Under IBC, erstwhile RP has no right to be heard before being replaced : NCLAT Delhi

Under IBC, erstwhile RP has no right to be heard before being replaced : NCLAT Delhi

The CoC can pass a resolution for a substitute with 66 percent votes, but it received 100 percent backing

The Delhi Bench of the National Company Law Appellate Tribunal (NCLAT) has held that when the Committee of Creditors (CoC) decides to replace the resolution professional (RP) under the Insolvency and Bankruptcy Code (IBC) and an application is filed before the adjudicating authority (AA) for approval, the erstwhile RP will have no right to be heard before being replaced.

The bench comprising Justice Ashok Bhushan (chairperson), Justice M. Satyanarayana Murthy (judicial member), and Barun Mitra (technical member), ruled thus while adjudicating an appeal filed in the Sumat Kumar Gupta vs Committee of Creditors of Vallabh Textiles Company Ltd., case.

Vallabh Textiles Company Ltd. (corporate debtor) was admitted into the Corporate Insolvency Resolution Process (CIRP) and Sumat Kumar Gupta (appellant) was appointed as the RP.

In a meeting held in June 2022, the CoC decided with 100 percent votes to replace the appellant with Rajiv Khurana, another RP. An application was filed before the AA by the financial creditor of the corporate debtor and the same was allowed vide the July order.

However, the appellant filed an appeal before NCLAT against the order.

The appellant argued that the AA passed the order without issuing notice or giving any opportunity to the appellant of being heard. As principles of natural justice under IBC, he had the right to be heard before being replaced.

The CoC submitted that IBC did not contemplate any opportunity to be given to the RP by AA before passing an order approving his replacement. The replacement is complete when a resolution is passed with 66 percent votes of the CoC, and the AA has communicated the name of the new RP.

The tribunal dismissed the appeal and held, "The scheme nowhere provides for any opportunity to the appellant for hearing. Therefore, it cannot be said that the former RP was entitled to be heard by the AA before taking the decision."