Only CoC is empowered to deal with replacement of RP, creditor can’t prefer an application before AA

Case Details: Veeral Controls (P.) Ltd. v. Regen Powertech (P.) Ltd. - [2022] 141 taxmann.com 490 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Kanthi Narahari, Technical Member
  • K. Gaurav Kumar, Practising Company Secretary for the Appellant.
  • P.H. Arvindh Pandian, Sr. Adv. & A.G. Sathyanarayana, Adv. for the Respondent.

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor and the resolution professional (RP) was appointed. Pursuant to that the appellant-operational creditor of the corporate debtor filed a claim before RP for the outstanding dues in respect of the goods supplied to the corporate debtor and that the RP had admitted the claim of the appellant.

Consequently, the appellant filed an application u/s 27 of the IBC to replace the RP on the ground that RP had wilfully not disclosed before the Tribunal that he was undergoing contempt proceedings and show cause notice had been issued against him and, therefore, he was ineligible to be appointed as RP.

The Adjudicating Authority (NCLT) by an impugned order dismissed said application on the ground that the appellant was not entitled to file an application seeking replacement of RP since such provisions for replacement of RP had been envisaged only under sections 22 and 27 of the IBC.

Further, it held that the NCLT couldn’t enforce disciplinary proceedings against IRP/RP and only IBBI would be competent authority to initiate disciplinary proceedings against the IRP/RP.

The appellant filed an instant appeal on the ground that the NCLT had committed an error in not appreciating the principles under the IBC.

The NCLAT observed that Section 27 of the IBC enjoins that a ‘resolution professional’ may be replaced at any time, during ‘CIRP’ by the ‘committee of creditors’ with a 66% majority of voting shares subject to the written ‘consent’ purported ‘resolution professional’. The fact of the matter is that the ‘committee of creditors’ do have the right to replace such ‘resolution professional’ when they suspected collusion between the ‘resolution professional’ and the ‘management’.

The NCLAT, further observed that if the ‘resolution professional’ is required to be replaced by the ‘committee of creditors’ then the ‘adjudicating authority’ is bound to consider the name proposed by the ‘committee of creditors’.

NCLAT Held

The NCLAT held that when there is an express provision namely section 27, which unerringly deals with ‘Replacement of Resolution Professional by Committee of Creditors’, then the same is to be followed/adhered to by ‘litigant’/’stakeholders’ and others connected with IBC.

Further, the NCLAT held that in terms of section 27 of IBC, CoC is only empowered to deal with ‘Replacement of RP’, thus the provisions of section 27(1) are ‘self-explanatory in nature. Therefore, the appellant was not eligible to prefer an application before the Adjudicating Authority for the replacement of RP. Accordingly, the appeal was to be dismissed.

List of Cases Reviewed

• • Order of NCLT – Chennai in IA/971/IB/2021 in IBA/1099/2019, dated- 1-2-2022 (para 28) affirmed.