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Judgment
PER SHRI P.S.N. Prasad, Member (J)
This is an application filed by Venus India Asset Finance Pvt. Ltd. on behalf of the Committee of Creditors (CoC) under section 22(3) for appointment of Mr. Sapan Mohan Garg as the Resolution Professional (RP) of the Corporate Debtor i.e., M.K. Overseas Private Limited, pursuant to the resolution passed by the members of the CoC in its meeting dated 01.08.2022.
The brief facts of the case are that Mayoga Investment private limited a financial creditor had filed a Company Petition bearing no. C.P. IB/1731/2019 under Section 7 of the Code for initiation of CIRP of the Corporate Debtor. The Adjudicating Authority vide order dated 19.09.2019, initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and appointed Mr. Suresh Kumar Jain as the Interim Resolution Professional. The IRP was confirmed as RP on 23.10.2019 in the 2nd CoC meeting.
It is submitted by the applicant that it is a financial creditor of the Corporate Debtor and holds 74.55% voting share in the CoC of the Corporate Debtor. Further submits that on 28.07.2022, in its 21st meeting of CoC, it was decided to put forth the resolution for appointment of Mr. Sapan Mohan Garg, Insolvency Professional having registration No. IBBI-IPA-002/IPN00315/2017-2018/10903, as the RP of the Corporate Debtor for voting.
The voting was conducted electronically on 29.07.2022, and the results were declared by the RP on 01.08.2022. The resolution for appointment of RP was passed by 76.69% of voting share, in terms of Section 27 of the code, approving the appointment of Mr. Sapan Mohan Garg as RP of the corporate debtor in place of Mr. Suresh Kumar Jain. It is further stated that new proposed RP has filed his written communication in Form AA as required under regulation 3(1A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 and has also submitted his registration certificate along with valid Authorization for Assignment (AFA) issued by the Insolvency Professional Agency (IPA), in terms of regulation 7A of the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.
The appellant stated that they have reasons for loss of confidence in the current resolution professional during the course of hearing, However, nothing stated in this present application shall harm the reputation of the current resolution professional in terms of the judgment of the Hon'ble NCLAT in "State Bank of India Vs. Ram Dev International Ltd." (Through Resolution Professional) in Company Appeal (AT) (Insolvency) No.302 of 2018 decided on 16.07.2018.
The resolution professional stated that in terms of Section 27 though the CoC is not bound to give any reason to the resolution Professional for his replacement, however, they are required to disclose before this Adjudicating Authority the basis of their opinion and the opinion must be justified by legal reasoning.
Reliance is placed upon the case of Hon’ble NCLT in the matter of “Ms. Rama Subramaniam Vs Sixth Dimension Project Solution Ltd.”, M.A. No. 1626/2018 in C.P. No. 5781/I&BP/2018, wherein after considering the facts of the case, the Adjudicating Authority was of the opinion that legislation had given the power to exercise its discretion in the appointment or change in RP. If the intention of the legislation was to give absolute power to CoC there would not have been a provision under Section 22 (3)(b) making it mandatory to file an application before the Adjudicating Authority seeking change of RP/IRP. It was further the opinion of the bench that the since the IRP appointed by the bench had gone into the matter very deep and his continuance as RP is in the best interest of the CoC as there is a public interest in pursuing the matter from various angle with various government authorities particularly when the activities of the Suspended Directors of the Corporate Debtor smacks of fraud and illegality. Accordingly, the bench was of the view that change of RP, is not tenable and the CoC has no absolute power to change the RP at their whims and fancies without any valid or tenable reasons. The change of RP must be rational/tenable /reasonable.
The RP has elaborated the duties performed by him during the CIRP period:
- That as per the timeline the 180 days CIRP period was due to expire on 17.03.2020 and during the pendency of the present application he had been receiving Resolution Plans from 4 PRA’s who had shown expression of interest along with Process Participation Deposit fees of Rs 10 Lacs each. The last date for receipt of Resolution Plan was 1st February 2020 and in the meanwhile transaction audit and valuation of assets of Corporate Debtor was underway.
