Tribunal Cannot Interfere With Decision Of COC To Replace Resolution Professional : NCLAT Chennai

Background Facts

IDBI Bank Ltd. ("Financial Creditor/Appellant") had filed a petition under Section 7 of the IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Tip Top Furniture Pvt. Ltd. ("Corporate Debtor") and had proposed to appoint Shri CA Mahalingam Suresh Kumar ("Mr. Suresh") as the Interim Resolution Professional.

The Adjudicating Authority had initiated CIRP against the Corporate Debtor but had rejected the name of Mr. Suresh for IRP as his name was not found in the NCLT Kochi Bench's list of Insolvency Professionals circulated by the IBBI. Accordingly, Mr. C.J. Davis ("Respondent") was appointed as the IRP of the Corporate Debtor.

The Committee of Creditors ("CoC") was constituted with only two creditors and the Appellant had majority voting rights of 98.03%. The first CoC meeting was held on 21.01.2022 and the Respondent had acted as Chairman. In the same meeting, the Appellant proposed to appoint Mr. Suresh as Resolution Professional of the Corporate Debtor and the resolution was passed unanimously. One day prior to the CoC meeting, Mr. Suresh Kumar had already given his written consent in Form-AA to act as a Resolution Professional. Consequently, the Appellant filed an application under Section 22(2) of the IBC before the Adjudicating Authority for appointing Mr. Suresh as the Resolution Professional, however, the Adjudicating Authority rejected the application vide an order dated 09.02.2022. The ground for rejection was that the incumbent IRP was eligible to be appointed as Resolution Professional since there were no adverse comments against him and there was no reason to replace him. Further, Mr. Suresh could not be appointed as the Resolution Professional as his name was not available in the panel issued by the IBBI for Kochi Bench.

Contentions Of The Appellant

The Appellant contended that as per Section 16(2) of IBC, it is mandatory for the Adjudicating Authority to appoint the proposed IRP as long as there is no disciplinary proceeding against him/her and there is a valid Authorization for Assignment (AFA). The Adjudicating Authority's rejection of the Resolution Professional appointed by the Appellant, who is a member of CoC with majority voting share, was in gross violation of the Appellant's rights under law. The Adjudicating Authority acted beyond its power as it has no equity jurisdiction to decide whether it can appoint or reject the Resolution Professional proposed to be appointed by the CoC.

Contentions Of The Respondent

The Respondent submitted that the Adjudicating Authority primarily found that Mr. Suresh was handling too many assignments and thus appointed the Respondent from the panel of IRP maintained by the IBBI. An Insolvency Professional (IP) must refrain from taking too many assignments, if he is unlikely to devote adequate time to each of the assignments under Clause 22 of the Code of conduct of the IP.

Decision Of The NCLAT

The NCLAT Bench observed that under Section 22(3) of the IBC, the CoC in its 1st Meeting by a majority vote not less than 66% of the voting share can either decide to continue the IRP as Resolution Professional or may replace the IRP by filing an Application before the Adjudicating Authority along with written consent from the proposed Resolution Professional in the specified form.

The Bench opined that the Appellant had complied with the provision of law and the Adjudicating Authority ought to have considered the same without going into the other technicalities. "When the Applicant comply with the provisions of law and there is no scope to reject the prayer or relief as sought by the Applicant."

Reliance was placed on the Supreme Court judgment in Vallal RCK v M/s Siva Industries and Holdings Limited & Ors., CA 1811-1812 of 2022 wherein it was held that if the decision of the CoC, exercising their commercial wisdom is in accordance with law then the same cannot be interfered with by the Tribunals.

"Further, the provisions of law empower the CoC contemplated under Section 22 of the I&B Code, 2016 either to continue the IRP as RP or replace the IRP. When the provisions are unambiguous and authorises the CoC to act in accordance with law the same cannot be interfered with by the Tribunals unless and until it is arbitrary, illegal and irrational and dehors the provisions of the Code and the Rules."

The Bench set aside the Adjudicating Authority's order and directed the latter to consider appointment of Shri CA Mahalingam Suresh Kumar as Resolution Professional of the Corporate Debtor within a period of two weeks, in accordance with law and pass appropriate orders.

Case Title: M/s IDBI Bank Limited v C.J. Davis

Case No.: Company Appeal (AT) (CH) (Ins) No. 116 of 2022.

Counsel For Appellant: Mr. A.G. Sathiyanarayana, Advocate.

Counsel For Respondent: Mr. P.V. Dinesh, Advocate for IRP Ms. Reetha, Advocate.

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