2025 (4) TMI 1401 - AT - IBC

Direction for replacement of the Resolution Professional (RP) prior to completion of the land survey and without deciding the pending application for replacement - HELD THAT - The adjudicating authority itself has directed for land survey in paragraph 40 as noted above. Affidavit was also filed by the suspended director which has been noticed in the order of the adjudicating authority. In view of the facts of the case adjudicating authority has rightly directed for land survey and in effect no grievance has been raised to the land survey by the RP or the CoC in the present case. Conclusion - The ends of justice be served by directing the adjudicating authority to consider replacement of the RP after the land survey is completed Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the adjudicating authority was justified in directing the replacement of the Resolution Professional (RP) prior to completion of the land survey and without deciding the pending application for replacement (I.A. No. 524/KB/2025).

- Whether the direction for conducting a land survey to ascertain the correct extent of land, factory premises, and location of plant and machinery of the corporate debtor was appropriate and justified.

- Whether the challenge process in the Corporate Insolvency Resolution Process (CIRP) should remain stayed pending the land survey and decision on the RP replacement application.

- Whether the appeals filed by the Resolution Professional and Committee of Creditors against the impugned order dated 09.04.2025 are maintainable and sustainable in law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for directing replacement of the Resolution Professional prior to completion of land survey and decision on pending application

Relevant legal framework and precedents: Under the Insolvency and Bankruptcy Code (IBC), the replacement of an RP is governed by the adjudicating authority's discretion based on conduct and performance. The RP is entrusted with managing the CIRP and is expected to act in accordance with the information available and the records of the corporate debtor. The procedure for replacement involves filing an interlocutory application and hearing the parties before passing any order.

Court's interpretation and reasoning: The Tribunal noted that the application for replacement of the RP (I.A. No. 524/KB/2025) was pending and listed for hearing on 22.04.2025. The RP had already filed a reply asserting that the information in the information memorandum was based on the corporate debtor's records and that the issue was yet to be adjudicated. The Tribunal observed that the adjudicating authority's direction in paragraph 44 of the impugned order to replace the RP within one week was premature, as the pending application for replacement had not yet been decided. Further, the Tribunal opined that the replacement should be considered only after the completion of the land survey, which was crucial to ascertain the facts relevant to the RP's conduct.

Key evidence and findings: The Tribunal relied on the fact that the RP had responded to the replacement application and that the land survey had been directed but not yet completed. The conduct of the RP, as alleged, was intertwined with the accuracy of the information memorandum, which in turn depended on the land survey results.

Application of law to facts: The Tribunal applied the principle of natural justice and procedural propriety by holding that an order for replacement of the RP should not be passed without hearing the parties and before the material facts (land survey report) were available. It emphasized that the adjudicating authority's direction to replace the RP was not sustainable at this stage.

Treatment of competing arguments: The RP argued that the information memorandum was prepared as per records and the replacement application was pending adjudication. The Committee of Creditors (CoC) initially sought replacement but later decided not to replace the RP and preferred to challenge the order directing replacement. The Tribunal balanced these positions by deferring the replacement decision until after the land survey and hearing of the pending application.

Conclusions: The Tribunal concluded that the direction to replace the RP prematurely was not justified and should be reconsidered after the land survey and hearing of the replacement application.

Issue 2: Appropriateness of directing a land survey to ascertain correct extent of land and plant and machinery location

Relevant legal framework and precedents: The CIRP requires accurate and complete disclosure of the corporate debtor's assets for proper resolution. The information memorandum must reflect the true extent of assets, including land and machinery, to enable resolution applicants to make informed decisions. The adjudicating authority has the power to direct investigations or surveys to ascertain facts relevant to the CIRP.

Court's interpretation and reasoning: The Tribunal upheld the adjudicating authority's direction in paragraph 40 of the impugned order for conducting a land survey to determine the correct extent of land, factory premises, and location of plant and machinery, including demarcation of leasehold, freehold, and third-party lands. It noted that no grievance was raised by the RP or CoC against this direction.

Key evidence and findings: The Tribunal referred to the affidavit filed by the suspended director and the pleadings in I.A. No. 453/2025 by Amit Metaliks, which alleged incomplete disclosure of land in the information memorandum. The adjudicating authority's order to conduct the survey was based on these factual contentions.

