Empowerment of Committee of Creditors in the Replacement of Resolution Professionals under the Insolvency and Bankruptcy Code, 2016
Namrata Ghosh
3rd Year B.A. LL.B.(Hons.),
National Law University, Odisha
&
Soubhagya Khandual
4th Year B.A. LL.B.(Hons.),
KiiT School of Law
Introduction
For the purpose of this, resolution professional has been defined under section 5 (27) as an insolvency professional who is appointed to conduct corporate Insolvency Resolution Process including interim Professional[1]. Enacted with an intention of enabling faster resolution processes for stressed entities, the Code has vested extensive powers within Committee of Creditors (CoC). Some of them include the power to replace resolution professional (RP) managing a corporate insolvency resolution process (CIRP). In reality this is a mechanism by which creditors manage to oversee themselves and go so far as make the hugely important decisions of how insolvent companies aren’t run in their business. The insolvency bankruptcy code (IBC), in particular Sections 22 and Section 27, exactly mentions how the Committee of Creditors can replace RPs when needed thereby offering easier paths to immediate resolution for corporate insolvencies in India.
Section 22: Replacement of Interim Resolution Professional
The most important decision pertaining to the IRP is taken by the CoC under Section 22(1) of the IBC[2]. After constituting, the CoC has the right to confirm the IRP as permanent RP or opt for another eligible professional. This depends on the IRP performance during the initial stages of the CIRP assessment by the CoC so that his perception about his ability to conduct the resolution process for the next period effectively is ascertained.
The consequent procedural steps, in the event of a decision of the CoC to replace the IRP under Section 22(1), are provided under Section 22(3). An application has to be filed before the AA by the CoC, suggesting the name of a new RP it is desirous of appointing in place of the IRP. That too must be carefully drafted and presented before the AA with clarity and in conformity with the requirements of the law.
Upon receipt of the application from CoC, AA is statutorily bound to intimate, without any loss of time, the proposed name of the new RP to IBBI for confirmation. Without doubt, this step in the procedure will make the replacement of IRP very transparent and shall, consequently, be in conformity with the regulatory mechanism provided under IBC. During this transition period, till the appointment of the proposed RP is confirmed by the IBBI, the IRP continues to act as the RP for the purpose of ensuring continuity and stability in the resolution process
Section 27: Replacement of Resolution Professional by Committee of Creditor
Section 27 of the IBC has provided an additional discretionary avenue whereby the CoC can replace an RP even at any stage in the course of CIRP[3]. This provision recognizes that a corporate insolvency process is a dynamic process, and the CoC has been vested with powers to take effective decisions if they feel the necessity for change in the RP on account of unforeseen circumstances or even on account of their apprehensions about the performance of the RP.
Section 27 says that at any point in time during the CIRP, if the CoC decides that it is necessary to replace the RP, they may do so upon convening a meeting and securing a vote of seventy-five percent of voting shares. This high threshold should underline the unanimity of the CoC on such critical decisions and further reiterate that majority support from creditors cannot be dispensed with.
Once the CoC decides to replace the existing RP with another professional, it has to forward the name of the proposed RP to the AA for its consideration. The AA then forwards this nomination to the IBBI for confirmation regarding satisfaction of statutory qualifications and regulatory standards under the IBC for the proposed RP. Importantly, in case of any pending disciplinary proceedings or legal challenges against the proposed RP, the existing RP shall continue to discharge his duties until the appointment of the new RP is confirmed by the IBBI.
Provisions under both Sections 22 and 27 of the IBC underscore the pivot role accorded to CoC for supervision over the appointment and continuation of RPs during CIRP. In giving powers to the CoC to review continuance of RPs and to replace them, if found appropriate, the IBC has provided a mechanism under which the creditors may safeguard their interest and continue to have faith in the process of resolution under these provisions. The regime that automatically ensues encourages transparency, accountability, efficiency, and effectiveness in the resolution of matters related to corporate insolvency, thus helping to attain holistic goals of the IBC in promoting timely resolution and ensuring maximum value extraction from distressed assets.
IBBI (Grievances and Complaint Handling Procedure) Regulations, 2017.
