The National Company Law Tribunal (NCLT) on May 27 replaced Raj Kamal Saraogi after Zee Entertainment Enterprises Limited (ZEEL) chairman emeritus Subhash Chandra filed a plea expressing lack of confidence in the resolution professional (RP).
RPs are appointed by the NCLT the Tribunal had appointed under the Insolvency and Bankruptcy Code (IBC), 2016, to carry on the financial affairs and process the claims against a person admitted to insolvency resolution process.
The order, which was made available on May 30 stated that Saraogi, who was appointed as the RP by the tribunal in 2022, met Chandra earlier this month. But Chandra was "unable to gain confidence in the RP and the impression what he gathered is that the RP could not aptly comprehend and understand the vastness and intricacies of the complicated affairs as a businessman, a philanthropist and as a public servant".
He also contended that the RP, who is tasked with bringing stability to his financial condition, allegedly told him that the proceedings would lead to his bankruptcy. Saraogi, however, denied the allegation. Chandra also mentioned that Saraogi had brought his lawyer with him at the meeting, although there was no law to this effect.
The tribunal accepted Chandra's contention and appointed Shiv Nandan Sharma in Saraogi's place. The tribunal made it clear that the order in this case cannot be used against Saraogi in any other proceedings as he is being replaced solely for a minor procedural misstep i.e. bringing his lawyer to meet Chandra.
In April 2024, Chandra was admitted to personal insolvency in a plea filed by Indiabulls Housing Finance (IBHF) over guarantees given to a company called Vivek Infracon.
As a result of Chandra being admitted to moratorium, no litigation can be initiated against him. He also cannot alienate or sell any of his assets and the RP will now process the claims of those who intend to recover money from him.
What does being admitted to personal insolvency mean?
A personal guarantor is a person who gives a written assurance to a lender that a company will repay the loan/ credit facility it has obtained. In the event of a default, the guarantor's personal assets can be attached by the lender.
In 2019, the government brought in new provisions in the IBC that enabled a creditor or the RP of a company to move applications under the IBC to enforce personal guarantee. For instance, if a company is admitted to the insolvency resolution process and its promoter had given a personal guarantee, the lenders, either on their own or through the RP, can move an insolvency plea against the promoter.
The NCLT then appoints another RP to represent the personal guarantor. The RP collates the information related to the nature of the loan given to the company, the amount in default, and the role of the personal guarantor. The NCLT, upon analysis of the RP’s report, determines whether the personal guarantor must be admitted to the insolvency process or not.
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