Appointment and tenure of Interim Resolution Professional and Resolution Professional under Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
Appointment and tenure of IRP & RP

Appointment and tenure of Interim Resolution Professional and Resolution Professional [Section 16, 22 & 27 of the IBC]

I. Eligibility for Resolution Professional

 1. Who can be appointed as IRP or RP

 As per sub-section 27 of the Section 5, Resolution Professional means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional.

Insolvency Professional means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207. [Sec. 3(19)].

Read more: How to become a Insolvency Professional.

2. Independency [CIRP Reg.-3(1)]

An insolvency professional shall be eligible to be appointed as a resolution professional for a CIRP of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director, are independent of the corporate debtor.

A person shall be considered independent of the corporate debtor, if:

(a) he is eligible to be appointed as an independent director on the board of the corporate debtor under section 149 of the Companies Act, 2013, where the corporate debtor is a company;

(b) he is not a related party of the corporate debtor; or

(c) In the last 3 financial years, he is not an employee or proprietor or a partner:

(i) of a firm of auditors or secretarial auditors in practice or cost auditors of the corporate debtor; or

(ii) of a legal or a consulting firm, that has or had any transaction with the corporate debtor amounting to 5% or more of the gross turnover of such firm.

A resolution professional, who is a director or a partner of an insolvency professional entity, shall not continue as a resolution professional in a CIRP if the insolvency professional entity or any other partner or director of such insolvency professional entity represents any of the other stakeholders in the same CIRP.[CIRP Reg.-3(3)].

In “State Bank of India v. Ram Dev International Ltd. (Through Resolution Professional)− Company Appeal (AT) (Insolvency) No. 302 of 2018” decided on 16th July, 2018, the Appellate Tribunal observed that merely because a ‘Resolution Professional’ is empanelled as an Advocate or Company Secretary or Chartered Accountant with the ‘Financial Creditor’ cannot be a ground to reject the proposal of his appointment unless there is any disciplinary proceeding pending against him or it is shown that the person is an interested person being an employee or on the payroll of the ‘Financial Creditor’.

In State Bank of India Vs. M/s. Metenere Ltd. [2020] ibclaw.in 114 NCLAT, NCLAT denied to appoint ex-employee of the Financial Creditor. 

3. Disclosure[CIRP Reg.-3(2)]

A resolution professional shall make disclosures at the time of his appointment and thereafter in accordance with the Code of Conduct.

II. Appointment and tenure of Interim Resolution Professional[Sec. 16]

 

1. Date of appointment of IRP [Sec. 16(1)]

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

2. Appointment in case of CIRP initiated by Financial Creditors u/s 7 or by Corporate Debtor u/s 10 [Sec. 16(2)]

Where the application for CIRP 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. Appointment in case of CIRP initiated by Operational Creditors u/s 9 [Sec. 16(3)]

  • Where the application for CIRP is made by an operational creditor and no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board(IBBI) for the recommendation of an insolvency professional who may act as an interim resolution professional.

The Board(IBBI) shall, within 10 days of the receipt of a reference from the Adjudicating Authority, recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending.[Sec. 16(4)]

  • Where the application for CIRP is made by an operational creditor and a proposal for an interim resolution professional is made under section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

4. Term of IRP [Sec. 16(5)]

The term of the interim resolution professional shall continue till the date of appointment of the resolution professional under section 22.

Where the appointment of resolution professional is delayed, the interim resolution professional shall perform the functions of the resolution professional from the fortieth day of the insolvency commencement date till a resolution professional is appointed under section 22.[CIRP Reg.-17(3)].

III. Appointment of Resolution Professional[Sec. 22]

The first meeting of the committee of creditors shall be held within 7 days of the constitution of the committee of creditors(CoC). The committee of creditors, may, in the first meeting, by a majority vote of not less than 66% of the voting share of the financial creditors, either resolve to appoint the IRP as a resolution professional(RP) or to replace the IRP by another resolution professional.

In Bank of India Vs. M/s. Nithin Nutritions Pvt. Ltd. [2020] ibclaw.in 123 NCLAT, NCLAT held that it is not necessary to replace an IRP in first meeting of CoC, CoC has the requisite powers to propose change of the IRP even in meeting/s subsequent to the first meeting. In this matter, NCLAT set aside the order of NCLT  and held that Having gone through the Impugned Order, what appears is that the Adjudicating Authority has proceeded on the basis that if in the first meeting of COC, the COC does not replace the IRP with another RP, the COC cannot do so subsequently. Like statement of question of law is stated by the Adjudicating Authority that “The COC having not resolved to replace IRP in its first meeting could not be allowed to replace him by a resolution in any of its subsequent meetings”. It appears to us that this is clearly a wrong legal proposition considering the provisions of IBC. There is not merely Section 22 Sub-Section (2) which is relevant but also Section 27.

