Anil Kumar Ex IRP of KSL & Industries Limited Vs. Allahabad Bank & Ors - Replacement of IRP by AA invoking inherent jurisdiction under Rule 11.

NCLAT (20.07.2021) in Anil Kumar Ex IRP of KSL & Industries Limited Vs. Allahabad Bank & Ors.(Company Appeal (AT) (Insolvency) No. 786of 2020) held that;

• The Learned Adjudicating Authority is conscious of the fact that the Appellant herein could not provide leadership to CIRP proceedings and further there was clash between the Secured and Unsecured Creditors and timeline for CIRP proceedings was running out.

• So, the Learned Adjudicating Authority in order to shape the CIRP proceedings on an Application, under Rule 11 filed by Respondent No. 1/ Allahabad Bank, taking note of the fact that there is conflict between the Secured and Unsecured Creditors and no commencement reached by majority of voting share, to appoint the Appellant herein as IRP/RP, invoked thereunder part in Rule 11 and rightly have passed the Impugned order.

 

Excerpts of the order;

# 1. The Instant Appeal has been filed on behalf of the Appellant- Anil Kumar Ex. Interim Resolution Professional (RP) of M/s. KSL & Industries Limited, Gurgaon, Haryana being aggrieved and dissatisfied with the Order dated 28.07.2020 passed by the Hon’ble National Company Law Tribunal, Ahmedabad Bench, Court No. 2 (Adjudicating Authority) in I.A No. 90/ 2020 in I.A. 691 of 2019 in C.P. (I.B.) No. 397/NCLT/AHM/2018, whereby and where under in I.A. No. 691 of 2019 filed in C.P. (I.B.) No. 397 of 2018 filed by Allahabad Bank (Respondent No. 1) under Section 60 (5) of the Insolvency & Bankruptcy Code, 2016 (in short “IB Code”) the Learned Tribunal have appointed a new Interim Resolution Professional, replacing the Appellant herein. The Bench while exercising its power under ‘Rule 11’ of NCLT Rule, 2016 allowed in Interlocutory Application and appointed Mr. Kiran Shah as a new IRP/ RP in the CIRP proceedings.

 

# 2. The number of facts of this case is as follows: –

(i) The C.P. (I.B.) No. 397 of 2018 was filed under Section 7 of Insolvency & Bankruptcy Code, 2016 by way of M/s. Abhinandan Multitrade Pvt. Ltd. / Respondent No. 4 which was admitted under Order dated 06.09.2019 and whereby the Appellant was appointed as Interim Resolution Professional.

 

(ii) After Appellant took over the charge of IRP and made public announcement and thereafter Committee of Creditors (in short “CoC”) was constituted.

 

(iii) The first CoC Meeting was held on 16.10.2019, the IRP provided list of Financial Creditors along with the voting shares for each credit or as prepared by him.

 

(iv) List submitted by the IRP reveals that out of 37 Creditors, only 7 were Financial Institutions and 30 were Non-Financial Institutions and Corporate Debtors.

 

(v) The total voting shares of Financial Institutions in CoC was 36.53% whereas the total voting share of Non-Financial Institutions/ Corporates was 63.47%.

 

(vi) The Respondent No. 1(Allahabad Bank) with the list of Creditors and other Financial Institutions were alarmed with list of Creditors raised their concern in relation to the eligibility of the Corporates mentioned in the list of Creditors.

 

(vii) Further, the Respondent No. 1 was of the view that the correct classification of Creditors is critical to the constitution of CoC.

 

(viii) Respondent No. 1/ Allahabad Bank and other Creditors requested the IRP to provide clarity on whether the verification for all the Creditors who are also Non-Financial Institutions have been completed or not.

 

(ix) The Appellant/ IRP responded that it is merely a provisional classification.

 

(x) Respondent No. 1 and other Secured Creditors were also informed that it has not been verified whether the relevant money from the said 30 Financial Creditors have been actually received in bank account of the Corporate Debtor.

 

(xi) The Allahabad Bank (Respondent No. 1) requested the IRP/ RP to provide the basis on which the claim of 30 Non-Financial Institutions were admitted and how they were classified as Financial Creditors.

 

(xii) But IRP/ RP replied that the said verification of the claims was still under process.

 

(xiii) The shares of secured Financial Creditors was only 36.53%.

 

(xiv) Further, the case is that in view of the said situation, the whole problem has aroused with regard to the appointment of IRP/RP as no majority could be reached into appointment of IRP/RP.

 

(xv) Consequently, the instant application was filed bearing No. 691 of 2020 before the Adjudicating Authority.

