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Directs to Hear Replacement Plea First in Nimitaya CIRP
The ) has delivered a significant ruling reinforcing the primacy of the ) in insolvency proceedings, directing the ) to first adjudicate an application seeking replacement of the ) before taking up other pending matters in the of The bench, comprising Officiating Chairperson Justice Yogesh Khanna and Technical Members Barun Mitra and Ajai Das Mehrotra, held that the cannot substitute its own wisdom for that of the when it comes to replacing an under . The order sets aside the 's earlier approach of demanding reasons from the financial creditor and issuing notice to the existing , and clarifies that mere delay in moving the replacement application does not disturb the of the .
Background of the Dispute
The insolvency proceedings against commenced on , when the admitted ’s petition under . The subsequently approved a on , and an application seeking the ’s approval was filed on . That application remained pending for over two years without any decisive action by the tribunal.
In the interim, —the lead financial creditor—filed an application seeking dismissal of the already-approved and permission to issue a fresh (). Later, the Bank also moved an application for the replacement of the Resolution Professional, citing that the had lost confidence in him. The had passed a resolution with the requisite 66% voting share to replace the .
’s Questionable Intervention
When the replacement application came before the , the tribunal took an unusual step. It summoned the Deputy General Manager of and questioned him about the reasons for seeking the ’s replacement. The officer cited “” but could not elaborate further to the tribunal’s satisfaction. The also issued notice to the sitting , who opposed his removal and attributed intentions to the Bank’s move.
The ’s approach effectively stalled the replacement process, even though provides an to the to replace the at any time during the CIRP, subject only to a resolution passed by at least 66% of the voting shares and written consent from the proposed replacement. The provision does not require the to justify its decision before the tribunal or to afford the outgoing a hearing.
’s Corrective Direction
Aggrieved by the ’s insistence on reasons and notice, appealed to the . The appellate tribunal, relying on its earlier decisions, firmly held that the cannot second-guess the of the in matters of replacement. The bench observed:
“Nothing has been discussed in the order as to what had disturbed the in the facts except such an application for replacement was moved after 2-1/2 years. This cannot be treated as a foundational principle since itself empowers the to replace the Resolution Professional at any time during the pendency of the process.”
The expunged the adverse remarks made against ’s officials and directed the to hear the replacement plea first. Only after disposing of that application—and any subsequent application to bring the new on record—should the take up the Bank’s application seeking dismissal of the existing and permission to issue a fresh . If the plan dismissal application is rejected, then the original application seeking approval of the will be considered.
Legal Implications: The Primacy of ’s
This judgment reinforces a well-established principle under the : the is the ultimate decision-making body for the corporate debtor’s resolution, and its is subject to very limited judicial review. The has repeatedly held that the adjudicating authority cannot interfere with a decision unless it is , , or violates the fundamental objectives of the Code. Here, the mere fact that the replacement application was filed two and a half years after the plan approval was not, in itself, a ground to suspect the ’s .
The ruling also clarifies the scope of Section 27. The provision does not require the to give reasons for losing confidence in the , nor does it mandate that the existing be heard before replacement. The ’s direction to expunge the remarks against the Bank’s officials sends a strong signal that tribunals should not question the ’s of trust and confidence.
Impact on Insolvency Practice
For legal professionals and insolvency practitioners, this order provides important procedural guidance. Lenders and financial creditors can now seek replacement without fear of the demanding detailed justifications or delaying the process. The ruling also underscores that the timeline of the CIRP—even if several years have elapsed—does not preclude the from exercising its powers under Section 27, as long as the CIRP is still pending.
Resolution Professionals should note that their tenure is contingent on the continued confidence of the . While they have the right to oppose removal on grounds of mala fides, the has made it clear that such opposition does not entitle them to an automatic hearing before the . The ’s decision, passed by the required majority, will ordinarily be respected.
Conclusion
The ’s judgment in the Nimitaya Hotel CIRP is a timely reminder of the ’s central role in the insolvency framework. By directing the to hear the replacement plea first and by expunging unwarranted remarks against the financial creditor, the appellate tribunal has restored the procedural hierarchy envisioned by the . The mandated by the ensures that the issue of replacement—which goes to the very conduct of the CIRP—is resolved before the tribunal considers the fate of the existing . This approach avoids the risk of the deciding on the plan while a new may be required to oversee its implementation or fresh bidding.
For the legal community, this case reinforces that the ’s role in insolvency proceedings is to facilitate, not obstruct, the ’s commercial decisions. As the observed, the power to replace the “at any time” is a deliberate feature of the Code, designed to preserve the ’s flexibility and ensure that the resolution process remains dynamic and responsive to changing circumstances.
