CoC Decision on Resolution Professional Replacement Upheld by NCLAT Delhi

Partha Sarathy Sarkar Vs Specified Undertaking of Unit Trust of India Ltd. (NCLAT Delhi)

Introduction: The National Company Law Appellate Tribunal (NCLAT) in Delhi recently rendered a decision in the matter of Partha Sarathy Sarkar vs. Specified Undertaking of Unit Trust of India Ltd. The case revolves around the replacement of the Resolution Professional and the challenges raised against this decision by Partha Sarathy Sarkar. The Adjudicating Authority had approved the replacement, and this decision was brought to the NCLAT for review.

Detailed Analysis: The crux of the dispute lies in the CoC’s decision to replace Partha Sarathy Sarkar, who was serving as the Resolution Professional in the insolvency proceedings related to M/s. Modern Syntex India Limited. The CoC’s primary reasons for replacement included Sarkar’s refusal to reduce his fee and his insistence on legal action against the stripping off of the Corporate Debtor’s assets in June 2018. The CoC, in a meeting held on 01st September 2023, passed a resolution to replace Sarkar with Ankit Goel.

Partha Sarathy Sarkar contested this decision, arguing that he was not given an opportunity to present all relevant facts before the Adjudicating Authority. He claimed that his replacement was unjustified and that the CoC relied on a Joint Lenders Meeting dated 28th August 2023, overlooking the minutes of the CoC Meeting on 01st September 2023.

The NCLAT carefully examined the sequence of events, noting that the CoC had the authority, under Section 27 of the Insolvency and Bankruptcy Code, to replace a Resolution Professional. The tribunal emphasized that the Resolution Professional cannot question the reasons behind the CoC’s decision. It cited a recent judgment in a similar case, Kairav Anil Trivedi vs. State Bank of India, where the tribunal upheld the CoC’s decision to replace the Resolution Professional without providing an opportunity for a hearing.

Addressing Sarkar’s claim regarding the replacement resolution, the NCLAT clarified that the discrepancy in mentioning Anil Goel instead of Ankit Goel in the minutes did not affect the validity of the resolution. The CoC had correctly followed the provisions of the Code, and the NCLAT found no grounds to interfere with the Adjudicating Authority’s decision.

Conclusion: In conclusion, the NCLAT dismissed the appeal, affirming the Adjudicating Authority’s approval of the CoC’s decision to replace Partha Sarathy Sarkar with Ankit Goel. The case reinforces the authority of the CoC in making such decisions under the Insolvency and Bankruptcy Code, emphasizing the efficiency of the process and the limited scope for challenging such replacements by Resolution Professionals.

FULL TEXT OF THE NCLAT JUDGMENT/ORDER

1. This Appeal has been filed against the Order dated 27^th September, 2023 passed by National Company Law Tribunal, Jaipur Bench (hereinafter referred to as “The Adjudicating Authority”) by which order the Adjudicating Authority has allowed the Application filed under Section 27 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The Code”) for replacement of the Appellant with another Resolution Professional-Mr. Ankit Goel.

2. When this Appeal was taken by this Tribunal on 01st November, 2023, liberty was granted to the Appellant to delete the Respondent-NCLT which was impleaded as Respondent No. 1. An I.A. No. 5629 of 2023 has been filed by the Appellant praying for deletion of Respondent No. 1 and Impleadment of Respondents No. 1 to 8 in the Appeal. An amended Memo of Parties filed along with I.A. No. 5629 of 2023 is taken on record and the array of parties are permitted to be amended as prayed.

3. An I.A. No. 5665 of 2023 has also been filed by the Appellant for carrying out consequential amendment in pursuance of the liberty granted on 01^st November, 2023 which I.A. is also allowed.