The IBBI (Grievances and Complaint Handling Procedure) Regulations, 2017, provide statutory empowerment to stakeholders in the insolvency process, including debtors, creditors, claimants, service providers, or resolution applicants, who can file complaints against any Resolution Professional or Liquidator. Such complaints have to state particulars of the impugned conduct; the loss caused; how such conduct resulted in loss; and the reliefs claimed. Regulation 2(j) of the IBBI Regulations defines stakeholders very broadly as including any person with an interest in insolvency, liquidation, voluntary liquidation or bankruptcy transactions under IBC. Section 60(5) confers upon its jurisdiction to decide all such matters arising as questions of priority or any other question, whether legal or factual, that may arise from, or in relation to, insolvency regulations under IBC. It provides for focused jurisdiction with adequate and proper resolution of disputes and claims arising in the context of corporate insolvency and bankruptcy proceedings, giving primary importance to procedural fairness and judicial oversight.
Judicial Interpretations and Case Law
In the case Veeral Controls Private Limited vs Regen Powertech Pvt Ltd,[4] the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor, and a Resolution Professional (RP) was duly appointed. Subsequently, an operational creditor (the appellant) filed a claim for outstanding dues, which the RP admitted. However, the appellant later sought the replacement of the RP under Section 27 of the Insolvency and Bankruptcy Code (IBC), citing the RP’s alleged failure to disclose ongoing contempt proceedings and a show cause notice against them, rendering the RP ineligible. The National Company Law Tribunal (NCLT), in its impugned order, dismissed the application on grounds that provisions for RP replacement were only envisaged under Sections 22 and 27 of the IBC, not under disciplinary proceedings. The NCLT ruled that disciplinary actions against RPs fall under the jurisdiction of the Insolvency and Bankruptcy Board of India (IBBI), not the NCLT. Not satisfied, the appellant challenged the judgment before the NCLAT, claiming that the NCLT had misinterpreted the IBC principles. The NCLAT observes in this regard, Section 27 of the IBC, no doubt provides for power to the CoC to replace an RP if it decides so with a 66% majority, more so when the CoC smells collusion between the RP and the management. Most importantly, it made clear that the Adjudicating Authority is bound to consider the replacement proposed by the CoC while delineating the procedural rights and roles relating to RP replacements under the IBC.
In the case of Partha Sarathy Sarkar vs. Specified Undertaking of Unit Trust of India Ltd. & Ors.[5], the issue was regarding replacement by the CoC of a Resolution Professional under Section 27 of the IBC, 2016. The appellant, ex-RP, challenged his substitution by the CoC on the ground that he was not given an opportunity to place all relevant facts before the Adjudicating Authority pertaining to allegations against him. The NCLAT explained that a decision relating to the replacement of an RP under Section 27(1) of the IBC exclusively vests with the CoC requiring a voting share of 66% and, therefore, consent of the RP in the decision-making process is not required. While citing previous judgments, the NCLAT held that once a CoC passes a resolution for replacing an RP, the role of the Adjudicating Authority was confined to merely forwarding the name of the proposed RP to the Insolvency and Bankruptcy Board of India for confirmation, and did not confer any right on the replaced RP to challenge such decision post-facto. The present decision merely bolsters the procedural framework of the IBC that emphasizes efficiency and collective decision-making in creditor-driven insolvency proceedings. It categorically lays down that a Resolution Professional cannot question a CoC decision of replacement and, therefore, strongly establishes the statutory autonomy of creditors in such matters.
Conclusion
The Insolvency and Bankruptcy Code, 2016 (IBC), empowers the Committee of Creditors (CoC) with significant authority to oversee the replacement of Resolution Professionals (RPs) during corporate insolvency resolution processes (CIRP). Sections 22 and 27 of the IBC delineate clear procedures whereby the CoC can decide to replace an RP, ensuring transparency and efficiency in the resolution of distressed entities. The judicial interpretations in cases such as Partha Sarathy Sarkar v. Specified Undertaking of Unit Trust of India Ltd. underscore the decisive role of the CoC in these matters, affirming that once a majority decision is made by the CoC to replace an RP, the Adjudicating Authority’s role is limited to procedural confirmation. This framework not only safeguards the interests of creditors but also enhances the resolution process by enabling timely and informed decisions, thereby contributing to the overarching objective of the IBC to promote orderly and effective insolvency resolutions in India.
References:
[1] Section 5 (27), The Insolvency and Bankruptcy Code, 2016.
[2] 2 Section 22, The Insolvency and Bankruptcy Code, 2016.
[3] 2 Section 27, The Insolvency and Bankruptcy Code, 2016
[4] Veeral Controls Private Limited vs Regen Powertech Pvt Ltd, (2022) ibclaw.in 253 NCLAT.
[5] Partha Sarathy Sarkar v. Specified Undertaking of Unit Trust of India Ltd. & Ors., (2023) ibclaw.in 761 NCLAT.
