Erstwhile Resolution Professional Has No Right To Be Heard Before Being Replaced Under Section 27: NCLAT Delhi

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Sumat Kumar Gupta v Committee of Creditors of M/S Vallabh Textiles Company Ltd., has held that when the Committee of Creditors decides to replace the Resolution Professional under Section 27 of IBC and an application is filed before the Adjudicating Authority for approval, the erstwhile Resolution Professional would have no right to be heard before the Adjudicating Authority before being replaced. Section 27 of IBC by implication excludes principles of natural justice. Background Facts M/S Vallabh Textiles Company Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") and Mr. Sumat Kumar Gupta ("Appellant") was appointed as the Resolution Professional. In a Committee of Creditors (CoC) meeting dated 04.06.2022, CoC had decided with 100% vote to replace the Appellant with another Resolution Professional namely Mr. Rajiv Khurana. Accordingly, an application was filed before the Adjudicating Authority by the Financial Creditor of the Corporate Debtor for replacement of the Resolution Professional and the same was allowed vide an order dated 11.07.2022. The Appellant filed an appeal before NCLAT against the order dated 11.07.2022. Relevant Law Section 27 of IBC "27. Replacement of Resolution Professionals by Committee of Creditors.- (1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section. (2) The committee of creditors may, at a meeting, by a vote of sixty-six per cent. of voting shares, resolve to replace the resolution professional appointed under section 22 with another resolution professional, subject to a written consent from the proposed resolution professional in the specified form. (3) The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority. (4) The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in section 16. (5) Where any disciplinary proceedings are pending against the proposed resolution professional under sub-section (3), the resolution professional appointed under section 22 shall continue till the appointment of another resolution professional under this section." Contention Of The Appellant The Appellant argued that the Adjudicating Authority passed the order without issuing notice or giving any opportunity of being heard to the Appellant. The Appellant had a right to be heard before being replaced, as principles of natural justice are applicable to Section 27 of the Insolvency and Bankruptcy Code, 2016 ("IBC"). Contention Of COC The CoC submitted that Section 27 of IBC does not contemplate any opportunity to be given to the Resolution Professional by the Adjudicating Authority before passing an order approving the CoC's resolution for replacement of the Resolution Professional. As per the scheme delineated by Section 27, replacement is complete when resolution is passed for replacement with 66% votes of the CoC and Adjudicating Authority is communicated the name of new Resolution Professional for approval. Decision Of NCLAT The Bench observed that Section 27(1) clearly provides that when the CoC is of the opinion that a resolution professional appointed under Section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under the Section 27(2). A resolution has to be passed at the CoC meeting by 66% voting share to replace the Resolution Professional, subject to a written consent from the proposed resolution professional. It was further observed that the decision taken by the CoC is a decision by vote of 66% and when the decision is by votes of a collective body, the decision is not easily assailable. Replacement is complete as per scheme of Section 27 when the resolution is passed with requisite 66% voting share. "When we look into the scheme of Section 27 it by implication exclude the principles of natural justice, it is clear from the scheme of Section 27 that the scheme nowhere provides for any opportunity to the Appellant for hearing. Therefore, it cannot be said that the erstwhile Resolution Professional is entitled to be heard by the Adjudicating Authority before taking decision." The Bench dismissed the appeal. Case Title: Sumat Kumar Gupta v...

Erstwhile Resolution Professional Has No Right To Be Heard Before Being Replaced Under Section 27: NCLAT Delhi

Pallavi Mishra

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