2025 (7) TMI 644 - AT - IBC

Bar on Resolution Professional to continue with pending/ existing assignments and replacement of Resolution Professional - suspension of authorisation for assignment (AFA) under Bye- Law 23A of Model Bye-Laws. Whether Resolution Professional is debarred to continue with pending/ existing assignments and replacement of Resolution Professional is required? - HELD THAT - There was no majority opinion on Whether Resolution Professional is debarred to continue with pending/existing assignments and replacement of resolution professional is required? hence the Intervention Petition No.5 of 2025 could not have been disposed of on any majority opinion. Whether suspension of authorisation for assignment (AFA) under Bye- Law 23A of Model Bye-Laws shall debar the Resolution Professional to continue with pending/ existing assignment or Resolution Professional is only prohibited to take new assignment? - HELD THAT - In the present case authorisation for assignment of RP Shri Girish Siriram Juneja stands suspended with effect from 30.01.2025 when show-cause notice was issued by the IBBI. The question to be answered is whether the suspension of authorisation for assignment would debar the RP from taking any fresh assignments or by virtue of Bye-Laws 23A the RP is statutorily debarred from continuing with pending/ existing assignments also. Learned Counsel for the RP and CoC have relied on IBBI (Insolvency Professionals) Regulations 2016 and IBBI (Inspection and Investigation) Regulations 2017 relevant provisions of which need to be noticed to discern the statutory scheme on the above subject. Had the consequence of suspension of authorisation for assignment is to statutorily debar the Insolvency Professional to continue with its existing assignment there is no occasion for providing for requirement as contained in Regulation 13 sub-regulation (6). Thus the statutory scheme as contained in Regulation 13(6) also indicates that there is no automatic statutory debar of RP to continue with existing assignment merely because of suspension of authorisation of assignment that too when such suspension is in a manner of penalty by a final order under Regulation 13 sub-regulations (1) and (3). When the suspension by way of penalty does not contemplate automatic debarment from existing assignments suspension under Bye-Law 23A cannot be read to mean that suspension under Bye- Law 23A shall automatically debar the RP from continuing with existing assignments. The statutory scheme reflected by the above Regulations as noticed above thus indicate that Bye-Law 23A has to be read to mean that on suspension of authorisation of assignment no fresh assignment can be taken by the RP. The learned Judicial Member in its opinion dated 30.04.2025 fell in error in opining that by virtue of Bye-Law 23A authorisation for assignment the RP is debarred from continuing with pending or existing assignments is incorrect view of law and cannot be supported. Suspension of authorisation for assignment by Bye-Law of 23A shall not debar the RP to continue with pending/ obligatory assignments and the RP is only prohibited to take new assignments. The order dated 13.06.2025 insofar as it disposed of the Intervention Application referring to majority opinion is set aside. It is held that there was no majority opinion on Point No.3 i.e. replacement of the RP. Hence the directions issued by learned Judicial Member to IBBI to replace the RP is unsustainable and is set aside - The Adjudicating Authority may proceed to hear and decide the Plan approval application. Appeal allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Tribunal considered the following core legal questions arising from the intervention petition and related proceedings in the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor:

(i) Whether the Operational Creditor (Respondent No.1) had the right or locus to intervene in the ongoing CIRP process of the Corporate Debtor;

(ii) Whether the entire CIRP process and decisions taken by the Committee of Creditors (CoC) after 30.09.2022, including actions post the Supreme Court order dated 29.01.2025, required to be quashed or set aside;

(iii) Whether the Resolution Professional (RP), whose Authorisation for Assignment (AFA) was suspended upon initiation of disciplinary proceedings, was debarred from continuing with pending/existing assignments and whether replacement of the RP was required;

(iv) Whether the order dated 13.06.2025 passed by the Adjudicating Authority, disposing of the intervention petition on the basis of majority opinion, was sustainable and in accordance with law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Locus to Intervene in CIRP Process

Legal Framework and Precedents: The Tribunal examined the nature of intervention applications under insolvency law and the scope of parties' rights to intervene in admitted company petitions under the Insolvency and Bankruptcy Code (IBC). The Third Member's opinion referenced the principles that allow a party to seek intervention if it affects their rights or interests.