Application of law to facts: The Tribunal applied the principle that accurate asset disclosure is fundamental to CIRP and that the adjudicating authority's direction for a land survey was a reasonable step to ensure transparency and fairness in the resolution process.

Treatment of competing arguments: No substantial opposition was raised against the land survey direction by the RP or CoC. The Tribunal found the direction justified and necessary.

Conclusions: The Tribunal affirmed the appropriateness of the land survey direction and found no reason to interfere with it.

Issue 3: Status of the challenge process and whether it should remain stayed pending land survey and RP replacement decision

Relevant legal framework and precedents: The challenge process in CIRP involves resolution applicants contesting various aspects of the process. Stays on the challenge process may be granted to ensure fairness and due process, especially when material facts are under investigation.

Court's interpretation and reasoning: The Tribunal noted that the challenge process had been stayed by the adjudicating authority due to the pending application for amendment of the information memorandum and the land survey direction. It observed that the challenge process should resume once the land survey report is available and a decision on the RP replacement application is taken.

Key evidence and findings: The stay of the challenge process was linked to the pendency of I.A. No. 453/2025 and the land survey. The Tribunal's direction to resume the challenge process after completion of the survey and RP replacement decision was aimed at balancing procedural fairness and continuity of CIRP.

Application of law to facts: The Tribunal applied the principle that CIRP should proceed expeditiously but also fairly, allowing resolution applicants to challenge based on complete and accurate information.

Treatment of competing arguments: The RP and CoC did not raise specific objections to the stay but were concerned about the delay. The Tribunal addressed these concerns by directing resumption post-survey.

Conclusions: The Tribunal directed that the challenge process may resume promptly after receipt of the land survey report and decision on RP replacement.

Issue 4: Maintainability and sustainability of appeals against the impugned order dated 09.04.2025

Relevant legal framework and precedents: Appeals against orders of the adjudicating authority under the IBC are maintainable before the Appellate Tribunal if they pertain to substantial questions of law or procedural irregularities affecting CIRP.

Court's interpretation and reasoning: The Tribunal entertained the appeals filed by the RP and CoC challenging certain directions in the impugned order, particularly the direction to replace the RP. It considered the appeals maintainable and proceeded to examine the merits.

Key evidence and findings: The appeals raised significant issues regarding procedural propriety and fairness in the replacement of the RP and the conduct of the CIRP.

Application of law to facts: The Tribunal applied the statutory provisions enabling appeals and found that the issues raised warranted adjudication.

Treatment of competing arguments: The Tribunal balanced the interests of the RP, CoC, and resolution applicants in ensuring a fair and transparent CIRP.

Conclusions: The appeals were held maintainable and disposed of with directions as detailed above.

3. SIGNIFICANT HOLDINGS

"Having noted the conduct of the present RP- Mr. Sanjeev Kumar Jalan, we direct his replacement in one week. In the event, the CoC is not able to replace the RP, we would appoint an RP in place of the present one." (Paragraph 44 of impugned order - held unsustainable at this stage)

"For the purpose, a land survey may be conducted at the earliest to ascertain the correct extent of land, factory premises, location of the plant and machinery available for the CIR Process with proper demarcation of leasehold and freehold land and that of third parties over which the plant or factory of the corporate debtor is located." (Paragraph 40 of impugned order - upheld)

Core principles established:

• The replacement of the RP must be decided after due consideration of the pending application and material facts, including results of a land survey, to ensure procedural fairness.
• The adjudicating authority is empowered to direct a land survey to ascertain accurate asset details essential for the CIRP.
• The challenge process in CIRP may be stayed pending resolution of material factual disputes but should resume expeditiously once those disputes are resolved.
• Appeals against orders of the adjudicating authority concerning procedural and substantive aspects of CIRP are maintainable and warrant thorough examination.

Final determinations on each issue:

• The direction to replace the RP prior to completion of the land survey and hearing of the replacement application was set aside.
• The direction for conducting a land survey was affirmed as appropriate and necessary.
• The challenge process stay was upheld temporarily but directed to resume promptly after the land survey report and RP replacement decision.
• The appeals were disposed of with directions to the adjudicating authority to reconsider the RP replacement application after the land survey.