Replacement of Resolution Professional Requires CoC Approval under Section 27; NCLAT Upholds Due Process in Insolvency Proceedings
- REEDLAW
- 1 day ago
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REEDLAW Legal News Network reports: In a notable ruling, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, held that the replacement of a Resolution Professional must strictly comply with the procedure prescribed under Section 27 of the Insolvency and Bankruptcy Code, 2016. The Tribunal emphasised that such a decision must be placed before the Committee of Creditors (CoC) for its consideration and approval, as any removal without following this due process would amount to a breach of the principles of natural justice.
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, comprising Justice Sharad Kumar Sharma (Judicial Member) and Mr. Jatindranath Swain (Technical Member), while adjudicating a Company Appeal and connected Interlocutory Application, held that the replacement of a Resolution Professional must strictly comply with Section 27 of the Insolvency and Bankruptcy Code, 2016, by placing the proposal before the Committee of Creditors. The Bench observed that the removal of a professional without such deliberation violates the principles of fairness, transparency, and procedural propriety inherent in the IBC framework.
The Appellant, acting as the Resolution Professional of the Corporate Debtor under the Corporate Insolvency Resolution Process, had challenged an order of the Adjudicating Authority which had directed his replacement on the ground of non-cooperation and obstructive conduct. The Appellant contended that the impugned order dated 7 July 2025 violated the principles of natural justice as no opportunity of hearing was granted before directing his removal, and that the replacement was contrary to the procedure prescribed under Section 27 of the Insolvency and Bankruptcy Code, 2016. The Respondent, being the sole Financial Creditor, asserted that the Appellant deliberately avoided placing the agenda item for his replacement before the Committee of Creditors despite repeated requests and communications, thereby compelling the filing of an application under Section 60(5) of the Code before the Adjudicating Authority.
The Appellate Tribunal noted that Section 27 of the Code provides for the replacement of a Resolution Professional only through a resolution passed by not less than 66 per cent of the voting share of the Committee of Creditors, with the prior consent of the proposed Resolution Professional. It found that the Appellant, being statutorily obliged to act fairly, had avoided placing the relevant agenda before the CoC, thereby attempting to benefit from his own default. The Tribunal further observed that though the Adjudicating Authority had the jurisdiction to address the grievance under Section 60(5) when the Resolution Professional failed to act, the procedure set out in Section 27 could not be bypassed.
The Appellate Tribunal held that while the Adjudicating Authority was justified in addressing the issue of non-cooperation by the Appellant, it had erred procedurally by not directing that the agenda for replacement be formally placed before the CoC for its consideration in accordance with Section 27 of the Code. It was observed that any order of removal or replacement of a Resolution Professional carries civil consequences, making it obligatory to provide an opportunity of hearing and follow due process.
Accordingly, without treating the case as a precedent, the Appellate Tribunal quashed the impugned order to the extent it replaced the Resolution Professional and directed the Adjudicating Authority to exercise its inherent powers to formulate an agenda for consideration of the replacement of the Resolution Professional. The Adjudicating Authority was instructed to place such an agenda before the Committee of Creditors within two weeks for a decision under Section 27(2) of the Insolvency and Bankruptcy Code, 2016. The appeal was thus allowed, confined to the procedural directions issued.
Mr. Mathioli N., Resolution Professional, appeared, Party-in-person.
Mr. R. Imayavaramban, Advocate, appeared for the respondent.
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