dispute between "an Assignee and Respondents of PUFE Applications", which will be dehors the insolvency proceedings of the Corporate Debtor. 

# 21. It is stated that the above proposition has been considered and held positively by the coordinate bench of the NCLT at New Delhi in the matter of M/s. Inquest Fintech Private Limited Vs. Ms. Maya Gupta Liquidator of M/s. Rain Automotive India Private Limited, numbered as IA Nos. 35, 36, and 57 of 2022 in Company Petition No. (IB)-1095(ND)/2019, dated 11.08.2023. 

# 22. It is stated that the orders passed by a coordinate bench of the NCLT will serve as a binding precedent on other benches of the NCLT, in light of the orders passed by the Hon'ble Appellate Tribunal in the matter of: a. Re DLF Developers Ltd in Company Appeal (AT) No. 180 of 2019 dated 19.08.2019, and; b. Re Ambuja Cements Ltd in Company Appeal (AT) No. 19 of 2021 dated 06.04.2021 

# 23. It is stated that intent behind avoidance/PUFE applications filed under Section 43, 45, 50 and 66 is not the "recovery", but to maximise the value of the assets of the Corporate Debtor. However, if the avoidance/PUFE applications are allowed to be pursued by Third Party or Assignee, the Adjudication of such applications, pursued by a Third Party or an Assignee would effectively end up making the NCLT a "Recovery Forum". 

# 24. It is stated that there is no provision in the Code under which the Applicant herein can pursue the Section 43 Avoidance Application. Further, it is stated that Section 43 of the Code does not contemplate a Assignee/ or a Third party on behalf of the RP or Liquidator to either initiate avoidance of preferential transaction proceedings or to continue such proceedings pursuant to assignment of right to proceeds from avoidance applications under Regulation 37A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter referred to as the "Regulations"), the present Application ought not to be allowed by this Tribunal on this ground alone. The above proposition has been considered and held positively by the coordinate bench of the NCLT at New Delhi in the matter of M/s. Inquest Fintech Private Limited Vs. Ms. Maya Gupta Liquidator of M/s. Rain Automotive India Private Limited, numbered as I.A Nos. 35, 36, and 57 of 2022 in Company Petition No. (IB)-1095(ND)/2019, dated 11.08.2023. 

# 25. It is stated that the present application is silent on the material requirements/ingredients prescribed under Regulation 37A of the Regulations for a valid assignment of Not Readily Realisable Assets (NRRA) of the Corporate Debtor. Therefore, the reliefs sought for by the Applicant shall not be entertained. 

# 26. It is stated that the Application and the documents filed in support of the same are silent on whether the decision of the Liquidator to assign the proceeds from the avoidance of preferential transactions filed under Section 43 of the Code was made pursuant to consultation with the stakeholders' consultation committee in accordance with Regulation 31A of the Regulations. 

# 27. It is stated that there is nothing on record to evidence the fact that the Applicant herein is not barred under Section 29A of the Code from submitting a Resolution Plan of the Corporate Debtor. It is an essential requirement under Regulation 37A of the Regulations that the Liquidator may only transfer a not readily realisable asset to a person, if such a person is eligible to submit a Resolution Plan for insolvency of the Corporate Debtor, and the Applicant herein has failed to place any document on record to evidence the fact that the Liquidator had in fact considered the status of the Applicant under Section 29A of the Code before assigning the proceeds from I.A No. 683 of 2021 to the Applicant herein. 

# 28. It is stated that the Applicant has failed to place on record the sale notice cum public announcement for assignment/transfer of NRRA of the Corporate Debtor that is alleged to have been issued by the Liquidator, on the basis of which the auction is said to have been conducted. The Applicant by not placing on record the sale notice cum public announcement has failed to show that the assignment of not readily realisable assets of the Corporate Debtor was carried out by way of a "Transparent Process". Hence, the present application should be dismissed. WRITTEN SUBMISSIONS FILED BY R2 

# 29. It is stated that present IA has been filed by a Third Party/Auction Purchaser. It is stated that the Applicant herein cannot substitute itself in the shoes of the Liquidator for the purposes of prosecuting the Application under Section 43(1) of the IBC, 2016. 

# 30. It is submitted that the burden of proof is on the Liquidator, being the Applicant in I.A. No. 683 of 2021, to establish before this Tribunal that the ingredients of Section 43 of the IBC are satisfied, in so far as the 2nd Respondent is concerned. This exercise cannot be sought to be undertaken by a Third Party/Auction Purchaser, who is said to have entered the picture as late as June 2023. Hence, the present application should be dismissed. COMMON WRITTEN SUBMISSIONS OF R1 & R3 

# 31. The Respondents R1 & R3 have filed a Common Written Submissions. It is stated that the present IA filed by Sherisha Technologies P Ltd as a purported NRRA assignee has no locus standi under the Code to be impleaded in the place of the Liquidator on the following grounds: a) The Liquidation Process of this Corporate Debtor has already been terminated by this Bench vide order dated 26.09.2023 in IA/1618/2023. b) The NRRA’s stood assigned to the Financial Creditors at an earlier date and the Liquidator could not have sold the NRRAs to the Applicant herein. c) The ratio of the orders of the Co-Ordinate Bench of this Tribunal in Ritu Tandon vs Rain Automotive India Pvt Ltd are binding on this Bench. 

SYNOPSIS OF ARGUMENTS FILED BY THE LIQUIDATOR 

32. The Synopsis of Arguments has been filed by the Liquidator vide S.R.No.4838 dated 30.09.2024 in IA’s/1667, 1168, 1170, 1171 & 1172 of 2023. 

# 33. Regulation 44A of IBBI (Liquidation Process) Regulations, 2016 state that: 

• "The liquidator shall, on the advice of the consultation committee, provide in the application along with the final report filed under regulation 45 for the manner in which proceedings in respect of avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code, will be pursued after the dissolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed.". 

