Icici Bank Limited vs Oceanic Tropical Fruits Pvt. Ltd. & Ors

[Arising out of Order dated 9th February, 2018 and 15th February, 2018 passed by the Adjudicating Authority (National Company Law Tribunal), Chennai Bench, Chennai in CA/59/(IB)/2018 and CA/70/(IB)/18 in CP/564/(IB)/2017.]

IN THE MATTER OF:

ICICI Bank Limited Through its Chief Manager Having its Registered Office at: ICICI Bank Tower Near Chakli Circle, Old Padra Road, Vadodra. Having its Regional Office atL No.1, Cenotaph Road Teynampet, Chennai - 600 018. ...Appellant

Vs

1. Oceanic Tropical Fruits Private Limited Through the Resolution Professional Having its Registered Office at: 29, Zackaria Colony, 4th Street, Choolaimedu, Chennai - 600 094. Also having its Business Address at: No.6, 1st Floor, Wellington Estate Ethiraj Salai, Egmore, Chennai - 600 008. Respondent No.1

2. State Bank of India Through Assistant General Manager, Stressed Assets Management Branch, Having its Office at: Red Cross Building, Montieth Road, Egmore, Chennai - 600 008. Respondent No.2

3. Central Bank of India Through its General Manager Recovery Branch, Montieth Road, Egmore, Chennai - 600 008. Respondent No.3 -2-

4. Mr. C. Balasubramanian Insolvency Resolution Professional IP Registration No. IBBI/IPA-002/IP- N00052/2016-17/10096, Having its Address at: 'SRINIDHI', G4 RMC Flats No.1, Venkatesapuram Colony, Vadapalani, Chennai - 600 026. Respondent No.4

5. Venkataramana Nagarajan Insolvency Resolution Professional IP Registration No. IBBI/IPA-002/IP- N00055/2017-18/10107, Having its Address at: New No.29, Kavarai Street, West Mambalam, Chennai - 600 033. Respondent No.5

Present:

For Appellant: Ms. Pratishtha Vij and Mr. Diwakar Maheshwari, Advocates.

For Respondents: Mr. Arnav Dash and Mr. P. V. Dinesh, Advocates for R-1 & R-5. Mr. Rajender Beniwal, Advocate for R-2 & R-3.

SUDHANSU JYOTI MUKHOPADHAYA, J.

This appeal has been preferred by 'ICICI Bank Limited' (Financial

Creditor) against order dated 9th February, 2018 passed by the Adjudicating

Authority (National Company Law Tribunal), Chennai Bench, Chennai. By

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -3-

the Impugned order the 'Adjudicating Authority' appointed one Shri V.

Nagarajan as 'Resolution Professional' on the proposal of two of the Financial

Creditors viz. 'State Bank of India' and 'Central Bank of India'.

2. The Corporate Insolvency Resolution Process was initiated at the

instance of Appellant - 'ICICI Bank Ltd.' pursuant to a petition under Section

7 whereby the Appellant suggested the name of 'Interim Resolution

Professional'. However, on completion of term of the 'Interim Resolution

Professional', the Committee of Creditors in their meeting dated 14th

November, 2017 appointed Shri V. Nagarajan as Resolution Professional,

which has been affirmed by the Adjudicating Authority and the Insolvency

and Bankruptcy Board of India ('IBBI' for short).

3. Learned counsel appearing on behalf of the Appellant submitted that

the 'State Bank of India' and the 'Central Bank of India' having 73.62% voting

right proposed appointment of new 'Resolution Professional'. According to him

in terms of Section 22 no 'Resolution Professional' can be appointed by the

'Committee of Creditors' having less than 75% of voting right.

4. Learned counsel appearing on behalf of the Appellant while submitted

that Section 22(2) is mandatory, according to learned counsel for the

Respondent 75% of the voting share as prescribed under Section 22(2) is not

mandatory.

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -4-

5. We have heard learned counsel for the parties and perused the records.

6. Section 16 relates to appointment and tenure of 'Interim Resolution

Professional'. The 'Adjudicating Authority' is required to appoint 'Interim

Resolution Professional' within 14 days from the date of admission of Section

7 or 9 or 10 application. Normally, the 'Interim Resolution Professional'

proposed by the 'Financial Creditor' (under Section 7) or by the 'Corporate

Applicant' (under Section 10) are to be accepted by the 'Adjudicating

Authority' provided that no disciplinary proceeding are pending against the

Resolution Professional. Where no proposal is made for appointment of any

'Interim Resolution Professional', the Adjudicating Authority is required to

refer the IBBI for recommendation of an 'Insolvency Resolution Professional'

who may act as an 'Interim Resolution Professional'. The tenure of 'Interim

Resolution Professional' is also prescribed under Section 16(5), as quoted

below:-

"16. Appointment and tenure of interim resolution

professional.- (1) The Adjudicating Authority shall appoint

an interim resolution professional within fourteen days from

the insolvency commencement date.

