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TMI Blog2023 (2) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... placement of Resolution Professional is complete when the required decision is taken by the CoC in its meeting with requisite majority. Interference would be warranted only if the decision of the CoC was suffering from material irregularities or dehors the statutory provisions and the rules framed thereunder which is not the case - there was no violation of the statutory provisions in bringing about the replacement of the Resolution Professional by the CoC and all procedural compliances having been met, there is no room to hold the process to have been vitiated in any manner. Since the requirements laid down by IBC have been met, the Adjudicating Authority is duty bound to abide by the discipline of the statutory provisions. Whether the decision of the CoC to replace the Resolution Professional being the outcome of the wisdom of the CoC, is not subject to judicial review? - HELD THAT:- CoC had deliberated on the performance of the Resolution Professional before considering to move the resolution and putting the same to vote. Further, since the decision of the CoC to replace the Resolution Professional was taken by exercising of voting rights assigned to the creditors, it was not ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short) by the Appellant arises out of the Order dated 14.10.2022 (hereinafter referred to as "Impugned Order") passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Court -V) in IA No. 3757/2022 in CP (IB) No. 1731 of 2019. By the Impugned Order, the Adjudicating Authority rejected the application for replacement of Resolution Professional with one Mr. Sapan Mohan Garg though approved by the Committee of Creditors ("CoC" in short) by a voting share of 76.69%. Aggrieved by this impugned order, the present appeal has been preferred by Venus India Asset-Finance Pvt. Ltd. ("VIAF" in short), being one of the Financial Creditors of the Corporate Debtor which is under the rigours of Corporate Insolvency Resolution Process ("CIRP" in short). 2. The brief facts of the case which are necessary to note for deciding the appeal are: - M.K. Overseas Private Limited - Corporate Debtor was admitted into CIRP on 19.09.2019 following admission of Section 7 application filed by Mayoga Investment Private Limited, a financial creditor. Following initiation of CIRP, Mr. Suresh Kumar Jain was appointed as Interim Resolution Professional on 19.09.2019 and later confirmed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging the impugned order, the Learned Counsel for the Appellant has questioned the rationale adopted by the Adjudicating Authority in rejecting the application. Elaborating further, it was submitted that the Adjudicating Authority, disallowed the application for replacement of Resolution Professional on the ground that the IBC does not envisage any decision-making role for the CoC once it has approved the Resolution Plan and the Resolution Plan is pending adjudication of the Adjudicating Authority. 5. It has been further contended that a decision under Section 27 to replace the Resolution Professional can be taken up at any time during CIRP and that this has been expressly defined in the Regulation 2(e) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 ("Regulations" in short) and includes the time up to the approval of the Resolution Plan by the Adjudicating Authority and further time until the disposal of appeal under Section 62 of the IBC. Stating that the Adjudicating Authority has misconstrued the provisions of the IBC, the Learned Counsel for the Appellant further pointed out that Explanation to Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkable since some of the basic functions of the Resolution Professional as outlined in Section 28 would become impossible to perform if the CoC ceases to exist. Even the CIRP cost cannot be ratified if the CoC ceases to exist. It was therefore contended that the Adjudicating Authority has misunderstood, misconstrued and mis-applied the provisions of IBC. 8. The Learned Counsel for M/s Drip Capital Inc., having 0.5% voting share also stated that it had voted in favour of replacement of the Resolution Professional. 9. The Learned Counsel for the Respondent /Resolution Professional has contended that the appeal is not maintainable since it has been filed by VIAF in private and individual capacity and not representing the CoC. Further, in the absence of any Board resolution of VIAF authorising Ms. Prerna Bajaj to file the appeal, the appeal may be treated as non-instituted. 10. Making further submissions, the Learned Counsel for the Respondent/Resolution Professional while admitting that Section 27 of the IBC allows for replacement of the Resolution Professional but added that this replacement was only possible at "any time during the Corporate Insolvency Resolution Process". Expand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resolution for replacement of Resolution Professional, this would have directly impacted the pending Resolution Plan and hence not permissible. The Resolution Plan would have been affected since it is the Resolution Professional who has to certify that the Resolution Plan complies with the requirements of IBC and that it is in compliance with Section 30(2) of the IBC. 13. Pointing out that the CoC in the 21st meeting proceedings has recorded that the representative from VIAF had submitted that an aggressive approach on the part of the Resolution Professional is required to close the CIRP is bound to indirectly reflect poorly on the part of the concerned Resolution Professional which would be prejudicial to his reputation. VIAF had indirectly commented on the performance of the Resolution Professional at a time when the Resolution Professional could not be blamed for delay in the approval of the Resolution Plan. The Resolution Professional had submitted the Resolution Plan before the Adjudicating Authority on 09.12.2020 within the permitted time frame of CIRP but the Plan could not reach its logical conclusion due to several rounds of hearing before the Adjudicating Authority and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolves under sub-section (2) - (a) to continue the interim resolution professional as resolution professional, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or (b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional. (4) The Adjudicating Authority shall forward the name of the resolution professional proposed under clause (b) of sub-section (3) to the Board for its confirmation and shall make such appointment after confirmation by the Board. (5) Where the Board does not confirm the name of the proposed 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.05 -- -- -- Mayoga Investments Limited 0.09 0.09 -- -- -- Total 100.00 76.69 0 11.29 12.02 19. Next we may peruse the resolutions as passed in the said CoC meeting:- "RESOLVED THAT pursuant to section 27 read with section 22, and other applicable provisions of Insolvency and Bankruptcy Code, 2016 read with regulation 