# 34. Further, the Hon'ble NCLAT, in the case of Kanwer Sachdev Vs. Su-Kam Power Systems Ltd., MANU/NL/0905/2023 dated 10.11.2023 that Regulation 44A deals with the treatment of transaction avoidance which itself contemplates that there can be a position regarding the prosecution of avoidance application even after the resolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed. The Judgement further refers to an earlier judgement of the Hon’ble NCLAT in Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. Ors., MANU/NL/0453/2023 (2023) ibclaw.in 320 NCLAT, wherein after considering the respective submissions, provisions of the Code, as well as the Regulations and the Judgment of Hon’ble Delhi High Court in TATA Steel BSL Ltd. vs. Venus Recruiter Pvt. Ltd. & Ors.,, MANU/NL/0453/2023, the Hon'ble NCLAT has held that the Successful Resolution Applicant can be allowed to prosecute the avoidance application. Thus, it can be held that the same analogy as in Kapil Wadbawan's case (supra) shall be applicable with regard to the prosecution by the Successful Auction Purchaser in liquidation estate when the asset of the corporate debtor has been sold as a going concern and acquisition plan submitted by Successful Auction Purchaser has been approved by the Adjudicating Authority. Hence, the substitution of the successful bidder of NRRA in the avoidance application should be allowed to give effect to provisions of the Code. 

# 35. Insofar as IA. Nos. 1575, 1576 and 1577 of 2023 ("Substitution Applications") are concerned, the Liquidator is not formally a party to the said applications, the Liquidator endorses the stand of the Applicant Sherisha Technologies Private Limited and has no objection to the same. This is also in line with the timeline for the conduct of the liquidation under Regulation 44 of the Liquidation Process Regulations mandating the completion of liquidation within a year resultantly, for the Liquidator to be relieved and/or discharged after duly performing his duties in accordance with the Code. 

FINDINGS OF THIS TRIBUNAL: 

# 36. Heard the submissions of both the applicant and the Respondents and perused the documents placed on record. 

# 37. It is seen from the application that the applicant viz., Sherisha Technologies Private Limited has paid the entire sale consideration of Rs.75.80 Crores to the liquidator and the liquidator issued the Sale Certificate in favour of Applicant on 20.01.2023, transferring the Corporate Debtor to the applicant as a ‘going concern’. Further, it is seen that the applicant viz., Sherisha Technologies Private Limited has paid the entire sale consideration of Rs.10 lakhs to the Liquidator for purchase of NRRA of the Corporate Debtor. On 10.06.2023, the liquidator issued a ‘Certificate of Transfer/ Assignment of NRRA’ in favour of the applicant. 

# 38. Vide order dated 03.06.2024, this Tribunal directed the Stakeholder’s Consultation Committee to address on the applications IA 1167, 1168, 1170, 1171 and 1172 of 2023 in IBA/756 /2019 and Applications IA 1575/2023 in IA 683/2021, 1576/2023 and 1577/2023 in IA 684/2021. 

# 39. The learned Counsel for the SCC has filed a note vide S.R.No.4811 dated 27.09.2024. It is stated that vide Minutes of Seventh Meeting of the SCC dated 23.02.2023, in which the suspended directors of the Corporate Debtor were present, the sale of NRRAs was voted upon, and the Liquidator was directed to carry out the same, with an EMD of 10 lakhs, and permitting an incremental bid price of 10 lakhs. Thereafter, the timelines for the same came to be revised in the Minutes of the Eighth SCC dated 23.03.2023, and the bidding process was undertaken. However, the sole bidder could not deposit the EMD, as recorded in the Minutes of Meeting dated 05.04.2023. 

# 40. It is stated that as recorded in the Minutes of Ninth Meeting of the SCC dated 13.04.2023, it was resolved to re-issue the invitation of interest for the NRRAs. Accordingly, on 15.05.2023, the auction for sale of Corporate Debtor's NRRA was conducted by the Liquidator wherein the Applicant, i.e. Sherisha Technologies Private Limited was the sole bidder submitting its bid at Rs. 10,00,000/-. Since the Applicant met the parameters set out by the Liquidator and the SCC, the Applicant was declared as the successful bidder. The same is captured in the Minutes of Tenth Meeting of the SCC, where in the bid value of Rs. 10,00,000/- (Rupees Ten Lakhs Only) came to be confirmed by the SCC. Thereafter, the Applicant paid the entire sale consideration of Rs. 10,00,000/- (Rupees Ten Lakhs Only) to the Liquidator and on 10.06.2023, the Liquidator issued a Certificate of Assignment Of Not Readily Realisable Assets' in favour of the Applicant under Clause 13 of Part I of the schedule to Liquidation Regulation, assigning the NRRA to the Applicant. It is placed on record in the Minutes of Eleventh Meeting of the SCC that the proceeds of the same have been distributed. The Liquidator has been directed to file the closure report and compliance certificate in Form H. The proceeds have thereafter, been divided in-line with Section 53 of the Code. This was also conveyed to the S. Elangovan, the authorised representative of the employees vide letter dated 09.03.2023. Therefore, the SCC seeks to allow the present application. 

