Tata Steel is challenging the January 13 order where the Delhi High Court directed the National Company Law Tribunal (NCLT) to proceed with the hearing of the avoidance application but said the amount recovered can be distributed amongst the secured creditors in accordance with law as determined by the NCLT.
The Supreme Court’s decision in this case will have significant implications for the resolution process and the treatment of avoidance transactions in insolvency cases including Srei, which is undergoing in-court restructuring and has reported fraudulent transactions of Rs 13,000 crore.
According to a report by the Insolvency and Bankruptcy Board of India, 777 applications regarding avoidance transactions worth Rs 2.2 lakh crore have been filed with insolvency tribunals at various levels until March 2022.
The Supreme Court heard the matter on Friday and the next hearing could be after 6-8 weeks, a lawyer said. A Tata Steel spokesperson said that the company has filed a special leave petition (SLP) before the Supreme Court against the Delhi High Court judgment dated January 13, 2023. The said SLP was listed before Supreme Court on July 7, 2023.
While the January order is a relief for Tata since earlier in an order on November 26, 2022, the NCLT had held that an application filed for avoidance of preferential transactions under Section 43 of the Insolvency and Bankruptcy Code cannot go beyond the conclusion of the corporate insolvency resolution process (CIRP).In this order, the judge ruled that any order related to avoidance transactions must be passed before the approval of the resolution plan.Bhushan Steel’s resolution concluded in 2018 when Tata Steel took over the company under the CIRP after paying lenders `35,200 crore. The company was admitted to NCLT on July 26, 2017, following an application filed by the State Bank of India. Tata Steel emerged as the successful resolution applicant after its plan was approved by 72.65% of the committee of creditors on March 20, 2018. Subsequently, Tata named the company Tata Bhushan Steel (TBSL). A year after the acquisition, TBSL merged with Tata Steel in 2019.
During the approval process, the resolution professional discovered suspect transactions, including a preferential transaction with Venus Recruiters. The resolution professional filed an avoidance application under various sections of the Insolvency and Bankruptcy Code to address these suspect transactions. However, the Delhi High Court’s single judge held that the avoidance application could not be pursued after the conclusion of the CIRP.
The court observed that the investigation of such transactions is a lengthy process and it will be impossible to conclude these proceedings within the time frame laid down in the process.
