NCLT can Replace the Liquidator if he isn’t Holding a Valid Authorisation for Assignment

Case Details: CA V. Venkata Sivakumar v. IDBI Bank Ltd. - [2023] 149 taxmann.com 60 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
  • V. Venkata Sivakumar, Arun Kathpalia, Sr. Adv., Varun Srinivasan, Adv., P. Wilson Sr. Adv. Ms N. Kalaivani & J. Manivannan, Advs. for the Appearing Parties.

Facts of the Case

In the instant case, the appellant was appointed as the liquidator of a corporate debtor pursuant to a liquidation order dated 29-5-2020. However, after examining the appellant’s documents, the respondent (i.e. bank), who was a financial creditor, found that the appellant did not have a valid Authorisation for Assignment (AFA).

The respondent then filed an application before the National Company Law Tribunal (NCLT) seeking the replacement of the appellant.

Regulation 7A of the IBBI (Insolvency Professionals) Regulations, 2016, states that no insolvency professional shall accept or undertake any assignment after 31-12-2019 unless he holds a valid AFA on the date of acceptance or commencement of such assignment. The appellant received a valid AFA on 30-12-2020, which was after his appointment as liquidator. Therefore, NCLT passed an order to replace the appellant with new liquidator.

The Appellant aggrieved by the order of NCLT, filed an appeal to the National Company Law Appellant Tribunal (NCLAT).

NCLAT Held

The NCLAT, held that the appellant did not possess the legally required AFA on the date of acceptance of the assignment, and thus, there was no error in the impugned order passed by NCLT to replace the appellant with a new liquidator.

The NCLAT further held that the liquidator has no personal rights to continue in the liquidation process, and the NCLT has the power to appoint and remove liquidator for reasons it finds fit, just, valid, and proper.

This power is derived from Section 60, read with Sections 33 and 34 of the IBC, which deals with the powers and functions of the corporate persons adjudicating authorities, including the NCLT.

In conclusion, the case underscores the importance of complying with the legal requirements for accepting assignments under the IBC, and the broad powers of the NCLT in appointing and removing liquidators for reasons it deems fit.

List of Cases Reviewed

• • IDBI Bank Ltd. v. V. Venkata Sivakumar [2023] 149 taxmann.com 59 (NCLT – Chennai) (para 49) affirmed. [See Annex.]

List of Cases Referred to

• • IDBI Bank Ltd. v. Venkata Sivakumar Liquidator of the Jeypere Sugar Co. Ltd. [IA/815/IB/2020, dated 1-7-2022] (para 1)
  • Dhinal Shah v. Bharathi Defence Infrastructure Ltd. [CA (AT) (Insolvency) No. 175 of 2019, dated 29-3-2019] (para 15)
  • Punjab National Bank v. Kiran Shah [2020] 117 taxmann.com 427 (NCLT – AT) (para 21)
  • Centrum Financial Services Ltd. v. CFM Asset Reconstruction (P.) Ltd. (CA (AT) (Ins.) No. 302 of 2021] (para 23)
  • ITO v. MC Ponnoose [1969] 2 SCC 357 (para 46)
  • State of Tamil Nadu v. M.N. Sundarajan [1980] 4 SCC 592 (para 47).