NCLT Orders Disciplinary Proceedings Against Resolution Professional Of BYJU's, Says He Acted With Prejudice To Mislead Tribunal

Tazeen Ahmed

4 Feb 2025 2:22 PM IST

  • NCLT Orders Disciplinary Proceedings Against Resolution Professional Of BYJUs, Says He Acted With Prejudice To Mislead Tribunal

    The National Company Law Tribunal, Bengaluru bench comprising Justice K. Biswal (Judicial Member) and Ravichandran Ramasamy (Technical Member) have held that that as per the Insolvency and Bankruptcy Code, 2016 (“Code/IBC”), there is no provision to 'provisionally' constitute the Committee of Creditors (“CoC”); the CoC once constituted is final and cannot be revised...

    The National Company Law Tribunal, Bengaluru bench comprising Justice K. Biswal (Judicial Member) and Ravichandran Ramasamy (Technical Member) have held that that as per the Insolvency and Bankruptcy Code, 2016 (“Code/IBC”), there is no provision to 'provisionally' constitute the Committee of Creditors (“CoC”); the CoC once constituted is final and cannot be revised or reconstituted by the Interim Resolution Professional (“IRP”)/Resolution Professional (“RP”) without the interference of the Adjudication Authority. It said:

    "The IRP has a duty to assist the Tribunal with integrity in an honest and fair manner and the conduct of the IRP in the present case has been filed with the intent to mislead the tribunal. The actions and decisions taken by the IRP are prejudicial to the interests of the CIRP process outlined by the IBC, 2016 and to the stakeholders. Further, the conduct of IRP is not fit and proper as expected from an officer of the Tribunal. The above conduct on part of IRP needs to be dealt by way of disciplinary proceeding by the IBBI. Hence, the IBBI may conduct the necessary investigation in this matter."

    The Tribunal noted that Regulation 14 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 is 'quantifying' in nature i.e. the IRP/RP is only entitled to revise the claims, which is again to be at the leave of the Tribunal and cannot act in his own accord.

    The Tribunal held that after the categorization of a claim, the IRP/RP cannot change the status of a Creditor. The Tribunal held that the re-classification of Aditya Birla Finance Limited, who was initially classified as a 'Financial Creditor', as an 'Operational Creditor' by IRP was beyond the powers provided by the Code and was not valid.

    The Tribunal observed that the conduct of the IRP was prejudicial to the interests of the Corporate Insolvency Resolution Process (“CIRP”) outlined by the IBC and to the stakeholders. It directed IBBI to conduct disciplinary proceedings against the IRP.

    Brief Facts

    The Tribunal vide order dated 16.07.2024 admitted Think and Learn Private Limited (BYJUS) (“Corporate Debtor”) into the Corporate Insolvency Resolution Process (“CIRP”) under Section 9 of the IBC and appointed Mr. Pankaj Srivatsava (“Respondent No.1”) as the Interim Resolution Professional of the Corporate Debtor.

    The NCLAT vide its order dated 02.08.2024 passed to set aside the initiation of CIRP against the Corporate Debtor due to a settlement between Suspended Directors of the Corporate Debtor and Respondent No.2. Aggrieved by this order, Glass Trust Company LLC had filed an appeal before the Supreme Court.

    The Supreme Court vide order dated 14.08.2024 stayed the operation and effect of the Order dated 02.08.2024 passed by the NCLAT and thus reinstated the CIRP proceedings of the Corporate Debtor.

    Respondent No.1 vide mail dated 21.08.2024 informed Aditya Birla Finance Limited (“Applicant No.1”) and GLAS Trust Company LLC (“Applicant No.2”), the Financial Creditors of the Corporate Debtor, that he constituted the CoC of the Corporate Debtor.

    The Respondent reclassified Applicant No. 1, i.e. Aditya Birla Finance Limited as an 'Operational Creditor' in the revised Notice and Agenda of the CoC meeting dated 01.09.2024. The Respondent determined that the relationship between the Applicant and the Corporate Debtor stemmed from their Business Agreement which is a service agreement and therefore the Respondent reclassified the Applicant's claim as an 'operational debt'. Applicant No.1 wrote to Respondent No.1 inter alia objecting to its reclassification and the manner in which the first CoC meeting was conducted.

    Applicant No. 1 filed the I.A. under section 60 (5) of the Code inter alia praying to:

    a) set aside the decision made by the Respondent in respect of the Applicant's classification as an Operational Creditor; b) direct Respondent to exclude the Applicant from List of Operational Creditors and to consider the Applicant's claim as a 'financial debt' within the meaning of Section 5(8) of the Code; c) direct the Respondent to appropriately reconstitute the CoC with the Applicant classified as a Financial Creditor with the proportionate voting accruing in light of the financial debt owed to it by the Corporate Debtor.

    Issues before the NCLT

    1. Whether the IRP has the power to reconstitute the CoC, without the leave of the Adjudicating Authority?
    2. Whether the Respondent No. 1 has exceeded his authority conferred under law?

