NCLAT Holds NCLT Need Not Separately Examine RP’s Opinion On PUFE Transactions While Avoidance Applications Are Pending
NCLAT Holds NCLT Need Not Separately Examine RP’s Opinion On PUFE Transactions While Avoidance Applications Are Pending
Introduction
The National Company Law Appellate Tribunal (NCLAT) has held that the issue of formation and determination of opinion by a Resolution Professional (RP) in respect of preferential, undervalued, extortionate and fraudulent (PUFE) transactions cannot be examined at the threshold on a stand-alone basis when avoidance applications are pending before the Adjudicating Authority. The Tribunal clarified that such issues must be considered within the framework of the avoidance proceedings themselves.
Factual Background
The appeal was filed by Chandresh Jajoo, suspended director of Hema Engineering Industries Ltd., challenging the order dated 9 October 2025 passed by the National Company Law Tribunal (NCLT), New Delhi. By the impugned order, the NCLT dismissed the appellant’s application seeking dismissal of multiple avoidance applications filed by the Resolution Professional in relation to alleged PUFE transactions.
The appellant had contended before the NCLT that the RP had not properly formed or determined his opinion regarding the existence of PUFE transactions prior to filing the avoidance applications, and that such applications were liable to be dismissed at the threshold.
Procedural Background
Before the NCLAT, Senior Counsel appearing for the appellant submitted that the ground relating to delay in filing avoidance applications would not be pressed, acknowledging that timelines prescribed under Regulation 35A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 are directory and not mandatory.
However, the appellant argued that the NCLT erred in failing to examine, at the outset, whether the RP had independently formed and determined his opinion based on material available before filing the avoidance applications.
The Resolution Professional opposed the appeal, submitting that the opinion had been duly formed on the basis of available records and had been placed before the Committee of Creditors. It was contended that the validity of such opinion could be examined in the avoidance proceedings themselves and did not warrant separate adjudication at the threshold.
Issues
1. Whether the NCLT is required to separately examine the formation and determination of opinion by the RP before entertaining avoidance applications concerning PUFE transactions.
2. Whether such an issue can be adjudicated independently at the threshold while the avoidance applications remain pending.
3. Whether interference by the appellate tribunal was warranted at this stage.
Contentions of the Parties
The appellant contended that the statutory framework requires the RP to form and determine an opinion regarding the existence of PUFE transactions prior to initiating avoidance proceedings. It was argued that in the absence of such proper formation of opinion, the avoidance applications were liable to be dismissed at the inception.
The Resolution Professional countered that the opinion had been formed based on available material and duly placed before the Committee of Creditors. It was submitted that the question of adequacy or correctness of such opinion is intrinsically linked to the merits of the avoidance applications and should be examined within those proceedings.
Reasoning and Analysis
The NCLAT observed that the issue of formation and determination of opinion on PUFE transactions cannot be examined at the threshold level on a stand-alone basis, divorced from the avoidance applications. The Tribunal held that examination of such issues is integrally connected to the adjudication of the avoidance applications themselves.
The Bench clarified that the Adjudicating Authority is not required to first conduct a separate inquiry into whether sufficient material existed for the RP to form and determine his opinion before entertaining the avoidance applications. Such questions can be raised and considered during the adjudication of the avoidance applications pending before the NCLT.
The Tribunal further noted that since the avoidance applications remain pending, no substantial purpose would be served by entertaining the present appeal at this stage. Interference at this juncture would amount to pre-emptive adjudication of issues better addressed in the substantive proceedings.
Decision
The appeal was disposed of with liberty granted to the appellant to raise all issues, including those relating to the formation and determination of opinion by the Resolution Professional, in the pending avoidance proceedings before the NCLT.
In this case the appellant was represented by Senior Advocate Krishnendu Datta with Vikas Dutta, Siddharth Silwal, Shivani Sharma, Yash Tandon, Harshit Chaudhary, Advocates. Meanwhile the respondent was represented by Vishal Ganda, Charmi Khurana, Aarush Jenis, Advocates.
