APPOINTMENT OF INTERIM RESOLUTION PROFESSIONAL BY NATIONAL COMPANY LAW TRIBUNAL

In the process of initiation of corporate insolvency resolution process, the Adjudicating Authority, if it is satisfied that the application, filed by the financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) or operational creditor under Section 9 of the Code or corporate applicant itself under Section 10 of the Code, is complete in all respects admits the application.  On the date of admission of the application the National Company Law Tribunal (‘NCLT’ for short) shall appoint interim resolution professional to take over the charges from the Board of Directors of the corporate debtor according to Section 16(1) of the Code.

Section 16(2) of the Code provides that where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor, as the case may be, the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him.

The issue to be discussed in this article, with reference to the decided case law, mentioned in the next para as to whether the NCLT may appoint any other insolvency professional than the one recommended by the petitioner under Section 7 of the Code or by the corporate applicant under Section 10 of the Code.

In K.J. Vinod (Insolvency Professional) S/o. Mr. Reghunath Madathil Shankaran Versus The Registrar of the National Company Law Tribunal – Chennai Bench, Annie Traders Private Limited, Insolvency and Bankruptcy Board of India, New Delhi - 2025 (8) TMI 1409 - MADRAS HIGH COURT, the petitioner passed the insolvency examination conducted by the Insolvency and Bankruptcy Board of India (‘Board’ for short) and became the insolvency professional by registering himself with the Board.  As per the requirement of the Code the petitioner became a member of the Insolvency Professional Agency of Institute of Cost Accountants of India (‘IPA OF ICMAI).  He is in the panel of insolvency professionals maintained by the Board and his Authorisation for Assignment issued by the IPA OF ICMAI valid up to 31.06.2016. 

Annie Traders Private Limited initiated corporate insolvency resolution process, by itself under Section 10 of the Code. The corporate debtor, in its petition for the initiation of corporate insolvency resolution process, proposed to appoint the petitioner as Interim Resolution Professional as per section 10(3)(b) of the Code. 

The Adjudicating Authority, at the time of admission, appointed another insolvency professional as Interim Resolution Professional.  Being aggrieved against the order of the Adjudicating Authority, the petitioner filed the present writ petition before the Madras High Court.

The petitioner submitted the following before the High Court-

• It is mandatory for the NCLT to appoint the interim resolution professional as recommended by the Financial Creditor under Section 7 of the Code or the Corporate Debtor as per Section 10 of the Code.
• It is only when an Operational Creditor prefers an application under Section 9 of the Code that the NCLT may has some leeway to deviate from the proposal of the Operational Creditor qua the proposed Resolution Professional.
• An Insolvency Professional has to undergo rigorous training in order to obtain the necessary professional qualifications.
• The Board regulates the appointments of interim resolution professionals, stipulate the requisite eligibility criteria and issues certificates recognizing them as Insolvency Professionals.
• Where the recommendations of an interim resolution professional has been made by the applicant under Sections 7 and 10 of the Code, there is no provision that enables the NCLT to deviate from such recommendations.

The High Court considered the submissions of the parties to the petition.  The Registrar of NCLT submitted a report to the NCLT in which it has been indicated that in 8 cases the NCLT deviated from the recommendations in application filed under Section 7 of the Code; in 12 cases under Section 9 of the applications and in seven cases filed under Section 10 of the Code. The justification of Registrar for not accepting the recommendation of the Petitioner as interim resolution professional is that the Board had changed the recommendations for the appointment of interim resolution processional multiple times. Hence the NCLT thought it fit to itself appoint an interim resolution professional from the Board recommended list in the larger interests of the stakeholders. One thing is clear, apart from the aforesaid justification, there is no other statutory backing in the NCLT rejecting the recommendation of the petitioner.

The High Court analysed the provisions of Section 7, 9, 10 and 16 of the Code. Section 7(3)(b) of the Code provides that the financial creditor shall, along with application furnish ‘.... the name of the resolution professional proposed to act as interim resolution professional...’. Thus, the High Court held that it is mandatory for the financial creditor to recommend the name of a interim resolution professional.

Section 7(5) provides that where the adjudicating authority, is satisfied that-

• a default has occurred;
• the application filed by the financial creditor is complete; and
• there is no disciplinary proceeding pending against the proposed interim resolution professional, it may admit such application or if the answers to any one of the aforesaid three points is in the affirmative, it may reject such application.

The High Court observed that the Adjudicating Authority may reject the recommendations of the petitioner under Section 7 of the Code, only if there is a disciplinary case is pending against the proposed interim resolution professional.

Section 10 of the Code provides that the corporate applicant provides that the application filed by the corporate applicant shall contain the information relating to the RP proposed to be appointed as an interim resolution professional.

Section 9 which deals with application for initiation of corporate insolvency resolution process by an Operational Creditor, and stipulates under Section 9(4) that an operational creditor may propose an insolvency professional to act as interim resolution professional.

The High Court observed that an application under Sections 7 or under 10 of the Code, the professional recommended by the applicant must mandatorily be appointed as interim resolution professional,  the only caveat being that no disciplinary proceedings should be pending as against him. There is no elbowroom available for the NCLT to take a different view in this regard.

The High Court further observed that impugned order of the NCLT substituting the interim resolution professional proposed by the applicant with an interim resolution professional of its own choice, for reasons of its own, cannot be sustained and is set aside. The High Court suggested that it is always open to the NCLT to record its reservations in regard to the interim resolution professional as proposed by the applicant. 

The High Court directed the NCLT to pass orders in line with the statutory scheme and principles of natural justice.