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2025 (4) TMI 637 - HC - IBCSeeking a Writ of Declaration to annul the impugned circular dated 21.12.2023 issued by the Insolvency and Bankruptcy Board of India (IBBI) - right of creditors to make a recommendation - it is argued that circular improperly allows creditors to recommend the appointment of a Resolution Professional which is contrary to the statutory framework of the IBC - HELD THAT - It is evident that the Resolution Professional assumes a facilitative role in collating facts and submitting a report to the adjudicating authority - The report is again recommendatory in nature. Throughout the entire examination of the application the debtor is not deprived of an opportunity to participate in the process. It has been held that judicial determination occurs only when the adjudicating authority decides under Section 100. Thus if the role of the Insolvency Professional is merely to evaluate the facts to facilitate resolution and submit a report that is primarily recommendatory the allegation of any inherent bias cannot be accepted. Simply because the creditor chooses from the IBBI panel at the time of filing an application and recommends a name does not by itself prejudice the debtor in any way. The role is not that of a decision-making authority but rather a facilitator. In that case it is more appropriate for such a person to be someone who is chosen by the parties. When the application is filed by the creditor himself the adjudicating authority will direct the IBBI to nominate a Resolution Professional within seven days. Within ten days of this request the board shall make a nomination. The adjudicating authority may then accept the nomination and appoint the individual nominated by the IBBI who will subsequently be provided a copy of the application for the insolvency resolution process. The IBBI scrutinises the Resolution Professionals and empanels them. Once the Resolution Professionals are empanelled the IBBI will nominate one among them. As the creditor is given an option only to nominate from the panel it can effectively be seen that the nomination is ultimately only by the IBBI. Therefore the circular emerges as a practice direction and pragmatic tool for fulfilling the purposes of the IBC thereby saving time and increasing efficiency. The debtor is always entitled to inform the adjudicating authority of any adverse circumstances including potential conflicts of interest or any other valid grounds which may disqualify a person from being a facilitator. The adjudicating authority holds the final power under Section 97(5) of the Act and the order issued by the adjudicating authority is also subject to appeal. Hence no prejudice is caused to the petitioners or personal guarantors. Conclusion - The impugned circular dated 21.12.2023 is neither ultra vires nor violative of the provisions of the IBC. Petition dismissed.
ISSUES PRESENTED and CONSIDERED
The primary issue considered in this judgment is whether the circular issued by the Insolvency and Bankruptcy Board of India (IBBI) on December 21, 2023, is ultra vires and violates the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly Sections 97(3), 97(4), and 97(5). The petitioners argue that the circular improperly allows creditors to recommend the appointment of a Resolution Professional, which they claim is contrary to the statutory framework of the IBC. ISSUE-WISE DETAILED ANALYSIS Relevant legal framework and precedents: The IBC provides a comprehensive framework for insolvency resolution. Sections 97(3), 97(4), and 97(5) detail the process for appointing a Resolution Professional, emphasizing the role of the IBBI in nominating professionals. The circular in question was issued under Section 196 of the IBC, which outlines the powers and functions of the IBBI, including issuing guidelines necessary for implementing the IBC. Court's interpretation and reasoning: The Court analyzed whether the circular contradicts the IBC's provisions by allowing creditors to recommend a Resolution Professional. It was argued that the circular merely facilitates the process by allowing creditors to propose names from the IBBI's panel, with the final appointment decision resting with the adjudicating authority. The Court found that the circular does not override the statutory provisions but serves as a practical tool to enhance efficiency and reduce delays in the insolvency resolution process. Key evidence and findings: The Court considered the arguments from both the petitioners and respondents, including the IBBI's stance that the circular aligns with the IBC's objectives. The IBBI maintains a panel of qualified professionals, and the circular allows creditors to recommend from this panel, ensuring that the process remains within the statutory framework. Application of law to facts: The Court applied the statutory provisions of the IBC to the facts presented, concluding that the circular does not grant creditors undue influence over the appointment of Resolution Professionals. Instead, it streamlines the process by allowing recommendations from an established panel, with the adjudicating authority retaining the final decision-making power. Treatment of competing arguments: The petitioners argued that the circular introduces bias and undermines the IBBI's role. However, the Court found these concerns unsubstantiated, emphasizing the non-binding nature of creditor recommendations and the adjudicating authority's oversight. The Court also referenced relevant case law, supporting the view that administrative guidelines can clarify processes without altering statutory provisions. Conclusions: The Court concluded that the circular is not ultra vires the IBC and does not violate its provisions. It facilitates the insolvency resolution process by allowing creditor recommendations from the IBBI's panel, without compromising fairness or statutory intent. SIGNIFICANT HOLDINGS The Court held that the circular issued by the IBBI is within its powers under Section 196 of the IBC and does not contravene Sections 97(3), 97(4), and 97(5). The Court emphasized the role of the Resolution Professional as a facilitator, not a decision-maker, and highlighted the adjudicating authority's ultimate discretion in appointments. The judgment reinforces the principle that administrative guidelines can enhance procedural efficiency without altering statutory mandates. Core principles established: The judgment establishes that creditor recommendations for Resolution Professionals, when made from an IBBI-approved panel, do not violate the IBC. The adjudicating authority's oversight ensures that the process remains fair and unbiased. The Court also affirmed that administrative guidelines can clarify and streamline procedural aspects of the IBC. Final determinations on each issue: The Court determined that the circular does not violate the IBC and dismissed the writ petitions. The circular was found to be a valid exercise of the IBBI's powers, serving to enhance the efficiency of the insolvency resolution process without infringing on statutory provisions.
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