TMI Blog2020 (10) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... erves that pursuant to stay on IBBI Order by Hon'ble High Court of Delhi, there is no bar on the CoC to continue IRP herein as the RP and the IRP herein cannot be excluded from the zone of consideration on the same ground. In relation to the recording of reasons by CoC in its meeting for removal of the IRP as RP, this Adjudicating Authority observes that the Hon'ble Supreme Court and Hon'ble NCLAT in plethora of Judgments has held that the CoC is not bound to record any reasons under Section 22 of IB Code, for change of IRP with another Insolvency professional as RP - On a plain reading of Section 22 of the Code, 2016, it is clear that the CoC is conferred with the power of replacing the IRP by another Resolution Professional and no reasons need to be recorded by the CoC for affecting such replacement. It is the prerogative of the CoC whether to continue the IRP as the RP or to replace the IRP with by another RP. It is pertinent to note that the CoC has decided to appoint Mr. Sumit Binani as RP in the 4th CoC meeting with 89.6% votes and that the written consent by way of Form-AA is also placed along with the instant Application. Further, the CoC has also filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration on behalf of CoC seeking to appoint Mr. Sumit Binani as the Resolution Professional, who has been voted to act as the Resolution Professional of the Corporate Debtor by Committee of Creditors under Section 22(3)(b) of the Code. 3. The Application bearing IA No. 235/2020 is filed by Mr. Mahender Kumar Khandelwal, IRP of the Corporate Debtor, inter-alia, seeking to pass directions to the CoC of the Corporate Debtor to reconsider the decision and continue with the Applicant as RP. 4. The Application bearing IA No. 300/2020 in IA No. 234/2020 is filed by Power Finance Corporation seeking the following prayers:- a. Confirm the appointment of Mr. Sumit Binani as the Resolution Professional of KSK Mahanadi Power Company Ltd. or b. Urgently take up IA No. 234 of 2020 in CP (IB) No. 492/7/HDB/2019 for hearing/disposal; and c. exclude the time period from January 22, 2020 till the date of appointment of Mr. Sumit Binani from the CIR Process time period; and d. Pass any such orders which this Hon'ble Tribunal deems fit. 5. Brief averments of the Applicant in Application bearing IA No. 234/2020 are as under:- a. That an Application under Section 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the Insolvency and Bankruptcy Board of India (IBBI) alleging misconduct on the part of the IRP in conducting the CIRP of Bhushan Power and Steel Ltd. As a consequence of the order dated 14.11.2019 of the Disciplinary Committee of IBBI, the IRP was inter-alia barred from taking any fresh assignment. That the IRP duly disclosed the same to the CoC members promptly vide an email dated 15.11.2019, while voting on resolution to appoint IRP as RP was being conducted. d. That immediately thereafter, the IRP challenged the order of the Disciplinary Committee before the Hon'ble High Court of Delhi vide W.P. (c) 12189 of 2019. The Hon'ble High Court vide order dated 19.11.2019 passed an interim protection as under: .........10. In view of the order passed today, the petitioner is given liberty to place this order before the CoC concerned with M/s. K.S.K. Mahanadi Power Company Limited (KSK). The CoC concerned with KSK will be free to act in accordance with the Law. e. That on 19.11.2019 itself the IRP wrote to the CoC to appraise the order dated 19.11.2019, passed by the Hon'ble High Court of Delhi. f. That vide order dated 25.11.2019, the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon'ble High Court of Delhi in WP No. 12189/2019. l. That vide order dated 05.09.2019 at page 104 in para 91 the Hon'ble Principal Bench of the National Company Law Tribunal, Delhi had clearly appreciated and observed that the IRP had conducted the CIRP of Bhushan Power Steel Limited in a completely transparent and fair process. The Relevant part of the same is being reproduced herein below: ... The process undertaken by the RP and minutes of meetings of CoC conducted by him do not leave any manner of doubt that the process is fair and transparent . m. That the members of the CoC have taken decision at a belated stage of the CIRP, i.e., after three months, causing not only due loss to the reputation to the IRP but also detrimental to the interest of the Corporate Debtor as the appointment of new individual will require time to get well acquainted with the operations of the Corporate Debtor and this change shall set back the CIRP of the Corporate Debtor by months and may adversely affect the Resolution of the Corporate Debtor. In this regard, the IRP has placed reliance on the judgment of NCLT, Amaravati Bench, in the matter of Bank of India V. Nithin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Consortium Meetings be directed to be placed on record in order to bring the correct facts into light before this Adjudicating Authority. t. That the IRP herein has appointed PwC as a professional agency in order to assist the IRP in discharging his duties and responsibilities in accordance with the provisions of IBC, 2016 to effectively conduct the CIRP process for the Corporate Debtor. The same was confirmed in the First Meeting of the CoC itself. u. That the CoC should have rejected the services of PwC, as agency supporting the CIRP, as well if there was any fault with the IRP However, non-confirmation of IRP while continuing with the Agency appointed by the IRP is beyond understanding to a prudent mind since in the