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Successor RP cannot revisit earlier after failed resolution plan:
The () at Mumbai has delivered a significant ruling clarifying the limits of a successor Resolution Professional’s (RP) powers in a rerun Corporate Insolvency Resolution Process (CIRP). The Tribunal held that once an earlier RP has made a on avoidance or fraudulent transactions, a successor RP cannot reopen, review, or revisit that determination. The successor may only adduce to support the earlier findings, but cannot re-litigate the same transactions under a fresh application.
The decision came in proceedings arising from the insolvency of , where a resolution plan was approved but later failed, leading to a rerun of the CIRP. The bench, comprising Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar, dismissed a fresh avoidance application filed by the successor RP as not maintainable, while partly allowing an earlier application filed by the original RP.
Background: From Admission to Failed Resolution
The insolvency journey of Sunshine Housing & Infrastructure began when filed a petition under . The petition was admitted on , with the corporate debtor owing over ₹40 crore in principal to ICICI as of , plus interest of ₹3.83 crore.
Rajendra M. Ganatra was appointed as the first Resolution Professional. He engaged a transaction auditor to examine potential under Sections 43 (), 45 (), 50 (), and 66 () of the IBC. Based on the audit, Ganatra filed , alleging involving approximately ₹58.58 crore. These included payments to related and unrelated parties, as well as the conversion of unsecured debentures into preference shares followed by their redemption.
A resolution plan submitted by was approved in . However, the plan was never implemented. Consequently, the ordered a rerun of the CIRP on , and Gaurav Adukia was appointed as the new RP.
The Successor RP’s Attempt to Reopen
Upon taking charge, Adukia filed , raising wider allegations involving preferential, undervalued, and fraudulent transactions. The application sought to bring in transactions that had either been previously challenged in IA 893 or had figured in the earlier transaction audit. The successor RP argued that the constituted a fresh process, allowing him to independently examine and pursue avoidance actions.
The Tribunal, however, rejected this premise. It observed that the could not be treated as a . The erstwhile RP had already examined the transaction audit report and formed an opinion on which transactions to pursue under the avoidance provisions. Allowing the successor RP to revisit those concluded determinations would undermine the of the earlier decision and lead to unnecessary .
“Accordingly, we are of considered view that is not maintainable and cannot be adjudicated by this Tribunal in view of erstwhile RP having made determination of avoidance or fraudulent transaction and the RP, assuming charge of the corporate debtor in the rerun after failed implementation of the approved resolution plan, cannot be permitted to review or revisit the such determination for avoidance or fraudulent transaction already concluded by the erstwhile RP, and the RP, being successor of erstwhile RP, can only be permitted to adduce the additional evidences to support the determination of erstwhile RP,” the Tribunal observed.
Court’s Reasoning: No
The ’s reasoning rests on the principle that a is a continuation of the original process, not a new one. The corporate debtor’s insolvency remains the same, and the statutory timeline for filing avoidance applications runs from the insolvency commencement date. Once an RP has made a determination—whether by filing an application or deciding not to pursue certain transactions—that decision binds the process. A successor RP cannot substitute his own judgment unless there is new evidence that merely supplements, not contradicts, the earlier determination.
The Tribunal also clarified that the doctrine of applies to the earlier RP’s decision on . The power to determine avoidance is exhausted once exercised, and a successor cannot re-exercise it. This aligns with the IBC’s objective of speed and in insolvency proceedings.
Partial Relief: Upheld
While dismissing the successor RP’s fresh application, the Tribunal partly allowed the original avoidance application (). It examined the redemption of preference shares created through conversion of compulsorily convertible debentures. The shares were redeemed on the same date as their conversion, although the statutory filings (Form SH-7) indicated a five-year redemption period. The Tribunal held that such redemption could not be treated as being in the ordinary course of business or financial affairs.
The court also rejected reliance on the , observing that extends to transfers of property for the benefit of creditors, regardless of internal corporate approvals. It noted that as of , more than ₹100 crore was outstanding to secured creditors, while the corporate debtor’s liquidation value was only ₹63.29 crore. The payments to certain parties therefore resulted in preference to those ranking below secured lenders, to the detriment of the general creditor body.
The recipients of the preferential payments were directed to restore the amounts to the corporate debtor within 30 days, failing which the unpaid amounts would carry 12% annual interest.
Implications for Insolvency Practice
This ruling provides important clarity for insolvency professionals handling rerun CIRPs. It establishes that a successor RP cannot treat a failed resolution plan as a clean slate to re-litigate avoidance actions already considered by the previous RP. This prevents abuse of process and ensures that the cost and time spent on transaction audits and avoidance applications are not wasted.
However, the ruling also leaves room for the successor RP to bring that supports the earlier determination. This means that if new facts come to light that strengthen the original avoidance case, the successor can file an application to supplement, but not replace, the earlier findings.
Practitioners should note that the distinction between “revisiting” and “supporting” is critical. A successor RP who disagrees with the earlier RP’s conclusion—for instance, deciding not to challenge certain transactions—cannot now bring those same transactions in a fresh application. The only remedy would be to challenge the earlier RP’s decision itself, which would require a separate proceeding.
Conclusion
The Mumbai’s decision in the Sunshine Housing matter reinforces the principle of in avoidance determinations during the CIRP. By barring successor RPs from reopening concluded issues, the Tribunal has preserved the integrity of the insolvency process and prevented duplicative litigation. The ruling is a significant reminder that the IBC prioritizes efficiency and predictability, even when resolution plans fail. For legal professionals, this case underscores the importance of thorough transaction audits at the initial stage, as subsequent RPs will have limited scope to revisit those findings.