    Observations

    With regard to the duties of the IRP, the Tribunal observed that the foremost duty of the IRP first is to take the control of the Corporate Debtor and initiate the process of inviting the claims by the Creditors. Once the above said two processes have been completed, in terms of Section 21 of the Code, the Interim Resolution Professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a CoC.

    The Tribunal noted that the IRP constituted the CoC on 21.08.2024 in accordance with Section 18 (c) and Section 21 (2) of the Code with the above two Applicants as the Financial Creditors. Subsequently, the IRP proceeded to 'reconstitute' the CoC and striking the two financial creditors, Applicant No. 1 with 0.41% and Applicant No. 2 with 99.41% in the Corporate Debtor. It noted that the IRP did not provided any reasons or explanation to the creditors for reconstituting the Committee. The IRP relied on Regulation 14 to argue that the RP is entitled to revise the Constituted Committee of further findings.

    The Tribunal held that the IRP has been vested with the power to 'collate the claims' and constitute the Committee; however, such constitution has to be reported to the Adjudicating Authority under Regulation 17. It referred to the case of SC in Mr. K.N Rajkumar vs. V Nagarajan wherein it was held that:

    “...the 'Resolution Professional' has no 'Adjudicatory Power' under the I & B Code, 2016 and further that when once the 'Committee of Creditors' is/was formed, the 'Resolution Professional' cannot change the 'Committee of Creditors'. …the Resolution Professional/1st Respondent cannot constitute a 'Committee of Creditors' afresh, in negation of the earlier constituted 'Committee of Creditors.”

    The Tribunal noted that Regulation 14 is 'quantifying' in nature i.e. the IRP/RP is only entitled to revise the claims, which is again to be at the leave of the Tribunal and cannot act in his own accord. The Tribunal relied upon Union Bank of India v. Rajdeep Clothing & Advisory Pvt Ltd and Ors., which held as follows:

    “We have found no provision in the CODE or Regulations which permit for review of status of a creditor as all provisions focus only on the amount of claim. Thus, IRP /RP cannot, on its own, review and reverse his own earlier decision without approval of Adjudicating Authority.”

    It was further held, “Financial Creditors who have already been included cannot be excluded from COC by RP for any reason of whatsoever nature…”.

    The Tribunal reiterated that as per the IBC there is no provision to 'provisionally' constitute the CoC; the CoC once constituted is final and cannot be revised by the IRP/RP without the interference of the Adjudication Authority. The Tribunal referred to the case of Mr Rajnish Jain v. BVN Traders and Others, wherein the NCLAT held that after categorization of a claim by the IRP/Resolution Professional, they cannot change the status of a Creditor.

    Further on the issue of reclassification, the NCLAT also referred to the judgements of M/s. Dynepro Private Limited v. Mr. V. Nagarajan, wherein it was held that a resolution professional lacked the jurisdiction to decide the claim of one or other creditor or its categorization and Swiss Ribbons Private Limited and Another v. Union of India and Others, wherein the Supreme Court held that an RP has no adjudicatory power.

    The Tribunal observed that the applicant is an entity whose claims had been verified by the IRP. Hence, the re-classification of Applicant No.1 as Operational Creditor by IRP was beyond the powers provided by the Code and was not valid.

    Section 22 of the Code r/w Regulation 17 of IBBI (CIRP) Regulations, 2016 mandates the first CoC meeting to be held within seven days of the Constitution of CoC. The Tribunal noted that the CoC was constituted on 21.08.2024, therefore, the statutory deadline for holding the first CoC meeting was 28.08.2024, which was not followed. It also discovered that the letter was in fact created on 2.09.2024 at 05:19 AM and backdated by the IRP as 1.09.2024.

    The Tribunal observed that the RP committed grave irregularity in violation of the provisions of the Code and the Regulations and also had given a false Affidavit. It held that the actions and decisions taken by the IRP were prejudicial to the interests of the CIRP process and to the stakeholders. The Tribunal directed the IBBI to conduct disciplinary proceedings against the Resolution Professional.

    Directions

    The NCLT set aside the reconstitution of the CoC by the IRP on 31.08.2024. It directed the IRP to convene a meeting of the CoC constituted on 21.08.2024 and submit their recommendation on appointing the RP.

    The Tribunal also set aside the resolution passed by the reconstituted CoC on 3.09.2024, which appointed the IRP as the RP. It nullified the resolutions passed by the reconstituted CoC.

    The Tribunal restored Applicant No. 1, Aditya Birla Finance Limited, to the status of a Financial Creditor. It also set aside the letter dated 5.09.2024, which reclassified Applicant No. 1 as an Operational Creditor.

    Case Title: Aditya Birla Finance Limited vs. Mr. Pankaj Srivastava

    Case Numbers: IA No. 660, 820 of 2024 in C.P. (IB) No. 149/BB/2023

    Order Date: 29.01.2025

    Click here to read order 


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