NCLAT: It is settled in law that AA who appoints Resolution Professional can also remove the Appointee

NCLAT : It is settled in law that AA who appoints Resolution Professional can also remove the Appointee

The National Company Law Appellate Tribunal (in short NCLAT), Principal bench while hearing the appeal in the case of Srigopal Choudary vs. SREI Equipment Finance Ltd, upheld the Adjudicating Authority's (in short AA) decision and observed that AA being the appointing authority of Insolvency Resolution Professional/Resolution Profession was well within its jurisdiction to pass an order for removal of the Resolution Professional (in short RP) particularly in a situation where the RP had not taken any steps to convene the meeting of the Committee of Creditors (in short CoC) for the purposes of removal of RP.

The SREI Equipment Finance Ltd.- respondent/financial creditor had filed a petition at the National Company Law Tribunal, Mumbai bench (in short NCLT/AA) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short IBC), seeking to initiate Corporate Insolvency Resolution Process (in short CIRP) against Shree Ram Urban Infrastructure Ltd. & Ors.- appellant/corporate debtor. The AA on 28 November, 2022 passed an order on three Interlocutory Applications directing the appellant- Mr. Srigopal Choudhary who was the RP of the corporate debtor to be removed and was replaced by the new appointed RP Mr. Sapan Mohan Gard and was directed to hand over all records/documents to the newly appointed RP.

Aggrieved by the said order, the appellant presented an appeal under Section 61 of the IBC before the Appellate Tribunal. It was alleged that Mr. Srigopal's inaction resulted in the breach of the mandatory timelines of the CIRP. Further, no concrete steps were taken by him towards the CIRP and no 'Expression of Interest' (in short EOI) was issued to attract prospective resolution applicants.

The NCLAT examined the material available on record particularly the impugned order and found that in the impugned order the CIRP was initiated long back in 2019, however, for more than one and half years, no step was taken by the appellant/RP for revival of the corporate debtor or even for generating funds. There was no order of any 'Stay' regarding the convening of the said 'Meeting' placed before the Tribunal.

The Appellate Tribunal noted that CoC Meeting was delayed for a long time and this conduct was sufficient to draw an adverse inference against the appellant as it was noticed that though the applicant/respondent No.1 had intimated the RP for convening Meeting for removal of the RP, the appellant did not respond to the request of the applicant nor did he convene any 'Meeting', compelling the applicant to approach the AA for passing order for replacing of the RP.

The bench comprising of Justice Rakesh Kumar (Judicial Member) and Ms. Shreesha Merla (Technical Member) observed, "it is true that Section 27 empowers CoC for replacement of the RP but if there is a peculiar situation in which the RP, who under Regulation 18 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016, himself is sitting tight over the matter for convening Meeting of CoC, the Adjudicating Authority who is also the appointing authority of IRP cannot be allowed to be a mere spectator. So far as judgment of Veeral Controls Pvt Ltd (Supra) on which reliance was placed by learned senior counsel for the appellant, in view of the peculiar facts and circumstances of the present case, i.e., more than one and half year delay in convening 1st CoC Meeting, sitting tight over request for holding CoC Meeting for removal of RP etc., this appellant may not get any assistance from the said judgment."

The bench stated that as per Section 16 of The General Clauses Act, 1897 which states, Power to appoint to include power to suspend or dismiss, the AA had rightly exercised its inherent jurisdiction.

The bench concurred with the AA's observation that the RP had 'miserably failed to adhere to the timelines stipulated in the Code.' The Tribunal in its order stated, "we are conscious of the fact that the provision of Section 27 of the Code contemplates that the replacement of the Resolution Professional can be done by the CoC alone. But if the ingredients of Section 27 of the Code cannot be met i.e., in the event, the RP is not convening the meeting of CoC, which in turn has to decide the replacement of the RP himself, we are of the considered view that the Adjudicating Authority, in order not to delay the CIRP proceedings, on an application under Rule 11 of the NCLT Rules, 2016 has rightly invoked its inherent jurisdiction and passed the impugned order."

"Needless to add, this order shall not come in the way or impede any directions issued by the Hon'ble Apex Court in any connected matter and the Adjudicating Authority shall proceed in accordance with law," the Tribunal added.

The Bench upheld the order passed by the Adjudicating Authority and dismissed the appeal. Further, directed the Insolvency Bankruptcy Board of India to conduct an inquiry against Mr. Srigopal Choudhary.