- He further stated that during the CIRP period, he has performed his duties with complete adherence of the code as well as allied Regulation and Rules. It is pertinent to note that no complaint or allegation has ever been filed against the RP. Moreover, RP has had a professional experience of over 37 Years in the field of Banking and Commerce, he is a retired official who retired from service as the Deputy General Manager in Syndicate Bank.
It is the contention of the applicant, that the RP has not been able to take control/physical possession of the Derabassi property of the Corporate Debtor, therefore he is incompetent. However, the said allegation is not correct as the RP states that he has taken all possible steps qua the said property. The RP has stated that pursuant to his appointment, he visited the Sahibabad and DeraBassi Plant and observed that both the plants were leased out to Ms. M.K. Overseas Exports Private Limited (formerly known as M/s. Prime Natural Frozen Foods Export Private Limited). The advance rent upto March 2020 had been received by the corporate debtor from the lessee. As per the lease agreement, during the period under lease, the lessee shall bear all expenses including but not restricted to electricity, maintenance, operational expense, manpower etc., made on account of factory on its own and the lessor namely M/s M.K. Overseas Private shall in no way be responsible for any such expense. The applicant further apprised the lessee and affixed a letter at the main gate of both the plant wherein it was informed that MK overseas is under CIRP and moratorium u/s of 14 IBC, 2016 is in force effective form 19.09.2019. Therefore, the possession and control of the said property could not be taken on account of subsisting Lease Agreement.
The RP submits the said developments were brought to the knowledge of the applicant and he also informed the applicant that the matter relating to issuance of sale certificate on the DeraBassi Plant is listed before the Hon'ble DRT, Lucknow. It is averred by the RP that the said points were put up for discussion and voting during the 1st CoC meeting held on 17th October, 2019. Bank of Baroda having the majority voting share deferred all the agendas stating that they want to withdraw the CIRP initiated against the Corporate Debtor. Thereafter the RP apprised that the Bank of Baroda does not have authority to suo-moto propose the agenda for withdrawal of CIRP, the same needs to be proposed by the applicant and can be voted upon by the CoC members. Further, it was also highlighted that M/s Drip Capital Inc. and M/s Mayoga Investments Limited (applicant) objected for withdrawal of CIRP against Corporate Debtor.
In this regard an application was also filed before NCLT, by Bank of Baroda for withdrawal of CIRP proceedings, which was dismissed as withdrawn vide order dated 13th November 2019, with cost of Rs. 20,000/-. The senior council of Bank of Baroda on 18th November, 2019 admitted that such resolution passed by the CoC was unwarranted and not in agreement with IBC.
The RP stated that vide email dated 28th October 2019 he informed Bank of Baroda regarding the lease of the said property and in spite of that Bank of Baroda had taken steps against the Corporate Debtor and no steps were taken against the lessee for cancellation of subsisting lease deed by bank as Mortgage. The bank further made request to the RP to take possession and control of the said property. Thereafter, the RP brought the matter for discussion during the 3rd CoC meeting held on 29th November 2019 duly informing the members that the cost of Rs. 187 Lacs is expected in taking control and possession of both the plants. The CoC consent on sharing the said expenses was not granted pursuant to which he filed an application with the Adjudicating Authority.
The RP states that he received an email from Bank of Baroda on 2nd Jan 2020, with the direction to call meeting of COC for replacement of Existing RP Mr. Suresh Kumar Jain with Mr. Chanchal Dua. The 5th CoC meeting was held on 9th Jan 2020, During the said meeting BOB stated that the reason why it wants to replace the RP, is that he has not taken possession and control of all assets of the Corporate Debtor more particularly the Dera Bassi Plant.
