State Bank Of India vs Metenere Ltd

(Arising out of Order dated 4th January, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Principal Bench, New Delhi in CP No. (IB)-639(PB)/2018)

IN THE MATTER OF:

State Bank of India ....Appellant

Versus

M/s. Metenere Ltd. .....Respondent

Present:

For Appellant: Mr. Ramji Srinivasan, Senior Advocate with Mr. Ankur Mittal, Mr. UC Mittal, Ms. Meera Murali, Ms. Jasveen Kaur and Mr. Rishab Kapoor, Advocates.

For Respondent: Mr. Arun Kathpalia, Senior Advocate with Mr. Arvind Kumar Gupta, Mr. M.K.Pandey, Mrs. Purti Marwaha Gupta, Mrs. Heena George, Ms. Areela Sanjay Massey, Ms. Adya Shree Dutta, Mr. D.N. Sharma and Mr. T.R.B. Shivakar, Advocates.

BANSI LAL BHAT, J.

Appellant- 'State Bank of India' is the 'Financial Creditor' who

sought initiation of 'Corporate insolvency Resolution Process' by filing

an application under Section 7 of the Insolvency and Bankruptcy Code,

2016 (hereinafter referred to as "I&B Code") before the Adjudicating 2

Authority (National Company Law Tribunal), New Delhi, Principal Bench

which, on taking note of the objection raised by the 'Corporate Debtor'-

'M/s. Metenere Limited' regarding the name of proposed 'Interim

Resolution Professional'- Mr. Shailesh Verma passed impugned order

dated 4th January, 2020 directing the Appellant- 'Financial Creditor' to

perform its statutorily mandatory obligation by substituting the name of

the 'Resolution Professional' to act as an 'Interim Resolution

Professional' in place of Mr. Shailesh Verma as it was of the view that

Mr. Shailesh Verma having worked with the State Bank of India for 39

years before his retirement in 2016, there was an apprehension of bias

and Mr. Shailesh Verma was unlikely to act fairly and could not be

expected to act as an Independent Umpire. Aggrieved thereof, Appellant-

'Financial Creditor' has preferred instant appeal assailing the impugned

order on the ground that the proposed 'Interim Resolution Professional'

Mr. Shailesh Verma fulfils the requirement for appointment as 'Interim

Resolution Professional'/ 'Resolution Professional' under the 'I&B Code'

and admittedly bears no disqualification.

2. It is contended on behalf of the Appellant that the 'I&B Code' and

the Regulations framed thereunder do not attach any disqualification to

an ex-employee of a 'Financial Creditor' from being appointed as an

'Interim Resolution Professional'. It is further submitted that the

'Interim Resolution Professional' is not required to act as an

'Independent Umpire' between the 'Financial Creditor' and the ex-

Company Appeal (AT) (Insolvency) No. 76 of 2020 3

management of the 'Corporate Debtor' or decide any conflicting issues

between them. It is further submitted that the 'Resolution Professional'

has no adjudicatory powers and only acts as a facilitator in the

'Corporate Insolvency Resolution Process' as all major decisions are

taken only with the approval of the 'Committee of Creditors'. It is further

submitted that the 'Financial Creditor' also plays part only to the extent

of its voting share as a member of 'Committee of Creditors' and not

beyond that. Therefore, merely because the proposed 'Interim

Resolution Professional' happens to be an ex-employee of the 'Financial

Creditor' cannot be a ground to allege bias against him. Lastly, it is

contended that the proposed 'Interim Resolution Professional' is not on

any panel of the Appellant Bank or handling any portfolios and has no

role in decision making committee of the Appellant Bank.