4. Brief facts, sequence and events of the case necessary to be noticed for deciding this Appeal are:-

i. By order dated 28^th February, 2022, CIRP commenced against the Corporate Debtor-M/s. Modern Syntex India Limited. The Appellant was appointed as the IRP who was also confirmed as Resolution Professional. The CoC consist of Respondent Nos 1 to 3 (newly impleaded) in which Specified Undertaking of Unit Trust of India Ltd. (SUUTI in short) have 74.64% vote share.

ii. On 19t^h July, 2023, an Email was sent by SUUTI asking the Resolution Professional to reduce his fee as well as CIRP Cost. Appellant by its email informed the SUUTI on same date i.e. 19^th July, 2023 that he shall not be able to reduce his fee. The CoC made a request to Resolution Professional to convene a meeting of the CoC for 25^th July, 2023. A meeting of CoC was convened for 25t^h July, 2023 which was held on 26^th July, 2023 (18^th CoC Meeting). One of the Agenda Item No. 7 was “to consider, approve and vote on agenda of Resolution Professional”.

iii. The meeting dated 26^th July, 2023 was held as 18^th CoC Meeting in which Agenda Item No. 7 was taken. On the said agenda, the Resolution Professional recorded in the minutes that Agenda Item No. 7 shall be taken in the next CoC Meeting i.e. 19^th CoC Meeting since the emails were received after circulation of the notice. Chairman also expressed his inability to continue rendering the service. Subsequent to 18t^h CoC Meeting, a Lenders Meeting was held on 28t^h August, 2023 which was attended by all the three members of the CoC where Resolution was passed to replace the Appellant by Mr. Ankit Goel who quoted minimum fee of Rs. 2 Lakh per month. After the aforesaid Joint Lenders Meeting, a request was made by Members of the CoC to convene the meeting on 30t^h August, 2023 however meeting could be convened on 01^st September, 2023 in which resolution to replace the Appellant with Mr. Ankit Goel was passed with 100% vote share.

iv. Application was filed before the Adjudicating Authority being I.A. No. 510/JPR/2023 for approving replacement of Appellant with Mr. Ankit Goel which application has been allowed by the Impugned Order dated 27^th September, 2023. Aggrieved by the said order, this Appeal has been filed.

5. We have heard Mr. Adish Agarwalla, Sr. Advocate appearing for the Appellant as well as Learned Counsel appearing for the Respondents.

6. Learned Sr. Counsel for the Appellant in support of the Appeal submits that Resolution Professional has been replaced due to reason that Appellant refused to reduce his fee. It is further submitted that Appellant has written to the SUUTI to lodge an FIR with regard to stripping off of the assets of the Corporate Debtor in June, 2018 which request was not accepted by the Member of the CoC hence the SUUTI decided to replace the Appellant. The Appellant visited the factory premises and found stripping off of the assets in June, 2018 for which Appellant requested to take appropriate action including lodging an FIR which was not acceded to by the CoC which was reason for replacement of the Appellant. It is further submitted that Appellant was not given an opportunity to place all relevant facts before the Adjudicating Authority when the Order was passed. It is further submitted that the Adjudicating Authority has relied on Joint Lenders Meeting dated 28^th August, 2023 whereas it has not taken note of minutes of the COC Meeting dated 01^st September, 2023 where the agenda for replacement was considered along with all other relevant materials. It is submitted that in the agenda for replacement of the Appellant by substituting another Insolvency Resolution Professional name of Anil Goel was mentioned whereas the Adjudicating Authority approved the name of Ankit Goel.

7. Learned Counsel for the Respondents refuting the submissions of Learned Sr. Counsel for the Appellant submits that Appellant has rightly been replaced in accordance with provisions of the Code. There was proposal for replacement by Ankit Goel whose registration number was mentioned whereas it was the Appellant who in the minutes of the meeting mentioned the name of Ankit Goel as Anil Goel. It is submitted that Appellant’s replacement being in accordance with the provisions of the IBC, appellant has no right to challenge the order of the Adjudicating Authority.

8. We have considered the submissions of Learned Counsel for the parties and have perused the record.

9. As noted above, on 19^th July, 2023, Member of CoC, SUUTI has written an email to the Appellant to reduce his fee and CIRP Cost which was declined by the Appellant thereafter there was request made to convene a meeting including agenda for replacement of the Resolution Professional. Notice for agenda was issued for 18^th CoC meeting to be held on 25^th July, 2023 which actually was held on 26t^h July, 2023 in which meeting one of the agenda which was Agenda Item No. 7 was to the following effect:

“Item No. 7. To consider, approve and vote on change of resolution professional”

10. The Agenda and other materials have been brought on record by the Appellant itself along with I.A. No. 5665 of 2023. In the meeting dated 26t^h July, 2023 of the CoC, Agenda Item No. 7 came for consideration and the Appellant being Chairman informed that since the emails were received after circulation of the notice of the 18t^h CoC meeting, request for replacement shall be considered in the next CoC Meeting i.e. 19^th CoC meeting. Chairman further expressed his inability to continue rendering his services as Resolution Professional. It is useful to extract following from the minutes of the Agenda No. 7:

“Chairman informed that since such emails was received after circulation of notice of 18th CoC meeting therefore such request will be considered by the RP in subsequent COC meeting whilst issuance of fresh notice of 19th CoC meeting.

