NCLAT New Delhi: When CoC Hasn't Confirmed Appointment Of IRP, IRP Can Be Replaced By CoC U/S 22 Of IBC

Background Facts

On 09.02.2023, the Corporate Insolvency Resolution Petition ('CIRP') process was initiated against Parenteral Drugs India Ltd. ('Corporate Debtor') and NCLT Mumbai appointed Kairav Anil Trivedi ('Appellant') as the IRP. The IRP constituted the CoC and also issued the Notice and agenda for convening the first CoC meeting. The State Bank of India ('SBI') had filed an Interlocutory Application ('IA') to direct the Resolution Professional ('RP') to convene the meeting with the agenda of voting on the replacement of the IRP.

NCLT Mumbai via its order dated 12.05.2023 directed the IRP to convene the CoC meeting within one week from the date of communication of the order with the specific agenda for replacement of the IRP in the next meeting. However, the said meeting was not convened by the IRP and thus, SBI filed an application for the removal of the IRP with immediate effect under Section 11 of the NCLT Rules.

Moreover, a Contempt Application to proceed Contempt Proceeding was filed by IRP citing a non-deposit of Rs. 5 Lakhs on NCLT Mumbai's order and further seeking direction to pay CIRP expenses to the tune of Rs.76.81 Lakhs and NCLT Mumbai issued notice to the Managing Director of the Punjab National Bank, a financial creditor, to ensure compliance.

The meeting of CoC was convened on 06.10.2023 wherein Resolutions were placed including the Resolution for CIRP expenses as well as the Resolution for replacement of the IRP/RP. The CoC denied the Resolution for payment of CIRP costs and passed a resolution for the replacement of the Appellant with approval by 100% votes.

NCLT Mumbai by Order dated 17.10.2023 has allowed the application for replacement of the Appellant by a new RP as per the CoC's Resolution dated 06.10.2023.

NCLAT Verdict:

The NCLAT New Delhi dismissed the appeal and held that when the CoC has not confirmed the appointment of IRP, the IRP could have been replaced by the CoC under Section 22 of IBC.

The Appellate Tribunal observed that the CoC never confirmed the appointment of the Appellant as the IRP and no evidence has been provided indicating the CoC's confirmation by a majority of not less than 66% of the vote. Thus, when the Appellant's appointment as IRP was not confirmed, he could have been replaced by the CoC under Section 22 of the IBC. Thus, the mere placing of the Resolution before e-voting and that there was alternate resolution both under Sections 22 and 27 of IBC cannot be read to mean that any infirmity exists in the Resolution passed for replacement with 100% vote.

Section 22 and 27 of IBC reads as follows:

Section 22. Appointment of resolution professional.—

(1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors.

(2) The committee of creditors, may, in the first meeting, by a majority vote of not less than 2 [sixty-six] per cent. 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.

(3) Where the committee of creditors resolves under sub-section (2)— (a) to continue the interim resolution professional as resolution professional, 3 [subject to a written consent from the interim resolution professional in the specified form] 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 [along with a written consent from the proposed resolution professional in the specified form].

(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 time as the Board confirms the appointment of the proposed resolution professional.

Section 27 Replacement of resolution professional by committee of creditors.—

(1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section.

(2) The committee of creditors may, at a meeting, by a vote of sixty-six per cent. of voting shares, resolve to replace the resolution professional appointed under section 22 with another resolution professional, subject to a written consent from the proposed resolution professional in the specified form.]

(3) The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.

(4) The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in section 16.

The Appellate Tribunal noted that as per NCLAT's decision in Sumant Kumar Gupta vs. Committee of Creditors of M/s. Vallabh Textiles Company Ltd. when the Resolution has been passed by the CoC in accordance with the provisions of the IBC deciding to replace the IRP, IRP cannot be heard in questioning the resolution on the ground that present was not a case where IRP could have been replaced by another Resolution Professional.

Further, it emphasized that as per Paragraph 1 of NCLT Mumbai's order, it was recorded that both the counsels were present and when the Order was passed hearing the Counsels for the Applicant and the IRP, no violation of principle of natural justice exists.

The NCLAT also observed that the CoC cannot be charged with non-cooperation as according to IBC, CoC has the control and supervision of the CIRP and CoC's approval is required for the actions of the IRP/RP. Thus, no exception can be taken to the resolution of the CoC resolving to replace the Appellant.

In conclusion, the NCLAT observed that no infirmity or error exists to NCLT Mumbai's order dated 17.10.2023.

Case Title: Kairav Anil Trivedi, IRP of Parenteral Drugs India Ltd. v. State Bank of India (Erstwhile CoC) & Anr.

Case No.: Company Appeal (AT) (Insolvency) No. 1439 & 1440 of 2023

Counsel for the Appellant: Mr. Kairav Anil Trivedi, IRP in person

Counsel for the Respondents: Mr. Abhishek Anand, Mr. Abhishek Swaroop, Mr. Aditya Vikram Singh, Mr. Palash Agarwal, Mr. Anmol Gupta, Ms. Shreya Chandhiok, Ms. Lubhanshi, Advocates.

Click Here to Read/Download Order