Resolution Professional cleared of adverse remarks for following creditors committee decisions in insolvency proceedings

The NCLAT Principal Bench disposed of an appeal challenging adverse remarks against a Resolution Professional (RP) in a Corporate Insolvency Resolution Process. The Adjudicating Authority had identified irregularities including allowing multiple plan revisions and evaluation matrix issues regarding timing of plan submissions. The NCLAT found the RP had properly conducted CIRP procedures including preparing information memorandums, inviting expressions of interest, and appointing transaction auditors. The tribunal held the RP acted in deference to the Committee of Creditors' commercial wisdom and could not be blamed for the CoC's decision to approve a particular resolution plan. The NCLAT modified the impugned order by expunging adverse observations against the RP while maintaining the remaining operative portions.

---

---

Issues Involved:

1. Alleged irregularities and non-compliance by the Resolution Professional (RP) in the Corporate Insolvency Resolution Process (CIRP).
2. The validity of the Adjudicating Authority's decision to reinitiate the CIRP process.
3. The challenge to the removal of the erstwhile RP and the appointment of a new RP.
4. The scope of the commercial wisdom of the Committee of Creditors (CoC) in the CIRP.
5. The implications of restarting the CIRP process from the stage of issuance of Form-G.

Detailed Analysis:

1. Alleged Irregularities and Non-Compliance by the RP:

The Adjudicating Authority identified several irregularities purportedly committed by the erstwhile RP, Fintech Restructuring LLP, during the CIRP of the Corporate Debtor. These included multiple revisions in the resolution plan allowed in violation of Regulation 39(1A) of the CIRP Regulations, voting by CoC members in violation of Regulation 25(3), and non-consideration of a resolution plan submitted by one of the applicants. The erstwhile RP contended that the multiple revisions were permissible under the commercial wisdom of the CoC, as supported by precedents from this Tribunal. Regarding the voting irregularity, the RP argued that Regulation 25(5)(b) allowed seeking votes from CoC members not physically present via electronic means. The Tribunal found merit in these contentions, noting that the RP acted in accordance with the CoC's directions and within the regulatory framework.

2. Validity of the Adjudicating Authority's Decision to Reinitiate the CIRP Process:

The Adjudicating Authority's decision to reinitiate the CIRP process from the stage of issuance of Form-G was challenged by both the erstwhile RP and the Financial Creditor. The Tribunal observed that the ongoing CIRP process was progressing smoothly under the new RP, with fresh expressions of interest received from multiple prospective resolution applicants. The Tribunal emphasized that restarting the process would only cause delays and potentially diminish the value of the Corporate Debtor's assets. Therefore, the Tribunal upheld the continuation of the ongoing CIRP process.

3. Challenge to the Removal of the Erstwhile RP and Appointment of a New RP:

The removal of the erstwhile RP, Fintech, and the appointment of Mr. Ravindra Kumar Goyal as the new RP was contested. The Tribunal noted that the new RP had already taken significant steps in the CIRP process, including issuing fresh invitations for resolution plans. Given the advanced stage of the ongoing process and the participation of multiple prospective resolution applicants, the Tribunal found no justification to disrupt the current proceedings. The Tribunal also expunged adverse remarks made by the Adjudicating Authority regarding the erstwhile RP's conduct, acknowledging that the RP had acted in accordance with the CoC's commercial wisdom.

4. Scope of Commercial Wisdom of the CoC in the CIRP:

The Tribunal reiterated the principle that the commercial wisdom of the CoC is paramount and not subject to judicial scrutiny, provided the resolution plan complies with the requirements of the IBC. The Tribunal cited precedents affirming the CoC's authority to negotiate and approve resolution plans, emphasizing that the RP's role is to facilitate the CoC's decisions. The Tribunal found that the CoC's decision to approve the resolution plan with a majority vote was a valid exercise of its commercial wisdom.

5. Implications of Restarting the CIRP Process from the Stage of Issuance of Form-G:

The Financial Creditor argued against restarting the CIRP process, citing concerns about delays and the potential impact on asset value. The Tribunal agreed, noting that the ongoing process was on track to be completed within the timeline set by the Adjudicating Authority. The Tribunal emphasized that maximizing asset value and ensuring timely resolution are core objectives of the IBC. By allowing the ongoing process to continue, the Tribunal aimed to achieve these objectives while fostering competition among prospective resolution applicants.

Conclusion:

The Tribunal modified the impugned order to expunge adverse remarks against the erstwhile RP but upheld the continuation of the ongoing CIRP process under the new RP. The Tribunal's decision underscores the importance of adhering to the commercial wisdom of the CoC and ensuring timely resolution in line with the IBC's objectives.

---