REPLACEMENT OF INTERIM RESOLUTION PROFESSIONAL

[Mr. M. GOVINDARAJAN]

Interim resolution professional

The Corporate Insolvency resolution process may be initiated by a financial creditor or an operational creditor or the corporate applicant itself.  The applicant may file in the proper form along with the prescribed fee and in the manner prescribed before the Adjudicating Authority, after following the due process as contained in the relevant section of the Insolvency Resolution Process Code (‘Code’ for short).  The Adjudicating Authority, after admission of the application, shall, by an order declare a moratorium and also appoint an interim resolution professional. 

The Adjudicating Authority shall appoint the interim resolution professional (‘IRP’ for short) within fourteen days from the insolvency commencement date.  The term of the IRP shall continue till the date of appointment of the resolution professional.

Committee of creditors

The IRP shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.

Appointment of Resolution professional

The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. The committee of creditors, may, in the first meeting, by a majority vote of not less than 66% of the voting share of the financial creditors, either resolve to appoint the IRP as a resolution professional or to replace the IRP by another resolution professional.

The Committee of Creditors may resolve to-

• to continue the IRP as resolution professional subject to a written consent from the IRP in the specified form, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or
• to replace the IRP, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified form.

The Adjudicating Authority shall forward the name of the resolution professional proposed, to the Board for its confirmation and shall make such appointment after confirmation by the Board.  Where the Board does not confirm the name of the proposed resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the IRP to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.

Replacement of IRP shall be for valid reasons

The Committee of Creditors has to appoint resolution professional either allowing the IRP to continue as resolution professional or replace the IRP by insolvency professional as resolution professional.  66% of the strength of Committee of Creditors is required to appoint the resolution professional (RP) by either way.   In replacement of IRP, the Committee of Creditors is to act in a rationale manner.  If there is no valid reason offered by the Committee of Creditors, then the decision of the Committee of Creditors to replace the IRP will not be valid.

In ‘Ms. Ramasubramaniam v. Sixth Dimensions Project Solution Limited’ – 2019 (4) TMI 1191 - NATIONAL COMPANY LAW TRIBUNAL, MUMBAI BENCH , the Committee of Creditors resolved to appoint Shri Santhanu T. Ray as resolution professional in the place of Shri S. Gopalakrishnan, IRP.  The application is filed before the Adjudicating Authority without mentioning any reasons for change of IRP.  The grounds for replacement of IRP are furnished by the Axis Bank by means of an affidavit even without giving an opportunity to IRP.  The reasons adduced for the replacement of IRP are as follows-

• He had not properly verified the claims of the operational creditor and accepted the claim along with interest whereas the Code and regulations do not permit any interest for the operational creditor.  Resultantly the claim of the operational creditor had gone to the higher side.
• Few claims of financial creditors were accepted by the IRP where the financial creditors failed to give the proper proof of liability.  Such information was neither shared with the Committee of Creditors not could it be located in the corporate debtors company’s balance sheet pertaining to last financial year or any other books of account.
• He failed to collate the information relating to the assets, finances and operation of the corporate debtor for determining the financial position of the corporate debtor except the properties, which are mortgaged to the applicant.  Despite having such a longest tenure of IRP, he could not able to take the control and custody of any asset over which the corporate debtor has ownership.
• He failed to get the receivables which were being earlier paid to the corporate debtor by the licensee and instead of the same, he issued letter to such licensee to immediately stop paying the rent, thus, he helped the licensee and the same is completely detrimental to the interest of Committee of Creditors during corporate insolvency resolution period.  He is ideally supposed to collect the same and keep the same into some FDR or highest interest bearing account on a regular basis.
• He has been claiming exorbitant fees to act as an IRP over and above the permitted by the Committee of Creditors in its meeting.
• He similarly quoted the exorbitant professional fees of third party professional like forensic audit agency, lawyers, valuers etc., which is over and above the limit approved by the Committee of Creditors in its meeting.  Even services of such professional were availed without seeking any approval from the Committee of Creditors.

The Adjudicating Authority, in the open court, questioned the IRP as regards the allegations made against him.  The IRP has given the explanation in the open court stating that-

• The allegations leveled against him are frivolous and basically bank is interested in appointing their own person as RP. 
• He had agreed to charge the very same amount as fee as is offered to Sri Ray.
• He has not considered the operational creditor claim on any higher footing and everything is done as per law.
• The lease rentals were not stopped but only directed to pay the same to the RP.

When the IRP gave his explanation, there is no response from the bank side.  The Adjudicating Authority concluded that based on the fair and humble conduct of the IRP, the allegations made against him is frivolous and the Bank in order to find ruse to appoint their own person, had filed the subsequent affidavit only as an afterthought. 

The Adjudicating Authority had noticed certain serious fraudulent activities committed by the Directors of the corporate debtor.  The Adjudicating Authority directed the officials of the Axis Bank to meet the Adjudicating Authority in Chambers.  The Adjudicating Authority also directed the IRP to file in a sealed cover details containing all confidential information with necessary supporting documents, if any, into the Court.  The IRP had filed a bunch of papers which goes to show that the suspended directors of the corporate debtor/its group companies were involved in various nefarious, illegal and fraudulent activities against whom there is an investigation going on by the CBI.

The Adjudicating Authority, in Camera, advised the Bank to continue the IRP until the proceedings before the Forum attains the finality.  But the Vice President of the Bank was vehement and opposed the same.  The Adjudicating Authority analyzed the provisions relating to the appointment, replacement of the IRP.  It is mandatory on the part of the Committee of Creditors to seek a nod from the Adjudicating Authority for changing the IRP.  In this case, the bank is having 100% share in the Committee of Creditors.  The Bank wanted to replace the IRP with another insolvency professional without assigning any reason and also without giving him a reasonable opportunity of being heard.  The Adjudicating Authority found that the IRP is performing his job diligently and had made a lot of efforts to go very deep into the matter forward into the hands of the Investigation Authorities in public and national interest.

The Adjudicating Authority is of the opinion that the legislation has given the power to it to exercise its discretion in the appointment or change of the IRP.  If the intention of the legislation is to give absolute power to the Committee of Creditors, there would not have been a provision under section 22(3)(b) making it mandatory to file an application before the Adjudicating Authority seeking change of the IRP.  The Adjudicating Authority held that the decision of the Committee of Creditors for the change of IRP and seeking appointment of Shri Santanu T. Ray in his place is not tenable and the Committee of Creditors has no absolute power to change the IRP at their whims and fancies without any valid and tenable reasons.  The Adjudicating Authority confirmed the IRP to act as the RP of the corporate debtor.