 

# 3. The Learned Adjudicating Authority after hearing the parties passed the following orders:-

• “11. Under such circumstances, when there is a conflict and no consensus is reached by the majority of voting share to appoint the IRP/RP so proposed by the Applicant, it is expedient to appoint an independent IRP/RP to break any kind of stalemate between the Financial Creditors. Moreover, the very object of IB Code is to complete the CIRP in the time bound manner and if the dispute with regard to the IRP will continue, in that event, the very object of the IB Code will get frustrated. The IB Code prescribes timelines for various activities of the CIRP. It is mandatory to complete a CIRP within 180 days, extendable by a one-time extension of up to 90 days [M/s. Surendra Trading Company v. M/s. Juggilal Kamlapat Jute Mills Company Limited & Ors.].

• 12. Though as per Section 7 of the IB code, the Financial Creditor has the prerogative to propose the name of the IRP/RP and thereafter, they may change it by filing an application under Section 22 of the IB Code. However, to resolve this issue and to end the stalemate between the secured and unsecured Financial Creditors, this Bench in exercise of power under Rule 11 of the NCLT Rules 2016, do hereby appoint Mr. Kiran Shah as the new IRP/RP and direct him to convene the CoC meeting and complete the CIRP as early as possible. Further, the period which is consumed in deciding this Application as well as the lockdown period i.e. from 25.03.2020 to 31.05.2020 is exempted.”

 

# 9. Submissions on behalf of the Appellants

(i) Only one point has been raised by the Learned Counsel for the Appellant during the course of the oral arguments is that whether inherent powers prescribed under ‘Rule 11’ of NCLT Rule 2016 can be invoked to bypass the provisions of Section 22 and 27 of Insolvency & Bankruptcy Code, 2016 (I&B Code) and whether the Order passed by the Adjudicating Authorize can be sustained in law.

 

(ii) Learned Counsel for the Appellant further submitted that Section 22 of I&B Code provides for appointment of both Interim Resolution Professional as well as Resolution Professional.

 

(iii) Further, it was submitted by Learned Counsel for the Appellant that Section 27 of I&B Code which is quoted hereunder: –

• “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 sixty-six per cent. of voting shares, resolve 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.”

 

(iv) Further, it was submitted that none of the powers under Section 22 & 27 were exercised rather the Adjudicating Authority have passed the Impugned Order invoking power under ‘Rule 11’ of the NCLT. So, the Impugned Order passed by the Hon’ble Adjudicating Authority cannot be sustain by law and fit to be set aside and the Appeal be allowed.

 

# 11. FINDINGS

(i) After hearing the Learned Counsel for the Parties, after going through the Status Report submitted by Respondent No. 2 and after going through the Written Submissions filed on behalf of the Parties, we are of the considered view that so far statutory provision as contained in Section 22 of the I&B Code which contemplates appointment of Resolution Professional and further replacement is concerned, this power can only be used when the ingredients of Section 22 is met.

 

(ii) Further, so far as the provision of Section 27 of ‘IB Code’ is concerned it contemplates with the Replacement of Resolution Professional by CoC. This power can only be used when the ingredients of Section is met.

 

(iii) In the facts of this case neither the ingredients of Section 22 & 27 of the Insolvency & Bankruptcy Code, 2016 (‘I&B Code’) is made out.

 

(iv) So, the Learned Adjudicating Authority have rightly invoked inherent jurisdiction in the fact of this case and passed the Impugned Order.

 

(v) The Learned Adjudicating Authority is conscious of the fact that the Appellant herein could not provide leadership to CIRP proceedings and further there was clash between the Secured and Unsecured Creditors and timeline for CIRP proceedings was running out.

 

(vi) So, the Learned Adjudicating Authority in order to shape the CIRP proceedings on an Application under Rule 11 filed by Respondent No. 1/ Allahabad Bank, taking note of the fact that there is conflict between the Secured and Unsecured Creditors and no commencement reached by majority of voting share to appoint the Appellant herein as IRP/RP, invoked thereunder part in Rule 11 and rightly have passed the Impugned order.

 

(vii) Further, from the perusal of the Status Report submitted by the Respondent No. 2- M/s LSL & Industries Ltd., through Mr. Kiran Shah on 29.06.2021, which has been discussed in detail, it reveals that substantial progress in the CIRP proceedings had been made.

 

(viii) Taking all these circumstances and also the fact that the Appellant has only argued on one question of law which was formulated by this Tribunal under this Order dated by 17.09.2020, is only about the exercise of power of Rule 11 of NCLT by the Learned Adjudicating Authority in the facts of this case.

 

(ix) We are of the considered that the Learned Adjudicating Authority have rightly exercise this power and there is no merit in the Appeal and is accordingly dismissed.

 

(x) It appears from the perusal of the record that this Instant Appeal was filed on 03.09.2020 before this Tribunal and Notices were issued on 17.09.2020 and being disposed off by Judgement dated 20.07.2021.

 

12. So, the period which had been spend in perusing this Appeal shall be excluded from CIRP process.

 

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