Thursday 22 July 2021

Insolvency and Bankruptcy Board of India Vs. Manoj Kumar Singh, IRP Palm Developers Pvt. Ltd. - Replacement of IRP on the application of the Board (IBBI)

NCLT New Delhi-II (13.07.2021) in Insolvency and Bankruptcy Board of India, Vs. Manoj Kumar Singh, IRP Palm Developers Pvt. Ltd.  (IA. 1742/ND/2021 in CP No. (IB)-894(ND)/2019) accepted Board’s (IBBI) application for replacement of IRP, utilising jurisdiction under Section 60(5)(c) of IBC, 2016 & the inherent power under Rule 11 of the NCLT Rules 2016 and appointed another IRP of the Corporate Debtor from the Panel communicated to this Adjudicating Authority by IBBI, observing;

  • That the scope of Section 60(5)(c) of IBC 2016 has been discussed by Hon’ble Supreme Court in its Judgement dated 08.03.2021 in the matter of Gujarat Urja Vikas Nigam Limited Vs Mr. Amit Gupta & Ors in Civil Appeal No. 9241 of 2019. The relevant paragraph of the same is reproduced below :

  • # 87. The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern’.

  • That in the normal scenario, only the CoC is empowered to consider and recommend change of the IRP under Section 22 and 27 of IBC 2016. However, in the present case when the meeting of CoC has not been convened subsequent to its first meeting held as back as on 26.02.2020, keeping this unusual situation in mind, we observe that the prayer made by the Applicant/IBBI raises a question of priority in relation to the CIR Process of the Corporate Debtor, which deserves to be decided on merits and the same is in line with Section 60(5)(c) of the Code.

 

Excerpts of the order;

The present I.A. No. 1742 of 2021 is preferred by the Applicant/Insolvency and Bankruptcy Board of India (hereinafter referred as “Applicant/IBBI”) under Section 60(5) of IBC, 2016 (for brevity, “Code”) read with Rule 11 of NCLT Rules 2016 for seeking appropriate direction for replacement of Mr. Manoj Kumar Singh, Interim Resolution Professional (hereinafter referred to as “IRP/ Respondent”) of the Corporate Debtor i.e., Palm Developers Pvt. Ltd. with another Insolvency Professional (IP).

 

# 2. That the Applicant/IBBI has made the following prayers in the application under consideration :

  • “a) allow the application and Replace Mr. Manoj Kumar Singh as the Interim Resolution Professional with another Insolvency Professional from the list of panel Insolvency Professionals ; and/or

  • b) pass any such orders, which this Hon’ble Tribunal may deem fit and proper to pass in the circumstances of the case.”

 

# 3. To put succinctly, facts of the case are that the Operational Creditor, M/s Ram Niwas and Sons had filed an application bearing no IB-894(ND)/2021 under Section 9 of IBC 2016 for initiation of CIR Process against the Corporate Debtor M/s. Palm Developers Pvt. Ltd. This Adjudicating Authority, vide Order dated 27.01.2019, had initiated the CIR Process against the Corporate Debtor and appointed Mr. Manoj Kumar Singh as the IRP of the Corporate Debtor.

 

# 4. It has been submitted by the Applicant/IBBI that it is a statutory body established under Section 188 of IBC 2016. It is added that the IBBI, being a regulatory body, frames regulations and thus regulates both the insolvency professionals as well as processes. It has regulatory oversight over the service providers under the Code namely, Insolvency Professionals, Insolvency Professional Agencies, Insolvency Professional Entities and Information. It is further submitted that Section 196 of the Code entails various powers and functions of IBBI including regulation of the working and practices of Insolvency Professionals and other service providers and monitoring of their performance.

 

# 5. That the main grievance of the Applicant/IBBI is “…that Mr. Manoj Kumar Singh, IRP has neither made efforts in managing the operations of Corporate Debtor as a going concern nor performed the duties casted upon him under the Code to complete the CIR Process, nor complied with the directions of the Hon’ble Adjudicating Authority” (para 8 on page 13 of the Application). It is further added that that inspection has also been initiated against the IRP by the IBBI.

 

# 6. That the IBBI, vide para-5 of its Application, has submitted the following in support of its contention :

  • (i) That vide order dated 28.02.2020, this Adjudicating Authority had observed, inter alia that “…where the COC was constituted with two Corporate Guarantors who do not have a cause of action, no further steps shall be taken in the meeting of the COC till the voting percentage is ascertained.” . . .. 

