NCLAT Directs NCLT To Hear RP Replacement Plea Before Resolution Plan In Nimitaya Hotel CIRP

The National Company Law Appellate Tribunal (NCLAT) at Delhi has directed the NCLT to first consider Indian Bank's application seeking replacement of the Resolution Professional (RP) in the insolvency proceedings of Nimitaya Hotel & Resorts Ltd. before taking up the Bank's applications seeking dismissal of the existing resolution plan and permission to issue a fresh Form-G. (expression of interest)

The bench of Officiating Chairperson Justice Yogesh Khanna and Technical Members Barun Mitra and Ajai Das Mehrotra passed the order.

The insolvency proceedings against Nimitaya Hotel & Resorts Ltd. began after the NCLT admitted Indian Bank's Section 7 application on December 24, 2021. The CoC approved a resolution plan on January 8, 2023, and an application seeking its approval was filed before the NCLT on January 19, 2023. It remained pending for more than two years.

Indian Bank subsequently sought dismissal of the plan and permission to issue a fresh Form-G. The Bank later sought replacement of the RP after the CoC expressed loss of confidence in him.

The NCLT questioned the Bank's Deputy General Manager about the reasons for the proposed replacement. The officer cited “loss of trust” but was unable to elaborate further.

The NCLT also issued notice to the RP after he opposed his removal and attributed mala fide objectives to the move.

Indian Bank argued before the NCLAT that Section 27 of the Insolvency and Bankruptcy Code (IBC) does not require the NCLT to seek reasons from the Bank for replacing an RP or issue notice to the existing RP.

Section 27 permits the CoC to replace an RP at any time during the insolvency process. The replacement requires a resolution supported by at least 66% of the voting shares and written consent from the proposed RP.

The NCLAT, relying on its earlier decisions, observed that the NCLT cannot substitute its own wisdom for that of the CoC in deciding on the replacement of an RP.

The bench held that the CoC's decision cannot be interfered with unless it disturbs the foundational principles of the IBC. It found that the mere fact that the replacement application was filed 2½ years after approval of the resolution plan did not amount to such a disturbance.

“Nothing has been discussed in the order as to what had disturbed the foundational principles in the facts except such an application for replacement was moved after 2- 1/2 years. This cannot be treated as a foundational principle since Section 27 of the IBC itself empowers the CoC to replace the Resolution Professional at any time during the pendency of the process,” the bench observed.

The NCLAT also expunged the remarks made against the Bank's officials.

It directed the NCLT to first consider the plea for change of RP or any subsequent application seeking to bring the new RP on record. The NCLT must then take up the applications seeking dismissal of the existing plan and permission to issue a fresh Form-G.

The original application seeking approval of the resolution plan will be considered thereafter if the application seeking dismissal of the plan is rejected.