Removal of an Interim Resolution Professional Due to Impartiality and Premature Admission of Claims Violates the Insolvency and Bankruptcy Code
- REEDLAW
- Oct 9, 2024
- 3 min read
NCLAT upheld the Adjudicating Authority's decision to remove an Interim Resolution Professional due to impartiality and the premature admission of claims, which violates the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench led by Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey reviewed an appeal and observed that the premature admission of a financial creditor's claim and reconstitution of the Committee of Creditors (CoC) by the Interim Resolution Professional (IRP), in violation of the Insolvency and Bankruptcy Code (IBC) and without maintaining impartiality, justifies the IRP’s removal. The decision upholds the principle that IRPs must act neutrally and ensure proper claim verification before altering the CoC composition.
In the present appeal before the NCLAT arose from an order of the NCLT, Mumbai, that removed Dushyant Dave as the Interim Resolution Professional (IRP) of M/s Altius Digital Private Limited. The appeal, filed under Section 61(1) of the Insolvency and Bankruptcy Code (IBC), challenged the NCLT's decision, which appointed Mr. Arun Kisanlal Bagadia as the new IRP. The appellant contended that the order was arbitrary and biased, as it disregarded the commercial wisdom of the Committee of Creditors (CoC) and damaged his professional reputation. He argued that his removal and the tribunal's interference in CoC decisions, especially regarding the verification of claims, were legally flawed.
The case revealed that the appellant had admitted claims from operational creditors, including Gospell Digital Technologies, in January 2024. However, it was the claim submitted by Asha Apartments Pvt. Ltd., a financial creditor, that led to the reconstitution of the CoC. This change in CoC composition significantly altered voting rights, prompting concerns over the appellant's impartiality in handling the process. The NCLT found that the appellant prematurely admitted Asha Apartments' claim and reconstituted the CoC, which ultimately led to his removal.
The Tribunal concluded that the appellant had failed to maintain neutrality during the CIRP, particularly in relation to Asha Apartments' claim, which was introduced after the submission deadline and before its verification was complete. The reconstitution of the CoC, without proper disclosure to the NCLT and despite the CoC's earlier decision to remove him, was deemed a violation of IBC provisions. Consequently, the NCLT’s decision to replace the appellant with a new IRP was upheld by the NCLAT.
Further, the NCLAT expressed concerns over the financial dealings between the Corporate Debtor and Asha Apartments Pvt. Ltd., particularly given that Asha Apartments was the sole member of the CoC and its claim arose after the CIRP had been initiated. The Tribunal noted a pattern of distressed companies introducing friendly entities as financial creditors to manipulate the CoC and skew voting power in their favour. Given these concerns, the NCLAT upheld the NCLT's decision, directed the Insolvency and Bankruptcy Board of India (IBBI) to investigate the appellant’s conduct, and emphasized the importance of impartiality in CIRP proceedings to safeguard the integrity of the IBC.
Mr. Nakul Mohta, Mr. Ayush Kashyap, Mr. Videh Vaish, Mr. Lalit Mohan and Ms. Megha Jain, Advocates represented the Appellant.
Mr. Sandeep Bajaj, Mr. Mayank Biyani, Mr. Sharath Sampath and Ms. Kavya Singh, Advocates appeared for the Respondent.
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