2022 (8) TMI 234 - AT - Insolvency and Bankruptcy

Appeal allowed, order set aside, matter remanded for RP appointment. CommercialCoC wisdom respected.

The Tribunal allowed the appeal, set aside the Adjudicating Authority's order, and remanded the matter back to the Adjudicating Authority to consider the ... Commercial wisdom of the Committee of Creditors - appointment and replacement of Resolution Professional under Section 22 of the Insolvency and Bankruptcy Code, 2016 - judicial review of CoC decisions - Authorization For Assignment (Form B) and written consent (Form AA) of an Insolvency ProfessionalAppointment and replacement of Resolution Professional under Section 22 of the Insolvency and Bankruptcy Code, 2016 - commercial wisdom of the Committee of Creditors - judicial review of CoC decisions - Validity of the Committee of Creditors' unanimous resolution to replace the Interim Resolution Professional and appoint the proposed Resolution Professional and whether the Adjudicating Authority erred in rejecting that resolution. - HELD THAT: - The Tribunal found that the 1st meeting of the CoC was held and the CoC, in accordance with Section 22(2) read with Section 22(3)(b), unanimously resolved to replace the IRP and appoint the proposed Insolvency Professional. The Appellant held 98.03% voting share and the resolution therefore met and exceeded the statutory 66% threshold. The proposed professional possessed a valid Authorization For Assignment (Form B) and had given written consent in Form AA prior to the CoC meeting. Relying on settled authorities and the Supreme Court's guidance limiting interference in decisions of CoC, the Tribunal held that the commercial wisdom of the CoC in appointing a Resolution Professional is not ordinarily amenable to judicial review and the Adjudicating Authority erred in refusing to give effect to the CoC's lawful resolution unless the decision is wholly arbitrary, capricious, irrational or beyond the statute. Because the CoC's decision complied with the statutory requirements and there was no material showing of arbitrariness or disqualification of the proposed professional, the Adjudicating Authority's rejection was unsustainable. [Paras 13, 18, 21, 23]The Adjudicating Authority's refusal to appoint the proposed Resolution Professional was set aside and the CoC's resolution to replace the IRP and appoint the proposed RP was held to be valid.Authorization For Assignment (Form B) and written consent (Form AA) of an Insolvency Professional - remand for consideration of appointment - Whether the matter should be remitted to the Adjudicating Authority for consideration of appointment of the proposed Resolution Professional. - HELD THAT: - Having held that the CoC's unanimous resolution was lawful and that the proposed professional possessed the requisite AFA and consent, the Tribunal concluded that the appropriate course was to set aside the impugned order and remit the matter to the Adjudicating Authority for compliance with the CoC's resolution. The Tribunal directed the Adjudicating Authority to consider appointment of Shri CA Mahalingam Suresh Kumar as Resolution Professional within two weeks from receipt of the order and to hear the parties when the matter is taken up. Pending IAs were ordered closed and parties were directed to bear their own costs. [Paras 24]The impugned order is set aside and the matter is remanded to the Adjudicating Authority to consider and pass appropriate orders on appointment of the proposed Resolution Professional within two weeks; parties to attend when the matter is taken up.Final Conclusion: The appeal is allowed; the Adjudicating Authority's order rejecting the CoC's resolution to replace the IRP and appoint the proposed Resolution Professional is set aside, and the matter is remanded for the Adjudicating Authority to consider and decide the appointment in accordance with law within two weeks. Issues Involved:1. Rejection of the proposed Resolution Professional (RP) by the Adjudicating Authority.2. Compliance with Section 22 of the Insolvency and Bankruptcy Code (IBC), 2016.3. Commercial wisdom of the Committee of Creditors (CoC).Issue-wise Detailed Analysis:1. Rejection of the proposed Resolution Professional (RP) by the Adjudicating Authority:The Appellant, a Financial Creditor, filed an application under Section 22(3)(b) of the IBC, 2016, proposing Shri CA Mahalingam Suresh Kumar as the RP for the Corporate Debtor. The Adjudicating Authority rejected this proposal on the grounds that the proposed RP's name was not on the NCLT, Kochi Bench's list of Insolvency Professionals circulated by the IBBI. The Adjudicating Authority appointed the Respondent from the said list as the Interim Resolution Professional (IRP). The Appellant argued that this rejection was arbitrary and in contravention of the law, as the proposed RP held a valid Authorization For Assignment (AFA) and there were no disciplinary proceedings against him.2. Compliance with Section 22 of the Insolvency and Bankruptcy Code (IBC), 2016:The Appellant contended that the Adjudicating Authority's decision violated Section 22(4) and (5) of the IBC, 2016. According to Section 22, the CoC, in its first meeting, can resolve to replace the IRP by another RP by a majority vote of not less than 66% of the voting share of the Financial Creditors. The CoC, comprising the Appellant Bank and South Indian Bank, unanimously decided to appoint Shri CA Mahalingam Suresh Kumar as the RP, with the Appellant holding 98.03% voting rights. The Appellant argued that the Adjudicating Authority should have considered this decision without delving into technicalities, as the application was in compliance with the law.3. Commercial wisdom of the Committee of Creditors (CoC):The CoC's decision, based on their commercial wisdom, to appoint Shri CA Mahalingam Suresh Kumar as the RP was emphasized. The Appellant argued that the Adjudicating Authority should not interfere with the CoC's decision, as it was made in accordance with Section 22 of the IBC, 2016. The Appellant cited various judgments, including Naveen Kumar Jain Vs. Committee of Creditors and Committee of Creditors of LEEL Electrical Limited Vs. LEEL Electrical Limited, to support the argument that the commercial wisdom of the CoC is paramount and not subject to judicial review unless it is arbitrary, illegal, or irrational.Conclusion:The Tribunal concluded that the Appellant had made a prima facie case for interference with the Adjudicating Authority's order. The Tribunal allowed the appeal, set aside the Adjudicating Authority's order, and remanded the matter back to the Adjudicating Authority to consider the appointment of Shri CA Mahalingam Suresh Kumar as the RP of the Corporate Debtor within two weeks in accordance with the law. The Tribunal emphasized that the commercial wisdom of the CoC should not be interfered with by the Tribunals unless it is arbitrary, illegal, or irrational.