The RP states that in performing his duties he acts as the agent of the adjudicator and because of this role the CoC has not been vested with the absolute authority to change/remove/replace the RP, primarily because the decision of the CoC ought to be subject to judicial review. Further stated that the replacement of resolution professional by the CoC is at the stage where it requires permission of the adjudicating Authority as the subsequent resolution professional still remains at proposal stage. As per the Bankruptcy Law Reform Committee, it is quoted that “The Adjudicator will admit an application for removal of either the RP or a liquidator during the resolution process, from any other party with a cause shown.” Therefore, it is appropriate to bring the matter before the adjudicating Authority for its intervention and review.
The RP submitted that the replacement of RP shall replace the entire Board of Directors of the company and that the RP is vested with the power and responsibilities which govern the entire CIRP, Further the resolution professional himself is governed by strict laws and regulations, thereby making him answerable to the Adjudicating Authority as well as the CoC.
The RP stated that the Bank of Baroda is willing for the Corporate Debtor to go into liquidation so that it can realise its dues from the corporate debtor and the personal guarantor by sale of securities available with the bank.
That one of the financial creditors in the Committee of Creditors being Drip Capital Inc. filed a short affidavit and stated the following:
That the Bank of Baroda has sought replacement of Resolution professional only with the view to derail and sabotage the resolution of the Corporate Debtor. No reason whatsoever has been given by the bank or CoC seeking replacement at this juncture.
That this application would prejudice the interest of other creditors. Further stated that RP is also overseeing the fraudulent transaction indulged by Corporate Debtor, therefore, replacing the Resolution Professional at this stage would be detrimental for the said enquiry.
The non-applicant highlighted that Bank of Baroda has committed various omissions to jeopardize the CIRP of the corporate debtor which includes the following:
One of them being that despite the matter being pending before the Adjudicating Authority it proceeded with auctioning of the Patiala Property and received consideration in respect of the same. ii. That Bank of Baroda after the admission of the application filed an application for withdrawal of CIRP against Corporate Debtor through the RP, which was dismissed by the Adjudicating Authority with costs.
Hence it is clear that the modus operandi of the bank appears to be to push the case of Corporate Debtor to liquidation and enforce security under the provisions of section 52, as a secured creditor.
Also stated that the code places great value to the commercial wisdom of CoC, and every decision of CoC must be receive assent of the Adjudicating Authority.
Accordingly, prayed for dismissal of the present application which has been made at the instance of the applicant i.e., Bank of Baroda.
Heard the Learned Counsel appearing on behalf of the erstwhile Resolution Professional and after perusing the documents on records, it is worthwhile to consider the relevant Section 27 of the I & B code, before examining the present application, the contents of which are reproduced below:
“Section 27: Replacement of resolution professional by committee of creditors.
(1)Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section.
(2)The committee of Creditors may at a meeting, by a vote of seventy-five per cent, of voting shares, propose to replace the resolution professional appointed under Section 22 with another resolution professional. Subject to a written consent from the proposed resolution professional in the specified form.
(3)The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.
(4)The Adjudicating Authority shall forward the name of the proposed resolution professional to the Board for its confirmation and a resolution professional shall be appointed in the same manner as laid down in section 16.
(5)Where any disciplinary proceedings are pending against the proposed resolution professional under sub-section (3), the resolution professional appointed under section 22 shall continue till the appointment of another resolution professional under this section.
(*Subs. By the IBC (Second Amendment) Act, 2018, w.e.f. 06.06.2018, for the sub- section (2))”
In terms of the above, the applicant holding 74.55% of voting share has filed the present application and the resolution to replace the current RP has been passed with a voting share of 76.69%, which is as per the provisions of the code, further the consent of the new proposed Resolution Professional has also been obtained. Hence on the face of it appears that the requirement as per the code has been fulfilled. The applicant has relied upon the case of Hon'ble NCLAT in "Sumant Kumar Gupta Versus Committee of Creditors in Company (AT)(Insolvency) No.1037 of 2020 and on the case Hon'ble NCLAT in the case of "Bank of India Vs. Nithin Nutritious Private Limited" Company AT (Ins.) No. 497 of 2020, where after noticing the Scheme of Section 27, the court observed, that under both the provisions Section 22 and Section 27, the law nowhere says that the CoC is required to give reasons. This appears to be also right, as the relationship between the IRP/RP and the CoC is that of no confidence. Further if the CoC has lost confidence and it is continued, the Corporate Debtor would be put to loss because of the bad relationship between the IRP/RP with CoC.