(2) Where the application for corporate insolvency

resolution process is made by a financial creditor or the

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -5-

corporate debtor, as the case may be, the resolution

professional, as proposed respectively in the application under

section 7 or section 10, shall be appointed as the interim

resolution professional, if no disciplinary proceedings are

pending against him.

(3) Where the application for corporate insolvency

resolution process is made by an operational creditor and--

(a) no proposal for an interim resolution professional

is made, the Adjudicating Authority shall make a

reference to the Board for the recommendation of

an insolvency professional who may act as an

interim resolution professional;

(b) a proposal for an interim resolution professional

is made under sub-section (4) of section 9, the

resolution professional as proposed, shall be

appointed as the interim resolution professional,

if no disciplinary proceedings are pending against

him.

(4) The Board shall, within ten days of the receipt of a

reference from the Adjudicating Authority under sub-section

(3), recommend the name of an insolvency professional to the

Adjudicating Authority against whom no disciplinary

proceedings are pending.

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -6-

(5) The term of the interim resolution professional shall

not exceed thirty days from date of his appointment."

7. As the term of 'Interim Resolution Professional' cannot exceed 30 days

from the date of his appointment, provision has been made under Section 22

for appointment of 'Resolution Professional'. At the 1st meeting of the

'Committee of Creditors', the 'Committee of Creditors' by majority vote of not

less than 75% of the voting share may either resolve to appoint the 'Interim

Resolution Professional' as 'Resolution Professional' or to replace the 'Interim

Resolution Professional' by a 'Resolution Professional'. Where 'Interim

Resolution Professional' is allowed to function as 'Resolution Professional', the

matter to be intimated to the 'Adjudicating Authority'. For replacement of

'Interim Resolution Professional', an application is required to be filed by the

'Committee of Creditors' before the 'Adjudicating Authority'. This is clear from

Section 22 as quoted below:

"22. Appointment of resolution professional. - (1) The

first meeting of the committee of creditors shall be held within

seven days of the constitution of the committee of creditors.

(2) The committee of creditors, may, in the first

meeting, by a majority vote of not less than seventy-five

per cent. of the voting share of the financial creditors,

either resolve to appoint the interim resolution professional

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -7-

as a resolution professional or to replace the interim

resolution professional by another resolution professional.

(3) Where the committee of creditors resolves under sub-

section (2)--

(a) to continue the interim resolution professional as

resolution professional, it shall communicate its

decision to the interim resolution professional,

the corporate debtor and the Adjudicating

Authority; or

(b) to replace the interim resolution professional, it

shall file an application before the Adjudicating

Authority for the appointment of the proposed

resolution professional.

(4) The Adjudicating Authority shall forward the name of

the resolution professional proposed under clause (b) of sub-

section (3) to the Board for its confirmation and shall make

such appointment after confirmation by the Board.

(5) Where the Board does not confirm the name of the

proposed resolution professional within ten days of the

receipt of the name of the proposed resolution professional,

the Adjudicating Authority shall, by order, direct the interim

resolution professional to continue to function as the

resolution professional until such time as the Board

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -8-

confirms the appointment of the proposed resolution

professional.

8. From the aforesaid provision, we find that the 'Interim Resolution

professional' cannot be appointed as 'Resolution Professional', except by a

majority vote of not less than 75% of voting share of the 'Committee of

Creditors'.

9. Similarly, to replace the 'Interim Resolution Professional' by another

'Resolution Professional', a majority vote of not less than 75% of voting share

of the 'Committee of Creditors' is required.

10. It is only when the 'Adjudicating Authority' receive the recommendation

of the 'Committee of Creditors' to replace the 'Interim Resolution Professional'

by another 'Resolution Professional', the 'Adjudicating Authority' is required

to forward the name of proposed 'Resolution Professional' to the IBBI for

confirmation and appoint him after confirmation by the IBBI. In the

meantime, in view of power conferred by Sub-section (5) of Section 22, the

Adjudicating Authority is empowered to direct the Interim Resolution

Professional to function as Resolution Professional until such time as the IBBI

confirms appointment of the proposed Resolution Professional.

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -9-

11. The question arises for consideration in this appeal is as to what step

to be taken if the 'Committee of Creditors' fail to get minimum vote of 75% of

the voting share of the 'Financial Creditors' for appointment of 'Interim

Resolution Professional' as 'Resolution Professional' or to replace 'Interim

Resolution Professional' by another (Regular) 'Resolution Professional'.

12. In the present case, the Appellant - 'ICICI Bank Ltd.' wanted to allow

the 'Interim Resolution Professional' to continue as (Regular) 'Resolution

Professional' as per Section 22(2). On the other hand, the two other members

of the 'Committee of Creditors' i.e. 'State Bank of India' and 'Central Bank of

India', who have 73.62% of voting share wanted to appoint another person as

(Regular) 'Resolution Professional' (hereinafter referred to as 'Proposed

Resolution Professional').