Chairman again expressed his inability to continue rendering the services as resolution professional in the matte at the reduced remuneration as per the proposition by the lead COC member. Accordingly, the only option left in the matter is changing the present resolution professina. The following resolutions are proposed:”

11. After the aforesaid 18^th CoC meeting when Agenda for Replacement was not considered, Joint Lenders Meeting took place on 28t^h August, 2023 which was attended by all the three members of the CoC where following resolution was passed:

“MODERN SYNTEX (INDIA) LTD. (MSIL)

NCLT Case no. (IB)-39(PB)/2018-CIRP as per NCLT Order
dated 28.03.2022

Minutes of the Joint Lenders Meeting held on 28.08.2023 28.08.2023 Modern Syntex (India) Ltd. (MSIL) is in NCLT. The present RP Shri Partha Sarthy Sarkar in the Agenda of the COC meeting held on 26.07.2023 requested for change in Resolution Professionals. Therefore, it is decided in the Joint Lenders meeting of SUUTI, UTI (MF) and IIBI held on 28.08.2023 at 2:30 p.m. that the present Resolution Professional (RP)Mr. Partha Sarthy Sarkar is t obe replaced by a new RP.

We have asked quotations from four RPs. And we have received quotations from following four RPS.

1. Mohinder Singh, Stellar Insolvency Professionals LLP

2. Ankit Goel, AAA Insolvency Professionals LLP

3. Divyesh Desai, Moore Singhi Advisors LLP

4. Chirag Shah, C.R. Shah & Associates.

It was noted that AAA Insolvency Professionals LLP with the RP as Mr. Ankit Goel had quoted the minimum of Rs. 2 lakhs per month and hence the members of the Joint Lenders Meeting selected Shri Ankit Goel as the new RP of M/s. Modern Syntex (India) Ltd.

The meeting concluded with a vote of thanks”

12. It was after the Joint Lenders Meeting that the CoC requested the Appellant to convene the meeting of the 19^th CoC meeting on 30^th August, 2023. Resolution Professional issued notice for agenda for 01st September, 2023 where agenda was issued where Item No. 7 was following:

“7. To consider, approve and vote on change of Resolution Professional”

13. The meeting of CoC was held on 01st September, 2023 in which Resolution to replace the Appellant with Anil Goel was passed. The Appellant himself has in the Appeal pleaded that in the meeting held on 01^st September, 2023, the CoC resolved to appoint Mr. Anil Goel. The Appellant has brought on record the CoC minutes of 01^st September, 2023 which according to the Appellant were circulated on 04^th September, 2023. As per the appellant, apart from Resolution to replace the Appellant with Anil Goel, two other Resolutions were passed i.e. Appellant will continue to function as RP and will receive his monthly remuneration till the confirmation of appointment of another Resolution Professional. The CoC has issued an email informing that on the said date only one Agenda was passed that is replacement of the Appellant with another Resolution Professional. For the purposes of the present case it is not in dispute, according to the Appellant himself one of the Resolution was passed on 01st September, 2023 which is to the following effect:

“Madam/Sir’

Following Resolutions were passed and voted 100%; in terms of the said resolutions request the release of funds, budget of which is already a matter of record with you COC Members.

Resolution(s)

“RESOLVED THAT pursuant to the communication of the CoC members to reduce RP fees and other related CIRP expenses to which the RP has expressed his inability, the CoC will proceed to replace the present RP with a new resolution professional of M/s Modern Syntex (India) Limited, Mr. Anil Goel having Registration No. IBBI/IPA-001/IP-P-02671/2022-2023/14088 as proposed by the COC members prospectively, subject to compliance of section 27 of the Insolvency and Bankruptcy Code, 2016.”