light of the fact that the CIRP process was conducted by the IRP with the aid of professional assistance from PWC. That any alternation in the IRP should have also led to the change in the professional agency, which was supporting the IRP. v. That on 18.01.2020, the IRP herein circulated the Notice and Agenda for the Fourth Meeting of CoC to be held on 22.01.2020 and with one of the agenda being for voting on proposed resolution to appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been duly complied with. c. The power to replace an RP is solely and absolutely the prerogative of the CoC and the only pre-requisites that are required to be met as per Section 22 are as under: i. The CoC shall pass the resolution with at least 66% voting shares; ii. Written consent shall be obtained from the proposed RP in the specified form; iii. The CoC shall file an application before the Ld. Adjudicating Authority for appointment of the proposed RP; and iv. The Ld. Adjudicating Authority shall forward the name of the proposed RP to Insolvency and Bankruptcy Board of India ( IBBI ) for its confirmation and shall make such appointment after confirmation by the IBBI. d. That the first mandatory requirement is approval of Resolution by requisite majority of CoC. Such a decision is non-justiciable and cannot be interfered with unless there are convincing reasons to do so. In fact, it is relevant to note that the Hon'ble National Company Law Appellate Tribunal has clearly held that CoC's decision to replace the RP cannot be interfered with unless the same is perverse or without jurisdiction. For instance, in Punjab National Bank vs. Kiran Shah ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r IBBI/IPA-001/IP-N00005/2016-2017/10025 as the Resolution Professional, replacing the IRP in accordance with section 22 of the Code. g. Therefore, the CoC's Resolution passed by 89.6% majority approving the appointment of Mr. Sumit Binani as the RP, being unequivocal in nature, cannot be interfered with. h. The Applicant's averment that no fair or transparent bidding process was followed inviting Expression of Interest for the appointment of RP, is denied as there is no such requirement prescribed under the Code for inviting Expression of Interest at the time of appointing/confirming the RP as per Section 22 of the Code. In fact, the Hon'ble Appellate Tribunal has also rejected a similar argument in the matter of Friends Agencies v. BIW Fabricators Pvt. Ltd., and upheld the COC's decision to replace the RP. i. That so long as the conditions stipulated under Section 22 of IB Code, 2016, have been met, there cannot be any interference with the CoC's decision to appoint the RP. j. The CoC has approved the appointment of Mr. Sumit Binani with 89.6% votes. Additionally, Mr. Sumit Binani' s written consent dated 22.01.2020 has been duly obtain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CoC. In any event, CoC has subsequently by way of ratification duly, unanimously authorized PFC to file any pleadings, applications on behalf of CoC. Therefore, a technicality, capable of being rectified, should not prejudice the adjudication of the present Application. b. That the IRP, despite having knowledge about it, failed to bring this to the notice of the CoC so that steps for ratifying PFCL's authority to file Application on behalf of the CoC could have been taken, if required. This goes to show that the IRP consciously and maliciously elected to remain silent on it during the CoC meetings, to further serve his own interest. c. The power to appoint an RP in place of an IRP vests solely and absolutely with the CoC and any decision taken in this regard is non-justiciable and not liable to be challenged or set aside as long as the pre-requisite of Section 22 of the Insolvency and Bankruptcy Code, 2016, which is applicable in the instant case, are complied with. d. Further, the Hon'ble National Company Law Appellate Tribunal in the case of Punjab National Bank vs. Kiran Shah has clearly held that CoC's decision to replace the RP cannot be interfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Appellate Tribunal in the matter of Axis Bank Ltd vs. Sixth Dimension Project Solution Ltd., categorically held that Section 22 of the Code does not require giving reasons for replacement of IRP and the Ld. Adjudicating Authority is not required to decide to such reasons and imposing such a procedure would only delay the CIR Process. g. That the rationale behind not giving reasons for replacement of RP has been noted by the Hon'ble appellate Tribunal in State Bank of India vs. Ram Dev International Ltd, wherein the Hon'ble Appellate Tribunal held that: 14...though such submission seems to be attractive, we are of the view, it is not desirable for a Committee of Creditors to record its opinion in view of the following reasons: i) If the Committee of Creditors record any adverse opinion for replacement of Resolution Professional it will not only harm him for the present but will also affect him in future during appointment as Resolution Professional in another proceeding. In such case, the Committee of Creditor will have to refer the matter to IBBI for initiation of departmental proceedings, which is also not desirable in all the cases. ii) If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 164 and 364 of the Code of Criminal Procedure, 1898. This rule squarely applies where, indeed, the whole aim and object of the legislature would be plainly defeated if the command to do the thing in a particular manner did not imply a prohibition to do it in any other. c. Furthermore, the Hon'ble High Court of