NCLAT Rules, Section 45 Of IBC Applies To Transactions Made Prior To CIRP, Not On Date Of Initiation
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that the provisions of Section 45 of the Insolvency and Bankruptcy Code, 2016 (IBC), which empower the Adjudicating Authority to set aside undervalued transactions, apply only to those transactions made within the look-back period preceding the commencement of the Corporate Insolvency Resolution Process (CIRP). Transactions made on the same day the CIRP is initiated, especially without payment of consideration or made without authority, are void ab initio and do not attract the application of Section 45.
The judgment came in a group of appeals filed by eight appellants—including Avni Jain, Paritosh Jain, Sangeeta Jain, and others—challenging a common order passed by the Adjudicating Authority (NCLT, Court VI, New Delhi) on 20.09.2024. These appeals arose from the rejection of various interlocutory applications (IAs) filed by the appellants, who had sought restoration of their unit allotments in the real estate project “RG Luxury Homes,” developed by the Corporate Debtor, Rajesh Projects (India) Pvt. Ltd.
Background of CIRP and Allotment Dispute
The CIRP against the Corporate Debtor was initiated on 19.09.2019 following a petition filed by homebuyers. The NCLT, by the same order, imposed a moratorium under Section 14 of the IBC and appointed an Interim Resolution Professional (IRP). Later, through an NCLAT order dated 05.02.2020, reverse CIRP was directed for the project, requiring the promoters and lenders to fund its completion under the supervision of a Resolution Professional. Subsequently, Mr. Manoj Kulshrestha took charge as the IRP on 01.06.2021.
The appellants claimed that they had each been allotted residential units under Allotment-cum-Builder Buyer Agreements dated 19.09.2019. These agreements were allegedly signed on the same day the CIRP was initiated. The IRP, upon reviewing the records of the Corporate Debtor, cancelled the allotments, citing that (i) they were executed without IRP approval, (ii) no payments had been made on or before the date of allotment, and (iii) the funds were not deposited in the designated U.P. RERA bank accounts as required.
Appellants’ Arguments
The appellants argued that the allotments were validly executed, and that consideration had been paid, supported by bank statements and receipts. They contended that the IRP lacked authority to unilaterally cancel the allotments and ought to have filed an application under Section 45 of the IBC if he believed the transactions were undervalued. Specifically, in the case of Avni Jain, it was claimed that a cheque dated 01.09.2019 for Rs. 50,000 had been handed over to the Corporate Debtor, and later a fresh cheque dated 16.12.2019 was provided at the IRP’s request, which was eventually encashed on 18.12.2019.
The appellants also submitted that IRP’s cancellation letter dated 10.09.2022 itself referred to the allotment being undervalued, and therefore, he was obligated to approach the Adjudicating Authority under Section 45 to declare the transaction void.
IRP’s Defence
Represented by Senior Advocate Mr. Ritin Rai, the IRP submitted that the alleged allotments were unauthorized and void, having been made on the same day CIRP commenced, when the moratorium under Section 14 came into effect. He argued that no payments were received before or on 19.09.2019, and that all alleged payments were made between December 2019 and January 2020—months after CIRP had started.
Crucially, the payments were also made in non-designated accounts, not the U.P. RERA accounts of Karnataka Bank specifically mentioned in the buyer agreements. The IRP contended that Section 45 was inapplicable, since it only covers transactions made during the look-back period, not those entered on the CIRP commencement date.
Tribunal’s Observations and Findings
The NCLAT examined the documentary evidence and found that the appellants’ claims did not withstand scrutiny. For example, in Avni Jain’s case, the cheque that was actually encashed (Cheque No. 784711) was dated 16.12.2019—not 01.09.2019 as claimed—and the amount of Rs. 50,000 was credited to the Corporate Debtor’s account only on 18.12.2019. The Tribunal noted: “When CIRP has commenced on 19.09.2019, no allotment could have been made by Suspended Management in favour of the Appellant.”
It emphasized that the allotments were made without receiving any consideration at the time and were executed by suspended management after CIRP had begun—therefore, these were non-est in the eyes of law. The NCLAT further clarified that the IRP had not exercised any adjudicatory powers; instead, he simply took administrative steps to protect the Corporate Debtor’s assets, which included communicating the cancellation of invalid allotments.
Addressing the argument under Section 45, the Tribunal held: “Section 45 applies only where transactions were made during the look-back period—i.e., one or two years before the CIRP commencement date. Here, the allotments were allegedly made on the date CIRP was initiated, hence Section 45 has no application.”
The Tribunal also noted that the IRP had not initiated any investigation under Section 45, nor did he form any opinion warranting such action. Therefore, the appellants' insistence on invoking Section 45 was held to be baseless. The Tribunal further noted that all appellants were closely related to Mr. Adesh Jain, a long-standing tax consultant of the Corporate Debtor, and the nature and timing of the alleged allotments raised serious questions about their bona fides.
Verdict
Holding that the allotments were invalid, having been executed without authority and without timely payment, the NCLAT concluded that the IRP had rightly cancelled them in his administrative capacity. The Adjudicating Authority had also correctly held that such transactions post-moratorium were unenforceable. Dismissing all the appeals, the NCLAT reiterated that Section 45 of the IBC does not apply to transactions executed on the same date as CIRP commencement, and hence no separate application under that provision was necessary.
Appearance
For Appellant: Mr. Krishnendu Datta, Sr. Advocate ,Mr. Abhishek Anand, Ms. Palak Kalra and Mr. Karan Kohli, Advocates.
For Respondent: Mr. Ritin Rai, Sr. Advocate with Mr. Abhindra Maheshwari, Advocates.
Cause Title: Avni Jain V. Manoj Kulshrestha, IRP for Rajesh Projects (India) Pvt. Ltd.
Case No: Company Appeal (AT) (Insolvency) No.2288 of 2024
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
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