Mathioli N Vs Reliance Asset Reconstruction Company Limited (NCLAT Chennai)
Conclusion: Appellate Tribunal held that the NCLT’s order replacing the Resolution Professional suffered from procedural irregularity and violation of natural justice. Replacement under Section 27 of the I&B Code must be done only through a CoC resolution with 66% voting however, since the RP himself failed to place the agenda for replacement, he could not claim advantage of that lapse. Accordingly, the impugned order was quashed, and the NCLT was directed to follow due procedure under Section 27, ensuring fair opportunity and compliance with law.
Held: Appellant–Resolution Professional (RP) challenged the impugned order passed by the NCLT by which he was replaced as the Resolution Professional of the Corporate Debtor, M/s. MQ Network Pvt. Ltd.. The Corporate Debtor was undergoing the Corporate Insolvency Resolution Process (CIRP), and Appellant was appointed as RP after his confirmation under Section 22 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Financial Creditor, being dissatisfied with the RP’s alleged non-cooperative and obstructionist conduct, filed an application before the NCLT seeking his replacement. NCLT, based on the material before it, found that the RP’s attitude was non-cooperative, resulting in ineffective conduct of CIRP, and therefore directed that Appellant be replaced by another Insolvency Professional as proposed by the Financial Creditor. Aggrieved by the said order, RP filed the present appeal before the NCLAT, contending that the replacement order suffered from procedural infirmities, violation of Section 27 of the I&B Code, and breach of natural justice. Resolution Professional contended that the impugned order was passed without affording any opportunity of hearing, violating the principles of natural justice, especially since the replacement of an RP entailed civil consequences; the procedure prescribed under Section 27 of the I&B Code, 2016, was not followed, as the Committee of Creditors (CoC) did not pass any resolution with 66% voting share approving the RP’s replacement; the NCLT exceeded its jurisdiction by directly ordering replacement based on a financial creditor’s email communication, which was contrary to the statutory process under Section 27 and therefore, the impugned order was illegal and unsustainable in law. Financial Creditor contended that appellant failed to discharge his duties and deliberately avoided placing the agenda for his replacement in the 2nd CoC meeting, despite repeated requests and directions from the NCLT; the email communication dated 22.04.2025, proposing replacement of the RP, was intentionally omitted from the meeting agenda to prevent CoC discussion on the issue; the application under Section 60(5) of the I&B Code was maintainable, since the Appellant’s non-cooperation left the Financial Creditor remedy-less under Section 27; NCLT, being satisfied with the Appellant’s obstructionist conduct, rightly exercised its inherent powers to ensure the smooth conduct of CIRP and replaced the RP. it was held that Appellate Tribunal clearly prescribed the procedure for replacement of a Resolution Professional — the CoC must, by a 66% majority, resolve to replace the existing RP, and such decision must be placed before the Adjudicating Authority for confirmation. Tribunal observed that while the NCLT’s intention to ensure effective conduct of CIRP was not misplaced, the procedural requirement of placing the agenda before the CoC had not been followed. Appellant himself, by failing to place the Financial Creditor’s request for replacement in the agenda of the CoC meeting, contributed to the procedural lapse. Therefore, he could not take advantage of his own omission to challenge the order on procedural grounds. However, recognizing the procedural flaw in the NCLT’s order and the absence of due CoC consideration, the Tribunal held that the impugned order dated 07.07.2025 suffered from irregularity. It directed that Adjudicating Authority (NCLT) should formulate an agenda for consideration of the RP’s replacement on its own motion, based on the allegations in IA(IBC)/917/CHE/2025; the said agenda should be placed before the CoC for deliberation and decision in accordance with Section 27(2) of the I&B Code; and the CoC should meet within two weeks of the NCLT’s formulation of the agenda to decide the issue of replacement. Tribunal emphasized that any replacement or removal of an RP entails civil consequences, and therefore, the RP must be given an opportunity of hearing before such decision was taken. In view of the above, the impugned order dated 07.07.2025 was quashed, limited to the extent of procedural non-compliance, with directions to the NCLT, Chennai Bench–II, to act in accordance with Section 27 of the I&B Code, 2016 and the principles of natural justice.
