Appointment of IRP Under S.7 & S.10 IBC Is Mandatory, NCLT Has No Discretion To Deviate From Applicant's Choice: Madras High Court - 2025-08-13

Court Cases & Legal News.

Madras High Court Rules NCLT Must Appoint IRP Proposed by Applicant Under IBC

In a significant ruling clarifying the powers of the Adjudicating Authority, a Division Bench of the Madras High Court, comprising Dr. Justice Anita Sumanth and Mr. Justice N. Senthilkumar, has held that the National Company Law Tribunal (NCLT) has no discretion to appoint an Interim Resolution Professional (IRP) of its own choice when a specific professional is proposed in an insolvency application filed by a Financial Creditor or a Corporate Debtor.

Case Background

The case, K.J. Vinod vs The Registrar of the NCLT , was brought by an Insolvency Professional (IP), K.J. Vinod. He was aggrieved by an NCLT order dated June 4, 2025, which appointed another individual as the IRP for a company, despite Vinod being the professional recommended by the Corporate Debtor in its insolvency application under Section 10 of the Insolvency and Bankruptcy Code, 2016 (IBC).

The petitioner argued that this action by the NCLT was a direct contravention of the statutory mandate laid down in the IBC.

Arguments Presented

The petitioner's counsel, Mr. Varun Srinivasan, contended that the IBC provides a clear and mandatory framework for the appointment of an IRP. He argued: * Petitioner's Argument: Under Sections 7 (for Financial Creditors) and 10 (for Corporate Debtors) of the IBC, the applicant is required to propose the name of an IP to act as the IRP. Section 16(2) of the Code explicitly states that the Adjudicating Authority shall appoint the professional proposed by the applicant, with the sole exception being if disciplinary proceedings are pending against them. * NCLT's Justification: The NCLT, in its report to the High Court, defended its decision by stating it had deviated from the applicant's recommendation because the Corporate Debtor had changed its proposed IRP multiple times. The Tribunal believed it was acting in the "larger interests of the stakeholders" by appointing an IRP from the list recommended by the Insolvency and Bankruptcy Board of India (IBBI). The NCLT also provided a list of numerous other instances where it had similarly deviated from the applicant's choice.

Court's Analysis of Statutory Provisions

The High Court conducted a meticulous examination of the relevant sections of the IBC to determine the scope of the NCLT's discretion.

• Mandatory Language of the Code: The Bench observed that the statutory language is unambiguous. Section 16(2) uses the word "shall," indicating a mandatory obligation on the NCLT. The judgment states: > "Where the application for corporate insolvency resolution process is made by a financial creditor or the corporate debtor... the resolution professional, as proposed... shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him."

• Sole Condition for Rejection: The court emphasized that the only ground provided in the statute for rejecting a proposed IRP is the pendency of disciplinary proceedings. The NCLT's justification, based on the applicant changing its nominee, was found to have no statutory backing. The court noted: > "Hence and in regard to an application under Sections 7 or under 10 of the IB Code, the professional recommended by the applicant must mandatorily be appointed as IRP... There is no elbowroom available for the NCLT to take a different view in this regard."

• Checks and Balances: The High Court assuaged its own apprehensions regarding potential collusion or lack of transparency by pointing to the robust checks and balances already built into the IBC. It highlighted Section 22, which empowers the Committee of Creditors (CoC) to replace the IRP at its very first meeting with a 66% majority vote. This provision ensures that the ultimate control remains with the creditors, who can vet and, if necessary, replace the IRP appointed at the behest of the applicant.

Final Verdict and Directions

In light of its findings, the Madras High Court allowed the writ petition and set aside the NCLT's order. The court ruled that the NCLT's decision to substitute the proposed IRP for "reasons of its own" was unsustainable.

However, the Bench provided a constructive suggestion for the NCLT:

"We may suggest that it is always open to the NCLT to record its reservations in regard to the IRP as proposed by the applicant, such that those observations may be part of its order, for consideration of the CoC under Section 22 of the Code."

The matter was remitted back to the NCLT with a direction to pass fresh orders in line with the court's observations within six weeks, reinforcing the primacy of the statutory text in the insolvency process.