NCLAT Substitutes IRP On The Ground That He Was Financial Creditor's Ex-Employee [Read Order]

The National Company Law Appellate Tribunal (NCLAT) in a recent decision upheld the direction of the Adjudicating Authority to substitute the Interim Resolution Professional on the ground that he was an ex-employee of the Financial Creditor.  

The financial creditor in the present case, State Bank of India (SBI), had initiated insolvency proceedings against one M/s. Metenere Ltd (the Corporate Debtor) before the Principal Bench of National Company Law Tribunal (NCLT), New Delhi.

The Corporate Debtor objected to SBI's proposal to appoint one Mr. Shailesh Verma as the Interim Resolution Professional, since he had been a loyal employee of the Bank for 39 years and drew his pension from them since retiring in 2016.

Taking note of the Corporate Debtor's apprehension of bias, NCLT ordered SBI to substitute Verma and propose another name. Aggrieved by the same, SBI came in appeal before NCLAT.

The 3-member Bench of NCLAT, headed by Acting Chairperson, Justice Bansi Lal Bhat, identified that "the sole question arising for determination in this appeal is whether an ex-employee of the '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', regard being had to the nature of duties to be performed by the 'Interim Resolution Professional' and the 'Resolution Professional'."

Examining him on three counts, NCLAT found Verma fit to perform the duties of a Resolution Professional.

The Corporate Debtor's argument that Verma is drawing a pension from SBI, which falls within the definition of 'salary' under the Income Tax Act (IT Act), 1961, thus making him an 'interested person' was repelled by the Bench as defying logic. It was clarified that Section 17(1) of the IT Act brought pension within the ambit of 'salary' only for the purposes of computing of income to determine tax liability.

"Merely, because Mr. Shailesh Verma continues to draw pension for services rendered in past does not clothe him with the status of an 'interested person'. The fact that Mr. Shailesh Verma is drawing pension from 'Financial Creditor's organisation does not clothe him with the status of an employee on the payroll of 'Financial Creditor'", it was held.

The Bench also elucidated that, as per requirements, there are no disciplinary proceedings pending against Verma, who is also not empanelled as an Advocate or Company Secretary or Chartered Accountant with the SBI, the financial creditor.

Thus, with regard to Regulation 3 (1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Bench admitted that "Mr. Shailesh 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 ineligible to act as a 'Resolution Professional'."

Despite these findings, NCLAT opined that the apprehension of bias must be based on the perception of the Corporate Debtor. In this light, it was noted that SBI had given due regard to Verma's loyalty and thus restricted its choice of name as Interim Resolution Professional, and further chose to instantly appeal against NCLT's order asking for his name to be substituted.

"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. This has to be viewed in the context of apprehension of bias raised by the Respondent- 'Corporate Debtor' for the apprehension of bias necessarily rests on the perception of Respondent- 'Corporate Debtor'", observed the Bench.

NCLAT further clarified that NCLT's observation necessitating an Interim Resolution Professional to act as an "Independent Umpire" was in the context of being seen to act fairly and not a comment upon the professional's competence to admit or reject a claim.

Thus, upholding the order of NCLT, the Bench stated that SBI's move had indeed "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."

Reiterating that Verma was not disqualified or ineligible to act as an Interim Resolution Professional, the Bench concluded that NCLT's order seeking Verma's substitution was to ensure CIRP would be conducted in a fair and unbiased manner and, therefore, justified.

SBI's appeal was thus dismissed. 

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