NCLT New Delhi-II (11.08.2023) In M/s Inquest Fintech Private Limited vs. Ms. Maya Gupta Liquidator [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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