3. Per contra, it is submitted on behalf of the Respondent-

'Corporate Debtor' that Mr. Shailesh Verma was in employment with the

Appellant for over 39 years and retired as the Chief General Manager in

2016. He is drawing pension from the Appellant- 'Financial Creditor'

which falls within the definition of 'salary' under the Income Tax Act,

1961. It is submitted that in view of the same, Mr. Shailesh Verma is an

'interested person' being an ex-employee and on the payroll of 'Financial

Creditor', thus rendered ineligible under the 'I&B Code' to act as an

'Interim Resolution Professional'. It is further submitted that mere

Company Appeal (AT) (Insolvency) No. 76 of 2020 4

apprehension of bias is sufficient ground of apprehension of biasness of

the proposed 'Interim Resolution Professional' towards the Appellant.

4. The sole question arising for determination in this appeal is

whether an ex-employee of the 'Financial Creditor' having rendered

services in the past, should not be permitted to act as 'Interim

Resolution Professional' at the instance of such 'Financial Creditor',

regard being had to the nature of duties to be performed by the 'Interim

Resolution Professional' and the 'Resolution Professional'.

5. It is not in controversy that Mr. Shailesh Verma proposed as

'Interim Resolution Professional' by the 'State Bank of India' is an ex-

employee of the 'Financial Creditor' having served the organisation for

39 years in the past and retired as the Chief General Manager in 2016.

Merely, because Mr. Shailesh Verma continues to draw pension for

services rendered in past does not clothe him with the status of an

'interested person'. The fact that Mr. Shailesh Verma is drawing pension

from 'Financial Creditor's organisation does not clothe him with the

status of an employee on the payroll of 'Financial Creditor'. Pension is

paid for the services rendered to the employer in the past and it is a

benefit earned for such past services under the relevant Service Rules.

The pensioner is entitled to such benefit as a privilege under the Service

Rules and not as a boon from the ex-employer. It is significant to refer

to Regulation 3 (1) of the Insolvency and Bankruptcy Board of India

Company Appeal (AT) (Insolvency) No. 76 of 2020 5

(Insolvency Resolution Process for Corporate Persons) Regulations,

2016, which reads as under:

"(1) An insolvency professional shall be eligible to be

appointed as a resolution professional for a corporate

insolvency resolution process of a corporate debtor if he,

and all partners and directors of the insolvency

professional entity of which he is a partner or director,

are independent of the corporate debtor."

6. The Regulation clearly provides that an Insolvency Professional

shall be eligible for appointment as a 'Resolution Professional' for the

'Corporate Insolvency Resolution Process' of a 'Corporate Debtor' if he or

his partners and directors of the Insolvency Professional Entity are

independent of the 'Corporate Debtor'. Admittedly, Mr. Shailesh Verma

is a qualified Insolvency Professional and neither he nor any of his

associates is alleged to be connected with the 'Corporate Debtor' in a

manner rendering him ineligible to act as a 'Resolution Professional'.

Provision engrafted in Section 17(1) of the Income Tax Act, 1961

bringing pension within the ambit of 'salary' cannot be interpreted to

render a pensioner of a 'Financial Creditor' under the statutory

framework ineligible as an 'interested person' being in employment of

the 'Financial Creditor' as the definition of 'salary' under the Income Tax

Act, 1961 is designed only for the purposes of computing of income to

determine tax liability. The argument advanced on behalf of the

Company Appeal (AT) (Insolvency) No. 76 of 2020 6

'Corporate Debtor' in this Court to portray Mr. Shailesh Verma as an

'interested person' drawing salary within the meaning of Income Tax

Act, 1961 defies logic and same has to be repelled.

7. This Appellate Tribunal had an occasion to consider ineligibility

or disqualification for appointment as 'Interim Resolution Professional'

or 'Resolution Professional'. Taking note of the relevant provisions of law

in "State Bank of India v. Ram Dev International Ltd. (Through

Resolution Professional)− Company Appeal (AT) (Insolvency) No.

