Can Resolution Professional’s appointment be stalled on the ground of alleged bias ? NCLAT ruling creates new uncertainty- Will the Supreme Court intervene ? View Anil Tikotekar

Under the Insolvency and Bankruptcy Code 2016, there is a procedure which enables any financial creditor to initiate action against any corporate debtor who defaults on his payment obligations. This facility of initiation of action can also be availed by non financial creditor/s against any corporate debtor –such non financial creditors being called operational creditors who are normally supplier of goods and / or services etc.

Financial creditor/s has to make an application in specified format and has to also suggest name of Interim Resolution Professional [ IRP in short ] who then spearheads the process until regular Resolution Professional [ RP in short ] is appointed. When the application of the financial creditor, reaches the Adjudicating Authority [ National Company Law Tribunal ] , such Adjudicating Authority may approve the name of such Interim Resolution Professional if there is no disciplinary action pending against him. This is the only check that the Adjudicating Authorityof course other than the verification that there is indeed a default.

Thereafter such IRP steers the actions on behalf of creditors and also forms a Committee of Creditors and becomes the Chairman of any meeting that are called thereafter to consider various proposals to resolve the issues that the corporate debtor may be facing.

The entire law as contained in IBC 2016 as also various Supreme Court decisions make it abundantly clear that that IRP / RP does not have any adjudicatory powers. But fact remains such IRP / RP is a key person in deciding number of issues like calling the meetings and sending the minutes of such meetings etc.

Assume you are the financial creditor and want to initiate an action against your defaulting corporate debtor, you —as financial creditor [ read banker ] —will be comfortable with an IRP who is known to you. This is a human tendency.

But the real catch is when such IRP / RP is your past employee and more so if he is a former executive particularly of the rank of Chief General Manager. Fact remains, such Chief General Manager–though retired long ago—is known to his subordinates who are now in positions of power and there is no denying that such subordinates will still come to respect his former boss. And out of such respect, closeness or unity of purpose is bound to develop and that there is every possibility that such IRP/RP will be in commanding position vis a vis the corporate debtor.

In a particular case [ links attached ] –a Interim Resolution Professional’s name was recommended by a Creditor bank and the corporate debtor concerned raised objection to the appointment of IRP on the ground that such IRP will be biased one because he hails from the same bank and continues to draw pension from the said bank.

The case initially went to National Company Law Tribunal –NCLT–who agreed with the corporate debtor’s apprehension of bias and did not agree with the appointment. The creditor concerned–immediately appealed to National Company Appellate Tribunal –NCLAT– who also agreed with the findings of NCLT and did not agree with the appointment.

The matter as of now rests there. There are number of cases where former employees of creditor banks are appointed as IRP/RP since such IRP/RP fit into selection / appointment criteria fixed by the regulator Insolvency and Bankruptcy Board of India and there are otherwise no disqualifying factors.

Besides one more issue that needs to be addressed to is whether —in other cases –other creditors will be equally comfortable with such IRP / RP. Assume IRP / RP is from X Bank and there are other creditor banks like Y and Z. Will such Y and Z bank be equally comfortable with such IRP/RP who is a former employee of X bank ? This issue has not cropped up so far but bound to in days to come.

NCLAT’s resolution professional ruling: Several bankruptcy cases face delay | Business Standard News

NCLAT upholds order passed by NCLT on appointment of RP for Metenere Ltd. – The Economic Times

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