Insolvency Professional Entities Qualified To Be Appointed As Resolution Professionals: NCLT Mumbai

The NCLT held that the Insolvency and Bankruptcy Board of India (IBBI) has the authority to regulate and recognize IPEs as resolution professionals, despite the IBC not explicitly mentioning them as professional service providers.

Background:

The National Company Law Tribunal (“NCLT”) admitted Notion Real Estate Private Limited (“Corporate Debtor”) into the Corporate Insolvency Resolution Process (“CIRP”) by an order dated 9th January 2024.

Subsequently, Piramal Capital & Housing Finance Limited (“Piramal/Financial Creditor”) filed an application before the NCLT, praying for the replacement of the Interim Resolution Professional (“IRP”) with a new Resolution Professional (“RP”). The RP suggested by Piramal was an Insolvency Professional Entity (“IPE”), under Section 22(3)(b) of the IBC. The Committee of Creditors (“CoC”) submitted that the appointment of the proposed IPE to replace the IRP had been passed by 100% voting of the CoC and was in accordance with the IBBI (Insolvency Professionals) Regulations, 2016.

The NCLT sought clarification on whether the appointment of IPEs as RPs was in consonance with the scheme of IBC.

The CoC clarified that although the IBC prima facie recognises only three entities — (a)Information Utility, (b) Insolvency Professional, and (c)Insolvency Professional Agency — as professional service providers, IPEs are also recognized and regulated under Regulation 12 of the IBBI (Insolvency Professionals) Regulations, 2016. These regulations grant certificates of registration to IPEs. Chapter IV of Part III of IBC deals with Insolvency Professionals and does not make room for IPEs.

Further, Section 206 states that no person shall render his services as an insolvency professional under the Code without being enrolled as a member of an insolvency professional agency and registered with the Board. Section 207(1) states that every insolvency professional shall register himself with the Board after obtaining the membership of an IPA. These sections imply that an Insolvency Professional must be an individual eligible to render professional services if enrolled with an insolvency professional agency and registered with the Board. This does not clearly indicate that a professional entity is entitled to render professional services as an Insolvency Professional.

The CoC further submitted that it is necessary to examine the definition of 'Insolvency Professional' under Section 3(19) of the IBC. It defines an Insolvency Professional as a person enrolled with an insolvency professional agency as its member and registered with the Board as an insolvency professional under Section 207. The term 'Resolution Professional' is defined under Section 5(27) of the IBC as an insolvency professional. The term "person" includes a limited liability partnership (LLP) under Section 3(23)(f) of IBC. The proposed IPE is an LLP.

Observations of the NCLT:

The NCLT observed that Chapter III of Part IV of the IBC recognizes Insolvency Professional Agencies, Insolvency Professionals, and Information Ultilies but not IPEs. Further, the IBBI recognizes IPEs under the IBBI (Insolvency Professionals) Regulations, 2016 and is empowered under Section 240(2)(zzi) of the IBC to make regulations regarding the categories of professionals or persons, their qualifications, and experience. Hence, it was held that the IBBI is justified in making regulations to govern IPEs even though there is no express provision in the IBC for the same. The NCLT held that the term 'person' includes LLPs, and thus the IBBI's power to recognize and regulate natural and other persons is justified.

The NCLT further noted the CoC's submissions that an IPE can be appointed as an Insolvency Professional to carry out the duties and functions under IBC and IP Regulations. The IBBI has registered IPEs as IPs and issued them valid authorizations for assignments. The IBBI has also issued Circulars and Clarifications regarding their eligibility to be engaged as RPs. Hence, the appointment of an IPE as RP was held to be valid in law.

As a result, the NCLT appointed M/s Incorp Restructuring Services LLP as the new Resolution Professional in place of the IRP.

Case Title: Piramal Capital and Housing Finance Limited vs Notion Real Estate Pvt. Ltd.

Case No.: IA(I.B.C)/3433(MB)2024 IN C.P. (IB)/915(MB)2023

Advocate for the Financial Creditor: Nausher Kohli along with Nanki Grewal and Yesha

Advocate for the Corporate Debtor: Not Given

Date of Pronouncement: 18.07.2024

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