NCLT Guwahati Allows Successful Resolution Applicant To Continue Avoidance Proceedings After CIRP Conclusion

The National Company Law Tribunal (NCLT) at Guwahati has permitted Peerless Hospitex Hospital and Research Center Limited, the successful resolution applicant for Ayursundra Hospital (Guwahati) Private Limited, to prosecute a pending avoidance application after the conclusion of the Corporate Insolvency Resolution Process by substituting the Resolution Professional.

The tribunal held that the approved resolution plan, read with subsequent implementation decisions, contemplated continuation of such proceedings.

A coram of Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh passed the order.

Observing that insisting only the Resolution Professional prosecute the matter would create a procedural vacuum, the Tribunal held,

“In the present case, the CIRP stands concluded, the Resolution Plan has been implemented, and the Plan expressly envisages continuation of such proceedings. In these circumstances, insisting that only the Resolution Professional can prosecute the application would create a procedural vacuum and render the continuation of such proceedings impracticable."

“This Tribunal, therefore, holds that the avoidance application survives the conclusion of the CIRP, the Resolution Plan contemplates its continuation, and Rule 53, read purposively, permits substitution in appropriate cases," it held.

During the CIRP of Ayursundra Hospital (Guwahati) Private Limited, the Resolution Professional filed a PUFE application against the suspended directors under the Insolvency and Bankruptcy Code. The application alleged preferential, extortionate, and fraudulent/wrongful transactions undertaken prior to commencement of CIRP.

While the PUFE application was pending, the resolution plan submitted by Peerless Hospitex Hospital and Research Center Limited was approved by the Committee of Creditors and the NCLT. The tribunal noted that the approved resolution plan, along with subsequent implementation decisions, contemplated continuation of such proceedings after approval.

The tribunal noted that the economic benefits arising from related litigation were intended to accrue to the resolution applicant or the resolved corporate debtor.

The SRA thereafter filed an application under Rule 53 of the NCLT Rules seeking substitution in place of the Resolution Professional in the pending PUFE proceedings.

The respondents opposed the plea. They contended that substitution under Rule 53 of the NCLT Rules is permissible only in limited situations such as death or insolvency of a party.

Since no such contingency existed in the present case, they argued that there was no statutory basis for substituting the SRA in place of the Resolution Professional.

Rejecting the objection, the tribunal held that avoidance proceedings are independent statutory remedies. It observed:

“Section 26 of the Code explicitly clarifies that the filing of an avoidance application shall not affect the CIRP, thereby recognising the distinct and separable nature of such proceedings. Further, Section 36(3)(f) of the Code contemplates recoveries from avoidance transactions as forming part of the liquidation estate, reinforcing their independent character”

It further held that closure of the company petition merely records completion of CIRP and implementation of the resolution plan. It does not extinguish pending avoidance proceedings.

The tribunal also observed that avoidance applications are initiated by the Resolution Professional based on material gathered during CIRP. It said this makes the RP a material witness in such proceedings, even if substitution is permitted.

It further noted that Regulation 38(2)(d) of the CIRP Regulations requires a resolution plan to specify how avoidance proceedings will be pursued after approval.

Holding that Rule 53 of the National Company Law Tribunal Rules, which deals with substitution of legal representatives in pending proceedings, must be interpreted purposively, the tribunal observed:

“Rule 53, therefore, cannot be construed in an unduly restrictive manner so as to defeat substantive rights flowing from a court-approved Resolution Plan. At the same time, it does not automatically confer “assignee” status. The question of substitution must be assessed in the facts of each case.”

Allowing the application, the tribunal held that denying substitution would render the mechanism under Regulation 38(2)(d) “nugatory.” It said this would frustrate the continuation of avoidance proceedings recognised under law.

It clarified that the ruling should not be treated as a general principle under Rule 53. The tribunal said substitution was being permitted in the peculiar facts of the case.

For Petitioner: Advocate K Kejriwal

For Respondent: Advocates K Talukdar and V Kalra