14. It is not necessary for us to enter into as to whether there were any other resolutions were passed regarding payment of remuneration and fee to the Appellant till confirmation of the other Resolution Professional or not. It is undisputed on 01^st September, 2023 CoC with 100% vote it was decided to replace the Appellant.

15. Adish Agarwalla, Learned Sr. Counsel has made much emphasis on the submission that it was the Appellant who wrote several emails to SUUTI for taking legal action for stripping off of the assets of the Corporate Debtor in June, 2018. It is submitted that on June, 2018 illegal auctioning of the assets took place and the Appellant requested to take legal action including lodging FIR which was not acceded to by the SUUTI which resulted in replacement of the Appellant.

16. It is relevant to notice that illegal auctioning which is alleged by the Appellant is of August, 2018 that is four years before the commencement of the CIRP which commenced on 28^th February, 2022. It was for the SUUTI, to whom assets were hypothecated, as per the Appellant to take appropriate action. The fact that SUUTI decided not to lodge FIR cannot be a reason for the Appellant to contend that the decision taken for replacement of the RP cannot be approved.

17. We have further noticed that on 19t^h July, 2023, an email was sent by the SUUTI to the Appellant to reduce his fee and CIRP Cost which was immediately declined and in 18^th CoC Meeting it was Appellant who himself has expressed, and it was noted in the minutes that he is not interested to continue any further. He has expressed his inability to continue rendering his services. In the above background, sequence and events, we see no reason to find any fault with the Resolution of the CoC replacing the Appellant with another Resolution Professional under Section 27. It is the CoC who is empowered to pass a Resolution to replace the RP. Section 27, sub-section 1,2 and 3 is as follows:

“Section 27: Replacement of resolution professional by committee of creditors. (1) Where, at any time during the corporate insolvency resolution process, the committee of creditors is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under this section.

(2) The committee of creditors may, at a meeting, by a vote of sixty-six per cent. of voting shares, resolve to replace the resolution professional appointed under section 22 with another resolution professional, subject to a written consent from the proposed resolution professional in the specified form.

(3) The committee of creditors shall forward the name of the insolvency professional proposed by them to the Adjudicating Authority.”

18. The submission of the Appellant that Appellant was not given opportunity to place all relevant facts before the Adjudicating Authority especially details as contained in the minutes of 01st September, 2023 for illegal refusal of SUUTI to lodge FIR with regard to hypothecated assets of the Corporate Debtor in June, 2018, we are of the view that when Resolution was passed by the CoC resolving to replace the Resolution Professional, it is not open for the Resolution Professional to question the reasons and ask Adjudicating Authority to adjudicate upon the reasons which persuaded the CoC to pass the Resolution.

19. This Tribunal in a recent Judgment delivered on 05^th December, 2023 in Company Appeal (AT) Ins. No. 1439 & 1440 of 2023, Kairav Anil Trivedi, IRP of Parenteral Drugs India Ltd. Vs. State Bank of India & Anr. has examined the similar contentions raised on behalf of the Resolution Professional/IRP which was replaced by the CoC. In the said case, Resolution was passed by CoC on 06.10.2023 to replace the IRP with another RP which was approved by the Adjudicating Authority on 17.10.2023 which order was challenged by the IRP in this Tribunal. This tribunal after noticing the contention of the parties after referring to Section 27 laid down following in Paragraph 11 and 12:

“11. Learned Counsel for the Respondents has placed reliance on the judgment of this Tribunal in Company Appeal (AT) (Insolvency) No.1037 of 2022- “Sumant Kumar Gupta vs. Committee of Creditors of M/s. Vallabh Textiles Company Ltd.” where challenge made by the Resolution Professional who was replaced, on the ground that he was entitled for the opportunity to be heard after issuing notice was considered. This Tribunal after noticing Section 27 of the IBC laid down following in paragraphs 6 and 7:-

“6. When we read Section 27(1), it clearly provides that when the CoC is of the opinion that a resolution professional appointed under section 22 is required to be replaced, it may replace him with another resolution professional in the manner provided under the section. The manner provided under Subsection (2) of Section 27 is that a resolution be passed at the meeting of the CoC by vote of 66% voting share to replace the Resolution Professional and to appoint another Resolution Professional, subject to a written consent from the proposed resolution professional.

