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of <h1>Applicant-proposed RP must be appointed as IRP under Sections 7 or 10 of IBC unless disciplinary proceedings pending</h1> <h3>K.J. Vinod (Insolvency Professional) S/o. Mr. Reghunath Madathil Shankaran Versus The Registrar of the National Company Law Tribunal – Chennai Bench, Annie Traders Private Limited, Insolvency and Bankruptcy Board of India, New Delhi</h3> K.J. Vinod (Insolvency Professional) S/o. Mr. Reghunath Madathil Shankaran Versus The Registrar of the National Company Law Tribunal – Chennai Bench, ... ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority (NCLT) has discretion to appoint an interim resolution professional (IRP) other than the insolvency professional proposed by the applicant in an application under Section 7 (financial creditor) or Section 10 (corporate debtor) of the Insolvency and Bankruptcy Code, 2016 when no disciplinary proceedings are pending against the proposed professional. 2. Whether the Adjudicating Authority's discretion under Section 16(3) and Section 9(4) (operational creditor context) permits deviation from the applicant's proposed IRP where a proposal has been made. 3. The statutory role and limits of the Committee of Creditors (CoC) under Section 22 in substituting or confirming the IRP, and the interplay between the applicant's proposal, the Adjudicating Authority's appointment, and CoC powers. 4. Whether administrative practice or instances of deviation by benches of the Adjudicating Authority justify a general discretionary power to override a proposed IRP recommended by an applicant under Sections 7 or 10. ISSUE-WISE DETAILED ANALYSIS Issue 1: Discretion of the Adjudicating Authority under Sections 7/10 read with Section 16(2) Legal framework: Sections 7(3)(b) and 10(3)(b) require the applicant (financial creditor or corporate debtor) to furnish the name of the resolution professional proposed to act as IRP. Section 7(5) permits admission only where default, completeness and absence of disciplinary proceedings against the proposed RP are satisfied; Section 16(1)-(2) directs the Adjudicating Authority to appoint an IRP and mandates appointment of the resolution professional proposed in applications under Sections 7 or 10 provided no disciplinary proceedings are pending. Precedent treatment: No binding judicial precedent was invoked in the judgment to justify a contrary reading; administrative instances of deviation were placed on record by the Adjudicating Authority but were not treated as statutory authority to override express statutory mandates. Interpretation and reasoning: A combined textual reading of Sections 7/10 and 16(2) compels the Adjudicating Authority to appoint the RP proposed by the applicant where the statutory conditions (default/completeness/absence of disciplinary proceedings) are satisfied. The statutory language is mandatory ('shall be appointed') leaving no residual discretion to substitute the proposed RP for some other candidate when the conditions are met. Concerns about potential abuse or lack of transparency are addressed by statutory checks (notably Section 22 enabling CoC action) rather than by permitting initial deviation at the admission stage. Ratio vs. Obiter: Ratio - the Adjudicating Authority must appoint the IRP proposed by the applicant in Sections 7 or 10 cases, subject only to the disciplinary-proceedings caveat; any contrary appointment is unsustainable. Conclusions: The Adjudicating Authority lacked statutory power to appoint a different IRP in the present circumstances and the impugned order substituting the proposed IRP is set aside. The Adjudicating Authority should appoint the proposed IRP unless a disciplinary proceeding is pending or other statutorily cognizable disqualification exists. Issue 2: Scope of discretion under Section 9/16(3) where application is by an operational creditor Legal framework: Section 9(4) allows an operational creditor to propose a resolution professional; Section 16(3)(a)-(b) contemplates two scenarios - no proposal by OC (authority to refer to the Board) and where a proposal is made (mandatory appointment if no disciplinary proceedings are pending). Section 16(4) directs the Board to recommend a name where reference is made. Precedent treatment: No prior authority was cited to expand discretion in the face of an express proposal from an operational creditor. Interpretation and reasoning: Section 16(3)(b) treats an operational creditor's express proposal on the same mandatory footing as proposals under Sections 7 and 10: where a proposal is made, the proposed resolution professional 'shall be appointed' if no disciplinary proceedings are pending. The Adjudicating Authority's leeway under Section 16(3)(a) (where no proposal is made) does not apply when a proposal exists. Ratio vs. Obiter: Ratio - where an operational creditor proposes an IRP under Section 9(4), the Adjudicating Authority must appoint that proposed IRP absent disciplinary proceedings; the discretionary route applies only when no proposal is made. Conclusions: The statutory scheme gives no additional discretion to the Adjudicating Authority to override a proposal made by an operational creditor; deviations are permissible only in the statutory scenario where no proposal is made and the Board is to be consulted. Issue 3: Role and limits of the Committee of Creditors under Section 22 and interplay with initial appointment Legal framework: Section 22(2) permits the CoC, at the first meeting, by at least 66% voting share, to either confirm the IRP as RP or replace the IRP by another RP; where replacement is resolved, the Adjudicating Authority must forward the proposed RP to the Board for confirmation per Section 22(4)-(5). Precedent treatment: The judgment accepts the statutory mechanism as the deliberate check on initial appointments and a means to address any concerns about the suitability of the proposed IRP. Interpretation and reasoning: The Code contemplates that the applicant's nomination secures an initial appointment but subjects the ultimate choice of RP to the CoC's confirmation or substitution at its first meeting. This prevents alleged risks (collusion, lack of transparency) arising from untrammelled appointment power by providing an early democratic check by financial creditors and Board confirmation mechanisms. Ratio vs. Obiter: Ratio - the CoC's statutory power under Section 22 is the appropriate and intended mechanism for addressing any reservations about the IRP; it does not create a ground for the Adjudicating Authority to pre-emptively refuse to appoint an applicant's proposed IRP. Conclusions: The correct course for the Adjudicating Authority is to appoint the proposed IRP where statutorily mandated and, if the Adjudicating Authority or stakeholders have reservations, record those reservations for CoC consideration under Section 22 rather than substituting the IRP at admission. Issue 4: Administrative practice and instances of deviation by the Adjudicating Authority - lawful basis and remedial direction Legal framework: Statutory provisions (Sections 7/9/10/16/22) set out the exclusive bases and procedures for appointment and substitution of IRPs; administrative or bench practices cannot override express statutory commands. Precedent treatment: The Registrar's report of bench instances where deviations occurred (instances under Sections 7, 9, 10) was considered factual evidence of practice but not sufficient statutory justification to sustain the impugned order. Interpretation and reasoning: Administrative instances of deviation do not furnish statutory authority; absent a statutory ground (e.g., pending disciplinary proceedings) the Adjudicating Authority's departures cannot be sustained. The Court noted that the Adjudicating Authority may always record reservations in its order for CoC consideration, but that is distinct from substituting the IRP at admission. Where a deviation occurs without statutory basis, it must be set aside and fresh orders made consistent with the Code and principles of natural justice. Ratio vs. Obiter: Ratio - administrative practice inconsistent with statutory mandate cannot validate an otherwise impermissible substitution of the proposed IRP. Obiter - it is open for the Adjudicating Authority to record reservations about a proposed IRP as part of its order for ensuing CoC consideration. Conclusions: The Adjudicating Authority's practice of appointing IRPs contrary to applicants' proposals is not a lawful basis for deviation; where such appointment has occurred without statutory grounds, the appropriate remedy is to set aside the order and direct fresh compliance within a specified period, permitting the Adjudicating Authority to record any reservations for the CoC's consideration.
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