# 41. The case of Ritu Tandon vs Rain Automotive India P Ltd (Supra) referred by the Respondents (R1 & R3) is of the Co-ordinate Bench. However, The Hon'ble NCLAT, in the case of Kanwer Sachdev Vs. Su-Kam Power Systems Ltd., MANU/NL/0905/2023 has held that Regulation 44A deals with the treatment of transaction avoidance which itself contemplates that there can be a position regarding the prosecution of avoidance application even after the resolution or closure of liquidation process and the manner in which the proceeds, if any, from such proceedings shall be distributed. The Judgement further refers to judgement of the Hon’ble NCLAT in Kapil Wadhawan Vs. Piramal Capital & Housing Finance Ltd. Ors., MANU/NL/0453/2023 (2023) ibclaw.in 320 NCLAT, where after considering the submissions, provisions of the Code, as well as the Regulations and the Judgment of Hon’ble Delhi High Court in TATA Steel BSL Ltd. vs. Venus Recruiter Pvt. Ltd. & Ors.,, MANU/NL/0453/2023, the Hon'ble NCLAT has held that the Successful Resolution Applicant can be allowed to prosecute the avoidance application. The same analogy as in Kapil Wadbawan's case (supra) shall be applicable with regard to the prosecution by the Successful Auction Purchaser in liquidation estate when the asset of the corporate debtor has been sold as a going concern and acquisition plan submitted by Successful Auction Purchaser has been approved by the Adjudicating Authority. Hence, the substitution of the successful bidder of NRRA in the avoidance application can be allowed to give effect to provisions of the Code. 

# 42. It is seen from Clause 2.3 of the Deed of Assignment that: 

• 2.3. The Assignee hereby accepts and confirms that he/she shall be solely responsible for obtaining and carrying out necessary actions and obtaining necessary regulatory / statutory / third party approvals, no objections, permissions or consents, if any, required under applicable law, in order to effectuate fully the purposes, terms and conditions of this Deed. However, the Assignor shall extend the required support, being provision of necessary documents to the Assignee, for enabling substitution of Assignee in place of Assignor in the pending cases as listed in Annexure-1. The Assignee shall endeavour to do necessary filing before Adjudicating Authority to effect the substitution within 30 days of execution of this Assignment Deed. 

# 43. It is manifestly clear from the above clause that the Assignor/ Liquidator shall enable the substitute the Assignee/ Sherisha Technologies Private Limited in place of Assignor/ Liquidator in the pending cases as listed in Annexure-1. Hence, the Contention of the Respondents will not hold any water. 

# 44. Further, it is seen from the Synopsis of Arguments filed by the Liquidator that the Liquidator has given no objections to the present application. 

# 45. In view of the Assignment Deed, SCC’s Consent for Substitution and the Liquidator has granted the no objection, the present application deserves to be allowed. 

# 46. We therefore pass the following order: 

• (i) The substitution of Sherisha Technologies Private Limited in place of applicant in IA(IBC)/683/2021 is allowed. 

• (ii) The Applicant/Sherisha Technologies Private Limited is directed to file necessary correction to be carried out in cause title in IA(IBC)/683/2021 and 

• (iii) The Applicant is directed to file the clean copy of amended memo of parties in IA(IBC)/683/2021 within a period of three (3) weeks from the date of this order. 

# 47. IA(IBC)1575/CHE/2023 is accordingly disposed of. 

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Mr. C. Bala Mouli, Liquidator, Gupta Global Resources Private Limited - Accordingly, we have no hesitation to hold that the Liquidator may proceed to consider assigning the Avoidance Applications to third party in consultation with the Stakeholder’s consultation committee.

 NCLT Mumbai-1 (17.01.2024) in Mr. C. Bala Mouli, Liquidator, Gupta Global Resources Private Limited  [I.A. 4918 OF 2023 in C.P.(IB) No. 1239/MB/2017] held that;

• We find that the Liquidator, subject to concurrence of Stakeholder’s committee, is vested with the power and authority to assign the asset considered to be Not readily realisable asset.

• Accordingly, we have no hesitation to hold that the Liquidator may proceed to consider assigning the Avoidance Applications to third party in consultation with the Stakeholder’s consultation committee. 

• In so far as prosecution of such pending application by such assignee is concerned, we are of considered view that the applications already filed by the person competent to do so, can be prosecuted by the assignees subsequently. 

Excerpts of the order;

# 1. This Application IA 4918/2023 is filed by Mr. C Bala Mouli, the Liquidator (“Applicant”) in the Liquidation proceedings of Gupta Global Resources Private Limited ("Corporate Debtor") seeking permission of this Tribunal in terms of Regulation 37A of Insolvency And Bankruptcy Board Of India (Liquidation Process) Regulations, 2016 to sell interest in the Avoidance Applications pending adjudication before this Tribunal. 

# 2. The National Company Law Tribunal, Mumbai Bench, vide its order dated 28 August, 2018, ordered for commencement of liquidation process of Gupta Global Resources Private Limited (hereinafter referred to as "Corporate Debtor") and appointed the Applicant as the Liquidator. 

# 3. The Applicant reported in the 21 Progress Report that all the assets of the Corporate Debtor have been duly realised and distribution thereof is pending in view of one pending litigation w.r.t. determining the priorities for distribution among the secured creditors 

# 4. Apart from the above, the Liquidator had also identified avoidance Transactions in the Corporate Debtor and had filed applications before the Hon'ble Bench u/s 43, 45, 49 and 66 of the Code. These applications are pending before this Tribunal for final adjudication. 

# 5. In terms of Regulation 37A(1) of the Liquidation Regulations, such assets, being not readily realisable, can be assigned or transferred through a transparent process, in consultation with stakeholders' consultation committee for a consideration to any person who is eligible to submit resolution plan during CIRP. 

# 6. Accordingly, a meeting of stakeholder consultation committee was convened on 4 July, 2023, wherein, it was suggested by the stakeholders to explore the option for assignment of avoidance transaction proceedings. While exploring the option to assign the avoidance transaction proceedings, the Liquidator has received positive response from a legal firm, viz. Legal Pay, based in New Delhi, which is largely engaged in playing in NRRA's and Legal Recoveries, which expressed interest for acquiring assets underlying avoidance transaction applications and submitted their proposal. 