  • (ii) That the Adjudicating Authority, in the aforesaid Order had also noted that it is also brought to the notice of this Bench that the IRP has not taken any steps as mandated under the Code nor taken any steps to take over the assets of the Corporate Debtor till date.

  • (iii) That further, vide its order dated 07.09.2020, the Adjudicating Authority modified its order dated 28.02.2020 to the extent that “the IRP is allowed to proceed in the matter in accordance with the provisions of the IBC”. . . . 

  • iv) That despite the directions passed vide order dated 07.09.2020 by this Adjudicating Authority, the IRP did not proceed further in the matter.

  • v) That the IBBI has received complaints against the IRP for his failure to initiate CIRP despite directions of this Adjudicating Authority and thereby defeating the purpose/object of the Code.

  • vi) That in this regard, the Applicant/IBBI sought response from the IRP, who vide email dated 01.03.2021 replied that one meeting of CoC has taken place. He further stated that to convene a meeting of CoC, it is necessary to constitute CoC for which he needs to finalise the status of respondents - Edelweiss & IDBI, a matter which is pending adjudication in IA No. 1610/2020 before the Adjudicating Authority.

  • vii) That the CoC could have been constituted with the members, whose claims were verified (i.e., the creditors in class). The issue of claims of the Corporate Guarantors is a separate issue, which cannot be a reason for the IRP to stall the entire CIR Process.

  • viii) That the IRP could have functioned with the remaining members of CoC instead of delaying the CIR process despite the order dated 07.09.2020 of the Adjudicating Authority to proceed in the matter in accordance with the provisions of the Code. The CIR process has been delayed by 175 days.

 

# 8. We have perused the averments made by the Applicant/IBBI in its Application and the reply & written submissions filed by the IRP. We have also heard the Ld. Counsels of both the parties at length on 04.06.2021.

 

# 9. That the issue raised by the Respondent/IRP regarding the maintainability of the present Application filed under Section 60(5) of IBC 2016 needs to be examined first. For this, we feel it necessary to visit the provisions of Section 60(5) of IBC 2016. The same are reproduced below : . . . .

 

# 10. That from the plain reading of the contents of Section 60(5)(c) of IBC 2016, it is evident that this Adjudicating Authority is empowered to decide any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor. That the scope of Section 60(5)(c) of IBC 2016 has been discussed by Hon’ble Supreme Court in its Judgement dated 08.03.2021 in the matter of Gujarat Urja Vikas Nigam Limited Vs Mr. Amit Gupta & Ors in Civil Appeal No. 9241 of 2019. The relevant paragraph of the same is reproduced below :

  • 87. The residuary jurisdiction of the NCLT under Section 60(5)(c) of the IBC provides it a wide discretion to adjudicate questions of law or fact arising from or in relation to the insolvency resolution proceedings. If the jurisdiction of the NCLT were to be confined to actions prohibited by Section 14 of the IBC, there would have been no requirement for the legislature to enact Section 60(5)(c) of the IBC. Section 60(5)(c) would be rendered otiose if Section 14 is held to be the exhaustive of the grounds of judicial intervention contemplated under the IBC in matters of preserving the value of the corporate debtor and its status as a ‘going concern’. We hasten to add that our finding on the validity of the exercise of residuary power by the NCLT is premised on the facts of this case. We are not laying down a general principle on the contours of the exercise of residuary power by the NCLT. However, it is pertinent to mention that the NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta (supra).”

 

# 11. That in the light of the aforesaid Judgement of the Hon’ble Apex Court, it is observed that this Adjudicating Authority can exercise its powers under Section 60(5)(c) of the Code to adjudicate any question of law or fact arising from or in relation to the insolvency resolution proceedings only. That the context and prayer made out in the present Application raises a question which will result in deciding “whether the current IRP or some other Insolvency Professional will manage the affairs of the Corporate Debtor and carry forward the CIR process”. That in the normal scenario, only the CoC is empowered to consider and recommend change of the IRP under Section 22 and 27 of IBC 2016. However, in the present case when the meeting of CoC has not been convened subsequent to its first meeting held as back as on 26.02.2020, keeping this unusual situation in mind, we observe that the prayer made by the Applicant/IBBI raises a question of priority in relation to the CIR Process of the Corporate Debtor, which deserves to be decided on merits and the same is in line with Section 60(5)(c) of the Code. Further, the issue raised by the IRP that the present Application filed under Section 60(5) of IBC 2016 against him is not maintainable does not merit consideration as the IBC Proceeding is a proceeding in rem. If the prayer made in the current IA is allowed, it will have a direct impact on preserving the value of the corporate debtor, its status as a ‘going concern’ and the CIR Process of the Corporate Debtor as a whole. Therefore, we are of the view that the present Application is maintainable.

