Section 27 of IBC by implication excludes principles of natural justice: NCLAT

Section 27 of IBC by implication excludes principles of natural justice: NCLAT

The bench comprised of Justice Ashok Bhushan (Chairperson), Justice M. Satyanarayana Murthy (Judicial Member) and Mr. Barun Mitra (Technical Member).

The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, has held that Resolution Professional would have no right to be heard before the Adjudicating Authority before being replaced when the Committee of Creditors decides to replace the Resolution Professional under Section 27 of IBC and an application is filed before the Adjudicating Authority for approval.

M/S Vallabh Textiles Company Ltd. ("Corporate Debtor") was admitted into Corporate Insolvency Resolution Process ("CIRP") and Mr. Sumat Kumar Gupta ("Appellant") was appointed as the Resolution Professional. In a Committee of Creditors (CoC) meeting dated 04.06.2022, CoC had decided with 100% vote to replace the Appellant with another Resolution Professional namely Mr. Rajiv Khurana. Accordingly, an application was filed before the Adjudicating Authority by the Financial Creditor of the Corporate Debtor for replacement of the Resolution Professional and the same was allowed vide an order dated 11.07.2022. The Appellant filed an appeal before NCLAT against the order dated 11.07.2022.

It was observed by the Bench that Section 27(1) 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 27(2). A resolution has to be passed at the CoC meeting by 66% voting share to replace the Resolution Professional, subject to a written consent from the proposed resolution professional.

It was further observed that 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. Replacement is complete as per scheme of Section 27 when the resolution is passed with requisite 66% voting share.

"When we look into the scheme of Section 27 it by implication exclude the principles of natural justice, it is clear from the scheme of Section 27 that the scheme nowhere provides for any opportunity to the Appellant for hearing. Therefore, it cannot be said that the erstwhile Resolution Professional is entitled to be heard by the Adjudicating Authority before taking decision."

The appeal was accordingly dismissed.