An appellate tribunal upheld NCLT order prohibiting the appointment of an Ex-bank official as a resolution professional (RP) of a bankrupt company due to the possibility of bias, in a judgement that experts say could have wide ramifications on ongoing & future corporate insolvency resolution process.
The National Company Law Appellate Tribunal (NCLAT) upheld an order passed by Delhi-NCLT over appointment of an Ex-State Bank of India (SBI) official as the resolution professional or RP in CIRP of Metenere Ltd.
According to experts, the ruling could have an impact on the resolutions of several companies including the Rs 40,000 crore Videocon Industries case where former bank employees are working as RPs.
The financial creditor, in this case, SBI, had appointed Shailesh Verma as the interim RP while initiating CIRP against the corporate debtor, Metenere Ltd. As Verma had been associated with SBI for 39 years, retiring as chief general manager in 2016, the corporate debtor felt he was unlikely to act fairly while discharging his duties.
On Jan 4, the Delhi bench of the NCLT passed a Judgment ordering SBI to substitute Verma as RP on the basis of an appeal of bias filed by Metenere against Verma. SBI appealed against the order in the NCLAT.
Metenere argued that Verma was an ‘interested party’ as he was drawing pension from SBI, which was considered as salary under the Income Tax Act, apart from being an ex-employee.
SBI held that these were no grounds under the Insolvency & Bankruptcy Code for disqualification of the RP & that he acts only as a facilitator without any adjudicatory powers in the CIRP.
The 3-Judge bench headed by an interim chairperson, justice Bansi Lal Bhat, dismissed Metenere’s interested party argument but said, “it cannot be denied that the Appellant (SBI) restricted its choice to propose Shailesh Verma as ‘Interim Resolution Professional’ obviously having regard to past loyalty & the long services rendered by the later,” in its order, adding that this view was reinforced by the fact the SBI filed an instant appeal as it was upset with the NCLT order.
The apprehension of bias by the corporate debtor could not be dismissed, it said further, quoting an Apex Court judgement.
Arvind Kumar Gupta, counsel for Metenere Ltd said that “The process should be fair & appear to be fair. The NCLAT has passed a pertinent & first of its kind judgement setting aside the appointment of ex-employees of banks as RPs, which was the usual practice".
Kumar Saurabh Singh, partner at Khaitan & Co said that “This has expanded the threshold of independence for RPs. One of the key duties of the RP is to examine & admit claims by creditors. If the RP was a former employee of one of the creditors, naturally that conflict would be there".
Charanya Lakshmikumaran, partner at Lakshmikumaran & Sridharan Attorneys said that “While well-intended, this is a significantly stricter qualification for RPs, opening the floodgates for challenges to RP nominations. The appropriate threshold to apply will therefore, have to be settled by a ruling of the Apex Court".
According to Manmeet Singh, partner at Luthra & Luthra, the order could be used as a ploy by promoters to delay proceedings by delaying the appointment or seeking the removal of RPs. “The judgment is likely to be challenged on the ground that the Hon’ble NCLAT did not have the power to travel beyond the Code & the regulations thereunder while deciding this issue."
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