The NCLAT upholds the replacement of the Resolution Professional in personal insolvency proceedings following the suspension by the IBBI.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Barun Mitra and Arun Baroka, reviewed an appeal concerning the replacement of the Appellant as Resolution Professional. The NCLAT Bench found the replacement valid under Section 98(1) of the Insolvency and Bankruptcy Code (IBC), which governs personal insolvency and insolvency of partnership firms, due to the Appellant's suspension by the IBBI. This replacement was appropriately ordered based on the Adjudicating Authority’s directive and the State Bank of India’s (SBI) application.
The appeal challenged the order dated 25.07.2024 passed by the National Company Law Tribunal (NCLT), New Delhi Bench, which granted SBI's application (IA No. 3148 of 2024) to replace the Appellant as Resolution Professional. The Appellant argued that the suspension order from IBBI dated 01.11.2023 should not affect the ongoing proceedings and that the Committee of Creditors (CoC), rather than SBI alone, should decide on the replacement.
The SBI had initiated proceedings under Section 95 of the IBC for the insolvency of personal guarantor Shantanu Jagdish Prakash, appointing the Appellant as Resolution Professional. Following the IBBI's suspension order, SBI filed the replacement application on 11.06.2024. The Adjudicating Authority allowed this application on 25.07.2024.
The Appellant contended that the Adjudicating Authority erred in replacing him, arguing that the IBBI’s suspension order did not justify such a replacement and that the decision to replace him should have been made by the Committee of Creditors (CoC) rather than SBI alone.
The Respondent submitted that the Appellant having been suspended by the IBBI for two years, cannot be allowed to continue as Resolution Professional the proceeding under Section 95 has rightly applied to replace. The Respondent has also relied on the judgment of the Chennai Bench of the NCLAT in S. Muthuraju, Resolution Professional of Shakthinath Mariappan (Personal Guarantor) v. Arunachalam Tenzing, REEDLAW 2024 NCLAT Chn 04630.
The NCLAT found that the replacement of the Appellant was justified under Section 98(1) of the IBC, as the Appellant's suspension by IBBI rendered him ineligible to continue. The Tribunal dismissed the appeal, agreeing with the Adjudicating Authority’s decision and finding no merit in the Appellant's arguments.
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