The CoC may replace an RP through commercial wisdom, subject to statutory compliance.

Maylari Agro Products Ltd. was admitted into CIRP on 8 March 2021 under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), and Mr. S. Viswanathan was appointed as the Interim Resolution Professional (“IRP”).

At the first Committee of Creditors (“CoC”) meeting on 9 April 2021, Canara Bank held 84.6% voting share and Karnataka Bank held 15.4%; the Appellant recorded that both creditors had agreed to retain him as Resolution Professional (“RP”) at a fee of ₹3 lakh per month, which Canara Bank subsequently disputed.

Canara Bank thereafter sought the Appellant’s replacement, alleging procedural and professional deficiencies, and filed I.A. No. 276 of 2021.

The Adjudicating Authority subsequently allowed Canara Bank’s application under Section 27 of the IBC, replaced the Appellant, and appointed Ms. Shirley Mathew as the new RP; the Appellant’s application seeking reconfirmation was dismissed.

The Appellant challenged both orders and sought, inter alia, payment of professional fees and CIRP expenses and expunging of adverse observations affecting his professional reputation.

Whether the CoC’s decision, principally supported by Canara Bank’s 84.6% voting share, validly justified the replacement of the Appellant as RP under the IBC?

Whether the Adjudicating Authority was justified in allowing the replacement application despite the Appellant’s objections concerning the first CoC meeting, voting records, alleged procedural defects, and delay in convening the subsequent CoC meeting?

Whether the Appellant was entitled to adjudication of his claims for ₹17.83 lakh towards professional fees and ₹3.38 lakh towards CIRP expenses?

Whether the adverse observations made against the Appellant in paragraphs 4, 5, 6, 7, 9 and 10 of the Adjudicating Authority’s order ought to be expunged?

The Tribunal applied Sections 22, 27 and 61 of the IBC. Section 22 recognises the CoC’s authority in relation to continuation or replacement of the RP, while Section 27 permits replacement of an RP in accordance with the statutory procedure; an RP has no vested right to continue in office.

The Tribunal also considered Regulations 24 and 25 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, concerning the conduct and recording of CoC meetings.

It relied on the principle that the commercial wisdom of the CoC, particularly its majority decision, is ordinarily entitled to judicial deference, as recognised in R.K. Vallal v. Sree Ramakrishna Sponge (P) Ltd.

At the same time, the Tribunal affirmed that an RP must function independently and not according to the whims of a dominant creditor; however, replacement may be upheld where it is not shown that the RP was being required to act contrary to the Code or the Regulations.

The Tribunal held that the Appellant’s continuation as RP was not a vested right and that Canara Bank’s decision to seek replacement, supported by its 84.6% voting share, fell within the commercial domain of the CoC.

The second CoC meeting was convened pursuant to the Adjudicating Authority’s direction, and Canara Bank voted against the Appellant’s continuation.

Although the Appellant disputed the absence of a separate voting sheet and relied on the minutes of the first meeting, the Tribunal found no basis to interfere with the Adjudicating Authority’s acceptance of the CoC’s considered decision to replace him.

The Tribunal nevertheless distinguished the question of replacement from the Appellant’s monetary claims: the quantum of fees depended on the work actually performed, the applicable fee arrangement, and the CoC’s position, while reimbursement of expenses required factual examination and consideration of objections by the NCLT.

Since the adverse observations concerning delay affected the Appellant’s professional reputation and were not necessary to decide the appeal, the Tribunal ordered their expunging.

The Tribunal held that the Adjudicating Authority was justified in acting on the CoC’s decision to replace him, subject to the statutory framework of the IBC.

The Appellant was granted liberty to approach the NCLT for determination of his claim for professional fees and CIRP expenses, with directions to decide the matter after hearing the concerned parties, preferably within two months of filing the appropriate application.

The adverse remarks contained in paragraphs 4, 5, 6, 7, 9 and 10 of the impugned order were expunged.

All pending interlocutory applications were closed.