1. Continue the IRP as RP

Where the committee of creditors resolves to continue the IRP as resolution professional subject to a written consent from the IRP, it shall communicate its decision to:

  • the interim resolution professional,
  • the corporate debtor and
  • the Adjudicating Authority;

2. Replace the IRP

Where the committee of creditors resolves to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional.

Replacement Situations:

  1. Interim Resolution Profession can be appointed as a resolution professional; [Refer sub-section (2) of Section 22]
  2. The Committee of Creditors can replace the interim resolution professional by another resolution professional; [Refer sub-section (2) of Section 22]
  3. The Committee of Creditors can replace resolution professional by requisite board if it is of opinion that the resolution professional appointed under section 22 is required to be replaced is to be made in the manner as prescribed under Section 27; [ Refer: Section 27]
  4. The Adjudicating Authority is also empowered to replace resolution professional in case the resolution plan submitted under Section 13 is rejected for failure to meet the requirement mentioned sub-section (2) of Section 30. [ Refer : sub-section (4) of Section 34]
  5. Normally the resolution professional appointed is to act as liquidator for the purpose of liquidation unless replaced by the Adjudicating Authority under sub-section (4) of Section 34. [Refer : sub-section (1) of Section 34]

NCLAT in the matter of Punjab National Bank Versus Mr. Kiran Shah [2019] ibclaw.in 05 NCLAT and in the matter of Axis Bank Ltd. vs. SixthDimension Project Solution Ltd. [2019] ibclaw.in 06 NCLAT held that when it relates to matter of replacing the IRP, reading Section 22 with Section 27 of IBC, it is not necessary for COC to record reasons for replacing the IRP/RP and it is not necessary for the Adjudicating Authority to call for reasons or decide whether there are sufficient reasons. NCLAT held that having heard the learned counsel appearing on behalf of the Appellant and the learned counsel appearing on behalf of the Resolution Professional, we are of the view that the Committee of Creditors is not required to record any reason or ground for replacing of the ‘Resolution Professional’, which may otherwise call for proceedings against such Resolution Professional. For the purpose of proceedings reported to the IBBI, the Committee of Creditors cannot await the decision of the IBBI for the purpose of replacement. The Committee of Creditors having decided to remove the ‘Resolution Professional with 88% voting share, it was not open to the Adjudicating Authority to interfere with such decision, till it is shown that the decision of the ‘Committee of Creditors is perverse or without jurisdiction. The Committee of Creditors with majority voting share of 88% having decided to replace Mr. Kiran Shah, he cannot function as Resolution Professional, though he will be entitled to his fee and cost, if any, incurred by him in terms of the Code.

NCLAT in the matter of Bank of Baroda Vs. M/s Maa Tara Ispat Industries Private Limited Through Mr. Pramod Kumar Singh  [2019] ibclaw.in 07 NCLAT held that CoC by its majority decision of 100% has decided to replace the IRP by its decision dated 01.07.2019, in view that the Adjudicating Authority in accordance with the provisions of Sec. 22 should have replaced the IRP. Also held that the CoC should not have given any reason against the IRP, which otherwise would have affected the career of the person.

NCLAT in  Mr. Devendra Padamchand Jain Vs. State Bank of India [2018] ibclaw.in 124 NCLAT held that the Adjudicating Authority is also empowered to remove the resolution professional, apart from the Committee of Creditors, but it should be for the reasons and in the manner as provided under the relevant provisions.

3. Confirmation of the Appointment from IBBI in case of replacement the IRP

The Adjudicating Authority shall forward the name of the resolution professional proposed to be appointed to the Board(IBBI) for its confirmation and shall make such appointment after confirmation by the Board.

Where the Board does not confirm the name of the proposed resolution professional within 10 days of the receipt of the name of the proposed resolution professional, the Adjudicating Authority shall, by order, direct the IRP to continue to function as the resolution professional until such time as the Board confirms the appointment of the proposed resolution professional.

4. Tenure of Resolution Professional

As per section 23(1) of the Code, the resolution professional shall conduct the entire CIRP and manage the operations of the corporate debtor during the CIRP period. The resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the CIRP period, until an order approving the resolution plan under sub-section (1) of section 31 or appointing a liquidator under section 34 is passed by the Adjudicating Authority.

IV. Replacement of resolution professional by committee of creditors [Sec. 27]

Where, at any time during the CIRP, the committee of creditors(CoC) 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.

Process of replacement of RP

1. The committee of creditors may, at a meeting, by a vote of 66% 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. Thereafter, the committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.

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

3. Where any disciplinary proceedings are pending against the proposed resolution professional, the resolution professional appointed under section 22 shall continue till the appointment of another resolution professional.

V. Written consent from IRP/RP

As per CIRP Regulation 3(1A), where the committee decides to appoint the interim resolution professional as resolution professional or replace the interim resolution professional under section 22 or replace the resolution professional under section 27, it shall obtain the written consent of the proposed resolution professional in Form AA of the Schedule.

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