NCLAT: Commercial wisdom of CoC is paramount and can only be interfered by the Tribunal if the same is arbitrary, illegal, irrational and dehors the IBC

The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench, comprising of Justice M. Venugopal (Judicial Member)

Update: 2022-08-25 03:30 GMT

NCLAT: Commercial wisdom of CoC is paramount and can only be interfered by the Tribunal if the same is arbitrary, illegal, irrational and dehors the IBC The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench, comprising of Justice M. Venugopal (Judicial Member) and Mr. Kanthi Narahari (Technical Member), while adjudicating an appeal set aside the Adjudicating Authority's...


NCLAT: Commercial wisdom of CoC is paramount and can only be interfered by the Tribunal if the same is arbitrary, illegal, irrational and dehors the IBC

The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench, comprising of Justice M. Venugopal (Judicial Member) and Mr. Kanthi Narahari (Technical Member), while adjudicating an appeal set aside the Adjudicating Authority's order disallowing the Committee of Creditors ("CoC") to replace the Resolution Professional under Section 22(3)(b) of the Insolvency and Bankruptcy Code, 2016 ("IBC").

The Bench held that the commercial wisdom of CoC is paramount and can only be interfered by the Tribunal if the same is arbitrary, illegal, irrational and dehors the IBC and its Rules.

A petition was filed under Section 7 of the IBC by IDBI Bank Ltd. ("Financial Creditor/Appellant"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Tip Top Furniture Pvt. Ltd. ("Corporate Debtor"). The petition also proposed to appoint Shri CA Mahalingam Suresh Kumar ("Mr. Suresh") as the Interim Resolution Professional.

The Adjudicating Authority had initiated CIRP against the Corporate Debtor but had rejected the name of Mr. Suresh for IRP as his name was not found in the NCLT Kochi Bench's list of Insolvency Professionals circulated by the IBBI. Accordingly, Mr. C.J. Davis ("Respondent") was appointed as the IRP of the Corporate Debtor.

The Committee of Creditors ("CoC") was constituted with only two creditors and the Appellant had majority voting rights of 98.03%. The first CoC meeting was held on 21.01.2022 and the Respondent had acted as Chairman. In the same meeting, the Appellant proposed to appoint Mr. Suresh as Resolution Professional of the Corporate Debtor and the resolution was passed unanimously. One day prior to the CoC meeting, Mr. Suresh Kumar had already given his written consent in Form-AA to act as a Resolution Professional.

Consequently, the Appellant filed an application under Section 22(2) of the IBC before the Adjudicating Authority for appointing Mr. Suresh as the Resolution Professional, however, the Adjudicating Authority rejected the application vide an order dated 09.02.2022.

The ground for rejection was that the incumbent IRP was eligible to be appointed as Resolution Professional since there were no adverse comments against him and there was no reason to replace him. Further, Mr. Suresh could not be appointed as the Resolution Professional as his name was not available in the panel issued by the IBBI for Kochi Bench.

The NCLAT Bench observed that under Section 22(3) of the IBC, the CoC in its 1st Meeting by a majority vote not less than 66% of the voting share can either decide to continue the IRP as Resolution Professional or may replace the IRP by filing an Application before the Adjudicating Authority along with written consent from the proposed Resolution Professional in the specified form.

The Bench opined that the Appellant had complied with the provision of law and the Adjudicating Authority ought to have considered the same without going into the other technicalities. "When the Applicant comply with the provisions of law and there is no scope to reject the prayer or relief as sought by the Applicant."

"Further, the provisions of law empower the CoC contemplated under Section 22 of the I&B Code, 2016 either to continue the IRP as RP or replace the IRP. When the provisions are unambiguous and authorizes the CoC to act in accordance with law the same cannot be interfered with by the Tribunals unless and until it is arbitrary, illegal and irrational and dehors the provisions of the Code and the Rules."

The Bench set aside the Adjudicating Authority's order and directed the latter to consider appointment of Shri CA Mahalingam Suresh Kumar as Resolution Professional of the Corporate Debtor within a period of two weeks, in accordance with law and pass appropriate orders.

Click to download here Full Judgment

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