NCLT: Resolution Professional may be Replaced at Any Time During CIRP by CoC by voting share of 66% under Section 27 of IBC

NCLT: Resolution Professional may be Replaced at Any Time During CIRP by CoC by voting share of 66% under Section 27 of IBC

The National Company Law Tribunal, (NCLT) Allahabad, by its division member bench comprising of Shri Praveen Gupta (Judicial Member) and Shri Ashish Verma (Technical Member) while adjudicating an application under Section 27 read with Section 60(5) of Insolvency and Bankruptcy Code, 2016 (IBC) in M/s Mahajagdamba Tubes Pvt. Ltd. vs. M/s Quality Steels Product Limited, held that replacement of a Resolution Professional is complete as per the scheme of section 27 of IBC when the resolution is passed with the requisite 66% voting share.

In the present case, an application was filed by the Committee of Creditors (CoC) through one of the Financial Creditor Namely Advent Infraprojects Private Limited having 76.51% voting percentage and is a member of CoC Under Section 27 read with Section 60 (5) of the IBC as well as read with Rule 11 of the NCLT Rules, 2016.

The Applicant was seeking the replacement of Resolution Professional (RP).

The said agenda was taken in the 7th CoC meeting and the CoC approved the replacement of the RP By 76.51% voting in favor of the aforementioned agenda.

The bench observed, Section 27 of the IBC, 2016 states that a Resolution Professional may be replaced at any time during the Corporate Insolvency Resolution Process by the Committee of Creditors. Sub-section (1) of Section 27 of the IBC states that where, at any time during the CIRP, the CoC is of the opinion that a Resolution Professional appointed under Section 22 of the IBC is required to be replaced, it may replace him with another RP in the manner provided under Section 27 of the IBC.

The NCLT further referred to Sub-section (2) of Section 27 which provides that the CoC may, at a meeting, by a vote of (66%) sixty-six percent of voting shares, propose to replace the RP appointed under Section 22 with another RP subject to written consent of the proposed RP.

In this regard, the bench observed, “from reading of Sub-section (1) of Section 27, it is evident that the CoC can resolve to replace the RP and pass an appropriate resolution with the requisite majority for the same. In the present circumstances, in the 7th CoC meeting which was held on 28 June, 2022 whereby the CoC approved the replacement of RP by 76.51% voting in favor of the aforementioned agenda and the proposed RP Sh. Gagan Gulati has also provided his consent on affidavit which has been filed on 22 August, 2022.”

It was further observed that there were allegations by the present RP, Mr. Varun Goel, and counter allegations by the CoC. However, the Tribunal refused to go into the merits of the contentions as the change of RP is strictly governed by section 27 of IBC.

Reliance was placed on the National Company Law Appellate Tribunal, (NCLAT) judgment of Sumant Kumar Gupta Vs. Committee of Creditors of M/s Vallabh Textiles Company Ltd. (2022), wherein it was held that Section 27 of IBC does not contemplate a hearing opportunity to be given to the Resolution Professionals by the Adjudicating Authority before approving the proposal of a new Resolution Professional. It was further held in the aforesaid NCLAT judgment that the scheme of Section 27 of IBC does not indicate that the Resolution Professional is to be made a party and is to be issued a notice before taking a decision on appointment of another Resolution Professional.

The NCLT opined that the requirement of Section 27 (2) of the IBC, 2016 was fully met. With the aforesaid observations, the NCLT allowed the application.