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JC - Legal Updates - NCLT cannot interfere with COC’s decision to replace IRP, except in case of illegality - NCLAT, Chennai

Legal Updates

13 Sep 2022

NCLT cannot interfere with COC’s decision to replace IRP, except in case of illegality - NCLAT, Chennai

Brief Overview

In the matter of M/s IDBI Bank Limited v C. J. Davis, IRP of Tip Top Furniture Private Limited, the National Company Law Appellate Tribunal (“NCLAT”) has held that Section 22 of the Insolvency and Bankruptcy Code, 2016 (“IB Code”) empowers the Committee of Creditors (“COC”) to either continue the Interim Resolution Professional (“IRP”) as the Resolution Professional (“RP”) or replace the IRP. The NCLAT observed that when the provisions are unambiguous and authorise the COC to act in accordance with law the same cannot be interfered with by the Tribunals unless and until it is arbitrary, illegal and irrational and dehors the provisions of the IB Code and the Rules thereunder.

Technical Details:

The noteworthy findings of the NCLAT, were inter alia, as under:

(a)   The rejection of the application (which application- explain it) by the NCLT is in contravention to Section 22 of the IB Code, which empowers the COC to in its 1st meeting by a majority vote not less than 66% of the voting share either to continue the IRP as RP or replace the IRP. The NCLAT observed that in the matter at hand, the Resolution for appointment of the new RP had been passed on the proposal of the appellant financial creditor, which had 98.03% voting rights in the COC (which is much more than the required voting percentage of 66%).

(b)   Since the appellant (financial creditor) had complied with the provision of law as mandated, there is no scope to reject the prayer or relief as sought for and the NCLT ought to have considered the same without going into the other technicalities.

(c)   The NCLAT in its judgment relied on the judgment of the Hon’ble Supreme Court in Vallal RCK Vs. M/s Siva Industries and Holdings Limited & Ors. to hold that where the decision was of the CoC, exercising their commercial wisdom in accordance with law the same cannot be interfered with by the Tribunals.

Conclusion

(a)   The decision of the COC to replace the IRP under Section 22 of the IB Code in exercise of its commercial wisdom cannot be interfered with by the NCLT.

(b)   The NCLT can only interfere with any action taken by the COC in exercise of its commercial wisdom when the action is arbitrary, illegal and irrational and dehors the provisions of the IB Code and the Rules thereunder.

order_view.php (nclat.gov.in)

For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Ms. Madhura Kulkarni (madhura.kulkarni@jclex.com).