2020 (5) TMI 725 - Tri - Insolvency and Bankruptcy

Replacement of the Resolution Professional - whether this application without supporting any resolution for removal/replacement of the RP is maintainable u/s 22(2) or 27(2) of the Code? - HELD THAT - Admittedly the applicant had never moved any resolution in the CoC as per section 22(2) or u/s 27(2) of the Code, and therefore, there was no resolution being adopted for such replacement. It appears that in the said circumstance this Adjudicating Authority could not entertain an application of this nature. It is significant to note that this application was heard by the Bench No 2 and Ld. Bench vide its interim order dated 12/03/2020 observed that we require more than 66% of CoC members for changing the Resolution Professional and for want of proof of passing a resolution for replacement of the RP the Bench has not granted the relief asked for and adjourned the application for hearing the RP and listed on 13.04.2020. Since there was no regular court sitting due to disruption of judicial work due to COVID-19 pandemic, this application was not taken up for hearing on 13.04.2020 and taken up on today at the request of the applicant. Admittedly the CoC was reconstituted. After reconstitution, the applicant holds only 25.07% voting share while the other financial creditor is holding 74.93% voting share. Whether the reconstitution is proper or legal is not at all to be determined in this application. If the applicant is disputing the integrity of the RP, it can approach IBBI. It can also moves resolution before the CoC for replacement of the RP at any time during the CIRP, and can file appropriate application for removal if the applicant succeeds in getting required vote share for his removal. This application being found not maintainable for want of passing a resolution by the CoC for the replacement of the RP, is liable to be dismissed, with a liberty to move fresh application if applied for in accordance with the provisions of the Code and Regulations. Application dismissed.

Summary

Issues:
Application for replacement of Resolution Professional without passing a resolution by the Committee of Creditors (CoC) - Maintainability of the application under section 22(2) or 27(2) of the Code.

Analysis:
The case involved an application filed by a CoC member seeking the replacement of the Resolution Professional (RP) in a Corporate Insolvency Resolution Process (CIRP). The applicant's voting share decreased from 100% to 24.07% due to a new claim by another financial creditor. The applicant alleged financial crisis, improper expenses management by the RP, and challenged the integrity of the RP. The applicant sought the replacement of the RP with a new RP and questioned the admission of the new financial creditor's claim. The RP, on the other hand, defended the application's maintainability, stating that no resolution was passed for his replacement as required under the Insolvency and Bankruptcy Code. The RP denied the allegations of improper claim admission and defended the reconstitution of the CoC.

The Tribunal considered whether the application for RP replacement was maintainable without a resolution passed by the CoC as per the provisions of the Code. It was noted that the applicant had not moved any resolution for the RP's replacement as required by the law. The Tribunal observed that without proof of passing a resolution for RP replacement, the application could not be entertained. The Tribunal highlighted that the CoC had been reconstituted, with the applicant holding only 25.07% voting share, while another financial creditor held 74.93%. The Tribunal emphasized that the allegations of fraud and improper claim admission were not relevant in an application for RP replacement under the Code. The Tribunal concluded that since the application lacked a resolution for RP replacement, it was not maintainable and dismissed it, granting the liberty to file a fresh application in accordance with the Code and Regulations.

In conclusion, the Tribunal dismissed the application for RP replacement due to the absence of a resolution by the CoC, emphasizing the importance of following the legal procedures outlined in the Insolvency and Bankruptcy Code. The decision highlighted the need for proper documentation and compliance with statutory requirements when seeking changes in the RP during the CIRP.