APPOINTMENT/REPLACEMENT/REMOVAL OF RESOLUTION PROFESSIONAL BY ADJUDICATING AUTHORITY

[Mr. M. GOVINDARAJAN]

Resolution Professional

Section 5(27) of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) defines the expression ‘resolution professional’ as an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional.

Regulation 5 of Insolvency and Bankruptcy (Insolvency Professionals) Regulations, 2016 prescribes the qualifications and experience or the resolution professional.  This regulation provides that an individual shall be eligible for registration, if he-

• has passed the National Insolvency Examination;
• has passed the Limited Insolvency Examination, and has 15 years of experience in management, after he received a Bachelor’s degree from a university established or recognized by law; or
• has passed the Limited Insolvency Examination and has ten years of experience as-

• a Chartered Accountant enrolled as a member of the Institute of Chartered Accountants of India;
• a Company Secretary enrolled as a member of the Institute of Company Secretaries of India;
• a Cost Accountant enrolled as a member of the Institute of Cost Accountants of India, or
• an Advocate enrolled with a Bar Council.

Functions of Resolution Professional

The resolution professional plays a vital role in the corporate resolution process.  Section 208(1) of the Code prescribes the functions and obligations of insolvency professionals.  This section provides that where any insolvency resolution, fresh start, liquidation or bankruptcy process has been initiated, it shall be the function of insolvency professional to take such action as may be necessary, in the following matters-

• a fresh start order process under Chapter II of Part III;
• individual insolvency resolution process under Chapter III of Part III:
• corporate insolvency resolution process under Chapter II of Part II;
• individual bankruptcy process under Chapter IV of Part III; and
• liquidation of a corporate debtor firm under Chapter III of Part II.

The provisions of Part III of the Code have not yet been notified. 

Section 208(2) of the Code provides that every insolvency professional shall abide by the following code of conduct-

• to take reasonable care and diligence while performing his duties;
• to comply with all requirements and terms and conditions specified in the bye-laws of the insolvency professional agency of which he is a member;
• to allow the insolvency professional agency to inspect his records;
• to submit a copy of the records of every proceeding before the Adjudicating Authority to the Board as well as to the insolvency professional agency of which he is a member; and
• to perform his functions in such manner and subject to such conditions as may be specified.

The resolution professional may act as-

• an interim resolution professional;
• resolution professional;
• liuidator

Adjudicating Authority

Section 5(1) of the Code defines the expression ‘Adjudicating Authority’ as National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.  The Adjudicating Authority is supervising the entire resolution process.  The Adjudicating Authority is having power to appoint, replace of reject the insolvency resolution professional and controls the entire activities of resolution professional till the resolution process is over.

Appointment of interim resolution professional

A resolution process can be initiated, where any corporate debtor commits a default, by-

• a financial creditor;
• an operational creditor; or
• a corporate applicant.

To initiate a resolution process a financial creditor or an operational creditor or a corporate applicant has to follow the procedures contained in section 7, section 8, 9 and section 10 respectively.   Along with the application, the applicant is to propose the name of the resolution professional to act as an interim resolution professional. 

The applicant, wherever he is required to propose or proposes to appoint an insolvency resolution professional, shall obtain a written communication in Form 2 from the insolvency professional for appointment as an interim resolution professional and enclose it with the application.    The application shall also be accompanied by a certificate confirming the eligibility of the proposes insolvency resolution professional for appointment as a resolution professional in accordance with the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

The Adjudicating Authority, if it is satisfied that-

• a default has occurred;
• the application is complete; and
• there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application.

If the default is not proved or the application is incomplete or any disciplinary proceedings is pending against the proposed resolution professional, the Adjudicating Authority may, by order, reject the application filed for initiating corporate insolvency resolution process.

The corporate insolvency resolution process shall commence from the date of admission of the application by the Adjudicating Authority.   Section 16(1) provides that the Adjudicating Authority shall appoint an interim resolution professional within 14 days from the insolvency commencement date. 

Section 16(2) provides that where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10 shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.  Section 16(3)(b) provides that where the application for corporate insolvency resolution process is made by an operational creditor and a proposal for an interim resolution professional is made under section 9(4) of the Code, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

Section 16(3)(a) provides that where the application corporate insolvency resolution process is made by an operational creditor and no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Insolvency and Bankruptcy Board of India for the recommendation of an insolvency professional who may act as an interim resolution professional.  The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending.  On receipt of the recommendation from the Board the Adjudicating Authority shall appoint the interim resolution professional.

Appointment of resolution professional

The term of the interim resolution professional shall not exceed thirty days from the date of his appointment.  After that the resolution professional is to be appointed by the Adjudicating Authority.  The interim resolution professional  may be allowed to be a resolution professional or he may be replaced by another resolution professional.

The interim resolution professional shall constitute a committee of creditors after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor.    The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors.  The committee of creditors may, in the first meeting, by a majority vote of not less than seventy five percent of the voting share of the financial creditors, resolve to appoint the interim resolution professional as a resolution professional.  If so, the committee of creditors shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority.

