NCLAT Directs Adjudicating Authority to Follow Proper Procedure for Replacement of Resolution Professional
Tribunal Emphasizes Compliance with Section 27 of the Insolvency & Bankruptcy Code Amidst Allegations of Misconduct by Resolution Professional
In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has directed the Adjudicating Authority to adhere to the procedures outlined in Section 27 of the Insolvency & Bankruptcy Code (I&B Code) for the replacement of a Resolution Professional (RP). The decision comes in response to a company appeal filed by Mr. Mathioli N, the Resolution Professional for MQ Networks Private Limited, challenging the order for his replacement issued by the National Company Law Tribunal (NCLT), Chennai Bench.
The appeal stemmed from an order dated July 7, 2025, where the NCLT directed the replacement of Mr. Mathioli N as RP, following complaints from the sole financial creditor, M/s. Reliance Asset Reconstruction Company Limited. The creditor cited non-cooperative behavior and an obstructionist approach by the RP, which allegedly hampered the smooth conduct of the Corporate Insolvency Resolution Process (CIRP).
Mr. Mathioli N argued that the order violated principles of natural justice as he was not heard before the decision, which has civil consequences. He further contended that the procedure mandated under Section 27 of the I&B Code, requiring a resolution by the Committee of Creditors (CoC) with a 66% majority for RP replacement, was not followed.
The NCLAT, comprising Justice Sharad Kumar Sharma and Member Jatindranath Swain, acknowledged the procedural flaws in the impugned order. The tribunal noted the absence of an agenda for the RP's replacement in the CoC meeting, which should have been formulated and placed before the CoC for consideration. The NCLAT highlighted the necessity of hearing the RP before any decision affecting his position is made, underscoring the civil consequences involved.
In a corrective measure, the appellate tribunal directed the Adjudicating Authority to formulate an agenda for the RP's replacement based on the allegations in the application IA(IBC)/917/CHE/2025 and place it before the CoC for consideration within two weeks. This move aims to ensure adherence to Section 27 of the I&B Code, which governs the replacement of RPs during the insolvency process.
The NCLAT's decision underscores the importance of procedural compliance and the principles of natural justice in insolvency proceedings, offering clarity on the statutory requirements under the I&B Code. The tribunal's directive serves as a reminder that any replacement of a Resolution Professional must be conducted following the stipulated legal framework to safeguard the interests of all parties involved.
Bottom Line:
Insolvency & Bankruptcy Code, 2016 - Replacement of Resolution Professional - Tribunal must follow the procedure under Section 27 of the I & B Code, including placing the agenda for replacement before the Committee of Creditors (CoC) and ensuring that the Resolution Professional is heard, as the replacement has civil consequences.
Statutory provision(s): Insolvency & Bankruptcy Code, 2016, Section 27, Section 22, Section 60(5)
