The Supreme Court has directed deletion of adverse remarks made against a Resolution Professional (RP) registered with the Insolvency and Bankruptcy Board of India by the National Company Law Appellate Tribunal (NCLAT) questioning his competence without any reasons and despite the Committee of Creditors (CoC) voting in favour of his appointment as the liquidator for the liquidation of the corporate debtor, a Hyderabad-based construction/ infrastructure company.
A bench of Justice AK Goel and Justice Rohinton Fali Nariman ordered that the adverse remarks be deleted while dismissing the appeal of the RP, Devdendra Padamchand Jain, challenging the order of NCLAT.
In the instant case, Jain had been appointed the Interim Resolution Professional for the VRN by NCLT in February, 2017.
After constitution of the Committee of Creditors, in the first meeting, the Committee unanimously confirmed Jain’s appointment as the Resolution Professional. The appointment was confirmed by NCLT.
After several meetings of the Committee of Creditors, the resolution plan could not be validated as the committee at first sought some modifications in it.
With the statutory period of 180 days nearing end, NCLT directed that the final meeting of the Committee of Creditors be held before 31.07.2017.
On July 25, 2017, the Committee of Creditors rejected the Resolution Plan as well as the request of VNR Infrastructure for extension of the time limit for completion of the insolvency resolution process.
Following this, on August 24, 2017, the adjudicating authority passed the order on liquidation of VNR infrastructure. A sworn statement came to be filed by the Committee of Creditors, recommending Jain to be the liquidator for liquidation of the corporate debtor.
However, the NCLT, without any complaint from any party, indicated its intention to replace Jain and appoint another liquidator after obtaining a name from the Insolvency and Bankruptcy Board of India (IBBI).
The tribunal went to the extent of holding that a new/competent liquidator should be appointed in the interest of all the stakeholders, especially employees, secured creditors and various government authorities.
It also noted that Jain had not assisted the Adjudicating Authority to the satisfaction during various hearings held.
These “unfounded and unwarranted” observations made by NCLT qua Jain were challenged by him in a company appeal before NCLAT.
In the meantime, on September 12, 2017, IBBI informed NCLT that it was not empowered to suggest the name of any person for being appointed as liquidator.
The NCLT went ahead to appoint one TSN Raja as the liquidator.
The NCLAT rejected Jain’s appeal while holding that the financial creditors had unanimously accepted that he was not assisting the adjudicating authority to its satisfaction during the hearings and that Committee of Creditors was also not satisfied with him.
Jain then moved the Supreme Court which without going into the merits of the case, dismissed the appeal but directed that the adverse remarks be deleted.
Jain told the Supreme Court that the findings qua him needed to be set aside as neither the minutes of meetings of the Committee of Creditors nor the various contemporaneous orders passed by the adjudicating authority (NCLT) nor the pleadings of the respondents record any dissatisfaction qua the assistance rendered by Jain.
“… the observations made in the impugned order against the appellant individually are deleted,” ordered the apex court bench.
Need for checks and balances in use of IBC
Commenting on the facts of the case, advocate Nipun Singhvi, who has been associated with the matter, said, “It is disappointing state of affairs that the replacement of RP was done against the wishes of CoC and also against the law. Further, Hon’ble Appellate Tribunal also erred in examining the nitty-gritty of the case. In the said case, even the Regulatory i.e. Insolvency and Bankruptcy Board of India (IBBI) didn’t take any stand for RP before Appellate Tribunal / Adjudicating Authority.”
He stressed on the need for some checks and balances at the judicial level to avoid such situations.
“The Code (IBC) which is almost a year old is now playing in an unfettered way which has been bone of contention of all the Corporates and insolvency professionals. In the present case, RP was replaced even after 100 percent CoC voted in his favour,” he said while sharing how there have been cases when the bench at NCLT Hyderabad replaced a local RP with one from Kolkata and also gave an extension of 270 days.