Look-back period under Section 46 not applicable to Section 66 of the Insolvency and Bankruptcy Code, 2016: NCLAT

National Company Law Appeal Tribunal (NCLAT) main bank composed of Judge Ashok Bhushan, Dr Alok Srivastava, Ms Shreesha Merla in the case of Aditya Kumar Tibrewal vs Om Prakash Pandey has held that the look-back period prescribed under section 46 of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) does not apply to transactions under section 66 of the code.

Professional resolution of M/s Sri Balaji Forest Products Private limited (Balaji Forest) appealed under section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC/Code) against order dated 26.02.2021 of NCLT, Kolkata, in which NCLT dismissed RP’s claim under Sections 43, 45 read with Sections 49 and 66 of the IBC finding that the transactions challenged by RP are well before the look-back period referred to under section 46 of the Code.

Quick facts

Corporate insolvency resolution process (CIRP) of Balaji Forest was initiated by NCLT Kolkata under its order dated 18.10.2019. The former administrators of Balaji Forest were not extending any cooperation to the PR and therefore a claim under Article 19(2) was filed by the PR against the suspended administrators and an order dated 09.12.2019 was issued. adopted in 19 (2) requests by NCLT in which NCLT ordered the suspended administrators to cooperate with RP, but many obstacles were still created at CIRP by the suspended administrators.

Subsequently, the audited balance sheet of Balaji Forest was finalized and as a result, RP filed an application under Sections 43, 45, read with Sections 49 and 66 of the IBC. RP alleged that the fraudulent lease deed dated 30.11.2016 was not disclosed to RP until 15.01.2020 when it was shared with RP by the suspended administrators.

Conflicts of PR

RP argued that the NCLT erred in relying on Section 46 to dismiss the claim, finding that the deed of tenancy, which the appellant claimed was a fraudulent transaction, was executed 2 years earlier in from the start date of the CIRP. It was also argued that the time prescribed under section 46 is only intended to avoid an undervalued transaction, which provision does not cover a fraudulent transaction within the meaning of section 66 of the Code. It was further argued that there were clear allegations of other transactions entered into with related parties during the two-year period, which were likewise not examined on the merits on the grounds that the specific date was not given by the caller.

Disputes of Suspended Admins

It was argued by the suspended directors that the resolution professional could not be authorized to question the deed of lease which was signed on November 30, 2016 by the debtor company, because it exceeds the look-back period. two years, in accordance with article 46 of the code.

Decision/Analysis by NCLAT

After hearing from the parties, the NCLAT and other questions formulated a specific question which is as follows;

“Whether the transaction purported to defraud the creditor under section 49 and fraudulent or illicit transactions within the meaning of section 66 may only be challenged within the time prescribed under section 46 , i.e. one year or 2 years respectively and the application alleging to have defrauded creditors and transaction as fraudulent transaction or illicit transaction is liable to be rejected if filed beyond the period prescribed by Article 46 code??

The NCLAT observed that the Code contains a system which provides for the avoidance of undervalued transactions within the period prescribed by section 46. The period prescribed by section 46 does not apply to other types of transactions. NCLAT further observed that

“Section 49 does not contain a time limit within which the petition must be filed. Therefore, Section 46 should not be applied to transactions that have been made to defraud creditors…

Subsequently, the NCLAT concluded that;

“Applications involving the transactions referred to in Articles 49 and 66 of the Code shall not be rejected on the grounds that the application was filed beyond the period prescribed under Article 46 of the Code. The time limit prescribed for transactions under Article 46 does not cover transactions covered by Articles 49 and 66 of the Code”

Case title: Aditya Kumar Tibrewal vs Om Prakash Pandey

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

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

Speaker’s Counsel: Mr. Jishnu Saha, Sr. Adv with Mr. J Patnaik

Click here to read/download the order