IBBI's Code of Conduct Governs CIRP Assignments, Not NCLT

IBBI's Code of Conduct Governs CIRP Assignments, Not NCLT

Introduction

The National Company Law Tribunal (NCLT) Mumbai bench has held that restrictions on the number of Corporate Insolvency Resolution Professional (CIRP) assignments an Insolvency Professional (IP) can take is a matter of Code of Conduct between the Insolvency and Bankruptcy Board of India (IBBI) and the IP.

Factual Background

The present application was filed under section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) seeking to initiate legal actions against the erstwhile Interim Resolution Professional (IRP) for alleged illegal acts. The Applicant submitted that the IRP was not qualified to take up the assignment on the date of commencement of CIRP as he was already handling more than three assignments having claims exceeding Rs. 1,000 Crores.

Procedural Background

The application was filed by the Applicant under section 60(5) of the IBC, seeking to initiate legal actions against the IRP. The Respondent filed a reply, contesting the allegations and submitting that the Applicants have no locus standi to file the application. The Respondent also informed the Committee of Creditors (CoC) that he would not be able to take up the assignment as the Resolution Professional due to personal exigencies and requested the CoC to consider replacing him.

Contentions of the Parties

Applicant's Contentions:

• The IRP was disqualified from acting as IRP due to holding more than three CIRP assignments amounting to Rs. 1,000 crores.
• The IRP cannot publish Form G inviting Expression of Interest (EOIs) in terms of Regulation 36A(1) of the CIRP Regulations without affording an opportunity to the CoC members to vote upon the issuance of Form G and eligibility criteria of the Prospective Resolution Applicants (PRAs).

Respondent's Contentions:

• The Applicants have absolutely no locus standi to file the captioned Application.
• The restriction on the number of assignments that an IP can take is a matter of the Code of Conduct between the regulator IBBI and the regulated entity, i.e., the IP.

Issues

The primary issues were whether the IRP was disqualified from acting as IRP due to holding more than three CIRP assignments and whether the CoC's approval was required for issuance of Form G.

Reasoning & Analysis

The bench of Shri Prabhat Kumar (Technical Member) and Justice Shri V.G. Bisht (Judicial Member) noted that the restriction on the number of assignments arises from the Code of Conduct, not specifically mentioned under Regulation 3 of the CIRP Regulations. The stipulation is merely directory, not mandatory, and the issue falls within the domain of the IBBI, not the Adjudicating Authority. The Tribunal also observed that the IBC does not mandate that a specific approval of the CoC should be taken before issuance of Form G.

Implications

This decision clarifies the role of IBBI and CoC in CIRP assignments and highlights the importance of understanding the Code of Conduct governing Insolvency Professionals.

Outcome

The Tribunal rejected the application, holding that the IRP's actions were neither biased nor perverse, and no adverse inference can be drawn against the IRP.

In this case the applicant was represented by Mr. Pulkit Sharma along with Mr. Rohan Agrawal and Mr. Akash Agarwal, Advocates. Meanwhile the respondent was represented by Ms. Ameya Gokhale, Mr. Rishabh Jaisani, Ms. Kriti Kalyani along with Mr. Pravin R Navandar, Advocates.