Replacement of interim resolution professional

Section 22(1) provides that the committee of creditors, in its meeting either resolve to appoint-

• the interim resolution professional as a resolution professional; or
• to replace the interim resolution professional by another resolution professional.

Section 22(3) provides that where the committee of creditors resolves to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional.  The Adjudicating Authority shall forward the name of the resolution professional within ten days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the interim resolution professional to continue to function as the resolution professional until such time the Board confirms the appointment of the proposed resolution professional.

Replacement of resolution professional

Section 27 provides for replacement of resolution professional by committee of creditors.

• Where, at any time during the corporate insolvency process, the committee of creditors is of the opinion that a resolution professional is required to be replaced, it may replace him with another resolution professional.
• The committee of creditors may, at a meeting, by a vote of seventy five percent of voting shares, propose to replace the resolution professional appointed with another resolution professional.
• The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.
• The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed.
• Where any disciplinary proceedings are pending against the proposed resolution professional, the resolution professional appointed already shall continue till the appointment of another resolution professional.

Liquidation process

Section 33(1) of the Code provides that where the Adjudicating Authority-

• before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process or the fast track corporate insolvency resolution process does not receive a resolution plan; or
• rejects the resolution plan for the non compliance of the requirements specified,

it shall-

• pass an order requiring the corporate debtor to be liquidated in the manner as laid down in Chapter III;
• issue a public announcement stating that the corporate debtor is in liquidation; and
• require such order to be sent to the authority with which the corporate debtor is registered.

The other grounds for liquidation are-

• Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order;
• Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order.On receipt of the said application, if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order.

Appoint of resolution professional as liquidator

Section 34(1) of the Code provides that where the Adjudicating Authority passes an order for liquidation of the corporate debtor, the resolution professional appointed for the corporate insolvency resolution process shall act as the liquidator unless replaced by the Adjudicating Authority. 

Replacement of resolution professional

Section 34(4) of the Code provides that the Adjudicating Authority shall by order replace the resolution professional if-

• the resolution plan submitted by the resolution professional was rejected for failure to meet the requirements mentioned in ; or
• the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded in writing.

The Adjudicating Authority may direct the Board to propose the name of insolvency professional to be appointed as a liquidator.  The Board shall propose the name of another insolvency professional within ten days of the direction issued by the Adjudicating Authority.  The Adjudicating Authority shall, on receipt of the proposal of the Board for the appointment of an insolvency professional as liquidator, by an order appoint such insolvency professional as the liquidator.

Removal of resolution professional

The Adjudicating Authority has jurisdiction to remove the resolution professional if it is not satisfied with the functioning of the resolution professional.

In ‘Devendra Padamchand Jain V. State Bank of India and others’ [ 2018 (6) TMI 1063 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI ]– Company Appeal (AT) (Insolvency) No. 177/2017, decided on 31.01.2018, the appeal has been preferred by Mr. Devendra Padamchand Jain, the then Resolution Professional of VNR Infrastructures Limited (Corporate Debtor) against the order dated 24th August, 2017 whereby and where under the Adjudicating Authority (National Company Law Tribunal) Hyderabad Bench, Hyderabad passed order under Section 33 (1) and 34(1) of the Insolvency and Bankruptcy Code, 2016 removed the appellant and appointed one Mr. T.S.N. Raja, as liquidator.  The reasons put forth by the Adjudicating Authority for removal of the appellant are-

• The Bench is of the prima facie view that the existing RP has not assisted the Adjudicating Authority to the satisfaction during various hearings held.
• Though 180 days expires on 09-08-2017 to complete the CIRP process, the RP scheduled a last meeting on 07-08- 2017. However, in view of the advice of the Bench the last CoC meeting was preponed and held on 25-07-2017 and the current C.A. was filed only on 01-08-2017 praying for liquidation of the corporate debtor.
• in view of our observations made supra the Adjudicating Authority would like to appoint the liquidator after obtaining the name of the liquidator from the Board / Insolvency and Bankruptcy Board of India (IBBI) for replacing the existing resolution professional.

In the appeal, the appellant put forth the following contentions before the Appellate Tribunal-

• the impugned order passed by the Adjudicating Authority replacing the appellant as resolution professional to liquidator and not appointing him as liquidator is beyond its jurisdiction;
• as per the Adjudicating Authority while passing the order for liquidation of the corporate debtor under is required to appoint the resolution professional as the liquidator for the purpose of resolution process under Chapter II;
• The Adjudicating Authority can only replace the resolution processional, for the reasons mentioned in ;
• resolution plan was not rejected for failure to meet any requirement and in fact the draft resolution was not approved. Therefore, the stage of never reached.

