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The National Company Law Tribunal, Hyderabad has held that the power to replace an Interim Resolution Professional and appoint a new individual as Resolution Professional solely and absolutely vested with the Committee of Creditors. (Power Finance Corporation Ltd vs Mahender Khandelwal)
The pre-requisite for replacing the Interim Resolution Professional is meeting the requirements under Section 22 of Insolvency and Bankruptcy Code, 2016 and the same could be done without recording any reasons, the NCLT has held.
The order was passed by Member (Judicial) K Anantha Padmanabha Swamy.
An application under Section 7 IBC was filed by Financial Creditor, Power Finance Corporation Ltd against the Corporate Debtor, KSK Mahanadi Power Company Ltd.
The same was admitted in October 2019 and Mahender Khandelwal was appointed as the Interim Resolution Professional.
Thereafter, a Committee of Creditors (CoC) was constituted, which at its fourth meeting held in January 2020, replaced Mahender Khandelwal and appointed Sumit Binani as the Resolution Professional in terms of Section 22 IBC.
While the Financial Creditor moved an application under Section 22(3) IBC to confirm the appointment of Sumit Binani as the Resolution Professional, Mahender Khandelwal moved a separate application seeking a direction to the CoC to reconsider its decision and appoint him as the Resolution Professional.
Broadly, Khandelwal argued as follows:
- Financial Creditor’s application deserved to be dismissed on the ground that there was no CoC resolution in its favour to file the application for approval.
- Replacement was not justified in view of the fact that an order passed by the Insolvency & Bankruptcy Board of India in connection with Khandelwal's term as Resolution Professional for Bhushan Power and Steel, inter alia, barring him from taking fresh assignments, had already been stayed by the Delhi High Court.
- CoC was duly informed about the proceedings before the Delhi High Court and in the absence of any legal bar on his appointment, CoC’s decision was devoid of any reasoning and merit.
- The decision to replace Khandelwal and appoint a new individual was taken at a very belated stage of the CIRP i.e. three months, which would hamper the interest of the Corporate Debtor.
The Financial Creditor submitted that Sumit Binani's appointment as the Resolution Professional was passed by 89.6% majority and was thus unequivocal in nature.
The Financial Creditor, inter alia, contended as follows:
- Interim Resolution Professional had no vested right to be appointed as the Resolution Professional.
- The decision of the CoC was non-justiciable if conditions under Section 22 IBC were complied with.
- The commercial wisdom of the CoC prevailed on the facts of any case and any transgression of the same was in violation of the spirit of IBC.
After considering the submissions made by the parties, the NCLT opined that a mere technical objection regarding the authorization on behalf of CoC to one of its members could not construe a valid ground for rejection of plea under Section 22 IBC when the appointment was backed by the majority votes and did not cause any hardship to any members of the CoC.
The NCLT stated that it was not in dispute that Khandelwal carried out various corporate insolvency resolution process, including that of Bhushan Steel and Power Ltd, in a fair manner and even the CoC in the present case had not levelled any allegations against him.
However, in terms of Section 22 IBC, the CoC had the power to replace the Interim Resolution Professional, without recording any reasons for the same, it said.
NCLT held that the power to replace an Interim Resolution Professional was solely and absolutely vested with the CoC and the only pre-requisites was meeting the requirements as per Section 22 IBC.
These pre-requisites, NCLT explained, are as follows:
- A Resolution passed by the CoC with at least 66% voting shares.
- Written consent from the proposed Resolution Professional in the specified form.
- Application by CoC before the Adjudicating Authority to confirm the appointment of the proposed Resolution Professional.
- Appointment by Adjudicating Authority after confirmation from IBBI.
The NCLT observed that in the present case, the first three conditions had been fulfilled and only the confirmation by IBBI was left.
The NCLT thus stated that it could not find any infirmity with the decision of the CoC to replace Mahender Khandelwal with Sumit Binani as Resolution Professional for the Corporate Debtor and dismissed Khandelwal’s application.
It further directed the Registry to forward the name of the proposed Resolution Professional to IBBI for its confirmation.
Financial Creditor/CoC was represented by Advocate Bishwajit Dubey from Cyril Amarchand Mangaldas.
Khandelwal was represented by Senior Advocate L Ravichandran and Advocate Ranjana Roy Gawai.
Read the Order: