NCLT Indore: Insolvency Resolution Professional Can Continue To Function Till Appointment Of RP U/S 16(5) Of IBC

Background Facts:

On 03.03.2023, the Corporate Insolvency Resolution Process ('CIRP') of Indison Agro Foods Limited ('Corporate Debtor) was initiated by Indian Bank (Before the merger called Allahabad Bank) ('Applicant') under Section 7 of the IBC. Ms. Teena Saraswat Pandey was appointed as an IRP.

The IRP admitted the claim of the State Bank of India ('SBI') at Rs. 321.85 crores and attained a 61.87% voting share in the CoC. The Applicant in the first meeting of the CoC decided to not appoint the IRP as the RP and requested for replacement.

The agenda of replacement of IRP was not placed by the IRP for her ulterior motives and went ahead with deferment. The admitted financial debt of SBI was reduced to Rs. 237.48 crores bringing its voting share of 51.43%. The agenda for the appointment of RP failed in the 02^nd meeting of the CoC owing to non-receipt of adequate votes. Thus, the IRP has failed to be appointed as the RP due to a lack of adequate votes as required under Section 22(3)(a) of the IBC.

SBI has submitted the claim as per Regulation 8(2) of the CIRP Regulations and a proved debt in terms of the Banker Book Evidence Act, 1891, the IRP had kept a significant portion of the claimed amount under the status of “pending verification”, and in an attempt to justify its misdeed the IRP has on various occasions raised frivolous queries from the applicant regarding its claimed amount. SBI had modified its claim as per the settled position of law on 01.05.2023 at Rs. 308.32 crores. However, the IRP has kept a substantial portion of the claimed amount under the verification, with the object of coercing the Applicant to vote for her appointment.

SBI has filed the application for the replacement of the IRP and to admit its claim in its entirety with no further steps in the CIRP until the claim pending verification is admitted in whole.

NCLT Verdict:

The NCLT Indore dismissed the application and held that the IRP can continue to function till the date of appointment of the RP as per the amended provisions of Section 16(5) of IBC.

The Tribunal observed that SBI had moved for replacement of the IRP only because its claim was not accepted by the IRP in its entirety. The IRP had adopted a methodology whereby the voting percentage was commensurate with the percentage of loans advanced by them through the consortium for admitting the claim. Moreover, no sufficient majority of the CoC has been reached to replace the IRP.

It also highlighted that since the CIRP is a time-bound process and the Resolution is being received and placed for the CoC's consideration, there is no point in replacing the IRP at this stage. Further, as per the amended provisions of Section 16(5), the IRP can continue till the date of appointment of the RP under Section 22. Before the amendment, the IRP was to function for a period not exceeding 30 days from the date of the appointment but post the amendment, the IRP can continue till the appointment of the RP. Presently, there is no conscientious between the CoC members to appoint the RP either by allowing the same IRP to function as an RP or by way of replacement. Thus, the IRP can work as deemed RP and complete the CIRP.

Section 16. Appointment and tenure of interim resolution professional

(1) The Adjudicating Authority shall appoint an interim resolution professional [on the insolvency commencement date].

(2) Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

(3) Where the application for corporate insolvency resolution process is made by an operational creditor and--

(a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional;

(b) a proposal for an interim resolution professional is made under sub-section (4) of section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

(4) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending.

(5) The term of the interim resolution professional [shall continue till the date of appointment of the resolution professional under section 22].

The Tribunal noted that the IRP has acted in a bona fide manner as she took into account the difference in the methodology as adopted by the other two banks and had admitted the claim to the extent of the balances that were generated through their accounting systems.

It pointed out that for admitting claims, the outstanding amount has to be computed by considering the principal amount advanced, recoveries made, interest, and penal interest charged as per their respective sanction letters. Thus, NCLT directed all three banks to provide the detailed computation to the IRP along with sanctioned letters; and the IRP is directed to verify the computation of charging of interest and penal interest as per their sanctioned letters to admit the claim.

In conclusion, the NCLT dismissed the application for replacement of IRP as well as directed the IRP to consider the entire claim of SBI.

Case Title: Indian Bank vs. Indison Agro Foods Ltd.

Case No.: IA/166(MP)2023 & IA/253(MP)2023

Counsel for Applicant/SBI: Ld. Sr. Adv. Mr. Navin Pahwa a.w. Ld. Adv. Mr. Rohit Dubey & Ld. Adv. Mr. Sandeep Pandey (IAs 166 & 253/2023)

Counsel for IRP/RP: Ld. Sr. Adv. Mr. Saurabh Soparkar a.w. Ld. Adv. Mr. Madhav Lahoti and Ms. Teena Saraswat Pandey

Counsel for Indian Bank: Ld. Adv. Mr. Saumitra Chaturvedi

Counsel for Omkara Assets: Ld. Adv. Mr. Abhinav Malhotra a.w. Ld. Adv. Mr. Pranjal Kalantari

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