Court's Reasoning: The Judicial Member initially held that the Operational Creditor had the right to intervene. The Technical Member disagreed, holding that the intervention application was improperly framed, seeking reliefs beyond the scope of intervention, and thus the prayers except for intervention were infructuous.

The matter was referred to the President due to this difference. The Third Member, on reference, affirmed that a party can seek relief to intervene in an admitted company petition and can seek various reliefs linked to the CIRP in a single application if connected and consequential.

Application of Law to Facts: The Tribunal found that the Operational Creditor had locus to intervene in the CIRP process. However, the merits of the reliefs sought in the intervention petition beyond the intervention itself were not adjudicated by the Third Member.

Conclusion: There was a clear majority opinion allowing the Operational Creditor to intervene in the CIRP process.

Issue (ii): Validity of the CIRP Process and Actions Post Supreme Court Order

Legal Framework and Precedents: The Supreme Court's judgment dated 29.01.2025 set aside the approval of the Resolution Plan of AGI Greenpac Pvt. Ltd. due to lack of prior Competition Commission of India (CCI) approval as required under Section 31(4) of the IBC. The Supreme Court directed reconsideration of other Resolution Plans which had requisite CCI approval.

Court's Reasoning: The Judicial Member held that except for the approval of AGI's plan (already set aside), the CIRP process and actions taken were valid. The Technical Member found the prayers to quash the process infructuous.

Application of Law to Facts: The Tribunal noted the Supreme Court's directions and the subsequent approval of the Independent Sugar Corporation Ltd. (INSCO) Resolution Plan by the CoC on 04.02.2025. The Adjudicating Authority was to consider the approval application accordingly.

Conclusion: The CIRP process, except the invalidated approval of AGI's plan, was valid and continuing as per Supreme Court directions.

Issue (iii): Effect of Suspension of Authorisation for Assignment (AFA) on Continuation of RP's Existing Assignments and Replacement of RP

Legal Framework: The key statutory and regulatory provisions considered were:

• Bye-Law 23A of the IBBI (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016, which provides for automatic suspension of AFA upon initiation of disciplinary proceedings;
• Regulation 7A of the IBBI (Insolvency Professionals) Regulations, 2016, prohibiting acceptance or undertaking of new assignments without valid AFA after 31.12.2019, but exempting existing assignments;
• Regulation 13 of the IBBI (Inspection and Investigation) Regulations, 2017, which allows the Disciplinary Committee to require a service provider to discharge pending obligations or continue functions temporarily to enable clients to shift to another service provider;
• Sections 97 and 98 of the IBC, which relate to disciplinary proceedings under Part III of the Code, not applicable to CIRP under Part II.

Precedents: The Tribunal analyzed judgments of the Madras High Court, Bombay High Court, and Delhi High Court:

• Madras High Court upheld constitutional validity of Bye-Law 23A, holding suspension is automatic and an ad interim measure to keep the erring professional away pending inquiry, but did not hold that suspension bars continuation of existing assignments;
• Bombay High Court agreed with Madras High Court, held suspension under Bye-Law 23A bars acceptance of new assignments but does not bar continuing existing assignments;
• Delhi High Court in a writ petition involving the same RP, recorded the IBBI's stand that suspension precludes undertaking new assignments but does not prevent continuation of existing assignments.

Court's Interpretation and Reasoning: The Tribunal found that the Judicial Member erred in relying on Sections 97 and 98 of the IBC, which are not applicable to CIRP under Part II, and in holding that suspension under Bye-Law 23A bars continuation of existing assignments. The Tribunal held that the statutory scheme, including Regulation 7A and Regulation 13(6), contemplates that suspension only bars new assignments but allows continuation of existing assignments until disciplinary proceedings conclude or further directions are issued.

Application of Law to Facts: The RP's AFA was suspended on 30.01.2025 upon issuance of show-cause notice. The Tribunal held that this suspension did not debar the RP from continuing with the ongoing CIRP assignment.

