Resolution Professional can continue CIRP proceedings despite IBBI show cause notice and AFA suspension
NCLAT held that RP may continue CIRP proceedings despite IBBI's show cause notice and AFA suspension, as the notice does not prohibit ongoing assignments. SC had directed CoC to reconsider appellant's resolution plan dated 28.10.2022. With intervention petitions and applications pending since CIRP commenced on 21.10.2021, stopping the process would further delay resolution. Adjudicating Authority must consider all pending applications including plan approval per SC directions. Appeal disposed.
ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:
1. Whether the Resolution Professional (RP) can continue with the Corporate Insolvency Resolution Process (CIRP) despite the issuance of a show cause notice by the Insolvency and Bankruptcy Board of India (IBBI) and the subsequent suspension of the Authorization for Assignment (AFA).
2. Whether the Adjudicating Authority's interim order directing the RP not to proceed with decisions on any resolution plan is sustainable, especially in light of the Supreme Court's directive to reconsider the Appellant's Resolution Plan.
3. The impact of the Supreme Court's order dated 29.01.2025 on the ongoing CIRP, particularly regarding the reconsideration of the Appellant's Resolution Plan.
4. The implications of various intervention applications filed by operational creditors and others on the CIRP process.
ISSUE-WISE DETAILED ANALYSIS
1. Continuation of RP in CIRP Post Show Cause Notice
- Relevant Legal Framework and Precedents: The issuance of a show cause notice by IBBI typically results in the automatic suspension of the RP's AFA, as per Regulation 7A of the IBBI (Insolvency Professional) Regulations, 2016. The precedents cited include judgments from the High Courts of Madras and Bombay.
- Court's Interpretation and Reasoning: The Tribunal noted that the issuance of a show cause notice does not prohibit the RP from continuing with existing assignments. The RP is barred from taking new assignments but can continue with the current engagement.
- Application of Law to Facts: The Tribunal found that the RP could continue with the CIRP, as the show cause notice did not affect ongoing assignments.
- Treatment of Competing Arguments: The Tribunal considered arguments from the Respondent, who claimed that the suspension of AFA should prevent the RP from proceeding. However, the Tribunal sided with the Appellant's view that existing assignments could continue.
2. Sustainability of Adjudicating Authority's Interim Order
- Relevant Legal Framework and Precedents: The Tribunal examined the interim order's compatibility with the Supreme Court's directive, which required reconsideration of the Appellant's Resolution Plan.
- Court's Interpretation and Reasoning: The Tribunal determined that the interim order effectively halted the CIRP process, which was contrary to the Supreme Court's directive to reconsider the Appellant's Resolution Plan.
- Application of Law to Facts: The Tribunal concluded that the interim order should be set aside to allow the process to move forward in compliance with the Supreme Court's directive.
- Treatment of Competing Arguments: The Respondent argued that the interim order was necessary due to the RP's suspended AFA. The Tribunal rejected this, emphasizing the need to comply with the Supreme Court's order.
3. Impact of Supreme Court's Order on CIRP
- Relevant Legal Framework: The Supreme Court's order mandated the reconsideration of the Appellant's Resolution Plan and any other plans with requisite CCI approval as of 28.10.2022.
- Court's Interpretation and Reasoning: The Tribunal emphasized the binding nature of the Supreme Court's order and its implications for the CIRP timeline and process.
- Application of Law to Facts: The Tribunal directed that the Adjudicating Authority proceed with considering all pending applications, including the Resolution Plan approval, in light of the Supreme Court's order.
4. Intervention Applications and Their Impact
- Relevant Legal Framework: The Tribunal considered the procedural aspects of intervention applications and their potential to delay the CIRP.
- Court's Interpretation and Reasoning: The Tribunal noted that while intervention applications are a part of the process, they should not impede compliance with higher judicial directives.
- Application of Law to Facts: The Tribunal instructed the Adjudicating Authority to treat all pending applications as objections to the Plan approval and decide them promptly.
SIGNIFICANT HOLDINGS
- The Tribunal held that the RP could continue with the existing CIRP despite the show cause notice and suspension of AFA, as it did not prohibit ongoing assignments.
- The Tribunal set aside the Adjudicating Authority's interim order that restrained the RP from proceeding with decisions on any resolution plan.
- The Tribunal emphasized the need for the Adjudicating Authority to comply with the Supreme Court's directive by considering all pending applications, including the Appellant's Resolution Plan, without unnecessary delay.
- The Tribunal clarified that intervention applications should not obstruct the resolution process and directed their prompt consideration alongside the Resolution Plan approval application.
The appeal was disposed of with directions to the Adjudicating Authority to proceed with the consideration of all pending applications and decide them at the earliest, in accordance with the law.
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