Adjudicatory Powers of the (Interim) Resolution Professional: Murky Legal Waters

[Muskan Agarwal is a 4th year law student at National Law Institute University, Bhopal]

Sections 18 and 25 of the Insolvency and Bankruptcy Code, 2016 (IBC) lay down the duties of an interim resolution professional (IRP) and a resolution professional (RP) respectively. Section 18 states that duties of an IRP include, inter alia, receiving and collating “all claims submitted by creditors to him, pursuant to the public announcement”. Similarly,a RP under section 25(2)(e) has to maintain an updated list of claims. Regulation 13 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process of Corporate Persons) Regulations, 2016 (IRPCP Regulations) provides for verification of the claims and maintenance of a list of creditors by an IRP or RP, as the case may be. A perusal of these sections and rules related to the powers of the IRP and RP help sum up that the mandate of a RP or IRP includes receiving, collating and verifying the claims. In addition, as often seen in practice, on verification, a RP either accepts or rejects claims of the creditors. Due to this, in a number of matters that have come before the NCLAT, a question pertaining to the jurisdiction of the RP has arisen. However, a focal question – whether a RP has jurisdiction to accept or reject claims of an operational  or financial creditor – has not been categorically addressed nor answered by courts.

Swiss Ribbons: Does it address the elephant in the room?

The seminal case of Swiss Ribbons Pvt. Ltd. v. Union of India, which was decided in early 2019, throws light on the above issue. The Supreme Court conclusively ruled therein that the RP has no adjudicatory powers. To establish the proposition, the Court compared the powers of a RP to a liquidator and stated that a liquidator has power to determine the valuation of claims under section 40 of the IBC, and that such determination qualifies as a decision which is “quasi-judicial in nature”.  After having established this, the Court states that since a RP, unlike a liquidator, cannot act without the approval of, and can be replaced by, the committee of creditors (COC), s/he, therefore, acts as “a facilitator of the resolution process whose administrative functions are overseen by the committee of creditors and by the Adjudicating Authority”.

The Court, however, completely missed the point that approval of the COC is required only in certain matters that are listed under section 28 of the IBC. None of them requires an approval when an IRP or RP verifies a claim or makes a “best estimate of the amount of the claim” of imprecise claims under the IRPCP Regulations. Such functions, which are referred to as administrative because they are overseen by COC and adjudicating authority, unavoidably require the use of discretion (during investigation, inquiries and verification of claims) by the RP.

The other important limb of the argument on which the Court relies is that a RP is replaceable by COC. The fact that a RP can be replaced by the COC merits a thought that a COC would have an interest when a RP or IRP collates and verifies the claims. It would go against the COC’s interest when a RP admits more claims or updates the existing claims. Therefore, the argument that the COC has an oversight does not help in maintaining a check on when a RP accepts or rejects genuine claims of the creditors.

Contrarian view of the NCLAT

The National Company Law Tribunal (NCLT) oversees the decisions taken by the RP or IRP and has jurisdiction to entertain an application or suit brought by creditors with respect to claims. The National Company Law Appellate Tribunal observed this in M/s. Prasad Gempex v. Star Agro Marine Exports Pvt. Ltd., wherein it held that,with respect to claims, a suit or application can be filed against the corporate debtor under section 60 of the IBC. It stated that:

“…..‘SREI Infrastructure Finance Ltd.’ who is aggrieved by the decision of the ‘Resolution Professional’, it may also take steps under sub-section (6) of Section 60 against the ‘corporate debtor’ or any other party.”

An inference can be made here that a creditor aggrieved by the decision of the RP has a judicial remedy.

However, the situation has become murkier with the case of Dipco Private Limited v. Jayesh Sanghrajka. In this case, DIPCO filed an application under section 60(5) of the IBC against the decision of the RP and alleged that the RP had wrongly accepted certain claims, which led to the reduction of voting shares of DIPCO. Though the NCLAT affirmed the decision of the adjudicating authority that the RP had not wrongly accepted the claims, it observed:

 “As per Section 60(5), though the NCLT is empowered to entertain or dispose of any application or proceeding by or against the Corporate Debtor or Corporate Person, it does not invest the NCLT with the jurisdiction to re-determine and collate the claim. The decision for collating the claim, if any, taken by the Resolution Professional, the same being judicial or quasi-judicial, the NCLT cannot sit in Appeal.” [emphasis supplied]

With the above decision, the NCLAT has made it clear that the NCLT cannot sit in appeal over the decision of RP for collating the claim.

Conclusion

Clearly, the RP and the COC have failed to ensure appropriate checks when there have been decisions[1] of the RP challenged in numerous instances before tribunals and appellate tribunals. If only there would have been verification of claims based on available documents (and the subsequent acceptance or rejection) and no determination of parties’ rights and liabilities, the tribunals certainly would not have on several occasions adjudicated on the correctness of the claims determined and preserved the rights of parties. In other words, the possibility of subjectivity in decisions cannot be ruled out and it can be thus argued that a RP makes a quasi-judicial decision with respect to claims and exercises a jurisdiction where s/he accepts or rejects claims.

The UNCITRAL Legislative Guide on Insolvency provides a review of the insolvency representative’s decisions in courts to which the creditors object or disapprove. The Guide suggests that in order to avoid delay in the insolvency process, creditors meet a certain standard of proof before courts uphold their appeal. Where the NCLAT in Dipco Private Ltd. has expressly stated that the NCLT cannot sit in appeal over decisions taken by RP with respect to collating of claims, it leaves the issue of the adjudicating authority acting as an oversight body up in the air. Thus, an intervention by the higher judicial courts or the regulatory authority is required to bring a closure to the matter and to address the creditors’ substantive rights in a timely manner and provide them with effective appellate remedies. – Muskan Agarwal



[1] Bharat Heavy Electricals Ltd. v. Navneet Kumar Gupta, CP 1696/I&BC/MB/MAH/2017 – The NCLT, Mumbai Bench held that RP had wrongly disallowed the claims and asked him to re-examine this claim on the basis of the accounts and evidences of BHEL. See also, Export Import Bank of India v. Resolution Professional JEKPL Private Limited, CA No. 304 of 2017, 16 of 2018 and 302 of 2017,  Andhra Bank Vs. M/s. F.M Hammerle Textiles Ltd., CA (AT) (Insolvency) No. 61 of 2018, ICICI Bank v. CA Ritu Rastogi, CA 366 (PB)/2017 and (IB)-102(PB)/2017.

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