EX-EMPLOYEE OF FINANCIAL CREDITOR CANNOT ACT AS IRP/RP

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The NCLAT upheld the order passed by the Adjudicating Authority holding that apprehension of biasness raised by the Corporate Debtor cannot be dismissed offhand and that NCLT is justified in changing the IRP.

EX-EMPLOYEE OF FINANCIAL CREDITOR CANNOT ACT AS IRP

Case Summary

State Bank of India – Appellant

vs

M/s. Metenere Ltd. – Respondent

(Company Appeal (AT) (Insolvency) No. 76 of 2020)

Decided on: 22.05.2020

Hon’ble Judges/Coram:

Bansi Lal Bhat, J. (Member (J)), V.P. Singh and Shreesha Merla, Members (T)

 

You can listen to this case summary here:

1. Issue for Consideration:
Whether an ex-employer of Financial Creditor can be appointed as the Resolution Professional or Interim Resolution Professional for the purposes of Corporate Insolvency Resolution Process (CIRP for brevity) having regard to the nature of duties which are to be performed by him? 

 

2. Brief Facts of the Case:

 

  • State Bank of India (“SBI”) is the financial creditor who sought initiation of Corporate Insolvency Resolution Process (‘CIRP’) against M/s Metenere Ltd. (“Corporate Debtor”) by filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code”) before the Adjudicating Authority (National Company Law Tribunal, New Delhi, Principal Bench).
  • In its application, the SBI proposed the name of an interim resolution professional (“IRP”) who earlier worked in SBI for 39 years before he retired in 2016.
  • For the same reason, the Corporate Debtor raised objection and pleaded for substitution of the IRP apprehending bias towards the financial creditors, and the same was allowed.
  • Aggrieved thereof, SBI has preferred the instant appeal assailing the impugned order on the ground that the proposed ‘Interim Resolution Professional’ Mr. Shailesh Verma fulfills the requirement for appointment as IRP / RP under the ‘I&B Code’ and admittedly bears no disqualification.

 

      3. Arguments

 

      Appellant:

 

  • The ‘I&B Code’ and the Regulations framed thereunder do not attach any disqualification to an ex-employee of a ‘Financial Creditor’ from being appointed as an IRP.
  • The IRP is not required to act as an ‘Independent Umpire’ between the ‘Financial Creditor’ and the ex-management of the ‘Corporate Debtor’ or decide any conflicting issues between them.
  • The ‘RP’ has no adjudicatory powers and only acts as a facilitator in the CIRP as all major decisions are taken only with the approval of the ‘Committee of Creditors’.
  • The ‘Financial Creditor’ also plays a part only to the extent of its voting share as a member of the ‘Committee of Creditors’ and not beyond that. Therefore, merely because the proposed IRP happens to be an ex-employee of the ‘Financial Creditor’ cannot be a ground to allege bias against him.
  • The proposed IRP is not on any panel of the Appellant Bank or handling any portfolios and has no role in the decision-making committee of the Appellant Bank.

 

       Respondent:

 

  • The proposed IRP was in employment with the Appellant for over 39 years and retired as the Chief General Manager in 2016. He is drawing pension from the Appellant- ‘Financial Creditor’ which falls within the definition of ‘salary’ under the Income Tax Act, 1961 and hence he is an ‘interested person’ being an ex-employee and on the payroll of ‘Financial Creditor’, thus rendered ineligible under the ‘I&B Code’ to act as an ‘Interim Resolution Professional’.

 

      4. Case Analysis:

The NCLAT referred to State Bank of India v. Ram Dev International Ltd. (Through Resolution Professional)[1], wherein it observed that merely because a ‘Resolution Professional’ is empaneled as an Advocate or Company Secretary or Chartered Accountant with the ‘Financial Creditor’ cannot be a ground to reject the proposal of his appointment unless there is any disciplinary proceeding pending against him or it is shown that the person is an interested person being an employee or on the payroll of the ‘Financial Creditor’. Admittedly no disciplinary proceedings are pending against Mr Shailesh Verma. However, this is not sufficient to dismiss the apprehension of bias.

The NCLAT while addressing the issue of apprehension of biasness, referred to the Apex Court’s decision in Ranjit Thakur v. Union of India and Ors.[2] wherein it was held that: As to the tests of the likelihood of bias what is relevant is the reasonableness of the apprehension in that regard in the mind of the party. The proper approach for the judge is not to look at his own mind and ask himself, however, honestly, “Am I Biased?”; but to look at the mind of the party before him”

Conclusion:

The NCLAT upheld the order passed by the Adjudicating Authority holding that apprehension of biasness raised by the Corporate Debtor cannot be dismissed offhand and that NCLT is justified in changing the IRP. However, it is worthwhile to note that the proposed IRP Mr Shailesh Verma was not disqualified or ineligible to act as an ‘Interim Resolution Professional’ and it is the apprehension of bias which is the ground on which the Adjudicating Authority is justified in substituting him with another Insolvency Professional.

Interestingly, the NCLAT observed that the financial creditor should not have been aggrieved of the impugned order as the same did not cause any prejudice to it.

 

Foot Notes


 

[1] Company Appeal (AT) (Insolvency) No. 302 of 2018 – Decided on 16th July, 2018.

[2] (1987) 4 SCC 611

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