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2023 (2) TMI 376 - AT - Insolvency and BankruptcyRejection of application for replacement of Resolution Professional with one Mr. Sapan Mohan Garg though approved by the Committee of Creditors (CoC) by a voting share of 76.69% - Whether the CoC in passing a resolution to replace the Resolution Professional in the facts of the present case has committed any breach of the IBC and regulations framed thereunder? - HELD THAT - The statutory provisions and related Regulations framed thereunder having laid down in unambiguous terms the manner and procedure for replacement of the Resolution Professional and the CoC having acted in conformity with those provisions, the CoC was well within its rights to replace the Resolution Professional with a new one of its own choice. There is no disagreement that the replacement of Resolution Professional is complete when the required decision is taken by the CoC in its meeting with requisite majority. Interference would be warranted only if the decision of the CoC was suffering from material irregularities or dehors the statutory provisions and the rules framed thereunder which is not the case - there was no violation of the statutory provisions in bringing about the replacement of the Resolution Professional by the CoC and all procedural compliances having been met, there is no room to hold the process to have been vitiated in any manner. Since the requirements laid down by IBC have been met, the Adjudicating Authority is duty bound to abide by the discipline of the statutory provisions. Whether the decision of the CoC to replace the Resolution Professional being the outcome of the wisdom of the CoC, is not subject to judicial review? - HELD THAT - CoC had deliberated on the performance of the Resolution Professional before considering to move the resolution and putting the same to vote. Further, since the decision of the CoC to replace the Resolution Professional was taken by exercising of voting rights assigned to the creditors, it was not necessary for Adjudicating Authority to look into reasons or decide whether there were sufficient reasons for change of the Resolution Professional as the Adjudicating Authority cannot don the mantle of a supervising authority. More importantly, the relevant section 27 does not prescribe the need to assess the performance of the Resolution Professional while seeking his replacement - The statutory framework of the IBC also does not mandate that the CoC is required to adduce reasons for replacing the Resolution Professional - in the present case too, the Appellant while filing the application for replacement of the Resolution Professional has desisted from making any adverse observations on his performance and thus cannot be held to have acted in any manner contrary to law. Rejection of application of the Appellant to replace the Resolution Professional by advising the CoC to continue with the same Resolution Professional - HELD THAT - It is well settled that the IBC does not postulate jurisdiction for the Adjudicating Authority to undertake scrutiny of the justness of the majority opinion expressed by financial creditors by way of voting. The insolvency regime introduced under the IBC has placed fetters on the power of interference by the Adjudicating Authority - the Adjudicating Authority being a creature of IBC Code and the statutory provisions therein not having invested jurisdiction and authority upon it to review the decision exercised by the CoC to replace the Resolution Professional, the rejection of the application for the replacement of the Resolution Professional is a transgression of jurisdiction and therefore deserves to be set aside. The replacement of Mr. Suresh Kumar Jain is allowed by appointing Mr. Sapan Mohan Garg as Resolution Professional, who will act in accordance with law - the impugned order is set aside - appeal allowed.
Issues Involved:
1. Whether the CoC in passing a resolution to replace the Resolution Professional in the facts of the present case has committed any breach of the IBC and regulations framed thereunder. 2. Whether the decision of the CoC to replace the Resolution Professional being the outcome of the wisdom of the CoC, is not subject to judicial review. Detailed Analysis: Issue 1: Breach of IBC and Regulations by CoC in Replacing the Resolution Professional The appeal arises from the rejection of an application for the replacement of the Resolution Professional (RP) by the Adjudicating Authority despite the Committee of Creditors (CoC) approving the replacement with a 76.69% voting share. The CoC comprises VIAF (74.55%), HDFC Bank Limited (12.02%), Yes Bank Ltd. (11.29%), Drip Capital Inc (2.05%), and Mayoga Investments Ltd. (0.09%). The CoC initially appointed Mr. Suresh Kumar Jain as the RP, who was later proposed to be replaced by Mr. Sapan Mohan Garg. The CoC's decision was challenged on the grounds that the IBC does not envisage any decision-making role for the CoC once it has approved the Resolution Plan and it is pending before the Adjudicating Authority. The Appellant argued that Section 27 of the IBC allows the CoC to replace the RP at any time during the Corporate Insolvency Resolution Process (CIRP), and this includes the period until the Resolution Plan is approved by the Adjudicating Authority. The Appellant also contended that the CoC continues to function and is authorized to take decisions until the Resolution Plan is approved or liquidation is ordered, as supported by the Tribunal's decision in Gulabchand Jain vs Ramchandra Choudhary and upheld by the Supreme Court. The Respondent argued that the appeal is not maintainable as it was filed by VIAF in a private capacity and not representing the CoC. They also contended that the CoC's power to replace the RP ceases after the expiry of the 330-day CIRP period, which had already passed. The Tribunal found that the CoC had acted in conformity with the statutory provisions of the IBC and had the right to replace the RP. The CoC's resolution was passed with the required majority, and procedural compliances were met. Therefore, there was no breach of the IBC or regulations. Issue 2: Judicial Review of CoC's Decision to Replace the Resolution Professional The Tribunal emphasized that the IBC establishes a creditor-in-control regime, where the CoC makes all major decisions during the CIRP. The RP is expected to act under the guidance and directions of the CoC. The relationship between the CoC and the RP should be transparent and based on trust. If the CoC loses trust in the RP, it should be allowed to replace the RP to ensure the smooth completion of the CIRP. The Adjudicating Authority had held that it would be "prudent and advisable" to continue with the same RP given that 330 days had already passed and no adverse references were received regarding the RP's performance. However, the Tribunal found that this amounted to substituting the collective wisdom of the CoC with that of the Adjudicating Authority, which is not permissible. The Tribunal also noted that the CoC's decision to replace the RP was taken by exercising voting rights and did not require the Adjudicating Authority to assess the RP's performance. The statutory framework of the IBC does not mandate the CoC to provide reasons for replacing the RP. The Tribunal held that the Adjudicating Authority's reliance on extraneous records and its comments on the RP's performance were not sustainable. The Tribunal concluded that the Adjudicating Authority does not have jurisdiction to review the CoC's decision to replace the RP, and the rejection of the application for replacement was a transgression of jurisdiction. Conclusion: The Tribunal set aside the impugned order dated 14.10.2022, allowed the replacement of Mr. Suresh Kumar Jain with Mr. Sapan Mohan Garg as the RP, and directed the CoC to consider any claims for fees and costs submitted by Mr. Suresh Kumar Jain expeditiously. The appeal was allowed with no costs.
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