2023 (12) TMI 960 - AT - Insolvency and Bankruptcy

Resolution Professional retains management control after NCLT order set aside during stayed insolvency proceedings

NCLAT set aside NCLT's order directing Resolution Professional to handover corporate debtor's management to CEO/Management. NCLAT held that NCLT erred in ... Validity of Direction to the Resolution Professional to immediately handover the management of the Corporate Debtor to the CEO/Management of the Corporate Debtor - Power of NCLT where CIRP has been stayed - HELD THAT:- It is noticed that the Appeal filed by Mr. Navin Kumar Upadhyay- Respondent No.1 before the Hon’ble Supreme Court challenging the order dated 16.12.2021 of this Tribunal is already pending. It is open for the Respondent No.1 herein who is Appellant before the Hon’ble Supreme Court to pray such order as may be advised - it is also noticed that after the order of the Hon’ble Supreme Court dated 25.02.2022 staying the CIRP, Resolution Professional has also filed an application before the Hon’ble Supreme Court seeking certain directions and clarifications which application was directed by the Hon’ble Supreme Court to be heard along with the hearing of the appeal which application is still pending and no order has been passed by the Hon’ble Supreme Court. When the Appeal before the Hon’ble Supreme Court filed by the Respondent No.1 is still pending, the Adjudicating Authority ought to have stayed his hands to issue any direction to hand over the management of the Corporate Debtor to the ex-management and the Adjudicating Authority ought to have relegated to parties to approach the Hon’ble Supreme Court for any further order or direction. It is for the Resolution Professional to take decision in its wisdom as to how the Corporate Debtor should be allowed to continue as a going concern without taking any steps in the CIRP, in view of the interim order passed by the Hon’ble Supreme Court dated 25.02.2022. Respondent No.1 virtually seeks his reinstatement of the post which is clear from the prayer made in IA No.4138-4139 of 2023 which has not been entertained in this Appeal and the Adjudicating Authority also ought to have stayed his hands from passing any order on the application filed by the parties which relates to CIRP of the Corporate Debtor. The Adjudicating Authority committed error in passing the order dated 30.05.2023. Application IA No.2403 of 2023 filed by Respondent No.1 as well as Application IA No.964 of 2023 filed by Resolution Professional before the Adjudicating Authority ought not to have entertained due to pendency of the Civil Appeal No.2662 of 2022 filed by the Respondent No.1 before the Hon’ble Supreme Court. The order dated 30.05.2023 passed in IA No.2403 of 2023 and IA No.964 of 2023 set aside - appeal allowed. Issues Involved:1. Whether the Resolution Professional ought to have handed over the affairs of the Corporate Debtor to the directors in view of the stay order passed by the Hon'ble Supreme Court of India on 25 February 2022.2. Legality of the removal of the Executive Editor by the Resolution Professional.3. Legality of the appointment of a new Executive Editor by the Resolution Professional.4. Whether the Adjudicating Authority should have entertained the applications due to the pending Civil Appeal before the Hon'ble Supreme Court.Summary:Issue 1: Handing Over Affairs to DirectorsThe Adjudicating Authority directed the Resolution Professional to hand over the management of the Corporate Debtor to the CEO/Management of the Corporate Debtor, interpreting the Supreme Court's stay of the CIRP as necessitating this transfer. The Tribunal found this interpretation erroneous, noting that the stay of CIRP does not imply the Resolution Professional must hand over control to the ex-management. The Tribunal emphasized that such a handover could lead to misuse of assets, adversely affecting creditors.Issue 2: Removal of Executive EditorThe Resolution Professional terminated the Executive Editor's contract, citing the expiration of the contract and the executive reaching 60 years of age. The Respondent challenged this, claiming the termination violated the Supreme Court's interim order. The Tribunal noted that the Respondent had approached the Supreme Court for contempt proceedings regarding this termination, and thus, the Adjudicating Authority should not have entertained the application.Issue 3: Appointment of New Executive EditorThe Tribunal found that the Resolution Professional's actions, including the appointment of a new Executive Editor, were aimed at running the Corporate Debtor as a going concern, which is within his purview, especially given the company's financial losses. The Tribunal held that the Adjudicating Authority's direction to nullify these actions was inappropriate.Issue 4: Jurisdiction of Adjudicating AuthorityThe Tribunal held that the Adjudicating Authority should have refrained from issuing directions due to the pending Civil Appeal before the Supreme Court. The Tribunal emphasized that any further orders or directions should be sought from the Supreme Court.Conclusion:The Tribunal set aside the Adjudicating Authority's order dated 30.05.2023, which had directed the Resolution Professional to hand over management to the ex-management and nullified actions taken by the Resolution Professional post the Supreme Court's interim order. Both parties were directed to approach the Supreme Court for further orders.