 

# 15. That further, we are of the firm view that the dispute about the status of two Corporate Guarantors cannot be taken as ground to stall the entire CIR Process especially when (a) there are other Financial Creditors present, who have filed their claims, whose claims are verified and who have been found eligible to be part of the CoC, and (b) this Adjudicating Authority vide its order dated 07.09.2020 has made it clear to allow the IRP to proceed in the matter in accordance with the provisions of the IBC.

 

# 16. That the Respondent/IRP has not been able to give any cogent reasons for not being able to carry forward the CIR process and as to why no meeting of CoC with the remaining Financial Creditors could be convened after the order dated 07.09.2020.

 

# 18. Further, the defence taken by the Respondent/IRP that he cannot be removed by virtue of the immunity granted to him under Section 16(5) of IBC, 2016 will not support the case of IRP. Since the IRP himself has made the CoC inoperative by not convening its meeting post 07.09.2020. Further, by not allowing CoC to function, the Respondent/IRP has effectively prevented the COC to consider and take decision either for his confirmation as RP or replacing him by another Resolution Professional.

 

# 20. That in a similar situation, this Bench has exercised its power under Rule 11 of NCLT Rules, 2016 for appointing the IRP vide order dated 05.04.2021 in the matter of Indu Kumar & Ors Vs Saha Infratech Pvt. Ltd. : IA 3896, 3898, 3371, 3912 of 2020 in IB-1781/(ND)/2018. The relevant extract of the order is quoted overleaf :

  • “45. Of course, neither under Section 22 nor under Section 27 of the IBC, there is a provision for replacement of the IRP on the prayer made by a person, who is not a party to the proceedings. As we noticed earlier that even the applicants on whose application the CIRP was initiated did not take any steps for the replacement of the IRP.

  • 46. Considering the peculiar facts and circumstances of this matter and specifically in the light of the directions given the Hon'ble NCLAT in the Company Appeal No. 166/2020, which states that:

  • "We request the Adjudicating Authority to urgently appoint another IRP (in place of earlier IRP Mr. Arun Jain who has not taken charge it appears) within 10 days, if required by taking name from the IBBI, on urgent basis"

  • 47. We think it proper to exercise our inherent power under Rule 11 of the NCLT Rules, 2016. Therefore, in sequel to the above, by exercising the power under Rule 11 of the NCLT Rules, 2016 read with directions given by the Hon'ble NCLAT in the Company Appeal No. 166/2020 in para 7 of the order, we hereby appoint Mr. Shiv Nandan Sharma, Registration No.-IBBI/IPA-001/IP-PO0384/2017-18/10641, Email Id: sharmasn@gmail.com, Mobile No. 9540000212 as an IRP from the panel communicated to this Adjudicating Authority by IBBI and order that :

  • 48. Mr. Shiv Nandan Sharma is directed to take the charge of the CIRP of the CD with immediate effect. The Court Officer will inform The IRP so appointed by all modes.”

 

# 21. Therefore, in the peculiar circumstances of the present case as narrated above, while utilising our jurisdiction under Section 60(5)(c) of IBC, 2016 we exercise the inherent power under Rule 11 of the NCLT Rules 2016 and we hereby appoint Mr. Krit Narayan Mishra IP, having IBBI Registration No. IBBI/IPA-001/IP-P00441/2017-18/10784 (Email id: kritmassociates@gmail.com) as IRP of the Corporate Debtor with immediate effect from the Panel communicated to this Adjudicating Authority by IBBI and order that : 

  • Mr. Krit Narayan Mishra, having IBBI Registration No. IBBI/IPA-001/IP-P00441/2017-18/10784 (Email id: kritmassociates@gmail.com) is directed to take the charge of the CIRP of the Corporate Debtor with immediate effect. The Court Officer shall inform the IRP so appointed immediately by all modes.”

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.