# 7. The said proposal was placed before the stakeholder committee on 21 July, 2023 and thereafter or 31 July, 2023. In the said meeting, the stakeholders proposed to convene E-voting for the purpose of taking views of the members of the Committee. Accordingly, the Liquidator made arrangements to convene E-voting on 30 August, 2023. However, in the meantime, one of the members of the Committee viz. IDBI Bank, raised some apprehensions about the legality of an assignee to carry out the recovery process under the IBC Code 2016 in view of order passed by NCLT Delhi Bench in the matter of Ritu Tandon (Applicant/Operational Creditor) Versus M/s Rain Automotive India Private Limited. In view of these legal developments, the proposal of the Assignment of Avoidance transactions to the legal firm was dropped and the E-voting scheduled on 30th August 2023 was cancelled. 

# 8. Given that assets underlying the avoidance transaction applications are the only assets pending realisation, hence, in order to expedite the realisation process, and maximise value of the liquidation estate, the Liquidator intends to seek necessary directions from the Bench to sell the assets underlying avoidance transaction applications. Hence, the present application. 

# 9. Heard the learned Counsel and perused the material available on record. 

# 10. Regulations 37A of Liquidation Process Regulations reads as under – 

• 1) A liquidator may assign or transfer a not readily realisable asset through a transparent process, in consultation with the stakeholders’ consultation committee in accordance with regulation 31A, for a consideration to any person, who is eligible to submit a resolution plan for insolvency resolution of the corporate debtor. 

• Explanation.—For the purposes of this sub-regulation, “not readily realisable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions referred to in sections 43 to 51 and section 66 of the Code 

# 11. From a bare perusal of the above provisions, we find that the Liquidator, subject to concurrence of Stakeholder’s committee, is vested with the power and authority to assign the asset considered to be Not readily realisable asset. Further, Regulation 38 of Liquidation Process Regulation also contemplate distribution of such assets amongst the stakeholders. Accordingly, we have no hesitation to hold that the Liquidator may proceed to consider assigning the Avoidance Applications to third party in consultation with the Stakeholder’s consultation committee. In so far as prosecution of such pending application by such assignee is concerned, we are of considered view that the applications already filed by the person competent to do so, can be prosecuted by the assignees subsequently. 

# 12. In view of the above, IA 4918/2023 is allowed and disposed of accordingly. 

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Ritu Tandon vs. M/s Rain Automotive India Pvt. Ltd. - Adjudicating Authority 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.

 NCLT New Delhi-II (11.08.2023) In Ritu Tandon vs. M/s Rain Automotive India Pvt. Ltd. [IA-35/2022, IA-36/2022, IA-57/2022 in Company Petition No. (IB)-1095(ND)/2019] held that;

• Thus, on a bare perusal of the aforementioned Sections, it is evident that an application to this Adjudicating Authority in terms of Sections 43, 45, 50, and 66 of IBC 2016 can only be filed by a Resolution Professional (RP) or a Liquidator as the case may be.

• However, we see no such explicit provision under Sections 43, 45, 50, and 66 of IBC 2016, in terms of which an Application under these Sections could be filed or pursued by an Assignee/ or a Third Party on behalf of the RP or Liquidator as the case may be.

• Furthermore, in our view, the intent behind avoidance/ PUFE applications filed under Sections 43, 45, 50, and 66 is not the “recovery”, but to maximize the value of the assets of a 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.

• Adjudicating Authority 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.

• Once the demand is crystallised or determined, in other words, when the avoidance/PUFE proceedings are concluded, the debt can be assigned by following the due procedure prescribed under the law. 

• This is a trite law that after the crystallisation of demand, no examination of debt/transaction is done on merit. In other words, the proceedings are concluded and what remains is only the execution of order.

Excerpts of the Order;    

The present I.A. Nos. 35, 36 and 57 of 2022 have been filed by the Inquest Fintech Private Limited (hereinafter referred to as, the ‘Applicant/Assignee’) under Rule 53 And 11 of NCLT Rules, 2016 read with Regulation 37A of IBBI (Liquidation Process) Regulations, 2016 seeking impleadment of the Applicant in IA-4978/2023, IA-4981/2021 and IA- 4995/2021. The prayers made in the I.A. No. 35 of 2022 are as follows:

• “a) Impleading the Applicant as a party to the Application bearing no. IA/4978/2021 and substitute the name of liquidator with that of Applicant herein; and;

• b) Take on record the amended memo of parties for the Application bearing no. IA/4978/2021; and

• c) Pass a directory clarification at this preliminary stage that all the reliefs and benefits arising in favour of the corporate debtor, in liquidation through the liquidator qua the Application bearing no. IA/4978/2021 shall be remitted to the Applicant herein in consonance with the Deed of Assignment dated 19h November, 2021, as and when the said application will be finally adjudicated by the Hon’ble AA; and

• d) Pass any further or other order which this Hon’ble AA deems fit and appropriate in the interest of justice, equity, reasonableness and good conscience.”

# 2. The prayers made in the second application i.e., IA-36/2022 read thus:

• “a) Impleading the Applicant as a party to the Application bearing no. IA/4981/2021 and substitute the name of liquidator with that of Applicant herein; and;

• b) Take on record the amended memo of parties for the Application bearing no. IA/4981//2021; and

• c) Pass a directory clarification at this preliminary stage that all the reliefs and benefits arising in favour of the corporate debtor, in liquidation through the liquidator qua the Application bearing no. IA/4981/2021 shall be remitted to the Applicant herein in consonance with the Deed of Assignment dated 19th November, 2021, as and when the said application will be finally adjudicated by the Hon’ble AA; and

• d) Pass any further or other order which this Hon’ble AA deems fit and appropriate in the interest of justice, equity, reasonableness and good conscience.”

