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2017 (10) TMI 1065 - Tri - Insolvency and BankruptcyCorporate Insolvency Resolution Process - Insolvency Professional appointment - in the absence of clear majority of 75 percent of voting share whether one name of Insolvency Professional can be approved? - Held that - Dead lock has to be removed by approving the name of Mr. Rajendra M. Ganatra, whose consent is placed on record. A Professional who is familiar with the nature of business and knowledge of handling the Resolution Process is to be selected that too based upon the recommendation of the highest percentage of the Creditors. The term voting share is duly defined in section 5(28) of The Code which says, means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor . A co-joint reading of section 5(28) and section 22(2) thus result into a meaningful solution which is workable and suitable for the insolvency process. As a result, in our opinion, a viable solution is to give the preference to the decision taken by the largest percentage in voting rights of the Financial Creditor(s). Resultantly, the Miscellaneous Application is allowed and appointment of Mr. Rajendra M. Ganatra as Insolvency Professional is hereby approved.
Issues Involved:
1. Appointment of Insolvency Professional (RP) 2. Compliance with Section 22(2) of the Insolvency and Bankruptcy Code (I&B Code) 3. Voting share requirements for appointing or replacing an Insolvency Professional 4. Interpretation of legislative intent regarding the term "may" or "shall" 5. Role and performance evaluation of the Interim Resolution Professional (IRP) Issue-wise Analysis: 1. Appointment of Insolvency Professional (RP): The Financial Creditor, M/s. Edelweiss Asset Reconstruction Company Limited, filed an application seeking the appointment of Mr. Rajendra Ganatra as the Resolution Professional (RP) for the Corporate Debtor, M/s. Raj Oil Mills. The Corporate Debtor had previously submitted a petition to declare itself insolvent, leading to the initiation of the Corporate Insolvency Resolution Process (CIRP) and the appointment of Mr. U.V.G. Nayak as the Interim Resolution Professional (IRP). 2. Compliance with Section 22(2) of the Insolvency and Bankruptcy Code (I&B Code): Section 22(2) of the I&B Code stipulates that the Committee of Creditors (CoC) may appoint or replace the IRP with a new RP by a majority vote of not less than 75% of the voting share. In this case, the CoC's vote to appoint Mr. Rajendra Ganatra as the RP received 61.84% support, falling short of the required 75%. 3. Voting share requirements for appointing or replacing an Insolvency Professional: The CoC's vote results showed that Mr. U.V.G. Nayak received 31.70% of the voting share, while Mr. Rajendra Ganatra received 61.84%. The Financial Creditor, M/s. Edelweiss ARC, held 53.52% of the voting share, and IFCI Factors held 8.32%, together totaling 61.84%. The legal question arose whether the appointment could be approved without the 75% majority. 4. Interpretation of legislative intent regarding the term "may" or "shall": The Tribunal examined the legislative intent behind the I&B Code, particularly the use of the term "may" in Section 22(2). The Tribunal referred to case laws, including Bachahan Devi And Another Vs. Nagar Nigam, Gorakhpur And Another and Sarla Goel And Others Vs. Kishan Chand, to determine whether the term should be interpreted as mandatory or directory. The Tribunal also considered a precedent from the NCLT, Kolkata Bench, where a similar issue was resolved by approving the proposed RP despite not meeting the 75% threshold. 5. Role and performance evaluation of the Interim Resolution Professional (IRP): The Tribunal acknowledged the professional work of Mr. U.V.G. Nayak, the current IRP, noting his systematic, informative, and exhaustive compliance reports. Despite this, the Tribunal emphasized that the decision should be based on the recommendation of the Financial Creditor with the largest voting share, as they are most incentivized to select the best-suited RP. Findings: The Tribunal concluded that the responsibility for proposing the IRP's name lies with the Financial Creditor holding the largest stake. The Tribunal decided to approve the appointment of Mr. Rajendra M. Ganatra as the RP, based on the recommendation of the Financial Creditor with the highest voting share. The Tribunal noted that the legislative intent was to give preference to the Financial Creditor with the largest stake, even if the 75% voting share requirement was not met. The Tribunal also expunged unnecessary remarks from the application and appreciated the work of Mr. U.V.G. Nayak. Conclusion: The Miscellaneous Application was allowed, and Mr. Rajendra M. Ganatra was appointed as the Insolvency Professional. The Tribunal emphasized the importance of the largest Financial Creditor's recommendation in the selection process and acknowledged the professional work of the current IRP.
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