INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
8.2 Claims to Set Aside or Annul a Transaction or a Transfer The Code
Where the NCLT has not directed parties regarding treatment of the proceeds of an avoidance transaction in a CIRP or PPIRP, the treatment of such proceeds would depend on the terms of the resolution plan. In a liquidation proceeding, the liquidator is required to submit an application along with their final report containing the manner of pursuing avoidance trans - action proceedings after the dissolution or closure of the liquidation process and the manner in which the proceeds, if any, from such proceedings will be dis - tributed. Such an application will be prepared by the liquidator after consultation with the SCC. The CA 2013 In case of a fraudulent preference, the NCLT may order as it thinks fit and declare such transaction invalid and restore the position of the company as it existed prior to such transaction. The person who was preferred in such a fraudulent preference transaction will be sub - ject to the same liabilities and have the same rights as if they had undertaken to be personally liable as a surety for the debt, to the extent of the mortgage or charge on the property or the value of their interest, whichever is less. The treatment of proceeds from avoidance of a trans - action under the CA 2013 is based on the order of the NCLT.
Applications for the avoidance of transactions may be brought by the RP or liquidator under the CIRP, PPIRP or liquidation. However, in cases of undervalued trans - actions, an application may be made by a creditor, member or partner of a CD if the RP or the liquidator has failed to file such an application. Where an application for setting aside an avoidance transaction is successful, the NCLT may pass orders to restore the position as it existed before such trans - actions and reverse the effects thereof in the manner laid out in the Code. For instance, where a preference transaction is set aside, the NCLT may by order: • require any property transferred in connection with the giving of the preference to be vested in the CD; • release or discharge (in whole or in part) any secu - rity interest created by the CD; or • require any person to pay the RP or the liquidator any sums in respect of benefits received by them from the CD. While the Code gives the NCLT powers to reverse the avoidance transaction and restore the position of the CD as it existed prior to such transaction, it does not specify the treatment of the proceeds thereof. How - ever, there is no restriction on the NCLT in providing the treatment of proceeds of the reversal of an avoid - ance transaction as part of its order.
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