Introduction
The National Company Law Tribunal (New Delhi Bench) (‘NCLT’) delivered a significant decision in the matter of Indiabulls Housing Finance Ltd. v. Dr. Subhash Chandra[i]* *under s. 95(1) of the Insolvency and Bankruptcy Code, 2016 (‘Code’). The Bench held that the provisions of the Code under s. 105, read with reg. 17 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantor to Corporate Debtor) Regulations, 2019 (‘IBBR 2019’), only require the resolution professional (‘RP’) to extend their services as a consultant to the personal guarantor (‘PG’). The scope of these provisions does not extend to allowing the RP, acting as a consultant, to hire and bring another consultant to the table. The NCLT further noted that the procedure laid out in ch. 3 of the Code is a beneficial procedure, and the role of the RP is only that of a facilitator between the PG and creditors. Under any circumstance, the debtor must prepare the repayment plan.
Brief Facts
The PG filed an application seeking an order under s. 98(2) of the Code for replacing the RP, namely Mr. Raj Kamal Saraogi, with Mr. Arvind Kumar before the Tribunal. The PG cited the RP’s conduct, including bringing a lawyer to a meeting with the PG, choosing an expensive venue for the meeting (Lodi Hotel), making statements indicating that the ongoing proceeding would essentially lead to the PG’s bankruptcy, asking for irrelevant personal details of the extended family, and lacking transparency, as reasons for losing confidence in the RP.
The PG felt that the RP could not comprehend the complexity of the affairs of the Respondent, which included business, philanthropy, and public service roles. This lack of confidence prevented the PG from sharing sensitive information with the RP. Given the beneficial nature of the Code and the importance of trust between the PG and the RP, the PG filed the petition to replace the RP.
Held
The NCLT ruled in favour of the PG, ordering the replacement of RP Mr. Raj Kamal Saraogi with Mr. Shiv Nandan Sharma. It was emphasised that the order was based on the beneficial procedure outlined in ch. 3 of the Code, which limits the RP’s role to that of a facilitator. Therefore, the replacement should not be held against Mr. Saraogi or cause him prejudice, and he is entitled to claim his professional fees and other expenses as corporate insolvency resolution process (‘CIRP’) costs.
The NCLT noted that ss. 102 to 112 of the Code does not allow the RP to bring a lawyer to a meeting with the PG while discharging his functions under s. 105, during the stage of preparing the repayment plan. It further observed that s. 105 of the Code and reg. 17 of IBBR 2019 clearly states that the debtor must prepare the repayment plan, and the RP’s role is only that of a consultant. Reliance on reg. 18 of IBBR 2019 by the RP was found to be misplaced and beyond his authority.
Regarding the alleged conduct of the RP, the NCLT noted that s. 100(2) of the Code allows the RP to request the Adjudicating Authority to issue instructions for conducting negotiations between the debtor and creditors to arrive at a repayment plan.
Furthermore, it was reiterated that the primary objective of ch. 3 of the Code is to ensure the resolution of insolvency. The RP’s role is defined by ss. 102 to 112 of the Code, read with regs. 4 to 15 of the IBBR 2019. While the RP might need the services of accountants or other professionals under s. 107 of the Code, such services are neither required nor can be availed at the stage of preparing a repayment plan under s. 105 of the Code.
Our Analysis
This order is a significant development in the insolvency jurisprudence in India. The NCLT clarified that the Code’s purpose is to resolve matters in a time-bound manner without harassing the debtor. It emphasised that the Code is beneficial legislation favouring the debtor, and RP’s role is not that of an adjudicator or agent but a consultant and facilitator. The observations set a precedent for the conduct and limitations of RPs, highlighting the necessity for professionalism, transparency, and adherence to legal provisions. This is crucial for maintaining confidence among debtors and creditors and ensuring the efficiency and integrity of the insolvency resolution process. The decision underscored the importance of the RP’s role as a facilitator in achieving a fair and effective resolution.
End Note
[i] C.P. (IB) - 97/2022.
Authored by Shivangi Bhardwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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