2022 (9) TMI 174 - AT - Insolvency and Bankruptcy

Appeal Dismissed: CoC Decision to Replace Resolution Professional Upheld Under I&B Code Section 27

Sumat Kumar Gupta Insolvency Professional, Formerly Resolution Professional M/s Vallabh Textiles Company Ltd. Versus Committee of Creditors of M/s Vallabh Textiles Company Ltd.

The Appellate Tribunal dismissed the appeal against the replacement of the Resolution Professional, ruling that the CoC's decision to replace the ... Replacement of the Resolution Professional - Adjudicating Authority passed the impugned order without giving any opportunity of hearing and without issuing any notice to the Appellant - Section 27 of the I&B Code - HELD THAT:- In the present case, the CoC in its meeting dated 04.06.2022 with 100% vote has decided to replace the Appellant with another Resolution Professional. When we look into the scheme of Section 27 as delineated by the statute, it does not contemplate any opportunity of hearing to the Resolution Professionals be given by the Adjudicating Authority before approving the proposal of new Resolution Professional. Section 27 requires the CoC to forward the name of proposed Resolution Professional to the Adjudicating Authority and the Adjudicating Authority is required to forward the name of the proposed Resolution Professional to the Board for its confirmation. The scheme of Section 27 does not indicate that Resolution Profession is to be made party and is to be issued notice before taking decision to appoint another Resolution Professional. Looking to the purpose and object of the I&B Code, where timeline is the essential factor to be taken into consideration at all stages, there is no warrant to permit a Lis to be raised by the Resolution Professional challenging his replacement by the CoC. The decision taken by the CoC is a decision by vote of 66% and when the decision is by votes of a collective body, the decision is not easily assailable and replacement is complete as per Scheme of Section 27 when the resolution is passed with requisite 66% voting share - thus, it is clear that replacement of Resolution Professional is complete when required decision is taken by the CoC in its meeting with requisite majority. There are no error in the order of the Adjudicating Authority allowing replacement of Resolution Professional. There is no merit in the Appeal - Appeal is dismissed. Issues:Replacement of Resolution Professional without opportunity of hearing.Analysis:The appeal was filed against the order passed by the Adjudicating Authority replacing the Appellant with a new Resolution Professional, based on an application by the Financial Creditor. The main issue raised was the lack of opportunity for the Appellant to be heard before the replacement. The Resolution Professional argued that natural justice principles should have been followed, as per Section 27 of the I&B Code, which allows for the replacement of a Resolution Professional by the Committee of Creditors (CoC).The Respondent contended that Section 27 does not require an opportunity for the Resolution Professional to be heard before the replacement decision is made by the CoC. They argued that the replacement process is completed when the CoC passes a resolution with a 66% majority and communicates the new Resolution Professional's name to the Adjudicating Authority for approval.The Appellate Tribunal analyzed Section 27 of the I&B Code, which outlines the procedure for replacing a Resolution Professional. It was noted that the CoC can decide to replace the Resolution Professional with a new one by a 66% majority vote. In this case, the CoC had unanimously decided to replace the Appellant. The Tribunal emphasized that the scheme of Section 27 does not mandate an opportunity for the Resolution Professional to be heard before the replacement decision is finalized.The Tribunal referred to previous judgments to support its decision. It cited cases where it was held that the CoC's decision to replace a Resolution Professional with a majority vote is final and does not require reasons to be recorded. The Tribunal also highlighted that the principles of natural justice are not automatically applicable in the context of Section 27, as the statute itself does not provide for a hearing for the Resolution Professional before replacement.In conclusion, the Tribunal dismissed the appeal, stating that the Adjudicating Authority's decision to allow the replacement of the Resolution Professional was in line with the provisions of Section 27 of the I&B Code. The Tribunal held that the Resolution Professional was not entitled to a hearing before the replacement decision by the CoC. The appeal was found to lack merit and was consequently dismissed.