3(1A), 31(D) and 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and in accordance with rules and regulations made thereunder, approval of committee of creditors be and is hereby accorded for replacement of Mr. Suresh Kumar Jain, Resolution Professional of M/s M.K. Overseas Private Limited, bearing Registration No. IBBI/IPA-001/IP-P01179/2018-19/11839 and appointment of Mr. Sapan Mohan Garg an Insolvency Professional, bearing Reg. No. IBBI/IPA-002/IP-N00315/2017-2018/10903, as Resolution Professional in the mater of the Corporate Insolvency Resolution Process of M/s M.K. Overseas Private Limited." "RESOLVED FURTHER THAT pursuant to sub section 3 of Section 27 of the IBC, 2016 the member of Committee of Creditors hereby authorizes Venus India Asset-Finance Private Limited, CoC member having voting rights of 74.55% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliances having been met, there is no room to hold the process to have been vitiated in any manner. Since the requirements laid down by IBC have been met, the Adjudicating Authority is duty bound to abide by the discipline of the statutory provisions. 22. This now brings us to the second question identified by us in that whether the replacement of the Resolution Professional being integral to the wisdom of the CoC which is not subject to judicial review. 23. Before diving into the facts of the present case, it may be pertinent to state a few well-acknowledged precepts in the context of the IBC. The IBC adumbrates a new ethos of insolvency resolution with a creditor-in-control regime as opposed to the debtor-in-possession format of the legacy laws. One of the most distinguishing features of the Code is that all the major decisions from the initiation till the end of the CIRP is taken by the CoC and in the conduct of this resolution process, it is aided by the Resolution Professional. The Resolution Professional is tasked with facilitating and conducting the entire CIRP and in doing so is expected not only to address and balance the interests of all stakeholders but also to act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IBC is to complete CIRP in a time-bound manner so that the value of assets of the Corporate Debtor is not depleted is well taken. We notice that the same objective of bringing the CIRP to a closure was also one of the triggers for holding the 21st meeting of CoC. In view of the sluggish rate of CIRP progress, the CoC by majority vote felt that a new Resolution Professional with a more aggressive approach is needed to complete the CIRP as against the view taken by the Adjudicating Authority that replacement of the existing Resolution Professional would only delay the process. This amounts to the collective wisdom of the CoC being substituted by that of the Adjudicating Authority which approach is hit by the well settled principle of supremacy of the collegiate wisdom of the CoC. 26. It is also the case of the Respondent/Resolution Professional that though Section 27 allows for replacement of the Resolution Professional but this replacement was only possible at "any time during the Corporate Insolvency Resolution Process" and that in the instant case the Resolution Professional having already placed the CoC approved resolution plan before the Adjudicating Authority and CIRP period o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting if the same is made by members of the committee representing at least thirty three per cent of the voting rights. (3) A resolution professional may place a proposal received from members of the committee in a meeting, if he considers it necessary and shall place the proposal if the same is made by members of the committee representing at least thirty three per cent of the voting rights." "Explanation: For the purposes of sub- regulation (2) it is clarified that meeting (s) may be convened under this sub-regulation till the resolution plan is approved under sub-section (1) of section 31 or order for liquidation is passed under section 33 and decide on matters which do not affect the resolution plan submitted before the Adjudicating Authority." 29. The Learned Counsel for the Respondent/Resolution Professional argued that this cannot come to the help of the Appellant since this Explanation was inserted by an amendment which came about on 16.09.2022 which was subsequent to the date of CoC meeting when the decision was taken to replace the Resolution Professional. This was refuted by the Learned counsel for the Appellant on the ground that an Explanatory clause be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct of the Resolution Professional has been satisfactory and that no adverse references were received by the CoC regarding the performance of the Resolution Professional, we have done a fact-check by going through the proceedings of the 21st CoC meeting at Annexure A-3 in the Appeal Paper Book. The relevant excerpts are as extracted below: "Mr. Jogendra Singh from HDFC Bank enquired about the reason for the change of Resolution Professional and Mr. Arjun Sethi from Yes Bank also enquired about the reason of change in Resolution Professional after the gap of 3 years. Mr. Saket Misra from Venus India Asset-Finance Private Limited submitted that three years have passed and fair amount of progress have been made but aggressive approach on the part of Resolution Professional is required to close the CIRP and we expect that proposed Resolution Professional will take up aggressively as huge amount of capital is involved." 33. This clearly shows that CoC had deliberated on the performance of the Resolution Professional before considering to move the resolution and putting the same to vote. Further, since the decision of the CoC to replace the Resolution Professional was taken by ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority and there was no other pleading on record or argument to that effect, there was absolutely no occasion to embark upon a detailed discussion on the conduct of the Resolution Professional as has been done in the impugned judgment. This fact was not denied by the Learned Counsel for the Respondent/Resolution Professional. Similarly in para 7 of the impugned order, reference was made to a short affidavit of M/s Drip Capital on record when no such affidavit had been filed clearly indicates factual errors in the impugned order. We hold that placing reliance on extraneous record by the Adjudicating Authority in arriving at the impugned order is not sustainable in the eyes of law. 35. This now brings us to that part of the impugned order wherein the Adjudicating Authority has rejected the application of the Appellant to replace the Resolution Professional by advising the CoC to continue with the same Resolution Professional. It is well settled that the IBC does not postulate jurisdiction for the Adjudicating Authority to undertake scrutiny of the justness of the majority opinion expressed by financial creditors by way of voting. The insolvency regime introduced under the IBC has pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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