NCLAT Upholds Resolution Plan Approval and RP's Actions, Expunges Adverse Remarks Under IBC

The NCLAT upheld the CoC's approval of the resolution plan and the RP's actions in recording the settlement before the NCLT. The tribunal clarified that the RP acted within authority and no fault was found in the distribution of funds or involvement of the SRA in the settlement agreement. Although the RP obtained a fresh valuation without prior approval, the tribunal found no dereliction of duty. The RP was recognized as an aggrieved party entitled to appeal against adverse observations leading to replacement. The NCLAT expunged the adverse remarks against the RP in the impugned order and disposed of the appeal accordingly.

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ISSUES:

Whether adverse observations made against the Resolution Professional (RP) in paragraphs 63, 64, and 67 of the impugned order are justified and sustainable.Whether the RP was derelict in duties by delaying the filing of application for fresh valuation reports during the Corporate Insolvency Resolution Process (CIRP).Whether the RP erred in relation to the settlement agreement with a financial creditor and the involvement of the Successful Resolution Applicant (SRA) therein.Whether the appointment of a related party contractor during CIRP was improper and indicated misconduct by the RP.Whether the RP has locus standi to file an appeal against adverse observations leading to his replacement.

RULINGS / HOLDINGS:

Adverse observations in paragraphs 63, 64, and 67 against the RP are not sustainable and are to be expunged as they are not based on relevant materials or proper appreciation of the RP's duties and actions.The delay by the RP in filing an application for fresh valuation reports during CIRP does not amount to dereliction of duty since the RP acted in accordance with the ongoing proceedings and without leave of the Adjudicating Authority could not have procured fresh valuations; thus, the observation that the RP was "oblivious about his duties" is unsustainable.The RP's action in bringing the settlement agreement with Shomit Finance Ltd. on record was with the approval of the Committee of Creditors (CoC) and does not constitute misconduct; the involvement of the SRA as a confirming party to the settlement was proper given that the assets were part of the Information Memorandum and Resolution Plan.The appointment and continuation of Gold Star Realtors Pvt. Ltd. as contractor, despite being a related party to the SRA, was approved by the CoC in multiple meetings predating the RP's appointment and is not improper or indicative of misconduct by the RP.The RP has locus standi to file an appeal against adverse observations that led to his replacement, as he is an aggrieved person in respect of those observations.

RATIONALE:

The Court applied the framework of the Insolvency and Bankruptcy Code, 2016 (IBC), and the CIRP Regulations, emphasizing that the RP's powers and duties are circumscribed by the directions of the Adjudicating Authority and the CoC.Precedents affirm that the RP cannot act unilaterally in matters such as fresh valuation without leave of the Adjudicating Authority, especially when related applications are pending.The CoC's approval of settlements and contractor appointments binds the RP's actions, and the RP's role is to execute such decisions in accordance with the IBC scheme.The Court distinguished between procedural delays and substantive dereliction of duty, rejecting adverse findings unsupported by material evidence.The decision reflects no doctrinal shift but reinforces the principle that adverse observations against an RP require a sound factual and legal basis and that the RP is entitled to challenge such observations if aggrieved.

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