Appointment of Insolvency Professionals–apprehension of bias–how much relevant ? My view– Anil Tikotekar

NCLAT has observed that “ The apprehension of bias by the corporate debtor [ Defendant ] could not be dismissed ” NCLAT further said , quoting a Supreme Court judgement–” “The process should be fair and appear to be fair”

In a landmark decision, NCLAT [ 3 Judge bench ] has passed a first of its kind judgement setting aside the appointment of ex-employees of banks as RPs.

My view

IBC 2016 provides for initiation of insolvency proceedings against the defaulting corporate persons. The Creditor/s–while initiating insolvency proceedings against an erring debtor–under Section 7 of IBC 2016–has/have to also suggest name of an Interim Resolution Professional who is to be from the panel of registered candidates with IBBI. Of course this registration takes place after the concerned professional goes through several yardsticks including passing of an examination wherein he has to score at least 60 marks. Additionally, such candidates should have requisite experience either in the field of management, accountancy, legal profession or in the field of cost accountancy and company secretary.

Though such Interim Resolution Professional does not solicit his appointment with a particular creditor, [ rather such IRP is prohibited from soliciting any work from any creditor ] –and thus is likely to be insulated from the allegation of favouritism — fact remains that both the creditor and such Interim Resolution Professional–are bound to be comfortable with each other if they know each other and this feeling of being comfortable with each other, must be forcing the creditors to suggest names of IRPs known to them. One has to note that there is no scope for anybody [ least of all any other Interim Resolution Professional ] to challenge such recommendations.

On concerned debtor approaching the NCLT, it upheld the challenge to such recommendation on the ground of ” apprehension of bias ” . NCLAT–3 Judge Bench — the appellate authority –by a unanimous decision upheld NCLT decision.

Be that as it may, fact remains that such recommendations will continue to be made if the Interim Resolution Professional is known to creditor [ read his former colleagues / bosses / bank ] for the simple reason that the creditor has the choice to recommend such Interim Resolution Professional and that creditor is bound to be comfortable with a known ex-colleague rather any creditor [ whether it is you or me ] would like to strike the resolution at the earliest and this is possible if time is saved and this saving of time is possible if bridges of understanding [ about the issues involved ] are built from the word go.

Though the Interim Resolution Professional is not to take any decision as such—affecting the resolution of the issues on hand–either way, fact remains he is the master of ceremony in all the meetings of Committee of Creditors– that are called to discuss and decide all the insolvency related issues. Interim Resolution Professional is the Chairman of all the meetings of Committee of Creditors and no meetings can be held without his active involvement.

Fact remains — Insolvency Professionals [ who on their appointment by Adjudicating Authority ] act as Interim Resolution Professional / Resolution Professional or Liquidator and it is such Insolvency Professionals who are Ex Bankers who could be very much helpful in handling the intricate tasks on hand. But it is a double edged weapon in that such Insolvency Professional may have developed a biased view of a corporate debtor if he has had occasion to handle the said advance account while he was in the said bank. However, the Code provides for checks and balances to avoid this but sometimes Committee of Creditors–who are the decision makers –are likely to be swayed by a Insolvency Professional , if he happens to be an Ex Executive of the said creditor bank.

It will be interesting to see how the Apex Court deals with the appeal if at all it is filed.

NCLAT Decision–regarding appointment of RP

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