2019 (4) TMI 1191 - Tri - Insolvency and Bankruptcy

COC's Bid to Replace IRP Rejected, Directors Face Fraud Probe

Ms. Rama Subramaniam Versus M/s Sixth Dimensions Project Solution Limited

The Tribunal rejected the Committee of Creditors' application to replace the Interim Resolution Professional (IRP) with another Resolution Professional ... Appointment of Mr. Santanu T Ray as Resolution Professional (RP) in the place of Mr. S. Gopalakrishnan, Interim Resolution Professional (IRP) - HELD THAT:- If the intention of the legislation is to give absolute power to the 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 the IRP /RP. We wanted to first convince the Bank authorities for continuing the IRP as RP in as much as we felt that the IRP had gone into the matter very deep and his continuance as RP is in the best interest of the COC and as there is a public interest in pursuing the matter from various angles with various Government Authorities particularly when the activities of the Suspended Directors of the Corporate Debtor smacks of fraud and illegality. The decision of the COC for the change of IRP, Mr. S Gopalakrishnan and appointing Mr. Santanu T Ray in his place is not tenable and the COC has no absolute power to change the IRP / RP at their whims and fancies without any valid or tenable reasons. The change of RP must be rational/tenable/reasonable and not at the whims and fancies of the COC. Application for the change of IRP and to appoint Mr. Santanu T Ray as RP is rejected as the Bank consisting of 100% COC had thoroughly failed to put forth any tenable or valid or genuine reasons for the same and thus it is held that the COC is not vested with the absolute power to change the IRP without any valid or tenable reasons particularly when the Adjudicating Authority after considering the contentions on both sides and expresses an opinion to continue the IRP as RP, and accordingly the present IRP is confirmed as RP of the Corporate Debtor. Application dismissed. Issues involved:1. Change of Interim Resolution Professional (IRP) by Committee of Creditors (COC) without valid reasons.2. Allegations of misconduct against the IRP.3. Fraudulent activities by Directors of the Corporate Debtor.4. Discretion of Adjudicating Authority in appointing or changing the Resolution Professional (RP).5. Compliance with legal provisions regarding the appointment of RP.Issue 1: Change of Interim Resolution Professional (IRP) by Committee of Creditors (COC) without valid reasons:The COC filed an application seeking to replace the IRP with another RP, alleging various shortcomings, including improper verification of claims, acceptance of claims without proper proof, failure to collect rent receivables, and charging exorbitant fees. However, during the proceedings, the IRP refuted these allegations, stating they were baseless and that the Bank was interested in appointing their preferred RP. The Tribunal found the allegations frivolous and criticized the COC for not providing valid reasons for the change. The Tribunal emphasized the importance of a rational and justifiable basis for replacing the IRP and ultimately rejected the application for change, confirming the existing IRP as the RP.Issue 2: Allegations of misconduct against the IRP:The COC accused the IRP of various misconduct, such as accepting claims without proper verification, not collecting rent receivables, and charging excessive fees. However, during the proceedings, the IRP defended himself, stating the allegations were unfounded and that the Bank had ulterior motives in replacing him. The Tribunal, after reviewing the facts and the IRP's conduct, found the allegations baseless and noted the IRP's diligent efforts in handling the case. The Tribunal highlighted the importance of allowing the IRP to explain allegations before making a decision and ultimately rejected the COC's application for change.Issue 3: Fraudulent activities by Directors of the Corporate Debtor:During the proceedings, serious fraudulent activities by the Directors of the Corporate Debtor came to light. The IRP discovered illegal activities by the promoters, leading to ongoing investigations by the CBI. Due to the sensitive nature of the information, the Tribunal directed the Axis Bank officials to provide further details in a sealed cover. The Tribunal acknowledged the gravity of the fraudulent activities and emphasized the need for thorough investigations by appropriate authorities.Issue 4: Discretion of Adjudicating Authority in appointing or changing the Resolution Professional (RP):The Tribunal deliberated on the discretion vested in the Adjudicating Authority regarding the appointment or replacement of the RP. It highlighted the legal provisions requiring approval from the Adjudicating Authority for changing the IRP. The Tribunal questioned the COC's authority to replace the IRP without valid reasons, especially when the Adjudicating Authority found the IRP competent and diligent. The Tribunal stressed the need for a rational and justifiable basis for changing the RP, considering the public interest and the ongoing investigations into fraudulent activities.Issue 5: Compliance with legal provisions regarding the appointment of RP:The Tribunal examined the legal provisions related to the appointment and replacement of the RP. It emphasized the mandatory requirement for seeking approval from the Adjudicating Authority for changing the IRP. The Tribunal questioned the COC's authority to arbitrarily select or replace RPs without valid reasons, highlighting the importance of following due process and ensuring that decisions are rational and justifiable. Ultimately, the Tribunal rejected the application for changing the IRP, confirming the existing IRP as the RP based on the lack of valid reasons provided by the COC.