# 3. The prayers made in the I.A. No. 57 of 2022 are similar and read thus:

• “a) Impleading the Applicant as a party to the Application bearing no. IA/4995/2021 and substitute the name of liquidator with that of Applicant herein; and

• b) Take on record the amended memo of parties for the Application bearing no. IA/4995/2021; and

• c) Pass a directory clarification at this preliminary stage that all the reliefs and benefits arising in favour of the corporate debtor, in liquidation through the liquidator qua the Application bearing no. IA/4995/2021 shall be remitted to the Applicant herein in consonance with the Deed of Assignment dated 19th November, 2021, as and when the said application will be finally adjudicated by the Hon’ble AA; and

• d) Pass any further or other order which this Hon’ble AA deems fit and appropriate in the interest of justice, equity, reasonableness and good conscience.”

# 4. Since the prayers made in all three IAs are of a similar nature, all three Applications are taken up together for adjudication. To put the facts succinctly, the underlying main Petition CP (IB)-1095/ND/2019 was filed by Ms Ritu Tandon against the Corporate Debtor namely, M/s Rain Automotive India Private Limited under Section 9 of IBC, 2016, which was admitted vide Order dated 14.06.2019 of this Adjudicating Authority. Further, the Liquidation Proceedings of the Corporate Debtor were initiated vide order dated 02.01.2020 of this Adjudicating Authority and Ms. Maya Gupta was appointed as the Liquidator of the Corporate Debtor on 15.01.2023.

# 5. The present 03 IAs are filed on behalf of the common Applicant M/s Inquest Fintech Private Limited, through Mr Rakesh Kumar Director, who is duly authorised vide their Board resolution dated 14th December 2021, under Rule 53 and 11 of the NCLT Rules. 2016 read with Regulation 37A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (for brevity, referred hereinafter as “Liquidation Regulations”) thereby seeking impleadment of the Applicant in the Applications bearing no. IA-4978 of 2021, IA-4981 of 2021, and IA-4995 of 2021, which are pending adjudication before this Adjudicating Authority (AA). In support of its applications, the Applicant/Assignee has submitted the following:

5.1 The liquidator is making endeavours for the benefit of the stakeholders of the corporate debtor in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”) and Liquidation Regulations.

5.2 Initially, the liquidator had filed an Application bearing no. IA- 619/2021 under sections 45, 50 and 66 of the Code, thereby seeking avoidance of certain transactions of the corporate debtor on the basis of the Transaction Report submitted by the Transaction Auditor. However, pursuant to the directions of this AA, the said application has been split into three new different IAs bearing no. IA-4978/2021 filed under section 50, IACase 4981/2021 filed under section 45 and IA-4995/2021 filed under section 66 separately, which are pending adjudication before this AA. 

5.3 From the newspaper publication dated 24th September 2021, the Applicant came to know about the sale of actionable claims of the corporate debtor, pursuant to which it approached the liquidator of the corporate debtor seeking purchase/ takeover of the said actionable claims forming part of the Application bearing no. IA-4978 of 2021, IA-4981 of 2021, and IA- 4995 of 2021 in accordance with the provisions of the law.

5.4 The Applicant in accordance with the provisions of the Code and in furtherance to the Liquidation Regulations submitted all the relevant documents and bid to the liquidator on 26th October 2021 along with an undertaking as per section 29A of the Code and earnest money deposit of Rs. 50,000/- only.

5.5 After mutual discussion and negotiations, a Deed of Assignment dated 19th November 2021 was executed between the Applicant and the Liquidator, in consonance with Regulation 37A of the Liquidation Regulations, whereby the Liquidator assigned all the rights to the assets and recoveries emanating from the Application bearing no. IA-4978-2021, IA-4981 of 2021, and IA- 4995 of 2021 in favour of the Applicant/Assignee for an agreed and lawful consideration. The said assignment has been done by the Liquidator with the Applicant in line with the established provisions of law and for the benefit of the stakeholders of the corporate debtor since the assets and recoveries emanating out of the said Applications are not readily realisable.

5.6 Pursuant to the execution of the aforesaid Assignment Deed between the Applicant and the liquidator, the assets and recoveries and all ancillary rights thereto, pertaining to IAs bearing no. IA-4978-2021, IA-4981 of 2021, and IA-4995 of 2021 are transferred and delegated in the name of the Applicant/Assignee herein including the right to implead in the said applications, the right to recover the assets, lien over the recoveries arising out of the said applications and to further contest the said applications. Hence, it is in the interest of equity and reasonableness that the Applicant herein shall substitute the Liquidator in the applications bearing no. IA- 4978-2021, IA-4981 of 2021, and IA-4995 of 2021 and be impleaded as a party to the instant proceedings in the capacity of the assignee and beneficiary to the monetary benefits arising out of the said application. Accordingly, the Applicant/Assignee has filed the amended memo of parties with the applications.

# 6. During the course of the hearing, vide order dated 07.12.2022, this Adjudicating Authority directed the Liquidator thus:

# 7. In compliance with the aforesaid order, the Liquidator has filed its Affidavit dated 16.01.2023, which is reproduced below, for the immediate reference:

# 8. The Applicant/Assignee through its Counsel Mr Abhay Kaushik too filed

a “Brief Note on NRRA and Regulation 37A of Liquidation Regulations” dated 02.03.2003, inter alia, stating the following :

8.1 Not Readily Realisable Assets (NRRA) includes :

a) Sundry debts; and

b) Contingent receivables; and

c) Disputes receivables; and

d) Sub-judice receivables; and

e) Disputed assets; and

f) Assets underlying avoidance transactions.

8.2 Why is the above classified as NRRA:

a) Values of the same are not easily realisable; and

b) Indefinite waiting time frame is associated with it; and

c) It remains in the realm of uncertainty.

8.3 In terms of Regulation 37A of Liquidation Regulations, 2016, what is to be seen is whether the following has been adhered to:

• a. Assignment of NRRA through the transparent process: Followed since the Liquidator made publication in the newspapers for information of the general public at large;

• b. Consultation with the SCC: Since the Assignee is prevented by the doctrine of indoor management, it is assumed that the liquidator has consulted the SCC on the issue; and

• c. Person’s eligibility to submit resolution plan: For the same, the undertaking has been furnished to the Liquidator that the Assignee is not ineligible under 29A of the Code. Since, following the basic principles of law, the assignment has been made in the instant case, therefore, the same is valid and lawful.

