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A Lesson of Neutrality: About the Supreme Court’s ruling on the Regen Powertech case



Introduction


In a recent ruling that reverberated through legal circles, the Supreme Court of India issued a significant reminder about the role and responsibilities of a Resolution Professional (RP). The case in question, 'Regen Powertech Private Limited vs. Giriraj Enterprises and Anr.,' raised critical questions about the neutrality of an RP and the parties entitled to file appeals against orders from the National Company Law Appellate Tribunal (NCLAT).


The Background of the case


At the heart of this legal saga is a complex insolvency resolution process involving Regen Powertech Private Limited (RPPL), a corporate debtor facing claims of ₹1306.40 crore by the Committee of Creditors (CoC) led by the State Bank of India.


The journey began in December 2019 when the National Company Law Tribunal (NCLT) admitted the Corporate Insolvency Resolution Process (CIRP) against RPPL. Subsequently, the CoC endorsed a resolution plan. However, complications arose as other parties sought the consolidation of the CIRPs of RPPL and a related entity, Regen Infrastructure and Services Private Limited (RISPL).


The NCLT refused to consolidate the CIRPs and accepted the CoC's resolution plan. This decision prompted the parties to appeal to the NCLAT, which ruled in their favor, directing the consolidation of CIRPs. It was at this juncture that the RP filed appeals before the Supreme Court.


The stand of the Supreme Court


In a decision dated September 25, 2023, a bench comprising Justices Sanjiv Khanna and SVN Bhatti addressed the crucial issue of whether the RP had the standing to file appeals against the NCLAT order. Their judgment hinged on the principle that an RP should remain neutral and not assume the role of an aggrieved party.


The Court emphasized that the appeal should have been filed by the aggrieved parties, such as the corporate debtor (RPPL) or the CoC, rather than the RP. In doing so, the Supreme Court underscored the vital importance of the RP's neutrality throughout the insolvency resolution process.


The Implications of the case


This ruling has far-reaching implications for the insolvency resolution ecosystem in India. It serves as a stark reminder that an RP is a fiduciary entrusted with managing the affairs of the corporate debtor impartially. Their primary responsibility is to ensure a fair and transparent resolution process that maximizes the value for creditors.


By disallowing the RP's appeal, the Supreme Court sent a strong message that any deviation from this principle could undermine the integrity of the insolvency proceedings. This judgment is in line with the Insolvency and Bankruptcy Code's (IBC) overarching objective of balancing the interests of all stakeholders involved.


Role of the RP


The role of a Resolution Professional (RP) in the insolvency resolution process is pivotal. They act as a bridge between the corporate debtor and the creditors, striving to maintain fairness and transparency at all stages. An RP must oversee the day-to-day operations of the company, protect its assets, and facilitate negotiations between the CoC and potential resolution applicants.


However, their most critical responsibility is to ensure that the resolution process remains neutral and free from any bias. This neutrality is paramount in upholding the IBC's objectives, which include maximizing the value of the assets for the creditors.


Neutrality vs. Advocacy


The case of Regen Powertech brought to the fore the tension between neutrality and advocacy that an RP may experience. While an RP is not barred from participating in legal proceedings, they must do so within the boundaries of their role as a neutral party.


The Supreme Court's ruling affirms that any actions by an RP that appear to align with the interests of one party, to the detriment of others, could compromise the integrity of the resolution process. It is crucial for RPs to exercise caution, maintain objectivity, and avoid taking a partisan stance.


Assisting the Court


In its judgment, the Supreme Court made it clear that while the Resolution Professional cannot file appeals, they can still play a vital role in the legal process. If appeals are filed by the CoC or third parties, the Court can seek the assistance of the RP to provide insights, information, and expert opinions on the matters at hand.


This approach strikes a balance between recognizing the Resolution Professional's expertise and ensuring their neutrality. It acknowledges that RPs possess valuable insights into the intricacies of the insolvency resolution process, which can aid the Court in making informed decisions.


Conclusion


The Supreme Court's ruling in the Regen Powertech case serves as a landmark decision, emphasizing the critical importance of neutrality in the role of a Resolution Professional. The judgment underscores the need for RPs to maintain their impartiality throughout the insolvency resolution process, thereby upholding the principles of transparency, fairness, and equity enshrined in the Insolvency and Bankruptcy Code.


As the insolvency landscape continues to evolve in India, this case sets a precedent that reinforces the trust and integrity of the system. It sends a clear message to all stakeholders that adherence to the principles of neutrality and transparency is paramount, ensuring that the resolution process serves the best interests of creditors and corporate debtors alike.


 
 

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