Look Back Period Under Section 46 Not Applicable To Section 66 Under Insolvency And Bankruptcy Code, 2016: NCLAT

Resolution Professional of M/s Sri Balaji Forest Products Private limited (Balaji Forest) filed the appeal under Section 61 of the Insolvency & Bankruptcy Code, 2016 (IBC/Code) against the order dated 26.02.2021 of NCLT, Kolkata wherein NCLT rejected the application by RP under Section 43, 45 read with Section 49 & 66 of IBC by holding that the transactions complained of by the RP are much prior to the look back period mentioned under Section 46 of the Code.

Brief Facts

Corporate Insolvency Resolution Process (CIRP) of Balaji Forest was initiated by NCLT Kolkata vide its order dated 18.10.2019. The ex-directors of Balaji Forest were not extending any cooperation to the RP and therefore an application under Section 19(2) was filed by RP against suspended directors and an order dated 09.12.2019 was passed in 19(2) applications by NCLT wherein NCLT directed the suspended directors to cooperate with RP but still numerous hindrances were created in CIRP by suspended directors.

Thereafter, audited balance sheet of Balaji Forest was finalized and accordingly RP filed an application under Section 43, 45 read with Section 49 & 66 of IBC. RP alleged that the fraudulent lease deed dated 30.11.2016 was only disclosed to RP on 15.01.2020 when the same was shared with RP by the suspended directors.

Contentions Of RP

It was contended by RP that the NCLT committed error in relying on Section 46 for rejecting the Application holding that Lease Deed which was claimed by Appellant to be fraudulent transaction was executed 2 years earlier from the CIRP commencement date. It was also contended that the time period prescribed under Section 46 is only for avoiding an undervalued transaction which provision does not cover a fraudulent transaction as referred to in Section 66 of the Code. It was further contended that there were clear allegations of other transactions entered with related parties within the period of two years which was also not considered on merits on the ground that specific date has not been given by the Appellant.

Contentions Of Suspended Directors

It was contended by the suspended directors that the Resolution Professional could not be allowed to question the Lease Deed which was executed on 30th November, 2016 by the Corporate Debtor as the same is beyond the look back period of two years as prescribed under Section 46 of the Code.

Decision/Analysis By NCLAT

After hearing the parties, NCLAT along with other issues framed a specific issue which is as follows;

"Whether Transaction claimed to be defrauding the Creditor under section 49 and fraudulent trading or wrongful trading within meaning of Section 66 can be questioned only within time period as prescribed under Section 46 i.e., one year or 2 years respectively and Application alleging defrauding the Creditors and transaction to be fraudulent trading or wrongful trading is liable to be rejected if it is filed beyond the period prescribed under Section 46 of the Code??

NCLAT observed that the Code contains a scheme which provides for avoidance of undervalued transaction under the period prescribed under Section 46. The time period as prescribed under Section 46 is not applied with regard to other nature of transactions. NCLAT further observed that

"Section 49 does not contain a time period during which the Application has to be filed. Hence Section 46 is not to be applied to the transactions which have been made to defraud the creditors…"

Thereafter, the NCLAT concluded that;

"Application questioning the transactions covered by Section 49 and 66 of the Code are not to be rejected on the ground that Application has been filed beyond the period prescribed under Section 46 of the Code. The timeline prescribed for transactions under Section 46 does not cover the transactions covered by Section 49 and 66 of the Code"

Case Title: Aditya Kumar Tibrewal v. Om Prakash Pandey

Counsel for Appellant: Mr. Abhijeet Sinha, Mr. Sidhartha Sharma, Mr. Arjun Asthana

Counsel for Respondents: Mr. Subhasish Bhowmick, Ms. Debaleena Ganguly

Counsel for Intervenor: Mr. Jishnu Saha, Sr. Adv with Mr. J Patnaik

Click Here To Read/Download Order