The State Bank of India has contended that-

• the State Bank of India has 100% voting power;
• Committee of Creditors has not recommended to replace the resolution professional or to appoint another person as liquidator.
• The Adjudicating Authority having come to the prima facie view that the existing resolution professional has not assisted the Adjudicating Authority to its satisfaction during the resolution process, and Code being a time bound process, it was open to the Adjudicating Authority to replace the resolution professional and to appoint another person as a liquidator.

The Appellate Tribunal held that the Adjudicating Authority is also empowered to remove the resolution professional, apart from the Committee of Creditors, but it should be for the reasons and in the manner as provided under the relevant provisions. 

The Appellate Tribunal found that the Resolution Plan was filed by the Corporate Debtor itself which was rejected by the Committee of Creditors (Financial Creditor herein having 100% voting power).  The Financial Creditors herein having 100% voting right has accepted that the Resolution Professional (appellant herein) was not assisting the Adjudicating Authority to its satisfaction during hearing.   

In view of the aforesaid stand taken by the parties, we hold that the Adjudicating Authority has jurisdiction to remove the resolution professional if it is not satisfied with its functioning of the resolution professional, which amounts to non-compliance of sub-section (2) of Section 30 of the Code.  The Appellate Tribunal dismissed the appeal. 

Disciplinary action against resolution professional

In ‘Shri Shri Krishna Rail Engineers Private Limited V. Madhucon Projects Limited’ – 2017 (11) TMI 1647 - NATIONAL COMPANY LAW TRIBUNAL, HYDERABAD, the Adjudicating Authority noted that total outstanding debt amount from the corporate debtor is only ₹ 4.16 crores, including interest and retention money.  The remuneration for MD & CEO and two Whole Time Directors of the corporate debtor works out to ₹ 1.10 crore per annum, while the fee proposed by the IRP works out to ₹ 14.00 crore approximately, apart from other incidental expenses.  While observing that the fee quoted by the professionals should be reasonable, commensurate with the work to be handled, the Adjudicating Authority held that remuneration quoted by the IRP in the matter as quite exorbitant.  Accordingly it referred the matter to IBBI for taking appropriate action/remedial measures against the proposed IRP, including disciplinary action, if any, as deemed fit.

Contempt proceedings against erred resolution professional

In ‘Export Import Bank of India V. Resolution Professional JE KPL Pvt. Limited’ [2018 (2) TMI 1720 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] – Company Appeal (AT) (Insolvency) No. 304/2017, decided on 09.02.2018 the Resolution professional Mr. Mukesh Mohan persuaded the matter before the Adjudicating Authority suppressing the order of Appellate Tribunal dated 08.12.2017.  The Adjudicating Authority also, in spite of pendency of the appeal and order of the Appellate Tribunal dated 08.12.2017, passed the final order under section 31 of the Code.  The Appellate Tribunal directed to issue a notice to Mr. Mukesh Mohan to state as to why a proceeding for contempt be initiated against him.  The Appellate Tribunal also directed to open a separate contempt case with separate case number to be initiated against the said resolution professional.

Conclusion

The object of the code is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order or priority payment of Government dues.  The role of resolution professional is of much important to fulfill the object of the Code.  The resolution professionals are to adhere the code of conduct for the insolvency professionals.

 

 

 

Declaration-cum-Undertaking

1.  I, Shri CS. Dr. M. Govindarajan,  declare that I have read  and  understood the Guidelines for Authors.

2.  I affirm that:

The article titled APPOINTMENT/REPLACEMENT/REMOVAL OF RESOLUTIONPROFESSIONAL BY ADJUDICATING AUTHORITY

a. is my original contribution and no portion of it has been adopted from any other source;

b. this article is an exclusive contribution for Chartered Secretary and has not been / nor would be sent elsewhere for publication; and

c. the copyright in respect of this article, if published in Chartered Secretary, shall vest with the Institute.

d. the views expressed in this article are not necessarily those of the Institute or the Editor of the Journal.

3.  I undertake that I:

1. comply with the guidelines for authors,
2. shall abide by the decision of the Institute, i.e., whether this article will be published and / or will be published with modification / editing.
3. shall be liable for any breach of this ‘Declaration-cum-Undertaking’.

Tirumangalam,

16.02.2018.

                CS. Dr. M. Govindarajan, FCS 8533

AYYAN ILLAM

    55 Rajaram Street,

                Jawahar Nagar,

                Tirumangalam – 625 706,

                Madurai District,

                Tamil Nadu

                09486103193

Summary

The Insolvency and Bankruptcy Code, 2016 paves the way for insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order or priority payment of Government dues.  The role of resolution professional is of much important to fulfill the object of the Code.  The resolution professional may be functioning as ‘interim resolution professional’, ‘resolution professional’ and as a ‘liquidator’.  The Adjudicating Authority is having over all control on the functions of the resolution professionals.  The Adjudicating Authority is even having power to remove the resolution professional if he contravenes the provisions of the code and not complies with the directions of the Adjudicating Authority.    Therefore the insolvency professional must maintain integrity by being honest, straightforward and forthright in all professional relationships.