Madras High Court Ensures that NCLT Does Not Overreach in its Powers to Appoint the IRP

This note was contributed by Shravan Maathav (Associate) with inputs from Arjun Makuny (Senior Associate).

The Madras High Court has recently set aside an Order of the National Company Law Tribunal, Chennai Bench (Adjudicating Authority), vide which the Adjudicating Authority had appointed a different Interim Resolution Professional (IRP) from the one nominated by the Financial Creditor in the Company Petition.

It was the observation of the Adjudicating Authority that it was a case to exercise its jurisdiction to appoint a different IRP, since the Financial Creditor had revised its nomination on multiple occasions.

The Madras High Court, while allowing the Writ Petition, observed that -

1.      Section 7 (3)(b), Section 10 (3)(b) and Section 16(2) of the Code mandate the Adjudicating Authority to appoint the Interim Resolution Professional (IRP) as nominated in the Company Petition.

2.      The statutory exemption as provided under Section 16(3) of IBC shall be triggered only in the event an Operational Creditor does not propose any individual as the IRP or the suggested IRP is undergoing any inquiry in respect of disciplinary proceedings or convicted of any such disciplinary proceeding.

Notably, the Madras High Court has addressed the fear of the untrammeled power this may vest in the parties in choosing the IRP, by pointing out that Section 22 (2) of the IBC makes it clear that the Committee of Creditors may at their first meeting with a majority resolve to appoint the IRP as RP or replace him if there is apprehension of collusion.