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Insolvency - CoC is not bound to record reason for replacing the IRP with another RP

In Power Finance Corporation Limited vs Mahendra Kumar Khandelwal, an Application was filed by the respondent IRP of the Corporate Debtor herein seeking to pass directions to the COC of the corporate debtor to reconsider their decision and to continue with the applicant as the RP.

The NCLT observed that from a plain reading of section 22 of the I & B code which has been confirmed by several judgments of the Supreme Court, is clear that the CoC is conferred with the power of replacing the IRP with another resolution professional and no reason it's to be recorded by the CoC for effecting such replacements. It is the prerogative of the CoC whether to continue with the IRP as the RP or to replace the IRP with another RP. 

The only pre-requisites to be made under section 22 of the code are as under :–

1) The CoC in its first meeting shall pass the resolution with at least 66% votes.

2) Written consent shall be obtained from the proposed RP in the specified form.

3) The CoC shall file an application before the Adjudicating Authority for appointment of the proposed RP.

4) The Adjudicating Authority shall forward the name of the proposed RP to the IBBI for its confirmation and make the appointment after the confirmation.

The NCLAT observed that as in this case the first 3 steps have been completed and the fourth step is awaited, there is no infirmity with the decision of the CoC in replacing the IRP and appointing a new RP in his place.

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