Resolution Professional Cannot Be Replaced For Disagreement With Recommendation: NCLT Jaipur

The National Company Law Tribunal at Jaipur on 19 June held that a Resolution Professional appointed in personal guarantor insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 cannot be replaced merely on account of a party's dissatisfaction with the professional's recommendation.

Judicial Member Reeta Kohli and Technical Member Kavita Bhatnagar dismissed an application filed by Islamuddin Kagzi, personal guarantor to Sanga Builders Private Limited, who sought substitution of the Resolution Professional appointed in proceedings initiated by Union Bank of India under Section 95 of the IBC. The Bench held:

“Mere dissatisfaction with the outcome of the proceedings or with the recommendation made by the Resolution Professional cannot constitute sufficient ground for substitution.”

Union Bank of India initiated insolvency proceedings on 1 January 2024, following which the Resolution Professional was appointed on 4 January 2024. The Resolution Professional thereafter submitted a report recommending admission of the insolvency application.

Before the Tribunal, Kagzi argued that the Adjudicating Authority retains power under Sections 97 and 98 of the Code to replace the Resolution Professional, including at the instance of a personal guarantor. He further contended that the Resolution Professional performs a consultative and facilitative role, and therefore substitution should be permitted where dissatisfaction exists.

Rejecting the contention, the Tribunal held that the statutory scheme under Sections 97, 98, 99 and 100 of the Code shows that the role of the Resolution Professional does not end with submission of the report under Section 99. It clarified that the Resolution Professional continues to discharge statutory functions even after admission of the insolvency application under Section 100. The Members held:

“A conjoint reading of Sections 97, 98, 99 and 100 of the Code indicates that the role of the Resolution Professional does not conclude merely upon submission of the report under Section 99. The Resolution Professional continues to discharge statutory functions even subsequent to admission under Section 100.”

The Bench further observed that while it possesses the power to replace a Resolution Professional, such power cannot be exercised routinely or on the basis of subjective preference. It held that replacement is permissible only where cogent material establishes bias, conflict of interest, misconduct, incapacity, procedural impropriety, or failure to discharge statutory duties in a fair and impartial manner. It noted:

“Replacement of the Resolution Professional can therefore be directed only when there exists cogent material demonstrating circumstances such as bias, conflict of interest, misconduct, incapacity, procedural impropriety or failure to discharge statutory obligations in a fair and impartial manner.”

Accordingly, the NCLT dismissed the application after finding that Kagzi failed to establish any legally sustainable ground for substitution.

For Applicant: Advocates Karan Pratap Singh and Nishant Saraf