Treatment of Competing Arguments: The Respondent No.1 argued for replacement of RP relying on Bye-Law 23A and Madras High Court judgment, asserting suspension bars continuation. The RP and CoC relied on Regulation 7A, Regulation 13, and judgments of Bombay and Delhi High Courts supporting continuation of existing assignments. The Tribunal preferred the latter view as consistent with the statutory scheme and regulatory framework.

Conclusion: Suspension of AFA under Bye-Law 23A does not debar the RP from continuing with pending or existing assignments; it only prohibits acceptance of new assignments.

Issue (iv): Sustainability of the Order dated 13.06.2025

Legal Framework: Section 419(3) of the Companies Act provides that orders can be passed on the basis of majority opinion of members of the Tribunal.

Court's Reasoning: The Adjudicating Authority's order dated 13.06.2025 purported to dispose of the intervention petition based on majority opinion on three points framed by the Judicial Member. However, the reference to the President and opinion of the Third Member clarified that only two points were referred as points of difference: locus to intervene and maintainability of reliefs sought in intervention. The third point regarding replacement of RP was not referred and no majority opinion existed on it.

The Tribunal found that the Adjudicating Authority erred in holding there was a majority opinion on the third point (replacement of RP) and disposing the petition on that basis. The Third Member expressly did not opine on the merits of the reliefs beyond locus.

Application of Law to Facts: The Tribunal held that only the prayer for intervention (locus) was supported by majority opinion; the prayer for removal/replacement of RP was not. Thus, the order disposing the petition on the basis of majority opinion on replacement was unsustainable.

Conclusion: The order dated 13.06.2025 is set aside insofar as it disposes of the intervention petition on the ground of replacement of RP; only the intervention prayer was allowed by majority.

3. SIGNIFICANT HOLDINGS

"Therefore, in view of the above, we direct the Insolvency and Bankruptcy Board of India(IBBI) to replace the present Resolution Profession by another Resolution Professional to conduct CIRP process as per provision of law." (Judicial Member's dissenting opinion, set aside)

"There was no majority opinion on Point No.(iii) (Whether Resolution Professional is debarred to continue with pending/existing assignments and replacement of resolution professional is requiredRs.), hence, the Intervention Petition No.5 of 2025 could not have been disposed of on any majority opinion on Point No.(iii)."

"Suspension of authorisation for assignment by Bye-Law of 23A shall not debar the RP to continue with pending/ obligatory assignments and the RP is only prohibited to take new assignments."

"The order dated 13.06.2025 insofar as it disposed of the Intervention Application No.05/KB/2025 on Point No.3, referring to majority opinion, is set aside. It is held that there was no majority opinion on Point No.3, i.e. replacement of the RP. Hence, the directions issued by learned Judicial Member to IBBI to replace the RP is unsustainable and is set aside."

Core principles established include:

• The locus to intervene in CIRP proceedings can be granted to an Operational Creditor even with a small debt share, subject to maintainability.
• The suspension of AFA under Bye-Law 23A of the IBBI Model Bye-Laws is an automatic, ad interim measure upon initiation of disciplinary proceedings but does not bar continuation of existing assignments.
• The RP's removal or replacement requires proper adjudication and cannot be ordered based on non-majority opinions or without due process under applicable law.
• The Adjudicating Authority must adhere to the scope of references made in cases of difference of opinion and cannot extend majority decisions beyond the referred points.
• The CIRP process must proceed in accordance with Supreme Court directions, ensuring timely completion and adherence to statutory provisions.

Final determinations:

• The Operational Creditor had locus to intervene in the CIRP process.
• The CIRP process and decisions taken post 30.09.2022, except the invalidated approval of AGI's plan, were valid.
• The suspension of the RP's AFA did not debar him from continuing with the existing CIRP assignment.
• The Adjudicating Authority's order directing replacement of the RP based on majority opinion was unsustainable and set aside.
• The Adjudicating Authority was directed to proceed with the approval of the Resolution Plan of Independent Sugar Corporation Ltd. as per Supreme Court directions.