Resolution Professional Need Not Consult CoC To Appoint Professionals To Assist In CIRP : NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi has observed that a Resolution Professional need not consult the Committee of Creditors before appointing professionals such as transaction auditors to assist in the corporate insolvency resolution process.

The ruling came while rejecting KSS Ltd. directors' objection in a preferential transaction case arising from transfers to the company's sister concerns.

“Further Regulation 27 (2) of CIRP regulations 2016, provides that the RP may appoint any professional to assist him in discharge of his duties in conduct of the CIRP, if he is of the opinion that the services of such professionals are required and such services are notnavailable with the Corporate Debtor. Nowhere does the Code provide for consultation by RP with CoC to appoint professionals. RP is empowered under the Code to appoint Transaction Auditors”, the tribunal observed.

The bench of Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey partly allowed an appeal filed by KSS Ltd.'s suspended board members Dharamveer Singh Magan Singh Shekhawat, Harsh Upadhyay, and Sandip Joshi against an NCLT order in a preferential transaction case.

The tribunal modified the NCLT's direction, requiring the suspended board members and three others to jointly and severally repay Rs 47,92,646 transferred to K Sera Sera Miniplex Ltd. and K Sera Sera Digital Cinema Ltd., restricting the liability to Rs 8,92,646.

The KSS directors had challenged the NCLT's finding that the transfers were preferential transactions. They argued that the Resolution Professional's application and the transaction audit report failed to establish the statutory ingredients for treating the transactions as preferential, including whether the transferee entities were creditors or whether the payments were made against antecedent debt.

They also argued that the avoidance application had been filed without Committee of Creditors approval.

Rejecting that argument, the tribunal held that filing avoidance applications was part of the Resolution Professional's statutory responsibilities and did not require Committee of Creditors approval.

On the Rs 39 lakh transfer to K Sera Sera Miniplex Ltd, the tribunal held that although the subsidiary was a related party and the transaction fell within the relevant look-back period, it was not shown to be a creditor, surety or guarantor of KSS Ltd.

“In regard to transfer of Rs. 39 Lakhs with K. Sera Sera Miniplex Ltd. towards Working Capital Loan, we note that the aforesaid Company though a related party, is not a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and therefore, it is not an entity covered by the Section 43(2)(a) which is an essential condition for declaring a transaction as preferential. Accordingly, we hold that this transaction is not a preferential transaction”.

However, the tribunal upheld the finding regarding the ₹8,92,646 transfer to K Sera Sera Digital Cinema Ltd., noting that the company had filed an admitted claim of ₹3,08,58,210.63 in the CIRP and was therefore a creditor.

The tribunal held that the payment placed Digital Cinema in a more beneficial position than other creditors in the distribution waterfall under Section 53 of the Insolvency and Bankruptcy Code and found no documentary evidence supporting the claim that the payment was made in the ordinary course of business.

Accordingly, the NCLAT directed repayment of ₹8,92,646 with interest within 30 days.