RP's Role After CIRP Initiation: Why the Board of Directors Cannot Object

In the complex world of corporate insolvency, the initiation of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016, marks a pivotal shift in control. A common question arises: After the Initiation of CIRP, the RP is to Fight Proceedings before Civil Court and Board of Directors Cannot Object. This query touches on the statutory powers of the Resolution Professional (RP), the limitations on the Board of Directors, and the interplay between ongoing legal proceedings and insolvency resolution. This post delves into these dynamics, drawing from key legal precedents and IBC provisions to provide clarity for business owners, directors, and legal professionals.

Understanding these roles is crucial, as missteps can lead to prolonged disputes or missed opportunities for resolution. Note that while this analysis is based on established case law and statutes, it is for informational purposes only and does not constitute specific legal advice. Consult a qualified insolvency practitioner for tailored guidance.

The Resolution Professional's Mandate Post-CIRP Initiation

Upon the admission of a CIRP application by the National Company Law Tribunal (NCLT), the RP steps in as the custodian of the corporate debtor's affairs. Under Section 23 of the IBC, the RP is empowered to manage operations and represent the corporate debtor in legal proceedings. This includes fighting proceedings before civil courts, such as avoidance applications under Section 25(2)(j), which target preferential, undervalued, or extortionate transactions for the benefit of creditors 2023 0 Supreme(Del) 1945.

The RP's function is time-bound and focused on maximizing asset value during CIRP. As outlined in legal analysis, The Resolution Professional (RP) is tasked with managing the Corporate Insolvency Resolution Process (CIRP) and has a statutory duty to file avoidance applications under Section 25(2)(j) of the Insolvency and Bankruptcy Code (IBC) 2023 0 Supreme(Del) 1945. This authority overrides routine board decisions, suspending the Board of Directors' powers under Section 17(1)(b).

Handling Civil Court and Avoidance Proceedings

Post-CIRP initiation, the RP assumes control over litigation. Avoidance proceedings, though filed during CIRP, are distinct and not strictly bound by the 330-day CIRP timeline. The distinction between the CIRP and avoidance proceedings is emphasized, indicating that while the CIRP is time-bound and aimed at resolution, avoidance proceedings may require more time and are independent of the CIRP timeline 2020 0 Supreme(Del) 1461 2023 0 Supreme(Del) 1945.

However, this power ceases upon approval of the resolution plan under Section 31. At that point, the RP becomes functus officio—without further authority. The RP's role concludes upon the approval of the resolution plan, at which point the RP becomes functus officio, meaning they cannot act further in that capacity 2020 0 Supreme(Del) 1461 2023 0 Supreme(Del) 1945. The NCLT loses jurisdiction over avoidance applications unless the plan explicitly provides otherwise 2020 0 Supreme(Del) 1461.

Board of Directors' Position: No Right to Object During CIRP

The Board of Directors' powers are suspended upon CIRP commencement, rendering them unable to object to the RP's actions. The Board of Directors cannot object to the RP's actions regarding avoidance applications during the CIRP, as the RP acts in a statutory capacity 2023 0 Supreme(Del) 1945. This suspension applies to suspended directors, defined as those on the board at initiation whose powers are halted by CIRP 2024 Supreme(Online)(NCLAT) 205.

Directors who resigned prior to CIRP are not suspended directors and cannot interfere. Appellant has resigned more than two years prior to initiation of the CIRP and cannot be held to be a Suspended Director. Suspended Directors are Directors whose power to act as Directors are suspended by virtue of initiation of CIRP 2024 Supreme(Online)(NCLAT) 205. Similarly, boards superseded before CIRP (e.g., by RBI) vacate office and lack standing 2022 Supreme(Online)(NCLAT) 85.

Suspended vs. Removed Directors

• Suspended Directors: Remain on the board nominally but cannot act; they may access resolution plans but cannot challenge RP decisions during CIRP 2024 Supreme(Online)(NCLAT) 205.
• Removed/Ex-Directors: Those who resigned or were superseded pre-CIRP have no locus standi. Suspended Directors may include those Directors of the Corporate Debtor who wer... 2024 Supreme(Online)(NCLAT) 205; however, pre-initiation vacancies exclude them 2022 Supreme(Online)(NCLAT) 85.

The IBC's overriding effect ensures CIRP precedence. Once CIRP is initiated, proceedings under the IBC take precedence over all other legal processes (integrated from precedents like 2025 Supreme(Online)(NCLAT) 167). Internal disputes under Companies Act Sections 241-242 do not halt CIRP 2025 Supreme(Online)(NCLAT) 167.

Legal Precedents Reinforcing RP Authority

Courts have consistently upheld the RP's dominance:

1. RP's Limited Tenure: Authority ends with plan approval per Sections 23, 25, and 31 2020 0 Supreme(Del) 1461 2023 0 Supreme(Del) 1945.
2. No Post-Plan Avoidance: Once the resolution plan is approved, the RP cannot pursue these applications as the corporate debtor is now under new management 2020 0 Supreme(Del) 1461 2023 0 Supreme(Del) 1945.
3. Moratorium Effects: Section 14 halts fresh suits but RP defends existing ones. One of the purposes of the moratorium is to keep the assets of the Corporate Debtor together during the insolvency resolution process 2022 0 Supreme(SC) 855.
4. Overriding IBC: RP proceeds despite parallel proceedings

   Judgment dated 04.07.2023 of NCLAT in the matter of SEBI vs Rajesh Suresh Chandra Sheth & Ors - Company Appeal No. 1194 of 2022 - Securities and Exchange Board of India

   2023 Supreme(Online)(NCLAT) 862.

Stay orders from NCLAT can pause CIRP, but absent that, RP actions stand 2025 Supreme(Online)(NCLT) 5222.

Implications and Strategic Considerations

• For RPs: File avoidance claims early to avoid post-plan bars 2020 0 Supreme(Del) 1461.
• For Boards/Directors: Regain control only post-plan approval; pre-resignation directors stay sidelined 2024 Supreme(Online)(NCLAT) 206.
• Creditors: Benefit from RP-led recoveries during CIRP.

The Code does not provide a deadline for the initiation of proceedings for avoidance of transactions... Once filed, the Code also does not prescribe a time limit for conclusion of such proceedings 2023 Supreme(Online)(Del) 18116. This flexibility aids thorough adjudication.

Conclusion and Key Takeaways

After CIRP initiation, the RP exclusively handles civil court proceedings, including avoidance applications, while the Board of Directors—suspended or otherwise—cannot object. This structure prioritizes orderly resolution under IBC. Post-plan, new management takes over, closing RP's role unless specified otherwise.

Key Takeaways:- RP's powers are robust during CIRP but terminate on plan approval 2020 0 Supreme(Del) 1461 2023 0 Supreme(Del) 1945.- Boards lack objection rights; focus on compliance 2023 0 Supreme(Del) 1945.- Ensure avoidance filings pre-approval for efficacy.- Review plans for ongoing litigation provisions.

Recommendations:- File avoidance applications promptly during CIRP.- Directors: Verify status (suspended vs. ex) before engaging.- Stakeholders: Monitor CoC meetings and plan approvals 2023 0 Supreme(SC) 462.

This framework underscores IBC's efficiency in insolvency. For case-specific advice, engage insolvency experts. References: 2023 0 Supreme(Del) 1945 2020 0 Supreme(Del) 1461 2024 Supreme(Online)(NCLAT) 205 2022 Supreme(Online)(NCLAT) 85 2023 Supreme(Online)(Del) 18116.

Word count: 1028. This post is general information and not legal advice.