What is the role of the Resolution Professional in NCLT proceedings in India?

Answer By law4u team

The Resolution Professional (RP) plays a crucial role in National Company Law Tribunal (NCLT) proceedings in India, particularly in cases involving the insolvency and bankruptcy of corporate entities. The RP is appointed to manage the affairs of the corporate debtor during the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). Here's an overview of the RP's role in NCLT proceedings: Appointment: The RP is typically appointed by the NCLT upon the initiation of the CIRP. The appointment is based on the recommendations of the financial creditors, and the NCLT approves the choice of RP. Taking Control: Upon appointment, the RP assumes control and management of the corporate debtor. The existing board of directors and management lose their authority over the company, and the RP becomes responsible for its day-to-day operations. Protection of Assets: The RP takes immediate steps to protect the assets of the corporate debtor, ensuring that they are not dissipated or devalued during the insolvency process. This includes taking control of bank accounts, preventing the disposal of assets, and securing sensitive company information. Managing Operations: The RP operates the business of the corporate debtor with the objective of keeping it a going concern. This often involves overseeing the maintenance of operations, financial management, and compliance with applicable laws. Calling for Claims: The RP invites and verifies the claims of creditors, which is a crucial part of the insolvency process. Creditors are required to submit their claims, and the RP is responsible for determining the validity of these claims. Preparation of Information Memorandum: The RP prepares an Information Memorandum that provides an overview of the financial position, operations, and assets of the corporate debtor. This document is made available to potential resolution applicants. Conducting the Resolution Process: The RP facilitates the resolution process, including the receipt and evaluation of resolution plans from prospective resolution applicants. The RP presents these plans to the Committee of Creditors (CoC) for consideration. Coordination with the CoC: The RP works closely with the CoC, which consists of financial creditors. They provide updates on the insolvency process, present resolution plans, and seek approval for various actions, such as the sale of assets or the initiation of legal proceedings. Reporting to NCLT: The RP periodically reports the progress of the CIRP to the NCLT, which oversees the insolvency proceedings. This includes updates on the status of the resolution process, the approval of resolution plans, and any challenges faced during the CIRP. Distribution of Assets: If a resolution plan is approved by the CoC and the NCLT, the RP oversees the implementation of the plan, which may involve the sale of assets and distribution of proceeds to creditors. Completion of CIRP: The RP's role continues until the CIRP is successfully completed, either through the approval of a resolution plan or, in the absence of a plan, through the liquidation of the corporate debtor. The Resolution Professional is a key figure in the insolvency and bankruptcy proceedings in India. They are responsible for ensuring a fair and transparent process, maximizing the value of assets for creditors, and facilitating the resolution of financially distressed corporate entities. Their role is pivotal in achieving the objectives of the IBC and protecting the interests of all stakeholders involved in NCLT proceedings.

Answer By Ayantika Mondal

Dear client, Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) is a system incorporated in the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “The Code”). In this, a corporate debtor that has defaulted in making payments to its creditors undergoes an insolvency process. The intent behind CIRP is to make an attempt at reviving the corporate debtor instead of liquidating or winding it up to reimburse the creditors. The Code, and subsequent amendments, have designated a period in which CIRP has to be concluded. CIRP commencement date is the date on which the adjudicating authority passes an order to admit the CIRP application. Interim Resolution Professional The adjudicating authority appoints a person on the commencement date of insolvency who will conduct the entire proceeding. This person is the Interim Resolution Professional (IRP). The IRP is responsible to conduct the proceedings of CIRP and also to ascertain the operations of the corporate debtor as a going concern. As the term suggests, the IRP’s appointment is temporary until a Resolution Professional is appointed by the Committee of Creditors (COC). Duties of IRP Section 18 of the Code lays down the duties of the IRP in CIRP. The duties are as follows; a. Collate information pertaining to the operations, assets and finances of the corporate debtor to understand its financial position; b. Gather all the claims made by the creditors against the corporate debtor; c. Form the COC; d. Manage finances and govern the operations of the corporate debtor as a going concern until an RP is appointed by the COC; e. Take custody of all the assets, tangible or intangible, in the name of the corporate debtor until such process is in motion; f. Any other duties as directed by the Insolvency and Bankruptcy Board of India (IBBI). Appointment of Resolution Professional by COC The IRP constitutes the COC by virtue of Section 18 of the Code. The COC’s first order of business, after the commission of the committee, is to appoint the Resolution Professional. As per Section 22 of the Code, the COC holds its first meeting within 7 days of its constitution. In this meeting, the committee discusses if the IRP can be appointed as the Resolution Professional to continue to conduct the CIRP. The committee then takes a vote and if the majority is equal to or more than sixty-six per cent, then the IRP becomes the Resolution Professional. However, the committee can also resolve to replace the IRP and appoint a difference licensed Resolution Professional to conduct the process. In this case, the committee applies to the adjudicating authority to appoint the Resolution Professional. The adjudicating authority subsequently chooses a Resolution Professional and forwards the choice to the IBBI for its approval. If the board does not approve the Resolution Professional as selected by the adjudicating authority, then the IRP resumes its position until IBBI appoints a person. This is also applicable in the case where the IBBI does not respond to the adjudicating authority within ten days of receiving the name. Responsibilities and Duties of Resolution Professional The COC appoints the Resolution Professional who then conducts the CIRP. He is one of the most vital members of the entire process with several responsibilities and functions to perform; Conducting CIRP Section 23 of the Code empowers the Resolution professional to conduct the CIRP. The Resolution Professional has to moderate all the stages of CIRP and ensure smooth and timely execution of the process. The extent of management of the operations of the corporate debtor by the Resolution Professional does not end at the culmination of the process. The Resolution Professional remains responsible for the going concern of the operations until the execution of the resolution plan. Operations of the corporate debtor as a going concern and asset management The Resolution Professional’s most important function is to ensure the operations of the corporate debtor as a going concern. This means that even though the corporate debtor is undergoing an insolvency process, its operations must be preserved until such process concludes. The Resolution Professional has professional freedom to ensure that the operations do not fester. The Resolution Professional also takes control of the assets and finances of the corporate debtor. He also protects and preserves the value of such assets and ensures that they remain unfettered until a resolution plan is executed. Based on this, the Resolution Professional also prepares an information memorandum which in turn assists the resolution applicant to compile a resolution plan. Analysis of the Resolution Plan The IBBI has devised requirements that a resolution plan must comprise. The resolution applicants submit resolution plans to the Resolution Professional. On receiving them, the Resolution Professional examines and analyses every resolution plan. He has to ensure that the resolution plans comply will all the requirements set by the IBBI. The adjudicating authority can reject the plan if it does not meet the requirements set by the IBBI. This could also lead to termination of the Resolution Professional. The Resolution Professional presents all the resolution plans before the COC to take a vote. The plan which is approved with a majority of minimum sixty-six per cent, is presented before the adjudicating authority. Liquidator The adjudicating authority can pass an order to liquidate the corporate debtor under several circumstances. When it does, the adjudicating authority appoints a liquidator. The first option for the liquidator is the Resolution Professional. In this case, the Resolution Professional takes the responsibilities of a liquidator and conducts the liquidation process. The insolvency professional or a Resolution Professional is the backbone of the process. Resolution Professional is the first person appointed and the last person to be relieved. The primary role of the Resolution Professional is to ensure the revival of the corporate debtor. However, more important for the Resolution Professional is to keep the process transparent and fair. Should you have any queries, please feel free to contact us!