13. We do not agree with the submissions made by the learned counsel for

the Respondent that the 'Interim Resolution Professional' can be replaced

even by less than 75% of voting share of the 'Financial Creditors'. According

to us, the 75% of the voting share of the 'Financial Creditors' for approval of

appointment of 'Interim Resolution Professional' as (Regular) 'Resolution

Professional' is mandatory. However, if there is no agreement and the

'Committee of Creditors' fail to achieve 75% of the voting share of the

'Financial Creditors', in view of the time limit of 30 days from the date of

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -10-

appointment prescribed under Section 16(5), the 'Interim Resolution

Professional' cannot continue as 'Resolution Professional'.

14. Therefore, to replace the 'Interim Resolution Professional' by another

'Resolution Professional' the 'Committee of Creditors' cannot appoint another

person as (Regular) 'Resolution Professional', without majority voting which

should not be less than 75% of the voting share of the 'Financial Creditors'.

In such case, the matter is to be referred to the 'Adjudicating Authority', who

is required to request the IBBI to name a 'Resolution Professional' and in the

meantime may allow the 'Interim Resolution Professional' to function.

15. At this stage, it is also desirable to notice Section 27, which relates to

Replacement of (Regular) 'Resolution Professional' by 'Committee of Creditors'.

This provision also stipulate that the (Regular) 'Resolution Professional' can

be replaced at any time during the 'Corporate Insolvency Resolution Process'

by the 'Committee of Creditors', but by vote not less than 75% of the voting

share, as quoted below:-

"27. Replacement of resolution professional by

committee of creditors. - (1) Where, at any time during

the corporate insolvency resolution process, the committee

of creditors is of the opinion that a resolution professional

appointed under section 22 is required to be replaced, it may

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -11-

replace him with another resolution professional in the manner

provided under this section.

(2) The committee of creditors may, at a meeting, by a vote

of seventy five per cent. of voting shares, propose to replace

the resolution professional appointed under section 22 with

another resolution professional.

(3) The committee of creditors shall forward the name of

the insolvency professional proposed by them to the

Adjudicating Authority.

(4) The Adjudicating Authority shall forward the name

of the proposed resolution professional to the Board for its

confirmation and a resolution professional shall be appointed

in the same manner as laid down in section 16.

(5) Where any disciplinary proceedings are pending

against the proposed resolution professional under sub-

section (3), the resolution professional appointed under section

22 shall continue till the appointment of another resolution

professional under this section."

16. From Sub-section (1) of Section 27, it is evident that the 'Committee of

Creditors' is required to form the opinion that the 'Resolution Professional'

appointed under Section 22 is required to be replaced and in such case only

by voting not less than 75% of the voting share a 'Resolution Professional' can

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -12-

be replaced. In such case also the 'Committee of Creditors' is required to

forward the name of the 'Proposed Resolution Professional' proposed by them

to the 'Adjudicating Authority', who in its term will forward the name of the

proposed 'Resolution Professional' to the IBBI for its confirmation,

whereinafter the 'Proposed Resolution Professional' can be appointed in the

same manner as provided under Section 16. In the meantime, the 'Resolution

Professional' already appointed under Section 22 is to continue till the

appointment of another 'Resolution Professional'.

17. In view of the aforesaid provisions, we hold that minimum 75% of the

voting share as prescribed under Section 22 and Section 27 are mandatory.

However, under Section 22, if the name of 'Interim Resolution Professional' is

not approved, he may continue till the appointment of a (Regular) 'Resolution

Professional'. In such case, the 'Committee of Creditors' is not required to

give reason for not approving the 'Interim Resolution Professional' to function

as (Regular) 'Resolution Professional'. On the other hand for replacement of

the 'Resolution Professional' under Section 27(1), the 'Committee of Creditors'

is required to form opinion, and to write the reasons for replacement of the

(Regular) 'Resolution Professional'.

18. In the present case, the 'State Bank of India' and the 'Central Bank of

India' having failed to get 75% of the voting share, and having obtained only

73.62% of the voting share, it was not open to them to propose the name of

Company Appeal (AT) (Insolvency) No. 113-114 of 2018 -13-

another 'Resolution Professional', and should have referred the matter to the

'Adjudicating Authority' with request to call for name of a 'Resolution

Professional' from the IBBI.

19. In that view of the matter, the impugned order appointing Shri V.

Nagarajan as 'Resolution Professional' cannot be upheld. However, Shri V.

Nagarajan, Resolution Professional having proposed in the meeting of

'Committee of Creditors' on 14th November, 2017 and the IBBI having already

confirmed his appointment after more than 90 days of his appointment, we

are not going to interfere with the order of appointment. The appeal stands

disposed of with aforesaid observations. However, in the facts and

circumstances there shall be no order as to costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice Bansi Lal Bhat] Member (Judicial) NEW DELHI

4th July, 2018

AM

Company Appeal (AT) (Insolvency) No. 113-114 of 2018