7. In the present case, the CoC in its meeting dated 04.06.2022 with 100% vote has decided to replace the Appellant with another Resolution Professional. When we look into the scheme of Section 27 as delineated by the statute, it does not contemplate any opportunity of hearing to the Resolution Professionals be given by the Adjudicating Authority before approving the proposal of new Resolution Professional. Section 27 requires the CoC to forward the name of proposed Resolution Professional to the Adjudicating Authority and the Adjudicating Authority is required to forward the name of the proposed Resolution Professional to the Board for its confirmation. The scheme of Section 27 does not indicate that Resolution Profession is to be made party and is to be issued notice before taking decision to appoint another Resolution Professional. Looking to the purpose and object of the I&B Code, where timeline is the essential factor to be taken into consideration at all stages, there is no warrant to permit a Lis to be raised by the Resolution Professional challenging his replacement by the CoC. The decision taken by the CoC is a decision by vote of 66% and when the decision is by votes of a collective body, the decision is not easily assailable and replacement is complete as per Scheme of Section 27 when the resolution is passed with requisite 66% voting share.”

12. The above judgment fully supports the submissions of the Counsel for the Respondents. When the Resolution has been passed by the CoC in accordance with the provisions of the IBC deciding to replace the IRP, IRP cannot be heard in questioning the resolution on the ground that present was not a case where IRP could have been replaced by another Resolution Professional. The submission of the Appellant is that since the applications filed by the Appellant being Contempt Application No.7 of 2023 and IA No.2594 of 2023 for CIRP cost of Rs.76 lacs and odd are still pending, Adjudicating Authority ought not to have been decided IA Nos.1874 of 2023 and IA No.2860 of 2023. The Adjudicating Authority itself in the order has indicated that the Applications IA No.2591 of 2023 and Contempt Case No.07 of 2023 which are pending adjudication were to be heard on 26.10.2023 on which date Applications were adjourned. It has been submitted by the Counsel for the Respondents that IA No.2591 of 2023 and Contempt Case No.7 of 2023 also been heard by the Adjudicating Authority and order has been reserved on 26.10.2023.”

20. This Tribunal upheld the order dated 17.10.2023 approving the replacement of the Appellant and dismissed the Appeal.

21. Now we come to the submission of the Appellant that in the Resolution dated 01st September, 2023 name of Anil Goel was mentioned whereas the Adjudicating Authority has approved the replacement with Resolution Professional- Ankit Goel.

22. Suffice it to say that name of Ankit Goel was clearly mentioned in the Joint Lenders Meeting dated 28th August, 2023 when Joint Lenders Meeting decided to replace the Appellant with Ankit Goel. Further it was the Appellant who in the minutes dated 01st September, 2023 has mentioned Anil Goel. Registration No. of Ankit Goel and that of Anil Goel mentioned in the minutes is same as submitted by Learned Counsel for the Respondent. The mere fact that the name of RP who is to be appointed after replacement is spelled as Anil Goel instead of Ankit Goel in the minutes which was produced by the Appellant shall have no effect on the resolution for replacement and we do not find any merit in the above submission of the Appellant that although Appellant was decided to be replaced by Anil Goel but ultimate order is of Ankit Goel. Appellant himself has brought on record materials in I.A. No. 5665 of 2023 that written consent and affidavit of Ankit Goel which was obtained by the CoC which is at page 201 and 202 of the Application where affidavit and written consent given by the Ankit Goel has been filed. We thus are of the view that there is no error in replacement of the Appellant by Ankit Goel as RP.

23. The Appellant in his grounds has also contended that the Adjudicating Authority has not adverted to the resolution dated 01^st September, 2023 and has only relied on Joint Lenders Meeting dated 28t^h August, 2023. There is no dispute between the Appellant and CoC that resolution was passed on 01st September, 2023 in the 19t^h CoC Meeting to replace the Appellant with another RP. The provisions of the Code has been fully complied with and the CoC having decided to replace the Appellant by CoC Meeting held on 01^st September, 2023, we do not find any ground to interfere with the Order of the Adjudicating Authority approving the replacement of the Appellant with another Resolution Professional Ankit Goel.

24. We thus do not find any error in the order passed by the Adjudicating Authority approving the Replacement of the Resolution Professional, there is no merit in the Appeal, the Appeal is dismissed.