Independence of Resolution Professional vis-a-vis Committee of Creditors – By Mukul Anand Singh

(By Mukul Anand Singh, Advocate enrolled with Bar Council of Delhi, aspiring Insolvency Professional currently pursuing Graduate Insolvency Programme at Indian Institute of Corporate Affairs, Manesar)

A Resolution Professional (hereinafter RP) after the commencement of insolvency of the Corporate Debtor (CD) takes over the management of the CD from the incumbent Promoters/Board of Directors, as prescribed by the relevant provisions of the Insolvency and Bankruptcy Code 2016[1] (hereinafter the Code). In the course of the resolution process the IRP (Interim RP)/RP performs the functions of the suspended management of CD and ensures the status of the CD as a going concern throughout. Section 17(1)[2] of the code stipulates vesting of the management of CD in the hands of the IRP and all the powers of the board to be exercised by her accordingly. The provision under Section 17(2)(e)[3] pertains to IRP’s responsibility to comply with the requirements under any law for the time being in force on CD’s behalf. Powers exercised by the IRP include the power to instruct and direct the officers of the CD to provide her the access to all the relevant documents as required; power to instruct any such financial institution that maintains and keeps the accounts of CD to furnish all the information relating to such accounts to herself. Section 17(2) empowers the IRP to act and function in the name of the CD pertaining to the execution of deeds, receipts etc., if any.  

Section 20[4] specifically casts the duty upon IRP/RP to act and function in order to protect and preserve the value of assets of CD and manage its operations as a going concern. The RP while managing the affairs of the CD, is independent to decide over the admission of claims and removal of the workers, as supported by the Adjudicating Authorities in a number of cases. The NCLAT in Aircel Employees Representatives v Dishnet Wireless Ltd (2019)[5] observed that while trying to keep the corporate debtor as a going concern, issues of non-payment of wages or salaries to workers may arise, and the same have to be brought before the RP who may assess those claims.

Similarly, in Yogesh Kumar v Shantanu T Ray (2018)[6] the NCLAT held that if any employee has an issue that he/she has been wrongly ousted by the RP, even though they are employees on-roll and are co-operating in keeping the corporate debtor as a going concern, such issues have to be raised before the RP itself who only can decide after verifying the relevant records if such a worker is an existing employee or not.  

Thus, it can be inferred from the abovementioned judgment that the RP can review her own decision pertaining to ouster of the workmen of corporate debtor. 

Further, Section 25[7] of the Code stipulates that one of the major duties of the RP is to operate the CD as a going concern. However, a number of actions taken by the RP towards furtherance of her duties, are subjected to the approval of the Committee of Creditors. For instance Section 25(2)(c) empowers the RP to raise interim finances but only after approval by Committee of Creditors. This instance goes on to show that the RP is not completely independent of the interference or directives by the Committee of Creditors.

As far as engagements of third party entities like accountants, lawyers and other professionals is concerned, it is the authority of the RP to carry out on her own volition. The same has been enshrined under Section 20(2)(a) and Section 25(2)(d) of the Code.

Section 20. Management of operations of corporate debtor as going concern.—

(1) The interim resolution professional shall make every endeavour to protect and preserve the value of the property of the corporate debtor and manage the operations of the corporate debtor as a going concern.

(2) For the purposes of sub-section (1), the interim resolution professional shall have the authority—

(a) to appoint accountants, legal or other professionals as may be necessary.

Section 25. Duties of resolution professional.—

(1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:—

….

(d) appoint accountants, legal or other professionals in the manner as specified by Board.

 The Hon’ble NCLAT in Haravtar Singh Arora v PNB (2018)[8] held that it is the RP’s prerogative to decide upon the appointment of the accountant or legal professional in conducting the successful resolution of the CD. The NCLAT further dismissed the submissions made by the Appellant and held that the appointments made by the RP are legal and are not ultra vires the provisions of the Code. Relevant para of the judgment is produced below:

3. Learned counsel for the Appellant submits that the appointment of the ‘Valuer’/’Accountant’ is not legal but we are not inclined to accept such submission as the power to engage an Accountant, legal or other professional is vested with the ‘Resolution Professional’ under Section 25 (d) of the ‘I&B Code’.

 Deciding over the claims of creditors

 The duty of the RP to invite and collate claims of creditors under Sections 18[9] and Section 25 is steered by the regulations laid down by the Insolvency and Bankruptcy Board of India. A thorough perusal of Regulation 13 (verification of claims) and Regulation 14 (determination of amount of claims) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, provides that RP does not have power to adjudicate upon the legitimacy of the claims of creditors but merely has to collate them. This proposition is also supported by the Hon’ble Apex Court in the landmark judgment delivered in the case of Swiss Ribbons Pvt Ltd. V Union of India and Ors (2019)[10], where it was observed that mere collation of claims by the RP does not attribute to her any adjudicating or quasi-judicial powers but would certainly make it an administrative task.

