Bank's Internal Policies Cannot Override IBC Or RP Appointment Order: NCLT Guwahati

The Guwahati National Company Law Tribunal (NCLT) on 24 July held that a bank's internal policies cannot override the statutory scheme of the Insolvency and Bankruptcy Code, 2016 (IBC) or the Tribunal's order appointing a Resolution Professional (RP).

A Bench comprising Judicial Member Rammurti Kushawaha and Technical Member Yogendra Kumar Singh made the observation while dismissing an application filed by Indian Bank seeking the replacement of Resolution Professional Sudha Sarma in the personal insolvency resolution process of Rita Mandal. They held:

“The Applicant's reliance on its internal risk management policy is misconceived. The internal policy of a banking company has no statutory force and cannot override the Tribunal's order of appointment made in exercise of its powers under the Code.”

Indian Bank had initiated personal insolvency resolution proceedings against Mandal, in which Sarma was appointed as the RP. It sought her replacement, alleging a conflict of interest, an adversarial relationship and a reasonable apprehension of bias arising from pending proceedings between the Bank and Sarma.

The Bank relied on proceedings between it and Sarma in the liquidation of Nayak Infrastructure Private Limited, where Sarma was acting as Liquidator. It claimed that the proceedings had resulted in an adversarial relationship and that it had lost confidence in Sarma's ability to act impartially. It also relied on its internal policies concerning professionals having a conflict of interest with the Bank.

Sarma opposed the application, pointing out that the Bank had earlier sought her removal through a similar application, which it withdrew without liberty to file afresh. She contended that the Bank had not identified any instance of bias, partiality or misconduct in the present insolvency process and was relying on proceedings arising from an unrelated matter. She further argued that the Bank's internal policies could not override the IBC or the Tribunal's order appointing her as RP.

The Tribunal observed that Section 98 of the IBC, which deals with the replacement of a Resolution Professional in a personal insolvency resolution process, does not permit removal merely on the ground of loss of confidence or dissatisfaction arising from an unrelated proceeding. It noted that the pending proceedings concerned a different corporate debtor, where Sarma was acting as Liquidator, a role distinct from her appointment as RP in the present matter.

The Bench held that an Insolvency Professional's adverse position against a financial creditor in one matter does not, by itself, establish disqualifying bias in an unrelated assignment. It held:

“To hold otherwise would open the floodgates for any dissatisfied creditor to engineer the removal of an IP in a matter merely by pointing to legitimate adversarial litigation in another, which would undermine the independence the Code seeks to secure for IPs.”

Further, it observed that the application did not identify any act of partiality, misconduct or irregularity by Sarma in the present insolvency proceedings and that the grounds relied upon by the Bank arose from a separate matter.

On the Bank's reliance on its internal policies, it reiterated that such policies have no statutory force and cannot override the Tribunal's order appointing the RP.

Accordingly, the NCLT dismissed the application.

For Applicant: Advocates M Sharma and K Board

For Respondent: S Sarma, RP