Hyderabad in M. SHANKAR REDDY V. AMARA RAMAKOTESWARA RAO, stated that When a statute describes or requires a thing to be done in a particular manner; it should be done in that manner or not at all. d. That the IRP on 06.01.2019 had shared legal opinion by a former judge of the Hon'ble Supreme Court, to the CoC giving opinion that there are no legal impediment against IRP to be confirmed as RP. e. The Hon'ble Supreme Court has categorically held in the matter of Mohd Yunus Khan v. State of U.P., [ (2010) 10 SCC 539)]: Arbitrariness is an anathema to the principles of reasonableness and fairness enshrined in our constitutional provisions. The rule of law prohibits the exercise of power in an arbitrary manner and/or in a manner that travels beyond the boundaries of reasonableness. Thus, a statutory authority is not permitted to act whim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y undue losses of reputation to the Applicant but also detrimental to the Corporate Debtor as appointment of a new individual will require further time to get well acquainted with the Corporate Debtor and its processes. At this juncture, it is utmost significant to reiterate the following decision passed in the matter of Ambica Quarry Works etc. Vs. State of Gujarat Ors. (AIR 1987 SC 1073) wherein it was held that: There may be something in the nature of thing empowered to be done, something in the object for which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may couple the power with a duty, and make it the duty of the person in whom the power is reposed, to exercise that power when called upon to do so. h. Thus, the CoC cannot exercise its power to make decisions which undermine and contradict the object of the IBC Code. Such a decision, in the light of the judgment reiterated above, is liable to be set aside at the outset. i. The Hon'ble Supreme Court has observed in the landmark decision of the Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessment or the procedure for assessment, no doubt, it would be a good ground for setting aside the assessment order. But to hold, as the High Court has that bias is established only because the authorized officer under Section 132 and the Assessing Officer are the same person is, in our view, an incorrect approach. n. Resultantly, the CoC decision in relation to not to confirm the IRP as RP will set a precedent and diminish the opportunities of getting assignments with loan portfolios worth a few thousand cores as per the capability of the IRP/Applicant. o. Reiterating above, the counsel for the IRP prayed to allow the Application as prayed for. 12. Heard both sides and perused the records. 13. The brief list of factual events relating to instant matter are as under:- a. The Company Petition filed by PFC Limited U/s. 7 of IB Code, 2016 against the Corporate Debtor was admitted for CIRP on 03.10.2019 and Mr. Mukesh Khandelwal was appointed as IRP. b. The 1st CoC meeting was held on 07.11.2019 wherein the agenda to discuss the authorization for appointment of IRP as RP was placed and when the matter was put up for voting, IRP has sent an email ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CoC. g. That in the 4th CoC meeting held on 22,01.2020, the resolution to appoint Mr. Sumit Binani as RP was approved with 89.6% votes of CoC and has passed the following resolution;- RESOLVED THAT pursuant to section 22 of Insolvency and Bankruptcy Code, 2016 and other applicable provisions, if any, of the Insolvency and Bankruptcy Code, 2016 and in accordance with rules and regulations made thereunder, approval of the members of the Committee of Creditors is hereby accorded for appointment of Mr. Sumit Binani, an Insolvency Professional (Registration No. IBBI/IPA-001/IP-N00005/2016-17/10025) as the Resolution Professional in the matter of Corporate Insolvency Resolution Process of KSK Mahanadi Power Company Limited. 'RESOLVED FURTHER THAT approval is hereby accorded for payment of fees aggregating to INR 5,00,000/- per month (exclusive of out of pocket expenses up to the maximum limit of 7.5% of aggregated monthly remuneration and applicable taxes) to the Resolution Professional, which shall constitute insolvency resolution process costs and may be paid out of the funds of the Corporate Debtor 14. Basing upon above Resolution of CoC, PFC has filed an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording of reasons by CoC in its meeting for removal of the IRP as RP, this Adjudicating Authority observes that the Hon'ble Supreme Court and Hon'ble NCLAT in plethora of Judgments has held that the CoC is not bound to record any reasons under Section 22 of IB Code, for change of IRP with another Insolvency professional as RP. 21. On a plain reading of Section 22 of the Code, 2016, it is clear that the CoC is conferred with the power of replacing the IRP by another Resolution Professional and no reasons need to be recorded by the CoC for affecting such replacement. It is the prerogative of the CoC whether to continue the IRP as the RP or to replace the IRP with by another RP. 22. The power to replace an RP is solely and absolutely vested with the CoC and the only pre-requisites that are required to be met as per Section 22 are as under: i. The CoC in its first Meeting, shall pass the resolution with at least 66% voting shares; ii. Written consent shall be obtained from the proposed RP in the specified form; iii. The CoC shall file an application before the Ld. Adjudicating - Authority for appointment of the proposed RP; and iv. The Ld. Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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