SUBSTITUTION OF INTERIM RESOLUTION PROFESSIONAL

[Mr. M. GOVINDARAJAN]

Corporate Insolvency Resolution Process

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for the corporate insolvency resolution process that may be initiated by a financial creditor, operational creditor or the corporate applicant itself in the prescribed manner.  The application for initiation for corporate insolvency resolution process has to be filed before the Adjudicating Authority.  The Adjudicating Authority, if it is satisfied that the application is complete in itself, may admit the application. 

Appointment of interim resolution professional

The Adjudicating Authority shall appoint an interim resolution professional on the insolvency commencement date.  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.

Where the application for 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 (‘Board’ for short) 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.

Where the operational creditor made a proposal for an interim resolution professional, the resolution professional as proposed shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

Tenure of the insolvency resolution professional

Till 06.06.2018 the tenure of the interim resolution professional was fixed 30 days as maximum.  After 06.06.2018 the tenure of the interim resolution professional shall continue till the date of appointment of the resolution professional under section 22.

Appointment of Resolution professional

Section 22(2) of the Code provides that the committee of creditors, may, in the first meeting, by a majority vote of not less than 66% of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.

Substitution of interim resolution professional

As per the Code the tenure of the interim resolution professional shall continue till the date of appointment of resolution professional.  The interim resolution professional may be appointed as resolution professional or he may be replaced by insolvency professional as resolution professional.  However there is no provision in the Code for replacement of interim resolution professional by another professional.

In ‘State Bank of India v. Metenere Limited’ – 2020 (8) TMI 112 - NATIONAL COMPANY LAW APPEALLATE TRIBUNAL, NEW DELHI, State Bank of India initiated corporate insolvency resolution process against the corporate debtor Metenere Limited and filed an application before the Adjudicating Authority under section 7 of the Code.  State Bank of India proposed Shri Shailesh Verma as interim resolution professional.  Shri Shailesh Verma was an ex-employee of State Bank of India.  He retired from the service as Chief Manager during 2016 after rendering 39 years of service and presently he is getting pension under the head ‘salary’.  The Corporate Debtor raised an objection before the Adjudicating Authority for the appointment of Shri Shailesh Verma as interim resolution professional and expressed an apprehension of bias.  He was unlikely to act fair and could not be expected to act as an independent umpire.  The Adjudicating Authority directed State Bank of India for the substitution of interim resolution professional.

Against the order of the Adjudicating Authority the Bank filed an appeal before the National Company Law Appellate Tribunal.  The State Bank of India submitted the following before the Appellate Tribunal-

• The Code and the regulations framed there under do not attach any disqualification to an ex-employee of a financial creditor from being appointed as an interim resolution professional.
• The interim resolution professional is not required to act as independent umpire between the financial creditor and ex-management of the corporate debtor or decide any conflicting issues between them.
• He has no adjudicatory powers and only acts as a facilitator in the corporate insolvency resolution process as all major decisions are taken only with the approval of the Committee of Creditors.
• The Financial creditor plays part only to the extent of its voting share as a member of Committee of Creditors and not beyond that.
• Merely the proposed interim resolution professional happens to be an ex employee of the financial creditor cannot be a ground to allege bias against him.
• The proposed interim resolution process is not on any panel of the appellant bank or handling any portfolios and has no role in decision making committee of the appellant bank.

The Corporate Debtor submitted the following before the Appellate Tribunal-

• Mr. Shailesh Verma was in employment with the appellant for over 39 years and retired as Chief General Manager in 2016.
• He is drawing pension from the appellant financial creditor which forms within the definition of ‘salary’ under Income Tax Act, 1961.
• Therefore Mr. Shailesh Verma is an interested person and ineligible to act as an interim resolution professional.
• Mere apprehension of bias is sufficient ground for apprehension of biasness of the proposed interim resolution professional by the appellant.

The Appellate Tribunal heard the submissions put forth by both the parties.  The sole question considered by the Appellate Tribunal for determination in the present appeal is whether an ex-employee of a financial creditor having rendered services in the past, should not be permitted to act as interim resolution professional at the instance of such financial creditor.

The Appellate Tribunal observed that because Mr. Sailesh Verma is drawing pension from the financial creditor does not cloth him with the status of an ‘interested person’.  Pension is paid for the services rendered to the employer in the past and it is a benefit earned for such past services.  Regulation 3(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides that an insolvency professional shall be eligible for appointment of resolution professional for the corporate insolvency resolution process of a corporate debtor if he or his partners are independent of corporate debtor.  Mr. Sailesh Verma is a qualified insolvency professional and neither he nor any of his associates is alleged to be connected with the corporate debtor in a manner rendering him to be ineligible to act as a resolution professional.

The Appellate Tribunal rejected the argument of the Corporate Debtor that Mr. Sailesh Verma is not qualified to act as insolvency professional since he draws pension from the financial creditor.  The Appellate Tribunal relied on the case ‘State Bank of India Versus Ram Dev International Ltd. (Through Resolution Professional) - 2018 (7) TMI 2126 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI.  In the said case the Appellate Tribunal held that merely because a resolution professional is empanelled as Advocate or Company Secretary or Chartered Accountant with the financial creditor cannot be a ground to reject the proposal of his appointment unless there is a disciplinary proceeding pending against him or it is shown that the person is interested person being an employee or on the payroll of the financial creditor.

The Appellate Tribunal observed that there is no disciplinary proceedings are pending against Mr. Shailesh Verma and he is not on afore stated panel or engaged as a retainer by the financial creditor.   But it cannot be denied that the appellant restricted its choice to propose Mr. Shailesh Verma as interim resolution professional obviously having regard to past loyalty and the long services rendered by the later. This conclusion is further reinforced by filing of instant appeal by the financial creditor who is upset with the impugned order directing the appellant-financial creditor to substitute the name of interim resolution professional in place of Mr. Shailesh Verma.

The interim resolution professional is supposed to collate all the claims submitted by creditors, though not empowered to determine the claims besides other duties as embedded in section 18 of the Code raised an apprehension in the mind of respondent-corporate debtor that Mr. Shailesh Verma as the proposed interim resolution professional was unlikely to act fairly justifying the action of the Adjudicating Authority in passing the impugned order to substitute him by another insolvency professional.

The Appellate Tribunal upheld the order of the Adjudicating Authority and dismissed the appeal filed by State Bank of India.  The Appellate Tribunal advised that the appellant-financial creditor should not have been aggrieved of the impugned order as the same did not cause any prejudice to it.