# 9. The Applicant/Assignee in the above-referred ‘Brief Note’ has also relied upon the following judgements:

9.1 In India, the law does not prohibit the assignment of cause of action. The Supreme Court in Re: Mr. ‘G’, A Senior Advocate (1954) judgment held that the rigid British principles of champerty and maintenance are not applicable in India per se. The Privy Council in Ram Coomar Coondoo v Chunder Canto Mookerjee (1876), for the first time, permitted third-party  litigation funding on the ground of promoting access to justice in India and noted that:

• “Agreements of this kind ought to be carefully be watched, and when found to be extortionate and unconscionable, so as to be inequitable against the party; or to be made, not with the bona fide object of assisting a claim believed to be just, and of obtaining a reasonable recompense therefore, but for improper objects, as for the purpose of gambling in litigation, or of injuring or oppressing others by abetting and encouraging unrighteous suits, so as to be contrary to public policy, effect ought not to be given to them.”

9.2 The concept of third-party funding is statutorily recognised under the Code of Civil Procedure, 1908 (CPC) in some states such as Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh by respective state amendments to Order XXV of the CPC. The Hon’ble Supreme Court in Bar Council of India v A.K. Balaji & Ors. (2018) has clarified the legal permissibility of third-party funding in litigation and observed that: 

• “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation”.

9.3 Section 132 of the Transfer of Property Act, 1882 provides that the transferee (assignee) of an actionable claim has to take it subject to all the liabilities and equities to which the transferor (assignor) was subject in respect thereof at the date of the transfer (assignment). In ICICI Bank Limited v. Official Liquidator of APS Star Industries Ltd. & Others (2010), the Hon’ble Supreme Court observed that:

• “rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of contract.”

9.4 In Kapilaben & Ors vs Ashok Kumar Jayantilal Sheth & Ors (2019), the Hon’ble Supreme Court observed that:

• “…If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representative may employ a competent person to perform it. It is clear from the above that the promisor may employ a competent person, or assign the contract to a third party as the case may be, to perform the promise only if the parties did not intend that the promisor himself must perform it….”

9.5 The general rule is that the benefit of a contract may be assigned to a third party without the consent of the other contracting party. Further, adequate provisions are provided in commonwealth jurisdictions that give the right to the liquidator (office-holder) to assign personal actions vested in the office-holder, particularly with respect to avoidance transactions.

9.6 Further, section 5(7) of the Code defines a “financial creditor” to mean “any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to”. The Code allows the assignee of the debt to initiate the insolvency process against the CD, on the occurrence of default and receive dues in resolution. However, it is observed that there are no express provisions for the assignment of cause of action under the regulations.

9.7 In order to address the same, it is proposed that the regulations may explicitly provide the assignment of the right of cause of action by the liquidator to a third party in consultation with SCC in the best interest of stakeholders and to facilitate access to justice. Post requisite amendment in regulations, a market may develop for assignment for such assets.

9.8 It is reasonable to expect that the assignee shall be able to realise the NRRA at lesser cost and possibly earlier than the liquidator might have, due to its expertise, and economies of scale. Therefore, the total surplus for the economy/society as a whole would be equal to or greater than the situation wherein such assets are realised by the liquidator himself. Further, over a period of time, a market for such assets may develop, which, in turn, would lead to better price discovery and provide greater business and employment opportunities through assignees. The proposal is also in the interest of equity as the stakeholders, having a right on the liquidation estate will get their dues.

9.9 Further, the said NRRA can be assigned in favour of any person who is not disqualified in terms of section 29A of the Code and can submit a resolution plan, through transparent mode.

# 10. The Applicant/Assignee, along with the “Brief Note on NRRA and Regulation 37A of Liquidation Regulations” dated 02.03.2003, has also annexed a “Chart of Assignment”, which reads thus:

# 11. We heard the submissions of the Applicant as well as the Ld. Liquidator and perused the documents on record. From the pleadings, it is observed that the Liquidator has assigned debt/ “Not readily realisable assets” (hereinafter referred to as “NRRA”) of the Corporate Debtor total worth Rs. 26,38,37,645/- arising out of 03 IAs under consideration of this Adjudicating Authority (viz., Rs.7,02,53,831/- in IA-4978-2021, Rs.1,10,52,656/- in IA-4981 of 2021, and Rs.18,25,31,158/- in IA-4995 of 2021) for a total consideration amount of Rs. 50,000/- (Rs. Fifty thousand) only vide Deed of Assignment dated 19th November 2021 executed between the Liquidator and the Applicant herein. Accordingly, the Applicant has filed the 03 present IAs viz., IA-35/2022, IA-36/2022, and IA-57/2022 for impleading itself as a party in the Applications bearing no. IA-4978 of 2021, IA-4981 of 2021, and IA-4995 of 2021 to substitute the name of Applicant herein in place of liquidator. Indubitably, the Avoidance/PUFE Applications viz., IA-4978 of 2021, IA-4981 of 2021, and IA-4995 of 2021 filed under the instant petition are yet to be decided by this Adjudicating Authority. 

Hence, the pertinent issues that emerge before us are that -

a) At what stage the Liquidator could assign the NRRAs - Is it before or after the adjudication of an Application filed for Avoidance / PUFE (Preferential, Undervalued, Fraudulent, and Extortionate credit) transactions by the Liquidator under Sections 43, 45, 50, or 66 of IBC 2016?

b) If the NRRAs are assigned before the adjudication of an Avoidance/PUFE Application, whether the Adjudicating Authority have jurisdiction to hear an Application filed/pursued by the Assignee?

