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NCLAT upholds replacement of resolution professional S. Viswanathan respecting CoC's
The at Chennai has delivered a significant ruling affirming the primacy of the Committee of Creditors' (CoC) in replacing a . In a judgment that balances the independence of the RP against the collective decision-making of creditors, the appellate tribunal held that S. Viswanathan had no to continue as RP of , and that the CoC's majority view must be respected as long as it does not contravene the . The decision upholds the earlier order of the , which had replaced Viswanathan with Shirley Mathew as the new RP.
Background of the Dispute
was admitted into the on , with S. Viswanathan appointed as the Interim Resolution Professional. At the first meeting of the CoC, minutes prepared by Viswanathan recorded that and —the only two creditors—had unanimously resolved to retain him as the RP. However, , holding an 84.6% voting share in the CoC, subsequently disputed the minutes and withdrew its consent. held the remaining 15.4%.
At a subsequent CoC meeting, voted in favour of replacing Viswanathan, while voted against the proposal. then moved the NCLT seeking Viswanathan's replacement. The Bengaluru bench allowed the application and appointed Shirley Mathew as the new RP, a decision that Viswanathan appealed before the NCLAT.
vs. Independence of RP
The core legal question before the NCLAT was whether the CoC's decision to replace an RP should be given deference even when the RP claims to have acted independently and without bias. Viswanathan argued that the NCLT had not considered his defence to the allegations raised by , thereby violating the principle of (the right to be heard). He also contested the finding that voting records for the first CoC meeting were absent, contending that electronic voting was not required when all members were present and voted unanimously.
The NCLAT bench, comprising Judicial Member Justice N. Seshasayee and Technical Member Jatindranath Swain, rejected these arguments. The bench observed:
"While it has to be accepted that RP must function independently and not as per the whims and fancies of the dominant creditor, the of the CoC (as represented by the majority view) has to be respected unless he is being asked to perform a task contrary to the provisions of the Code and the Regulations framed thereunder."
The appellate tribunal further held that Viswanathan had no to continue as RP. The CoC, being the commercial decision-making body in the CIRP, is entitled to replace the RP for reasons that may not be strictly adversarial but reflect its collective commercial judgment. The NCLAT found that the NCLT had not erred in ordering the replacement, as the CoC's majority view—'s 84.6% voting share—was clear and unambiguous.
Fees and Professional Reputation
Viswanathan had also sought payment of ₹17.83 lakh towards professional fees and ₹3.38 lakh towards CIRP expenses, totaling ₹21.21 lakh. He additionally requested the removal of adverse remarks made against him in the NCLT's order, arguing that they damaged his professional reputation.
The NCLAT declined to adjudicate the fee claim at this stage, holding that the amount payable would depend on the work actually performed and the CoC's willingness regarding the scale of fees. The tribunal gave Viswanathan liberty to approach the NCLT for adjudication of his claim and directed the NCLT to decide it preferably within two months of an appropriate application being filed.
Significantly, the NCLAT expunged the adverse observations made against Viswanathan by the NCLT, noting their bearing on his professional reputation. This aspect of the ruling offers a measure of relief to the former RP, even as the substantive order of replacement was upheld.
Implications for Insolvency Practice
The judgment reinforces the CoC's dominant role in the CIRP under the IBC. While RPs are expected to function independently and impartially, they remain accountable to the CoC, which is the commercial nerve centre of the insolvency process. The decision clarifies that the CoC's decision to replace an RP—even one who has not been found guilty of misconduct—must be respected as an exercise of , unless the decision is manifestly contrary to the Code.
For insolvency professionals, this ruling underscores the importance of maintaining transparent communication with the CoC and ensuring that all procedural steps are meticulously documented. The absence of voting records or ambiguous minutes can become grounds for a CoC to question the RP's conduct and seek a change. Moreover, the case highlights that a dominant creditor's voting power can effectively determine the fate of an RP, although the tribunal cautioned against the RP functioning at the "whims and fancies" of such a creditor.
Conclusion
The NCLAT's decision in the Viswanathan case strikes a careful balance between the need for an RP's independence and the CoC's commercial discretion. By upholding the replacement of Viswanathan and expunging adverse remarks, the tribunal has reinforced the principle that the CoC's majority view is entitled to deference, provided it does not violate the IBC. The fee claim left open for NCLT adjudication ensures that the RP is not left without compensation for services rendered. This judgment will serve as a key reference for future disputes involving the replacement of resolution professionals in Indian insolvency proceedings.
