Litigation News

Can an ex-employee of the Financial Creditor be permitted to act as Resolution Professional? NCLAT decides

Aditi Singh

The National Company Law Appellate Tribunal (NCLAT) has upheld the substitution of a financial creditor's ex-employee as the proposed interim resolution professional in a CIRP initiated by the financial creditor, on the ground of apprehension of bias. (SBI vs M/s. Metenere Limited)

The order was passed by a three-member Bench headed by Acting Chairperson, Justice Bansi Lal Bhat.

The Appellant, State Bank of India (SBI), had initiated insolvency proceedings against the Corporate Debtor, M/s. Metenere Limited, by moving an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the Adjudicating Authority i.e. NCLT, Principal Bench.

Before the NCLT, the Coporate Debtor objected to SBI's proposal to appoint one Shailesh Verma as an Interim Resolution Professional.

The Corporate Debtor stated that Verma had worked with SBI for 39 years before he retired in 2016 and there was thus an apprehension of bias.

In view of the submission, the NCLT passed an order directing SBI to substitute Varma's name.

Aggrived by the order, SBI moved an appeal before NCLAT.

SBI submitted that Shailesh Verma fulfilled the requirement for appointment as Interim Resolution Professional/ Resolution Professional under IBC and admittedly bore no disqualification.

It was contended that IBC and its the Regulations attached no disqualification to an ex-employee of a financial creditor from being appointed as an Interim Resolution Professional.

SBI further asserted that a Resolution Professional had no adjudicatory powers and only acted as a facilitator in the corporate insolvency resolution process. It was claimed that he/she was not required to act as an ‘Independent Umpire’ between the financial creditor and the ex-management of the Corporate Debtor or decide any conflicting issues between them.

SBI added that even a financial creditor played a limited part in the process i.e. to the extent of its voting share as a member of ‘Committee of Creditors’ and not beyond that.

The Corporate Debtor argued that since Verma was drawing pension from SBI, he was an ‘interested person’ and on the payroll of ‘Financial Creditor’, he was ineligible under IBC to act as an ‘Interim Resolution Professional’.

After recording the submissions of the parties, the NCLAT remarked,

The sole question arising for determination in this appeal is whether an ex-employee of the ‘Financial Creditor’ having rendered services in the past, should not be permitted to act as ‘Interim Resolution Professional’ at the instance of such ‘Financial Creditor’, regard being had to the nature of duties to be performed by the ‘Interim Resolution Professional’ and the ‘Resolution Professional’.

The NCLAT opined that the fact that Verma was drawing pension does not clothe him with the status of an employee on the payroll of the financial creditor.

While referring to Regulation 3(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the NCLAT observed that Verma was indeed a qualified Insolvency Professional and neither he nor any of his associates was alleged to be connected with the Corporate Debtor in a manner which rendered him ineligible.

It was added that there were no disciplinary proceedings pending against Verma and he was also not engaged as a retainer by the ‘Financial Creditor’.

In spite of the above, the NCLT noted that it could not be denied that SBI restricted its choice to propose Verma as ‘Interim Resolution Professional’, "obviously having regard to past loyalty and the long services" rendered by him.

This conclusion is further reinforced by filing of instant appeal by the ‘Financial Creditor’ who is upset with the impugned order directing the Appellant- ‘Financial Creditor’ to substitute the name of ‘Interim Resolution Professional’ in place of Mr. Shailesh Verma.

The above facts, the NCLAT remarked, had to be viewed in the context of apprehension of bias raised by the Corporate Debtor on the basis of its perception.

It observed that the conduct of ‘Interim Resolution Professional’ as an Independent Umpire must be understood in the context of him acting fairly qua the discharge of his statutory duties.

Therefore, in view of the given set of circumstances, the NCLAT concluded that the apprehension of bias expressed by the Corporate Debtor qua the appointment of Verma as proposed Interim Resolution Professional could not be dismissed offhand.

Notwithstanding the fact that Verma was neither disqualified nor ineligible, the Adjudicating Authority was perfectly justified in seeking his substitution to ensure that the corporate insolvency resolution process was conducted in a fair and unbiased manner, it said.

"It goes without saying that the Appellant- ‘Financial Creditor’ should not have been aggrieved of the impugned order as the same did not cause any prejudice to it.", the NCLAT remarked as it dismissed the appeal.

SBI was represented by Senior Advocate Ramji Srinivasan with Advocates Ankur Mittal, UC Mittal, Meera Murali, Jasveen Kaur, Rishab Kapoor.

Corporate Debtor was represented by Senior Advocate Arun Kathpalia with Advocates Arvind Kumar Gupta, MK Pandey, Purti Marwaha Gupta, Heena George, Areela Sanjay Massey, Adya Shree Dutta, DN Sharma, TRB Shivakar.

Read the Order:

SBI vs. Metenere Ltd.- NCLAT Judgment.pdf
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