Case Law Details
Piramal Capital & Housing Finance limited Vs Notion Real Estate Private Limited (NCLT Mumbai)
In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai has recently decided in favor of Piramal Capital & Housing Finance Limited over Notion Real Estate Private Limited. The case in question concerns the appointment of Insolvency Professional Entities (IPEs) as Resolution Professionals (RPs) in corporate insolvency proceedings. This judgment addresses a critical issue within the framework of the Insolvency and Bankruptcy Code (IBC), examining the eligibility of IPEs to act as RPs and setting a precedent for future insolvency cases.
Background of the Case
Notion Real Estate Private Limited (NCLT Case CP (IB) No. 915/2023) was admitted into the Corpo-rate Insolvency Resolution Process (CIRP) by the NCLT on January 9, 2024. Following this admission, an application was filed by the Committee of Creditors (CoC) requesting the replacement of the In-terim Resolution Professional (IRP) with a new Resolution Professional (RP) from an Insolvency Pro-fessional Entity (IPE). This request was made under Section 22(3)(b) of the IBC, which allows for the replacement of the IRP with an RP if the CoC unanimously agrees.
Legal Framework and Arguments
The primary legal debate centered around whether IPEs are qualified to act as RPs under the IBC. The IBC primarily recognizes three entities—Information Utilities (IUs), Insolvency Professionals (IPs), and Insolvency Professional Agencies (IPAs). The argument was whether IPEs, despite being recog-nized and regulated under the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IP Regulations), fit within this framework.
The Counsel for the CoC argued that while the IBC explicitly mentions IPs as individuals, the IBBI (In-solvency and Bankruptcy Board of India) regulations permit IPEs to be recognized and regulated, thus allowing them to be appointed as RPs. This argument was supported by the fact that the IBBI had issued circulars and clarifications affirming the eligibility of IPEs as RPs.
The NCLT examined Sections 206 and 207 of the IBC, which emphasize the role of individual IPs ra-ther than entities. However, it was noted that the term “person” in the IBC includes entities like LLPs, which could cover IPEs. The IBBI’s authority under Section 240(2)(zzi) to make regulations for pro-fessionals supported the argument that IPEs could also be valid RPs.
Court’s Decision
The NCLT decided to uphold the CoC’s resolution to appoint M/s Incorp Restructuring Services LLP, an IPE, as the new RP. Despite the procedural discrepancies, such as the use of Form AA designed for individual IPs, the court acknowledged the 100% voting by the CoC and the necessity to adhere to the timelines stipulated by the IBC. The NCLT concluded that IPEs are indeed qualified to act as RPs, provided they meet the regulatory requirements.
Implications of the Ruling
This decision is pivotal for the insolvency resolution landscape in India. It affirms that IPEs, although not explicitly mentioned in the IBC’s core provisions, can be appointed as RPs under the current regulatory framework. This could potentially lead to broader acceptance and utilization of IPEs in insolvency proceedings, impacting the overall efficiency and effectiveness of corporate resolution processes.
Conclusion
The NCLT Mumbai’s ruling in the case of Piramal Capital & Housing Finance Limited vs. Notion Real Estate Private Limited marks a notable development in insolvency law. By recognizing the role of Insolvency Professional Entities as Resolution Professionals, the decision not only clarifies the scope of professional entities within the IBC framework but also sets a precedent for future insolvency cases. This judgment is likely to influence how insolvency proceedings are conducted and managed, emphasizing the adaptability and evolving nature of insolvency regulations in India.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. We admitted Notion Real Estate Private Limited, the Corporate Debtor (CD), into Corporate Insol-vency Resolution Process (CIRP), in CP (IB) No. 915/2023 by our order dated 09.01.2024.
2. This I.A. is taken out by the applicant praying for replacement of the Interim Resolution Profes-sional (IRP) with a new Resolution Professional (RP), being an Insolvency Professional Entity (IPE), under Section 22(3)(b) of the Insolvency and Bankruptcy Code 2016 (IBC). The Ld. Counsel for the Committee of Creditors (CoC) submits that appointment of the proposed IPE to replace the IRP, has been passed by 100% voting of the CoC, and is, in accordance with the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 (IP Regulations). On the last date of listing, we sought clarification as to whether appointment of IPEs as RPs is in consonance with the scheme of IBC. Consequently, Ld. Counsel submits that although IBC prima facie recognises only three entities such as Information Utility (IU), Insolvency Professional (IP) and Insolvency Profes-sional Agency (IPA) as professional service providers, IPEs are also recognised and regulated, with certain conditions, under Regulation 12 of the IP Regulations made by the Insolvency and Bankrupt-cy Board of India (IBBI), which grants certificate of registration to IPEs, in terms of Regulation 13 of the IP Regulations.
