Name: Srushti Mokal
Roll No: M2149
State Bank of India vs Metenere Ltd.
Introduction: The case is concerning a vital issue on the appointment of an Interim Resolution Professional (IRP) under Insolvency and Bankruptcy Code, 2016
What is Interim Resolution Professional: appointment, qualifications, and disqualification?
To be eligible for appointment, the IRP/RP must be independent of the corporate debtor. A person shall be considered independent of the corporate debtor if he:
(a) is eligible to be appointed as an independent director on the board of the corporate debtor under Section 149 of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;
(b) is not a related party of the corporate debtor; or
(c) is not an employee or proprietor or a partner:
(i) of a firm of auditors or 6 [secretarial auditors] in practice or cost auditors of the corporate debtor; or
(ii) of a legal or a consulting firm, that has or had any transaction with the corporate debtor amounting to 7 [five percent] or more of the gross turnover of such firm, in the last three financial years.”
IP must act with objectivity and must make disclosures in case he comes across any conflict of interests with the stakeholders during the timeline of his assignment and he shall also make disclosures to the Committee of Creditors (CoC) if he was an employee or has been on the panel of any financial creditor of the corporate debtor. It is to be noted that although the Regulation specifies disclosure of any past employer-employee relationship between the IP and the financial creditors of the corporate debtor, it does not disqualify the appointment of IP if the case may be.
Brief background of the case:
The Financial Creditor, State Bank of India (“Appellant” or “FC”) had filed a Section 7 application before the NCLT, whereunder the Appellant had proposed the name of Mr Shailesh Verma to be appointed as an IRP. The corporate debtor i.e., M/s. Metenere Ltd. (“Respondent” or “CD”) raises an objection of apprehension of bias on the appointment of the proposed IRP on the grounds that he was in past service of the FC since 1977 before retiring in 2016. In response to this particular objection raised by the CD, the NCLT in its impugned order dated 04/01/2021, held the apprehension of bias of the proposed IRP to be a valid ground of his disqualification from appointment as an IRP and directed the FC to substitute the name of Mr. Shailesh Verma with another IRP to act in his place. Thereafter, aggrieved by the above-impugned order, the FC appealed before the NCLAT on the following grounds:
1. The Code does not disqualify an ex-employee of an FC to be appointed as an IRP.
2. The IRP has no power to decide or adjudicate upon conflicts between the FC and the ex-management of the CD and is only responsible to facilitate the insolvency process.
3. Lastly, the proposed IRP is neither on any panel nor has a working portfolio with the Appellant Bank.
In response to the above appeal, the respondent submits that the proposed IRP being an ex-employee of the Appellate Bank continues to draw a pension from the FC, and by the definition under the Income Tax Act, 1961, the pension is to be construed as ‘salary’ which makes the IRP an interested person to the FC under the Code, and hence is a valid ground for his disqualification. Another contention raised by the Respondent is an apprehension of bias of Mr. Shailesh Verma towards the FC.
Summary of the tribunal’s observation:
1. The proposed IRP shall not be considered an “interested person” or an “employee” of the FC under the Code for drawing pension from the Appellate Bank
2. The proposed IRP is a qualified IP
3. Apprehension of Bias is a valid ground of ineligibility of the proposed IRP/RP
Conclusion:
The Appellate Tribunal upheld the apparent apprehension of bias against the proposed IRP as a sufficient ground for his disqualification from appointment as an IRP.