2018 (7) TMI 2126 - AT - Insolvency and Bankruptcy

Judgment reinstates Resolution Professional challenged for past association, emphasizes eligibility criteria

The appeal by the 'State Bank of India' challenged the Adjudicating Authority's decision to declare a proposed Resolution Professional ineligible due to ... Appointment of Resolution Professional - ineligibility for appointment of Resolution Professional - disciplinary proceedings as sole statutory bar to appointment - empanelment on a creditor's panel is not equivalent to employment or payroll - power of Committee of Creditors to replace Resolution Professional by requisite voting - limited supervisory power of the Adjudicating Authority to reject a proposed Resolution Professional for recorded reasonsIneligibility for appointment of Resolution Professional - disciplinary proceedings as sole statutory bar to appointment - empanelment on a creditor's panel is not equivalent to employment or payroll - Adjudicating Authority cannot reject the Committee of Creditors' proposed Resolution Professional merely because his name appears on the panel maintained by a member of the Committee, unless he is an employee/on the payroll or a disciplinary proceeding is pending against him. - HELD THAT: - The Code and the Regulations prescribe only limited ineligibility: notably, the pendency of disciplinary proceedings. Apart from that, there is no statutory bar arising simply from being empanelled as an advocate or professional with a financial creditor. Empanelment by a creditor does not convert the professional into an employee or place him on the creditor's payroll; therefore mere appearance of his name on a creditor's panel is not a ground to hold him ineligible. The Adjudicating Authority may, however, refuse or replace a proposed resolution professional for recorded reasons or where disciplinary proceedings are pending, or where the person is demonstrably an interested person in the sense of being an employee/payroll person of the creditor. [Paras 6, 15]Proposal of a Resolution Professional cannot be rejected on the sole ground of his empanelment with a member of the Committee of Creditors; only pending disciplinary proceedings or actual employee/payroll status can render him ineligible.Power of Committee of Creditors to replace Resolution Professional by requisite voting - limited supervisory power of the Adjudicating Authority to reject a proposed Resolution Professional for recorded reasons - appointment of Resolution Professional - The Adjudicating Authority erred in rejecting the Committee of Creditors' choice of Mr. K. G. Somani; the order setting him aside is set aside and Mr. K. G. Somani is appointed as Resolution Professional. - HELD THAT: - Section 22 and Section 27 (as explained) permit the Committee of Creditors, by the prescribed voting majority, to appoint or replace a resolution professional and to forward the proposed name to the Adjudicating Authority and the Board. The Adjudicating Authority's supervisory role does not extend to substituting its view where no statutory disqualification exists or no disciplinary proceedings are pending. In the present case there was no allegation that Mr. K. G. Somani was on the payroll of a creditor or that any disciplinary proceeding was pending against him. The Adjudicating Authority therefore should have approved the Committee's proposal. Accordingly the impugned order is set aside and the Committee's chosen professional is appointed to ensure early completion of the resolution process. [Paras 8, 10, 16, 17]Impugned order rejecting the Committee's nominee is set aside; Mr. K. G. Somani is appointed as Resolution Professional and shall act in accordance with law.Final Conclusion: The appeal is allowed: the Adjudicating Authority's rejection of the Committee of Creditors' proposed Resolution Professional on the ground of his empanelment with a member of the Committee was incorrect; absent payroll/employee status or pending disciplinary proceedings, the Committee's nominee must be approved and, accordingly, Mr. K. G. Somani is appointed as Resolution Professional. Issues:1. Eligibility of a proposed Resolution Professional based on past association with a member of the Committee of Creditors.Analysis:The appeal in this case was filed by the 'State Bank of India' against the order passed by the Adjudicating Authority, which held a proposed Resolution Professional ineligible due to his past association with the 'State Bank of Hyderabad', now merged with the 'State Bank of India'. The primary issue was whether the Adjudicating Authority can reject the appointment of a Resolution Professional based on their past association with a member of the Committee of Creditors.The key argument presented was that the proposed Resolution Professional was not an employee of the bank but a panel lawyer, which should not disqualify him from being appointed. The Adjudicating Authority's decision was challenged on the grounds that no adverse comments were made against the previous Resolution Professional who was replaced.The analysis delved into the provisions of the Insolvency and Bankruptcy Code, 2016, emphasizing that there are no specific ineligibilities for the appointment of a Resolution Professional apart from pending disciplinary proceedings. The decision-making authority of the Committee of Creditors to replace a Resolution Professional was highlighted, requiring a 75% majority vote. The judgment clarified that unless there are disciplinary proceedings pending or specific ineligibilities, a person can be appointed as a Resolution Professional even if associated with a Financial Creditor.The conclusion of the judgment set aside the Adjudicating Authority's order and appointed the initially proposed Resolution Professional, emphasizing that the Authority failed to consider crucial facts. The Resolution Professional was directed to ensure the timely completion of the Resolution Process. Additionally, instructions were provided regarding the fee and cost incurred by the replaced Resolution Professional, advising him to submit claims to the Committee of Creditors for consideration during the Resolution Process.