In The Absence Of Report From Resolution Professional, Findings Regarding Default Cannot Be Recorded – NCLAT Orders Deletion Of NCLT Findings

The NCLAT Board comprised of Justice Ashok Bhushan as Chairperson, Justice Jarat Kumar Jain as Member [Judicial], Dr. Alok Srivastava as Member [Technical].

The NCLAT while relying on the precedent Mr. Ravi Ajit Kulkarni vs. State Bank of India held that the observations of the NCLT, Mumbai Bench regarding default deserved to be deleted from the judgment and was thus deleted.

Counsels Mr. Amrut Joshi, Mr. Prakhar Tandon, and Mr. Sai Krishna Kumar appeared for the Appellant while Counsels Mr. Sunil Fernandes, Mr. Darpan Sachdeva, and Mr. Shubham Sharma appeared for the Respondents and Mr. Sudha Bhushan was appointed as a Resolution Professional.

In this case, three batches of appeals were filed with similar facts. Appeals were filed against the order of NCLT, Mumbai Bench in a Company Petition filed under the provisions of Section 95 of IBC.

The NCLT Mumbai vide its powers appointed the RP and directed them to exercise the powers as enumerated under Section 99 of the IBC read with the Rules made thereunder and submit the recommendations with reasons in writing for acceptance or rejection of Application within the stipulated time as envisaged under Section 99.

Aggrieved by the said order, the Appellants preferred an appeal before the NCLAT.

The two prime contentions of the Appellant were –

Firstly, as per Section 97 of the 'I&B Code' even though the Application was filed by the Resolution Professional, the Adjudicating Authority ought to have asked for confirmation of the Resolution Professional from the IBBI as required by Section 97.

Secondly, at the stage when the report has not come from the Resolution Professional, it was premature to record any 'default' and 'allow' the Company Petition by the NCLT, Mumbai Bench.

The Appellant had placed heavy reliance on Company Appeal (AT) (Ins.) No. 316 of 2021 Mr. Ravi Ajit Kulkarni vs. State Bak of India.

Further, the Appellants contended that findings made by the NCLT, Mumbai Bench, regarding the default at such an early stage, was uncalled for, and in view of the said finding, the Resolution Professional shall be handicapped to submit any negative report. Reliance was also placed on Section 97 to 100 of IBC.

While the Respondents had argued that appointment of RP and confirmation from IBBI was only required if there was any disciplinary proceeding pending against the Resolution Professional. Hence, the submission is only a technical submission. As no disciplinary proceedings are pending against the Resolution Professional, the appointment has been confirmed by the Adjudicating Authority in which no error can be pointed out.

With regards to the second submission, it was argued by the Respondent that as far as the observations made by the NCLT, Mumbai Bench regarding default, the same may not affect the Resolution Professional while making the recommendation as required under Section 99.

Concerning the first contention of the Appellant, the NCLAT while placing reliance on Section 97 of IBC held that till the time there are no disciplinary proceedings against the nominated RP, there was no use, directing the Adjudicating Authority to send the recommendation to the Board for confirmation.

With regards to the second submission of the Appellant, the Hon'ble NCLAT answered in affirmative, while placing reliance on Ravi Kulkarni's Judgment, the Appellate Tribunal held that the observations of the NCLT, Mumbai Bench regarding default deserved to be deleted from the judgment and was thus deleted.

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