NCLT Rightly Invokes Inherent Jurisdiction to Replace RP for Failure to Adhere to Timelines and to Convene CoC Meeting: NCLAT

Case details: Srigopal Choudary Resolution Professional of Shree Ram Urban Infrastructure Ltd. v. SREI Equipment Finance Ltd. - [2023] 149 taxmann.com 411 (NCLAT- New Delhi)

Judiciary and Counsel Details

• • Rakesh Kumar, Judicial Member and Ms. Shreesha Merla, Technical Member 
  • Dr. U.K. Chaudhary, Sr. Adv., Mansumyer Singh, Jaitegan Singh Khurana and Manpreet Kaur, Advs. for the Appellant. 
  • Krishnendu Datta, Sr. Adv., Anirban Bhattacharya, Ms. P. Vora, S. Buxy, Srikanth, D. Sachdeva, Advs., P. Nagesh, Sr. Adv., Rajeshwar Singh, Apoorva Agrawal, Sarthak, Hemant Sharma, Adv., Abhijeet Singh, Akash Chatterjee, Shahanulla and Krishan Kumar, Advs. for the Respondent.

Facts of the Case

In the instant case, the Corporate Insolvency Resolution Process (IRP) was initiated against the corporate debtor and the appellant was appointed as the Resolution Professional (RP) by the Adjudicating Authority (NCLT).

The Committee of Creditors (CoC) was constituted, and its first meeting was held after one and a half years from the date of initiating the CIRP. The Respondent, who is a financial creditor of the corporate debtor, requested the RP to fix the date for a subsequent meeting of the CoC as previous meetings had been cancelled.

Later, the respondent, along with other financial creditors, filed applications before the Adjudicating Authority alleging that the RP’s inaction had resulted in a breach of the mandatory timelines of the CIRP. Therefore, they sought directions for the removal of the RP and the appointment of a new RP to reconstitute the CoC.

The National Company Law Tribunal (NCLT) vide the impugned order, directed that appellant be removed as the RP and instructed the handover of all records/documents to the newly appointed RP.

Then, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

The appellant argued that the impugned order was contrary to statutory provisions as the power to remove the RP was vested in the CoC and the NCLT was not authorized to issue an order for the removal of RP.

NCLAT Held

The NCLAT observed that the appellant, who was expected to convene the CoC meeting, was deliberately avoiding it with the agenda of removing the appellant as the RP.

The NCLAT held that Section 27 of the IBC contemplates that the replacement of RP can be done by the CoC alone, however, the ingredients of the said provision could not be met as RP was not convening the meeting of the CoC.

Therefore, the Adjudicating Authority, to avoid delay in the CIRP proceedings, rightly invoked its inherent jurisdiction and passed the impugned order for the replacement of the RP. Accordingly, the appeal was to be dismissed.

Case Review

• • SREI Equipment Finance Ltd. v. Shree Ram Urban Infrastructure Ltd. [2023] 149 taxmann.com 410 (NCLT – Mum.) (para 18) affirmed [See Annex].
  • Veeral Controls (P.) Ltd. v. Regen Powertech (P.) Ltd. [2022] 141 taxmann.com 490 (NCLAT – Chennai) (para 12) distinguished.

List of Cases Referred to

• • Anil Kumar v. Allahabad Bank [2021] 131 taxmann.com 334/168 SCL 704 (NCLAT – New Delhi) (para 9),
  • Veeral Controls (P.) Ltd. v. Regen Powertech (P.) Ltd. [2022] 141 taxmann.com 490 (NCLAT – Chennai) (para 9) and
  • Heckett Engineering Co. v. Their Workmen [1977] 4 SCC 377 (para 13).