Analysis of NCLT Delhi-II Judgment in Worldwide Metals (P) Ltd Vs JP Engineers (P) Ltd. dated 7th October, 2020
Case: Worldwide Metals (P) Ltd Vs JP Engineers (P) Ltd.
in IA/4208/2020 & 2 other IAs’ in (IB) – 1048 (ND)/2019 Decided on 7th October, 2020
CORAM: Sh. CH. Mohd. Sharief Tariq & Sh. L.N. Gupta
Ruling analysed By: Adv. Partho Sarkar
Case Citation : (2020) ibclaw.in 129 NCLT
In case the CoC/ Financial Creditor has to replace the RP with their empanelled Insolvency Professional, IBBI being arrayed as a party to seek their response as to the stand of Financial Creditor (A per incuriam judgement explained in the Epilogue) .
Back Ground Facts/Rival Submissions:
CoC sought a change in Resolution Professional/RP (though were satisfied of the incumbent RP’s professional discharge of functions) on the ground that the ‘Financial Creditor – Bank’ has a policy, that CIRP needs to be handled by an empanelled RP of theirs, and that the present/incumbent RP is already handling eight assignments & won’t be able to do justice.
Observation by the Court:
IBBI has provided a list of Insolvency Professionals to the NCLT, out of which NCLT has to appoint one of them; factual ground reality suggests, that Financial Creditors are proposing the name of Insolvency Professionals empanelled with them for discharging of CIRP functions, which results in delaying the CIRP. The Court/Tribunal goes on to observe that such Insolvency Professionals aren’t independent persons.
(Nowhere the captioned order states, that the application for change of RP has been backed by a resolution of minimum of 66% of voting as mandated U/s 27 of the I & B Code – however going by the recital of the order, that in the third CoC meeting held on 26th Aug, 2020, a resolution was passed to replace the incumbent RP – it is presumed that the change of RP was resolved by way of minimum 66% of voting).
In view of the conflicting situation, it is necessary to array IBBI as a party and seek response of theirs, qua the stand of Financial Creditors.
- Bland observation by the Ld. Bench Members – ‘that financial institution empanelled insolvency professional being assigned of the job, results in CIRP delays’ And ‘such insolvency professionals aren’t independent’. The two sweeping observations hasn’t been disclosed or backed of any source (basis which the observations been made), ex-facie it appears to be out of personal information/ perception, rendering the Ld. Bench Members liable to be examined as witnesses; the said assertion is within the ambit of the ruling of Murat Lal V/s Emperor MANU/BH/0305/1917 and the ruling of Hon’ble Privy Council in Hurpurshad V/s Sheo Dayal LR.31.A.259; having imported personal information into the case, the judge has rendered themselves to give evidence as witness. That a judge can’t indulge in extra legal perception was also ruled by Kerala High Court in the matter of State of Kerala V/s Aboobacker, 2006 SCC OnLine Ker 666; which also relied on the ruling of Hurpurshad supra & Mihian Bibi V/s Basher Khan, 11 Moo I.A. 213 (PC). The extralegal perception of the Bench members, can’t be construed as innocuous observation(s) – (a judicial observation can’t be ever be speculative/presumptive; in fact has to flow out of deeply thought out judicial reasoning), since formed the basis of the operative order.
- As regards appointment of RP, the same is guided by Section 22 of I & B Code, replacement of RP is guided by Section 27 of the Code, which envisages that minimum of 66% of voting is required to replace the RP. Apparently, the CoC has misdirected themselves in arguing that it’s the Bank’s policy to engage empanelled Insolvency Professional – an outright uncalled for /misdirected argument on the part of CoC, in the teeth of the mandate of the law that once CoC has armed itself with 66% voting in favour of replacement, no further justification was required. Further, since the CIRP has to be completed in time bound manner, the CoC is expected to take steps diligently and not in perfunctory or casual manner; the CoC to have meandered the argument in causing reference to IBBI was an irrelevant exercise causing further delay/confusion.
- The law concerning replacement of RP is fairly settled in terms of the ruling of NCLAT in the matter of Punjab National Bank V/s. Mr. Kirah Shah IRP of ORG Informatics Ltd  ibclaw.in 05 NCLAT wherein it was held that the Committee of Creditors (CoC) is not required to record any reason or ground for replacing the ‘Resolution Professional’. The CoC having decided to remove the RP with more than the threshold/minimum voting share of 66% in favour of the same, it was not open for NCLT to interfere with such decision, till it is shown that the decision of the CoC is perverse or without jurisdiction. Another important observation was made by NCLAT in the matter of Kirah Shah supra, which gets underscored vis-à-vis the intent of the Code – ‘For the purpose of proceedings reported to the ‘Insolvency and Bankruptcy Board of India’ (for short, ‘the IBBI’), the ‘Committee of Creditors’ cannot await the decision of the IBBI for the purpose of replacement’.
- In view of the settled position of law, NCLT in passing an order arraying IBBI as a party in the matter of the captioned proceedings conflicts with the settled position of law – ‘a per incuriam ruling’.