302 of 2018" decided on 16th July, 2018, this Appellate Tribunal

observed that merely because a 'Resolution Professional' is empanelled

as an Advocate or Company Secretary or Chartered Accountant with the

'Financial Creditor' cannot be a ground to reject the proposal of his

appointment unless there is any disciplinary proceeding pending

against him or it is shown that the person is an interested person being

an employee or on the payroll of the 'Financial Creditor'. Admittedly, no

disciplinary proceedings are pending against Mr. Shailesh Verma and

he is not on aforestated panel or engaged as a retainer by the 'Financial

Creditor'. He had a long relationship with the 'Financial Creditor',

spanning around four decades, before demitting office as the Chief

General Manger in 2016 but currently he is merely a pensioner drawing

pension as a benefit earned for the past services in terms of the relevant

Service Rules which he is getting independent of the benevolence of the

ex-employer i.e. the Appellant- 'Financial Creditor'. But it cannot be

Company Appeal (AT) (Insolvency) No. 76 of 2020 7

denied that the Appellant restricted its choice to propose Mr. Shailesh

Verma as 'Interim Resolution Professional' obviously having regard to

past loyalty and the long services rendered by the later. This conclusion

is further reinforced by filing of instant appeal by the 'Financial

Creditor' who is upset with the impugned order directing the Appellant-

'Financial Creditor' to substitute the name of 'Interim Resolution

Professional' in place of Mr. Shailesh Verma. This has to be viewed in

the context of apprehension of bias raised by the Respondent-

'Corporate Debtor' for the apprehension of bias necessarily rests on the

perception of Respondent- 'Corporate Debtor'. It is profitable to refer to

the following observations of the Hon'ble Apex Court in "Ranjit Thakur

v. Union of India and Ors.− (1987) 4 SCC 611":

"17. As to the tests of the likelihood of bias

what is relevant is the reasonableness of the

apprehension in that regard in the mind of the

party. The proper approach for the judge is not to

look at his own mind and ask himself, however,

honestly, "Am I Biased?"; but to look at the mind

of the party before him"

8. The fact that the proposed 'Resolution Professional' Mr. Shailesh

Verma had a long association of around four decades with the

'Financial Creditor' serving under it and currently drawing pension

coupled with the fact that the 'Interim Resolution Professional' is

Company Appeal (AT) (Insolvency) No. 76 of 2020 8

supposed to collate all the claims submitted by Creditors, though not

empowered to determine the claims besides other duties as embedded

in Section 18 of the 'I&B Code' raised an apprehension in the mind of

Respondent- 'Corporate Debtor' that Mr. Shailesh Verma as the

proposed 'Interim Resolution Professional' was unlikely to act fairly

justifying the action of the Adjudicating Authority in passing the

impugned order to substitute him by another Insolvency Professional.

Observations of the Adjudicating Authority in the impugned order with

regard to 'Interim Resolution Professional' to act as an Independent

Umpire must be understood in the context of the 'Interim Resolution

Professional' acting fairly qua the discharge of his statutory duties

irrespective of the fact that he is not competent to admit or reject a

claim.

9. In the given set of circumstances, we are of the considered

opinion that the apprehension of bias expressed by the 'Corporate

Debtor' qua the appointment of Mr. Shailesh Verma as proposed

'Interim Resolution Professional' at the instance of the Appellant-

'Financial Creditor' cannot be dismissed offhand and the Adjudicating

Authority was perfectly justified in seeking substitution of Mr. Shailesh

Verma to ensure that the 'Corporate Insolvency Resolution Process' was

conducted in a fair and unbiased manner. This is notwithstanding the

fact that Mr. Shailesh Verma was not disqualified or ineligible to act as

an 'Interim Resolution Professional'. Viewed thus, we find no legal flaw

Company Appeal (AT) (Insolvency) No. 76 of 2020 9

in the impugned order which is free from any legal infirmity and has to

be upheld. It goes without saying that the Appellant- 'Financial Creditor'

should not have been aggrieved of the impugned order as the same did

not cause any prejudice to it.

10. There being no merit in the appeal, the same is dismissed. No

costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[V.P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical)

NEW DELHI 22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 76 of 2020