2020 (8) TMI 112 - AT - Insolvency and Bankruptcy

Tribunal Substitutes Interim Resolution Professional to Address Bias Concerns

State Bank of India Versus M/s. Metenere Ltd.

The Tribunal upheld the decision to substitute the proposed Interim Resolution Professional, an ex-employee of the Financial Creditor, due to valid ... Appointment of RP/IRP - whether an ex-employee of the ‘Financial Creditor’ having rendered services in the past, should not be permitted to act as ‘Interim Resolution Professional’ at the instance of such ‘Financial Creditor’, regard being had to the nature of duties to be performed by the ‘Interim Resolution Professional’ and the ‘Resolution Professional’? HELD THAT:- It is not in controversy that Mr. Shailesh Verma proposed as ‘Interim Resolution Professional’ by the ‘State Bank of India’ is an exemployee of the ‘Financial Creditor’ having served the organisation for 39 years in the past and retired as the Chief General Manager in 2016. Merely, because Mr. Shailesh Verma continues to draw pension for services rendered in past does not clothe him with the status of an ‘interested person’. The fact that Mr. Shailesh Verma is drawing pension from ‘Financial Creditor’s organisation does not clothe him with the status of an employee on the payroll of ‘Financial Creditor’. Pension is paid for the services rendered to the employer in the past and it is a benefit earned for such past services under the relevant Service Rules. The pensioner is entitled to such benefit as a privilege under the Service Rules and not as a boon from the ex-employer - The Regulation clearly provides that an Insolvency Professional shall be eligible for appointment as a ‘Resolution Professional’ for the ‘Corporate Insolvency Resolution Process’ of a ‘Corporate Debtor’ if he or his partners and directors of the Insolvency Professional Entity are independent of the ‘Corporate Debtor’. Admittedly, Mr. Shailesh Verma is a qualified Insolvency Professional and neither he nor any of his associates is alleged to be connected with the ‘Corporate Debtor’ in a manner rendering him ineligible to act as a ‘Resolution Professional’. Observations of the Adjudicating Authority in the impugned order with regard to ‘Interim Resolution Professional’ to act as an Independent Umpire must be understood in the context of the ‘Interim Resolution Professional’ acting fairly qua the discharge of his statutory duties irrespective of the fact that he is not competent to admit or reject a claim. The apprehension of bias expressed by the ‘Corporate Debtor’ qua the appointment of Mr. Shailesh Verma as proposed ‘Interim Resolution Professional’ at the instance of the Appellant- ‘Financial Creditor’ cannot be dismissed offhand and the Adjudicating Authority was perfectly justified in seeking substitution of Mr. Shailesh Verma to ensure that the ‘Corporate Insolvency Resolution Process’ was conducted in a fair and unbiased manner - Appeal dismissed. Issues:1. Whether an ex-employee of the Financial Creditor can be appointed as an Interim Resolution Professional.2. Whether drawing pension from the Financial Creditor renders an individual ineligible to act as an Interim Resolution Professional.3. Whether apprehension of bias against a proposed Interim Resolution Professional justifies substitution.Issue 1: Appointment of Ex-Employee as Interim Resolution ProfessionalThe Appellant, State Bank of India, sought initiation of Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority directed the substitution of the proposed Interim Resolution Professional, Mr. Shailesh Verma, due to concerns of bias as he was an ex-employee of the Financial Creditor. The Appellant argued that being an ex-employee does not disqualify an individual from serving as an Interim Resolution Professional and that the Resolution Professional's role is merely facilitative without adjudicatory powers. The Tribunal noted that the proposed professional was qualified and not connected with the Corporate Debtor, emphasizing that past employment and pension do not automatically indicate bias.Issue 2: Pension and Eligibility as Interim Resolution ProfessionalThe Respondent, Corporate Debtor, contended that drawing pension from the Financial Creditor made Mr. Shailesh Verma an interested person, rendering him ineligible as an Interim Resolution Professional. The Tribunal analyzed relevant regulations and the Income Tax Act, highlighting that pension does not equate to current employment status. It clarified that pension is a benefit earned for past services and does not create a conflict of interest. The Tribunal emphasized that the definition of 'salary' under the Income Tax Act is for tax purposes and does not affect eligibility under the statutory framework.Issue 3: Apprehension of Bias and SubstitutionThe core issue for determination was whether an ex-employee of the Financial Creditor should be allowed to act as an Interim Resolution Professional. The Tribunal referenced a previous case to establish that mere past association with the Financial Creditor does not automatically disqualify a professional. However, in this case, the Respondent's apprehension of bias was considered valid, leading to the Adjudicating Authority's decision to substitute Mr. Shailesh Verma. The Tribunal upheld this decision, emphasizing the importance of ensuring a fair and unbiased Corporate Insolvency Resolution Process, even if the professional was not technically disqualified.In conclusion, the Tribunal dismissed the appeal, affirming the Adjudicating Authority's order for substitution to maintain the integrity of the insolvency resolution process. The decision highlighted the significance of addressing perceptions of bias and ensuring fairness in such proceedings, even when no explicit disqualification exists.