REPLACEMENT OF RESOLUTION PROFESSIONAL IN THE INSOLVENCY RESOLUTION PROCESS OF PERSONAL GUARANTOR TO CORPORATE DEBTOR

[Mr. M. GOVINDARAJAN]

Insolvency Resolution Process

Section 94 of the Insolvency and Bankruptcy Code, 2016 ‘(Code’ for short) provides for the initiation of insolvency resolution process by the personal guarantor to the Corporate Debtor.  Likewise, Section 95 of the Code provides that the Financial Creditor may initiate insolvency resolution process of the personal guarantor to the Corporate Debtor.  The personal guarantor or the Financial Creditor, as the case may be, may appoint resolution professional (‘RP’ for short) to conduct the insolvency resolution process.  If no resolution professional is appointed the Adjudicating Authority shall appoint the RP from the panel of RPs maintained by the Insolvency and Bankruptcy Board of India (‘Board’ for short).

Replacement of Resolution Professional

Section 98 of the Code provides that where the debtor or the creditor is of the opinion that the RP appointed, is required to be replaced, he may apply to the Adjudicating Authority for the replacement of such RP.  The Adjudicating Authority shall within seven days of the receipt of the application make a reference to the Board for replacement of the RP.

The creditors may apply to the Adjudicating Authority for replacement of the RP where it has been decided in the meeting of the creditors, to replace the RP with a RP for implementation of the repayment plan.   The Adjudicating Authority shall pass an order appointing a new RP.

Case law

In INDIABULLS HOUSING FINANCE LTD. VERSUS DR. SUBHASH CHANDRA - 2024 (6) TMI 134 - NATIONAL COMPANY LAW TRIBUNAL NEW DELHI, the applicant made the following prayers before the Adjudicating Authority-

• to pass an Order under Section 98(2) for the Replacement of the Resolution Professional namely Mr. Raj Kamal Saraogi and appointment of Mr. Arvind Kumar as the Resolution Professional;
• to pass any other orders as the Tribunal may deem fit.

The applicant, personal guarantor submitted the following before the Adjudicating Authority-

• The RP namely Mr. Raj Kamal Saraogi met him on 24.04.2024 and during the course of the meeting he endeavored to apprise him with the nature of his business and the interest he carried qua the same.
• On 24.04.2024, the RP met him in Lodhi Hotel with a Lawyer
• During the course of the meeting held on 24.04.2024, the RP, Mr. Raj Kamal Saraogi could say that the present proceedings would lead to bankruptcy of the Personal Guarantor;
• The RP did not take any steps to seek permission of this Tribunal for conducting the negotiation between the debtor and creditors as required under Section 100(2) of the Code.
• The Resolution Professional seems to have no desire to streamline the process.
• The RP is required to guide the PG in the conduct of insolvency resolution process.  The activities of the RP were far from corroborative and supportive.
• The RP is unable to appreciate and understand his fundamental role and responsibility in this process.
• The PG requested the RP to provide the list of claims against him along with the documents on 17.05.2024.  The RP provides only the list 18 entities but not the claims filed by the creditors along with the documents.
• The failure of the RP to furnish the details and the documents has unfortunately left the PG to doubt the bona fide approach of the RP.
• The RP did not disclose the details of the creditor which shows the lack of transparency.
• The insolvency proceedings are to be aided and facilitated by RP in collaboration and consultation with the PG.  In this case the RP failed to attempt any meaningful disclosure and collaboration with the PG.
• Therefore, the applicant PG sought to replace the RP and to appoint another RP to look after the insolvency resolution process which shall not be prejudicial to the interests of the creditors.
• The failure to replace the RP would have immense adverse effect on him.

The RP contended that RP was entitled to carry with him a lawyer while meeting the Personal Guarantor. He also made reference to Regulation 3(i)  to espouse that when resolution process costs include the fees payable to the professionals engaged, if any, the RP was justified in taking the lawyer to the Lodhi Hotel, while meeting the Personal Guarantor.

The Adjudicating Authority heard the parties and perused the records before it.  The Adjudicating Authority observed that both parties agreed that they met on 24.04.2024 in Lodhi Hotel.  The RP attended the said meeting with his lawyer.  Sections 102 to 112 of the Code do not provide that the RP to carry with any lawyer to meet the PG in the course of preparation of repayment plan.  The Adjudicating Authority also analyzed the provisions of the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtor) Regulations, 2019 in which, the Adjudicating Authority observed that there is no provision for the RP to accompany with a lawyer, while discharging his functions.  The Adjudicating Authority also wondered as to how the RP felt the need to conduct the meeting in an expensive hotel, when the responsibility given to him.

Section 100(2) of the Code specifically provides that where the Adjudicating Authority admits an application under Section 100 (1) of the Code, it may on the request of the RP to issue instructions for the purpose of conducting negotiations between the debtor and the creditors and for arriving at a repayment plan. Apparently, no such request was made by the RP when the Adjudicating Authority heard the matter for admission of the application filed under Section 95 of the Code.

The provisions of Section 105 of the Code  and Regulations 17  are very clear that the repayment plan has to be prepared by the Debtor and it is for him to consult the RP and not seeking the help of the lawyer. reading of Section 105(2) of the Code, further makes it clear that it is only in terms of the repayment plan that the Resolution Professional may be required or authorized to carry on the debtor’s business or trade on his behalf or in his name or realize the assets of the debtor or administer or dispose of any funds of the debtor. 

The Adjudicating Authority was unable to appreciate that how before preparation of plan under Section 105 of IBC, 2016, he could feel need to meet Personal Guarantor along with lawyer in Lodhi Hotel.

The Adjudicating Authority appointed Mr. Shiv Nandan Sharma, Insolvency Professional, as RP in the place of Mr. Raj Kumar Saraogi, only because the procedure given in chapter 3 of the Code is beneficial procedure and the role of RP is only that of facilitator between PG and Creditors.  Mr. Raj Kamal Saraogi, the RP, would be entitled to claim his professional fees and other expenses incurred by him as CIRP cost. The newly appointed RP would discharge his function in terms of our order dated 22.04.2024, afresh.