# 12. In order to examine the first issue, we would like to visit the Regulation 37A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter, referred to as “Liquidation Regulations”), which is reproduced below: From a perusal of the “Explanation” to Regulation 37A, it is evident that “Not Readily Realisable Asset” (NRRA) includes –

• (a) any asset included in the Liquidation estate, which could not be sold through available options, and includes

• (b) contingent and disputed assets and assets underlying proceedings for preferential, undervalued, extortionate credit and Fraudulent transactions (PUFE) referred to in Sections 43 to 51 and 66 of IBC, 2016.

# 13. Since the “Explanation” to Regulation 37A refers to any asset included in the “Liquidation Estate”, we refer to Section 36(3) of IBC, 2016 which reads thus: . . . . . 

From a bare perusal of the aforementioned provision, it is observed that, inter alia, any Assets or their value recovered through proceedings for avoidance of transactions are permitted to be included in the liquidation estate. It goes without saying that the proceeds/contributions receivable by the Corporate Debtor as an outcome of the avoidance/PUFE proceedings can only be recovered once such proceedings are concluded or determined and the entitlement of the Corporate Debtor qua the same is crystallised.

# 14. Though, as per Regulation 37A of the Liquidation Regulations, a Liquidator is entitled to sell assets underlying PUFE Applications i.e., “Not readily realisable assets”. However, a question that arises is regarding the valuation of such assets. The assets underlying the pending PUFE Applications are contingent assets. There is always a possibility of dismissal or allowing of avoidance/PUFE Applications, which could lead to the realisation of ‘NIL’ or “Full value” or “a value in between”. However, if the proceeding(s) covered under the ambit of “Not readily realisable assets” is allowed, then the value underlying such proceeding(s) is determined by this Adjudicating Authority and is known to the Liquidator which, in other words, is a crystallised demand. In the absence of conclusion/ adjudication of Avoidance/PUFE proceedings by the Adjudicating Authority, there will be room for arbitrariness and the Liquidator may end up assigning the NRRAs for an arbitrary or a meagre amount, as has happened in the instant case, where the Liquidator has assigned the debt/ “Not readily realisable assets” (NRRAs) of Corporate Debtor worth Rs. 26,38,37,645/- for a meagre consideration of Rs. 50,000/- only, through Deed of Assignment dated 19th November 2021 executed between the Liquidator and the Applicant herein.

# 15. Other than the valuation of the assets underlying the pending avoidance/PUFE proceedings, the next issue before us is who can pursue avoidance /PUFE Applications after the assignment of NRRA ? At this stage, we refer to the statutory provisions under Sections 43, 45, 50, and 66 of IBC 2016, which read thus: . . . . . .

# 16. Thus, on a bare perusal of the aforementioned Sections, it is evident that an application to this Adjudicating Authority in terms of Sections 43, 45, 50, and 66 of IBC 2016 can only be filed by a Resolution Professional (RP) or a Liquidator as the case may be.

# 17. We are aware of the fact that under Section 47 of IBC 2016, where the undervalued transaction is not reported to the Adjudicating Authority by the Resolution Professional or Liquidator as the case may be, a Creditor, Member, or a Partner of the Corporate Debtor may make an application to the Adjudicating Authority to declare such transaction void and reverse their effect.

# 18. Moreover, as has been analysed hereinabove, the avoidance applications are preferred qua certain transactions entered into by the ex/suspended-management of the CD and once the claim involved in such applications is treated as “not readily realisable asset” and is assigned to a third party, the semblance is such that the remedy in terms of the provisions of Sections 43 to 51 and 66 is not found effective enough to realise the asset of the CD, and therefore, such asset is assigned by RP/Liquidator to a third party. It is not understood as to how the same application if pursued by a third party/assignee would render the NRRA realisable.

# 19. We are also conscious of the fact that the terms “Financial Creditor” as defined under Section 5(7) and “Operational Creditor” as defined under Section 5(20) of IBC 2016, include the ‘assignee’ of the debt too as a Financial Creditor and Operational Creditor which implies that an ‘assignee’ is also entitled to file an application under Section 7 or 9 IBC, 2016 as the case may be. However, we see no such explicit provision under Sections 43, 45, 50, and 66 of IBC 2016, in terms of which an Application under these Sections could be filed or pursued by an Assignee/ or a Third Party on behalf of the RP or Liquidator as the case may be.

# 20. However, the Code permits where an RP or Liquidator of a Corporate Debtor under the CIRP/ Liquidation process, as the case may be, by virtue of their entitlement under Explanation II of Section 11 of IBC 2016, files an Application under Section 7 or 9 against another Corporate Debtor, they in the capacity of being “Financial Creditor” or “Operational Creditor” as  defined under Section 5(7) and 5(20) of IBC 2016 respectively, can assign, at any stage, the debt of the Corporate Debtor which they represent.

# 21. The objective of avoidance/ PUFE applications filed under Sections 43, 45, 50, and 66 of IBC 2016 is discussed by the Hon’ble High Court of Delhi in the matter of “Tata Steel BSL Limited Vs Tata Steel Bsl Limited Vs. Venus Recruiter Private Limited & Ors LPA 37/2021, dated 13.01.2023, (2023) Ibclaw.In 09 HC. The relevant extracts of the Judgement are reproduced below:

• “41. In furtherance of the larger object and purpose of the IBC discussed in the paragraphs above, provisions pertaining to various types of avoidable transactions i.e., Sections 43-51 and 66 and 67 were especially made a part of the IBC so that they could be avoided by the RP (during the CIRP) or the liquidator thereafter to protect the interests of the creditors. On account of avoidable transactions undertaken by the erstwhile promoters/management of a corporate debtor, the pool of assets of the corporate debtor stands diminished, becoming detrimental to the successful resolution of the corporate debtor as it does not serve as a lucrative prospect to a Resolution Applicant. Even if the corporate debtor would proceed to liquidation, the diminished pool of assets harms the recovery prospect of creditors directly. Therefore, these provisions, largely endeavor to enhance the pool of assets of the corporate debtor available for either making it a lucrative prospect for a Resolution Applicant or in the event of liquidation, for distribution among creditors. The avoidance of these transactions essentially prevents unjust enrichment of one party at the expense of a creditor.”    (Emphasis added)

