Case Law Details
Union Bank of India Vs Islamuddin Kagzi (NCLT Jaipur)
The NCLT Jaipur considered an application filed by a Personal Guarantor under Section 98 of the Insolvency and Bankruptcy Code, 2016 (IBC) read with Rule 11 of the National Company Law Tribunal Rules, 2016, seeking replacement of the Resolution Professional (RP) appointed in proceedings initiated under Section 95 IBC. The applicant contended that the Adjudicating Authority had the power under Sections 97 and 98 of the IBC to substitute the RP and that such power could also be exercised at the instance of a Personal Guarantor. The applicant further submitted that the RP’s role in personal guarantor proceedings was consultative and facilitative.
The Tribunal examined whether an RP appointed in proceedings under Section 95 could be replaced after admission under Section 100 IBC and whether the facts of the case justified such replacement. On a conjoint reading of Sections 97, 98, 99 and 100 IBC, the Tribunal held that the RP’s statutory functions continue even after submission of the report under Section 99 and admission under Section 100. Consequently, the jurisdiction of the Adjudicating Authority to consider replacement of the RP is not exhausted upon admission of the insolvency application.
The Tribunal further held that Section 98 IBC does not restrict the right to seek replacement of the RP exclusively to the creditor. A Personal Guarantor, being directly affected by the insolvency resolution process, is entitled to invoke the Tribunal’s jurisdiction under Section 98 where legally sustainable grounds are established.
However, the Tribunal clarified that replacement of an RP is not to be granted routinely or merely on grounds of convenience or subjective dissatisfaction. Particularly where the application is filed after the RP has submitted the Section 99 report and the application has been admitted under Section 100, the Tribunal must exercise considerable caution. Replacement can be ordered only upon cogent material demonstrating circumstances such as bias, conflict of interest, misconduct, incapacity, procedural impropriety, or failure to discharge statutory duties fairly and impartially. Mere dissatisfaction with the RP’s recommendation or the outcome of the proceedings is insufficient.
In the present case, the applicant failed to place any objective material demonstrating bias, misconduct, conflict of interest, procedural irregularity, or failure by the RP in discharging statutory duties. The application relied substantially on the assertion that the Personal Guarantor’s opinion alone justified substitution, which the Tribunal held was inconsistent with the statutory scheme of the IBC.
Accordingly, the Tribunal held that although an application under Section 98 IBC is maintainable even after admission and may be filed by a Personal Guarantor, the present application disclosed no legally sustainable ground for replacement of the RP. The application was therefore dismissed for absence of any evidence of bias, misconduct, conflict of interest, procedural impropriety, or other valid ground warranting substitution, while clarifying that no opinion was expressed on the merits of the underlying insolvency proceedings. NCLT Jaipur.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The present Interlocutory Application bearing IA (IBC) No. 567/.1PR/2025 has been filed by Mr Islamuddin Kagzi (i.e., Personal Guarantor to M/s Sanga Builders Private Limited) under Section 98 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) read with Rule 11 of the National Company Law Tribunal Rules, 2016 seeking replacement / substitution of Non-Applicant No.2 (i.e., Rishabh Chand Lodha) as the Resolution Professional appointed in the proceedings under Section 95 of the Code.
2. It is stated in the application that the petition under Section 95 of the Code was filed by the Financial Creditor on 01.01.2024 and the Resolution Professional was appointed on 04.01.2024.
3. It is further stated that the RP thereafter submitted a report under Section 99 of the Code recommending admission of the application. The Applicant has contended that under the scheme of Sections 97 and 98 of the Code, this Adjudicating Authority possesses the power to replace / substitute the RP and that such power can be exercised at the instance of the Personal Guarantor as well. It has further been pleaded that the Resolution Professional, in proceedings concerning Personal Guarantors, performs a consultative and facilitative role and therefore substitution of the RP ought to be permitted.
Analysis & Findings
4. We have heard the learned Counsel for the Applicant and perused the material available on record. The main issue which arises for consideration is whether the Resolution Professional appointed in proceedings under Section 95 of the Code can be replaced after admission under Section 100 and, if so, whether any grounds exist in the present case warranting such replacement.
5. A conjoint reading of Sections 97, 98, 99 and 100 of the Code indicates that the role of the Resolution Professional does not conclude merely upon submission of the report under Section 99. The Resolution Professional continues to discharge statutory functions even subsequent to admission under Section 100. The scheme of the Code therefore does not indicate that the jurisdiction of the Adjudicating Authority to consider replacement of the RP stands exhausted upon admission of the application.
6. Nothing in Section 98 of the Code restricts invocation of such jurisdiction only at the instance of the creditor. A Personal Guarantor, being directly affected by the insolvency resolution process, cannot be held disentitled from invoking the jurisdiction of this Adjudicating Authority where legally sustainable grounds are shown.
7. However, the power of replacement of the Resolution Professional is not intended to be exercised as a matter of routine, convenience or subjective preference. More so, where the application is moved after submission of the report under Section 99 and admission under Section 100, the Adjudicating Authority is required to exercise considerable circumspection, since the Resolution Professional would have already discharged statutory functions culminating in admission of the insolvency resolution process.
8. Replacement of the Resolution Professional can therefore be directed only when there exists cogent material demonstrating circumstances such as bias, conflict of interest, misconduct, incapacity, procedural impropriety or failure to discharge statutory obligations in a fair and impartial manner. Mere dissatisfaction with the outcome of the proceedings or with the recommendation made by the Resolution Professional cannot constitute sufficient ground for substitution.
9. In this case, except asserting that the Applicant seeks substitution of the Resolution Professional and that such substitution is permissible under Section 98 of the Code, no substantive or objective material has been placed on record to demonstrate any bias, misconduct, conflict of interest, procedural irregularity or failure in discharge of statutory duties by the Resolution Professional. The application is conspicuously silent on any specific act or omission affecting the fairness or integrity of the insolvency process.
10. In fact, the pleadings proceed substantially on the basis that the opinion of the Personal Guarantor is sufficient for replacement of the RP. This cannot be accepted. The statutory scheme of the Code does not contemplate replacement of the Resolution Professional merely on the basis of subjective dissatisfaction of a party.
11. This Adjudicating Authority is therefore of the considered view that although an application under Section 98 of the Code may be maintainable even after admission under Section 95 and even at the instance of the Personal Guarantor, the present application fails to disclose any legally sustainable ground warranting exercise of such jurisdiction.
12. Accordingly, IA (IBC) No. 567/2025 is dismissed. It is clarified that the present order is confined solely to adjudication of the prayer for replacement / substitution of the Resolution Professional under Section 98 of the Code and no opinion is being expressed on the merits of the underlying insolvency proceedings or any issue arising therein.
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