2017 (10) TMI 569 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Whether it is mandatory for a Financial Creditor to propose the name of Interim Resolution Professional in an application under section 7 of the I&B Code ? - Held that - While we uphold the decision of the Adjudicating Authority that proposal of name of Interim Resolution Professional in terms of clause (b) of sub-section (3) of Section 7 is mandatory, but in the facts and circumstances of the case, as the name of Interim Resolution Professional has already been proposed by the Appellant- Financial Creditor , the impugned order dated 22nd June, 2017 cannot be upheld. Further, we are of the view that if the application filed by Financial Creditor or Corporate Applicant is defective in absence of name of an Interim Resolution Professional , then in such case in terms of proviso to Section 7 and Section 10, the Adjudicating Authority is required to give a notice to the applicant to rectify the defect within seven days of the receipt of such notice.

Summary

Issues Involved:
1. Whether it is mandatory for a 'Financial Creditor' to propose the name of 'Interim Resolution Professional' in an application under section 7 of the 'I&B Code'.
2. Whether in the absence of a proposed name of 'Interim Resolution Professional', the application is incomplete.
3. Whether the impugned order dated 22nd June 2017 is legal and valid.

Detailed Analysis:

Issue 1: Mandatory Proposal of 'Interim Resolution Professional' by Financial Creditor

The tribunal examined whether it is mandatory for a 'Financial Creditor' to propose the name of an 'Interim Resolution Professional' (IRP) in an application under section 7 of the Insolvency and Bankruptcy Code, 2016. The relevant provision, clause (b) of Sub-section (3) of Section 7, mandates that the 'Financial Creditor' must furnish the name of the resolution professional proposed to act as an IRP. The tribunal noted that this requirement is distinct from the provisions applicable to 'Operational Creditors' under sub-section (4) of Section 9, where the proposal of an IRP is optional, indicated by the word "may" rather than "shall."

Issue 2: Completeness of Application in Absence of Proposed IRP

The tribunal further addressed whether the absence of a proposed IRP renders the application incomplete. It concluded that sub-section (3)(b) of Section 7 and sub-section (3)(b) of Section 10 are mandatory, and the failure to furnish the name of an IRP makes the application defective. However, it also emphasized that if an application is defective due to the absence of an IRP's name, the Adjudicating Authority must provide the applicant with a notice to rectify the defect within seven days, as per the proviso to Section 7 and Section 10.

Issue 3: Legality and Validity of the Impugned Order

The tribunal scrutinized the impugned order dated 22nd June 2017, which dismissed the application under section 7 on the grounds that the name of an IRP was not proposed. The tribunal found that the appellant had indeed proposed the name of an IRP, as evidenced in the application and accompanying consent letter. Given this fact, the tribunal held that the impugned order could not be sustained and required the matter to be remitted back to the Adjudicating Authority for admission of the case, provided the application is otherwise complete.

Conclusion:

In conclusion, the tribunal upheld the decision that the proposal of an IRP's name is mandatory for a 'Financial Creditor' under section 7. However, it found that the appellant had complied with this requirement, and thus, the impugned order dismissing the application was not justified. The case was remitted back to the Adjudicating Authority with instructions to admit the application if it is otherwise complete, and to provide the appellant with seven days to rectify any defects if necessary. The appeal was allowed with no order as to costs.