In terms of the Judgement (ibid), the larger object of avoidance/ PUFE applications is to (a) enhance the pool of assets of the corporate debtor available for either making it a lucrative prospect for a Resolution Applicant or in the event of liquidation, for distribution among creditors, and (b) prevent unjust enrichment of one party at the expense of a creditor. Per Contra, the Liquidator herein by assigning the debt/ “Not readily realisable assets” (NRRAs) of the Corporate Debtor total worth Rs. 26,38,37,645/- for a meagre consideration of Rs. 50,000/- is facilitating the enrichment of the Applicant/Assignee herein, if the pending 03 applications are allowed by this Adjudicating Authority, at the expense of the Creditors.

# 22. Furthermore, in our view, the intent behind avoidance/ PUFE applications filed under Sections 43, 45, 50, and 66 is not the “recovery”, but to maximize the value of the assets of a Corporate Debtor. However, if the avoidance/ PUFE applications are allowed to be pursued by a Third Party or an Assignee, then adjudication of such applications, pursued by a Third Party or an Assignee would effectively end up making this Adjudicating Authority a “Recovery Forum”. Nevertheless, dehors such semblance, we would still like to examine the legal position - Whether this Adjudicating Authority has jurisdiction to adjudicate the Avoidance/ PUFE Applications pursued by a Third Party or an Assignee when even the proceedings under Sections 43, 45, 50, and 66 are not concluded. In order to examine this issue relating to our jurisdiction, we refer to Section 60(5) of IBC 2016, which stipulates what kind of applications or proceedings can be adjudicated by this Adjudicating Authority. The contents of Section 60(5) of IBC 2016 read thus:

On perusal of Section 60(5)(a) of IBC 2016, it is observed that only an application or proceeding by or against the Corporate Debtor can be entertained by this Adjudicating Authority. Further, as per Section 60(5)(b) of IBC 2016, a claim by or against the Corporate Debtor and its subsidiary outside India can be adjudicated. Undoubtedly, proceeding under Sections 43, 45, 50, and 66 of IBC 2016 are the proceedings or claims, that are instituted by RP or Liquidator on behalf of the Corporate Debtor. Hence, the applications filed by RP or Liquidator under Sections 43, 45, 50, and 66 of IBC 2016 can be considered applications by the Corporate Debtor. 

# 23. 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. Hence, in view of the aforesaid discussion, we conclude that this Adjudicating Authority 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. However, this does not mean that the debt can never be assigned. Once the demand is crystallised or determined, in other words, when the avoidance/PUFE proceedings are concluded, the debt can be assigned by following the due procedure prescribed under the law. This is a trite law that after the crystallisation of demand, no examination of debt/transaction is done on merit. In other words, the proceedings are concluded and what remains is only the execution of order.

# 24. In the sequel to the above-mentioned legal position and discussion, we summarise our findings and conclusions as follows:

• a) As per the present scheme of Sections 43, 45, 50, and 66 of IBC 2016, Avoidance/PUFE applications can only be filed and pursued by a Resolution Professional (RP) or a Liquidator, as the case may be. There is no explicit provision under Sections 43, 45, 47, 50, and 66 of IBC 2016, by which an Application under these Sections could be filed or pursued by an Assignee/ or a Third Party on behalf of the RP or Liquidator.

• b) An RP or a Liquidator cannot assign debt/NRRAs under Sections 43, 45, 50, and 66 of IBC 2016 before the adjudication of Avoidance/PUFE proceedings i.e., before the Debt/Demand is determined or crystallized by the Adjudicating Authority.

• c) In the absence of adjudication of Avoidance/PUFE proceedings and determination of the precise amount of debt by the Adjudicating Authority, there will be room for arbitrariness and the Liquidator may end up assigning the debt/NRRAs for an arbitrary or a meagre amount, as happened in the instant case, where the Liquidator has assigned the debt/ “Not readily realisable assets” (NRRAs) of Corporate Debtor worth Rs. 26,38,37,645/- for a paltry sum of Rs. 50,000/- only, through the Deed of Assignment dated 19th November 2021 executed between the Liquidator and the Applicant herein. Thereby, instead of enhancing the pool of assets of the Corporate debtor, the Liquidator is facilitating the enrichment of the Applicant/ Assignee herein at the expense of the Creditors, if the pending 03 applications are allowed by this Adjudicating Authority.

• d) However, as per the Code where an RP or a Liquidator of a Corporate Debtor under the CIRP/ Liquidation process, as the case may be, as per their entitlement under Explanation II of Section 11 of IBC 2016, files an Application under Section 7 or 9 against another Corporate Debtor, RP or a Liquidator in the capacity of “Financial Creditor” or “Operational Creditor” as defined under Section 5(7) and 5(20) of IBC 2016 respectively, can assign, at any stage, the debt of the Corporate Debtor which they represent.

• e) 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.

• f) However, this does not mean that the debt can never be assigned. Once the demand is crystallised or determined, in other words, when the avoidance/PUFE proceedings are concluded, the debt can be assigned by following the due procedure prescribed under the law. In other words, the cause to pursue avoidance applications cannot be transferred or assigned by the Liquidator. Only the assets crystallised in terms of the order passed in avoidance/PUFE applications can be assigned or transferred to a third party.

# 25. In view of the above, we have no other option but to dismiss the IA-35/2022, IA-36/2022, and IA-57/2022.

# 26. Parties to bear their own cost.

# 27. A copy of this order shall be sent by the Registry/ Court officer to IBBI.

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