3. Chapter IV of Part III of IBC dealing with IPs does not make room for IPEs. In this connection, Sec-tion 206 deserves consideration:
“206.- No person shall render his services as insolvency professional under the Code without being enrolled as a member of an insolvency professional agen-cy and registered with the Board.” (Emphasis supplied).
Further, Section 207(1) states:
“Every insolvency professional shall, after obtaining the mem-bership of any insolvency professional agency, register himself with the Board within such time, in such manner and on payment of such fees, as may be specified by regulations.”
A conjoint reading of Sections 206 and 207(1) of IBC implies that an IP is an individual eligible to render his professional services if he is enrolled with an IPA and has registered as such with IBBI. This does not clearly indicate that a professional entity or body is entitled to render professional services as an IP. It may be because the intention of the law is to authorise only individual persons to practice insolvency profession as it would be easier to address issues relating to their professional conduct, discipline, etc., as compared to professional entities. Section 196 of IBC that deals with powers and functions of IBBI also deals with clear provisions, under clauses (a), (aa), (c), (d), (f), (g), (h), (p), (q) and (r) of sub-section (2) as regards regulatory matters of IPs, IPAs and IUs and not IPEs.
4. The Ld. Counsel, therefore, submits that it is necessary to examine definition of the term “insol-vency professional” under Section 3(19) of IBC. It defines IP as “…a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as insolvency professional under section 207.” (Emphasis supplied). The term “resolution professional” is defined under Section 5(27) of IBC as an “insolvency professional……… ” The Ld. Counsel further argues that the term “person” includes a limited liability partnership (LLP) in terms of Section 3(23)(f) of IBC. The proposed IPE herein is an LLP.
5. As we have seen, Chapter III of Part IV of the IBC recognises IPAs, IPs and However, there is no reference of a fourth entity, namely, IPE to practice insolvency profession under this Chapter. How-ever, Ld. Counsel submits that IBBI recognises IPEs under the IP Regulations. He further submits that IBBI is empowered under Section 240(2)(zzi) of the IBC, to make regulations as regards “the catego-ries of professionals or persons, the qualifications and experience and the fields under sub-section (2) of section 207.” Hence, according to him, IBBI is justified in making regulations to govern IPEs also although there is no express provision in the IBC for the same. The Ld. Counsel further ar-gues that the term “person” has been defined in Section 3(23)(f), to include LLP also, and, hence, the IBBI’s power to recognise and regulate natural and other persons is justified.
6. The sum and substance of the submissions of the Ld. Counsel for CoC is that an IPE can also be appointed as IP to carry out the duties and functions under IBC and IP Regulations. The IBBI has registered IPEs as IPs and they have also been issued valid Authorisation for Assignments. The IBBI has also issued Circulars and Clarifications regarding their eligibility to be engaged as RPs and published the same on its website for general consumption of the stakeholders. Hence, according to him, appointment of IPE as RP is valid in law; and we have taken the above submissions on record.
7. It is seen that the CoC has resolved to replace the IRP and has filed this I.A. for appointment of M/s Incorp Restructuring Services LLP, an IPE as IP, under sub-section (3)(b) of Section 22 of IBC. We find that the written consent by M/s Incorp Restructuring Services LLP, is purported to have been given under Regulation 3(1A) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulations) in Form AA. However, we find that Form AA is devised for consent of individual IP alone and not for IPEs as is evident from the language employed in paragraphs 1 and 3(a) to (e) of Form AA. Paragraph 1 of Form AA (consent form) states that the CoC proposes to appoint “me” (individual IP) as RP under Section 22(3)(a)/22(3)(b)/27(2) of IBC. Further, the declarations under paragraph 3 of Form AA as to (a) registration as IP; (b) disciplinary proceedings; (c) disability; (d) eligibility to be appointed as IP; (e) disclosures; and (f) the number of processes in hand, are all to be provided by individual IP and not by an entity such as IPE. Hence, it can be concluded that there is no separate form specified for an IPE to make such declarations. The written consent of M/s Incorp Restructuring Services LLP submitted in Form AA is one that is modified by the IPE to suit its consent.
8. The above being the background and law, considering the fact that the CoC has resolved to ap-point M/s Incorp Restructuring Services LLP with 100% voting and, keeping in mind the timeline mandated by the IBC, we hereby appoint M/s Incorp Restructuring Services LLP, as RP in place of IRP in the matter, subject to Regulation 34B read with Schedule II of the CIRP Regulations, to conduct CIRP of the CD. The IRP is directed to hand over CIRP of the CD to the IPE forthwith.
9. Ordered accordingly and I.A. 3433/2024 is disposed of.
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