2020 (8) TMI 420 - AT - Insolvency and Bankruptcy

Replacement of IRP - Appointment of Resolution Professional - Power of CoC - Necessity to record reasons or issue notice for replacing the IRP/RP - HELD THAT - What appears is that the Adjudicating Authority has proceeded on the basis that if in the first meeting of COC, the COC does not replace the IRP with another RP, the COC cannot do so subsequently. Like statement of question of law is stated by the Adjudicating Authority that The COC having not resolved to replace IRP in its first meeting could not be allowed to replace him by a resolution in any of its subsequent meetings . It appears to us that this is clearly a wrong legal proposition considering the provisions of IBC. There is not merely Section 22 Sub-Section (2) which is relevant but also Section 27 - In both the provisions, the law nowhere says that the COC is required to give reasons. This appears to be also right. The reason is that relationship between the IRP/RP and the COC is that of confidence. If there is loss of confidence and combination is continued, the Corporate Debtor would be put to loss because of the bad relationship between IRP/RP with COC. The learned Counsel for the Appellant is rightly pointing out that initially Section 16 of IBC which deals with appointment and tenure of Interim Resolution Professional had provision which stated that The term of Interim Resolution Professional shall not exceed 30 days from date of his appointment. This could have caused vacuum and confusion in case of default. This provision was substituted with effect from 6th June, 2018 and now the provision in Section 16(5) provides The term of the Interim Resolution Professional shall continue till the date of appointment of the Resolution Professional under Section 22. Thus, the COC has the requisite powers to propose change of the Interim Resolution Professional even in meeting/s subsequent to the first meeting mentioned in Section 22(2) of IBC. There is no requirement that they should give particular reasons for the change. The Respondents in the Appeals are only the Corporate Debtors who are represented through the same IRP Pavan Kankani. The Applications filed by the COC (Appellant) does not in any manner attribute any motives against the present IRP and this being so, there is no necessity for issuing Notices in these Appeals - the Committee of Creditors are allowed in each of these matters to engage Shri B. Naga Bhushan as Resolution Professional in each of the matters, if there is no proceeding pending against him. Appeal allowed.

Summary

Issues involved:
Appeals arising from proceedings against Corporate Debtors regarding the replacement of Interim Resolution Professional (IRP) with Resolution Professional (RP) by Committee of Creditors (COC).

Detailed Analysis:

1. Replacement of IRP with RP by COC:
The Appeals concern five separate proceedings initiated against the Corporate Debtors, where the Appellant Bank, with 100% voting share in the Committee of Creditors (COC), sought to replace the initially appointed IRP with a new RP, Mr. B. Naga Bhushan. The COC, in its third meeting, passed a resolution to effect this change, which was contested by the Adjudicating Authority, leading to the rejection of the Applications in all five matters. The Counsel argued that the COC has the right to decide on the replacement of the IRP/RP, and the rejection by the Adjudicating Authority was erroneous, as it was in the interest of the Corporate Debtors to make the change promptly.

2. Legal Provisions and Precedents:
The Appellants cited Section 22 of the Insolvency and Bankruptcy Code, 2016 (IBC) along with Section 27 to support their argument that the COC has the authority to replace the IRP with another RP. They referred to past judgments, including "Punjab National Bank vs. Mr. Kiran Shah" and "Axis Bank Ltd. vs. Sixth Dimension Project Solution Ltd.," to emphasize that the COC does not need to provide reasons for such replacements. The Adjudicating Authority's stance that the COC cannot replace the IRP in subsequent meetings if not done in the first meeting was deemed legally incorrect.

3. Authority of COC and IRP/RP Relationship:
The Tribunal highlighted the importance of the relationship of confidence between the COC and the IRP/RP, stating that a loss of confidence could adversely affect the Corporate Debtor. It was noted that the law does not mandate the COC to give reasons for replacing the IRP, emphasizing the discretionary power of the COC in such matters.

4. Decision and Orders:
After a thorough analysis of the legal provisions and arguments presented, the Tribunal allowed the Appeals, setting aside the Impugned Orders. It granted permission for the engagement of Mr. B. Naga Bhushan as the RP in each matter, subject to no pending proceedings against him. The Tribunal directed the IRP, Pavan Kankani, to provide evidence of fees and costs incurred, to be decided by the COC and released from resolution costs. Additionally, Mr. Pavan Kankani was instructed to hand over charge to the newly appointed RP.

This detailed analysis of the judgment showcases the legal intricacies involved in the decision-making process regarding the replacement of the IRP with a new RP by the Committee of Creditors in insolvency proceedings.