NCLT| When can a liquidator in a liquidation process be replaced?

Financial Creditor

National Company Law Tribunal, Chennai: The Bench of S. Ramathilagam, J., Judicial Member, and Anil Kumar B, Technical Member held that the tribunal has the power to replace the liquidator of a Corporate Debtor in a liquidating process if the tribunal finds necessary grounds for such replacement.

Factual Background and Submissions made

A Corporate Insolvency Resolution Process was initiated against the Corporate Debtor, the applicant on 25-02-2019. On 29-05-2020 the liquidation process was initiated and Mr. Venkata Sivakumar was appointed as the Liquidator (respondent) for the liquidation process of the applicant.

The applicant submitted that the respondent did not process a valid Authorisation for Assignment as required under Regulation 7 A of the Insolvency and Bankruptcy Board of India (Resolution Professionals) Regulations, 2016 on the date of appointment as the liquidator, and therefore sought removal of the respondent as the liquidator.

The respondent submitted that there is no provision under the Insolvency and Bankruptcy Code, 2016 (hereinafter as IBC) to change the liquidator, and also the liquidator cannot be changed at the behest of the stakeholders unless or otherwise a serious allegation of corruption has been made.

Analysis and decision

Firstly, the Bench observed the provision under Section 16 of the General Clauses Act, 1897 which states that the power to appoint includes the power to suspend or dismiss. Therefore, the Bench opined that when Section 16 is being read with Section 33 of the IBC, the tribunal which has the power to appoint a person, equally has the power to suspend or dismiss the Liquidator, in the absence of any specific powers conferred thereto. Hence, the tribunal has the power to dismiss the liquidator under Sections 33 and 34 of the IBC.

Further, the Bench observed that the provisions of IBC do not explicitly state the grounds on which the liquidator can be removed. Therefore, in the absence of such provisions, provisions under Section 276 of the Companies Act, 2013 have to be considered to determine the removal of the Liquidator. As per the provision under the section, a liquidator may be removed or replaced on the grounds of misconduct, fraud, professional incompetence, inability to act, due care and diligence, etc.

Therefore, the bench held that in the present case, the respondent failed to exercise due care and diligence in the performance of the powers and functions while discharging his duties as a liquidator as he had shared the valuation report with the prospective scheme proponents. Therefore, he was required to be replaced.

Hence, NCLT allowed the application for the removal of the liquidator under Section 60(5) of the IBC read with Rule 11 of the National Company Law Tribunal Rules, 2016 and Section 276 of the Companies Act, 2013.

[IDBI Bank Ltd. Represented by Dy General Manager v. V. Venkata Sivakumar, 2022 SCC OnLine NCLT 212, decided on 01-07-2022]


Advocates who appeared in this case :

Varun Srinivasan, NVS & Associates, Advocates, for the Applicant;

V. Venkata Sivakumar, Party in Person, Advocate, for the Respondents.

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