However, a shift of stance has been observed in a recent judgment where the Hon’ble NCLAT in IARCL v G Gunasekaran(2019)[11] has held that the claims made by the Appellant can be submitted before the RP, who is authorised to decide whether it belongs to the Appellant. If the assets in question belong to the Corporate Debtor, it is entitled to raise a claim, and the IRP/RP will decide whether they belong to the Corporate Debtor, taking into account the requirements of Section 18 and Explanation (a), (b) and (c). Therefore, the power vested in him becomes an adjudicating power as is clear from the aforementioned pronouncements.

Further in Raghav Sharma v IVL Finance P Ltd (2019)[12] the NCLAT held that verifying and ascertaining the claim come under the task of collating the claims that the RP undertakes. And when it comes to deciding the exact figures of the due debt the functions performed by the RP are of quasi-judicial nature, since he is the one who decides over it.

 RP’s powers with respect to the Resolution plan

Resolution Professional invites Expression of Interest (EoI) as the first step towards inviting resolution plans and in that pursuit she prepares the Information Memorandum (IM) of the CD. The RP then, after receiving EoI prepares the evaluation matrix and issues it to the interested Prospective Resolution Applicants (PRA) along with the IM. However, in doing so she has to lay down the criteria as approved by the Committee of Creditors, to be fulfilled by the PRAs to be eligible in the race to become Successful Resolution Applicant (SRA), as provisioned under section 25 of the Code. The relevant provision is produced below.

 25. Duties of resolution professional.—(1)….

(2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely:—

…. (h) invite prospective resolution applicants, who fulfil such criteria as may be laid down by him with the approval of committee of creditors, having regard to the complexity and scale of operations of the business of the corporate debtor and such other conditions as may be specified by the Board, to submit a resolution plan or plans.

Further, the RP in LIC Housing Finance Ltd V Sripriya Kumar[13] submitted before the Hon’ble NCLT that the RP was directed by the Committee of Creditors to not issue an EoI. The NCLT observed that Committee of Creditors has no power to interfere. Committee of Creditors, to the best of its power may suggest improvements in the process of issuance of EoI but by no means of authority could it stop the RP from issuing it. The Adjudicating Authority further held that the RP is bound to release EoI within 75 days from the Insolvency Commencement Date (ICD) as per the relevant provisions of the Code. The Hon’ble NCLAT in this matter observed that Committee of Creditors can direct the RP to perform this task in a certain way and can suggest necessary corrections if there has been error regarding the claims of the creditors. However, if the process of issuing EoI has been carried on in accordance with the provisions of law and after taking into consideration the interest of the corporate debtor, then, in such an instance the Committee of Creditors should refrain from intervening.

 RP V Liquidator: vis-a-vis adjudicatory powers

The Resolution Professional, unlike liquidator, cannot act in a number of matters without the approval of the committee of creditors as prescribed under Section 28 of the Code. And the Committee of Creditors can replace a resolution professional with another by a two-thirds majority vote if it is displeased with her performance. Thus, the resolution professional serves as a facilitator of the resolution process, with the committee of creditors and the Adjudicating Authority overseeing the administrative tasks performed by her.

In contrast to what RP does, a liquidator undertakes administrative as well as quasi-judicial tasks as she goes on to verify, admit and reject claims purely by her judicial wisdom as per sections 38 to 42 of the Code. 

Conclusion

The Resolution Professional being the officer of the court[14], performs the task of facilitation of the Insolvency Resolution of the Corporate Debtor. The Committee of Creditors on the other hand takes the important decisions by the way of voting u/s 28 of the code, viz. raising interim finance, changing the capital structure of the CD, amending any constitutional documents of the CD etc., and at the same time keeps a check on the activities of the RP. The Committee is also empowered to remove the IRP/RP from her position u/s 27 if the members are of the opinion that RP is required to be replaced.

Since, the Resolution Professional is an Officer of the Court, according to the NCLAT, she must conduct the affairs with reasonable care for the company entrusted to her.[15] It is pertinent to mention here that the commercial wisdom of the CoC is the paramount proposition and RP acting as the officer of the court plays the role of amicus curie while dispensing her duties, in harmony to the Code, towards the resolution of the Corporate Debtor whose fate lies at the hands of the members of the committee.