From the above decisions, though it is clear that replacement of Resolution Professional can be done when the required decision is taken by the CoC in its meeting with requisite majority, however, this bench is also required to examine the locus standi of the CoC after it has completed its task and approved the Resolution Plan and whether CoC is empowered to take decisions after approving Resolution Plan. The intent of the applicant for driving this decision in the CoC is also worthy of consideration. In the present case, the CIRP was initiated vide order dated 19.09.2019 of this bench. From the contentions made of behalf of the existing RP it is indicative that he has conducted the CIRP in accordance with the provisions of the Code and run the affairs of the corporate debtor in a most professional manner. It is also observed that 330 days have already passed from the date of initiation of CIRP and much progress has been made for resolution of Insolvency of the Corporate Debtor, in as much as, that the RP has submitted the resolution plan for approval before the Adjudicating Authority. It is noteworthy that the code does not envisage any role/decision making authority of the CoC after it has approved /recommended the Resolution Plan for approval of the Adjudicating Authority. This is also evident from Explanation to Section 34(2) of the Code (in cases where liquidation has been recommended) that the Code does not specify any role of CoC beyond confirmation by it of the Resolution Plan. Therefore, it is understood that CoC is not authorized to take any decision after the Resolution Plan is submitted before Adjudicating Authority, let alone the decision of changing the resolution professional. Further, no adverse references have been received by the CoC regarding the performance of the RP. Moreover, one of the members of the COC being a financial creditor namely Drip Capital Inc. has also raised objection regarding intent of Bank of Baroda in wanting to replace the present RP. It has contended that change of RP is being driven by BOB to derail and sabotage the resolution of the Corporate Debtor so that they can proceed with Liquidation and benefit by enforcing security under the provisions of section 52, as a secured creditor. In our view COC is like the Board of Directors and IRP/RP functions as CEO under the supervision of CoC. It is to be noted that in the present case, Mr. Suresh Kumar Jain was proposed by the original Financial Creditor. Hence prima facie professional competency, capacity and neutral approach of such IRP/RP cannot be put in doubt. As noted earlier the CIRP period timeline of 330 days has already expired on 24.12.2020 and the Resolution Plan for final approval has also been filed before the Tribunal. In these circumstances, we are of the opinion that it would be prudent and advisable to continue with the same RP in this matter. Change of RP at this stage would only result in further delay in the process. Since the overarching objective of the Code is to complete the CIRP in a time bound manner with maximization of value of assets so that the Corporate Debtor can be run efficiently as going concern any disordering or interruption on account of change of RP will only retard the process further. Unless such reorganization of corporate debtor is effected the value of assets of such persons will deplete, hence replacement of RP at this juncture shall defeat the objective of the code.
We are further strengthened by the order in State Bank of India Vs. Venkataramanaroa Nagorajan [2018] 100 taxman.com 298- (NCLT-Chennai) wherein it was held that an application filed to remove the RP after expiry of maximum period of CIRP as provided under Section 12 of the code, do not fall within the purview of the provisions of the code, and held not maintainable at the instance of the lenders.
In the light of the above, it is observed that the decision of the CoC to replace the RP at this juncture after Resolution Plan has been submitted to Adjudicating Authority is not in conformity with the provisions of the Code as the Code does not envisage any role or decision to be taken by the CoC after it has approved the Resolution Plan. Such a decision is therefore untenable and misconceived. Further, it has also been contended by one of the financial creditors that such replacement is prejudicial to their interest and has been made with an intention to force the corporate debtor into liquidation. Further, taking note of the satisfactory conduct of the RP and that the RP had been performing its functions diligently and also considering that the CIRP period has expired on 24.12.2020, this bench is inclined to reject the present application.
The application being I.A. (IB) No. 3757 of 2022 is disallowed. The Registry is directed to provide a copy of this order to the parties.