Impartial CoC reconstitution in insolvency matters is essential; disputed claims cannot be used to sustain a biased CIRP process.

An insolvency professional must act impartially when verifying claims and constituting the Committee of Creditors; using a disputed or under-verification claim to alter CoC composition, particularly where it affects the professional's own continuance, is procedurally unsustainable. Here, the reconstitution of the CoC on the basis of Asha Apartments' claim was found biased and contrary to the CIRP framework, so the later CoC resolutions could not stand. The Adjudicating Authority was therefore justified in setting aside those resolutions and replacing the Interim Resolution Professional, and the appellate tribunal found no reason to interfere.

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Issues: (i) Whether the Interim Resolution Professional acted with impartiality and in accordance with the Insolvency and Bankruptcy Code and the CIRP Regulations while admitting the claim of Asha Apartments and reconstituting the Committee of Creditors; (ii) Whether the Adjudicating Authority was justified in setting aside the second CoC resolutions and replacing the Interim Resolution Professional with another Resolution Professional.

Issue (i): Whether the Interim Resolution Professional acted with impartiality and in accordance with the Insolvency and Bankruptcy Code and the CIRP Regulations while admitting the claim of Asha Apartments and reconstituting the Committee of Creditors.

Analysis: The claim of Asha Apartments was received after the stipulated last date for submission of claims, and the record showed inconsistent versions as to when it was received and whether it had been properly verified. The records also showed that, while the earlier constitution of the CoC was based on admitted operational creditor claims, the later reconstitution introduced Asha Apartments as the sole financial creditor with 100% voting share even though the claim was still shown as under verification in the minutes of the second CoC meeting. The sequence of filings and meeting minutes indicated that the reconstitution was carried out in a manner that altered the CoC composition after the first CoC had voted out the appellant, raising serious concerns about neutrality and procedural propriety.

Conclusion: The appellant did not act impartially or in accordance with the governing procedure in reconstituting the CoC, and the conduct was found to be biased and unsustainable.

Issue (ii): Whether the Adjudicating Authority was justified in setting aside the second CoC resolutions and replacing the Interim Resolution Professional with another Resolution Professional.

Analysis: The Adjudicating Authority's intervention was founded on the appellant's conduct in relation to the disputed claim and the consequent constitution of the CoC. Since the reconstitution was found to be premature and tainted by lack of impartiality, the second CoC resolutions that followed from that composition could not be sustained. The power to protect the integrity of the CIRP process justified replacing the appellant, and the Tribunal found no reason to interfere with that determination. The appellant's reliance on commercial wisdom was held inapplicable because the controversy concerned the fairness and impartial administration of the CIRP, not a resolution plan decision.

Conclusion: The replacement of the appellant and the setting aside of the second CoC resolutions were upheld.

Final Conclusion: The appeal failed because the appellant's conduct in handling claims and reconstituting the CoC was found to be non-neutral and contrary to the CIRP framework, warranting replacement and continuation of the impugned directions.

Ratio Decidendi: An insolvency professional cannot alter the composition of the Committee of Creditors on the basis of a disputed or under-verification claim in a manner that compromises neutrality or appears designed to secure his own continuance; where such conduct undermines the CIRP process, the Adjudicating Authority may replace the professional and invalidate the consequential resolutions.

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