NCLT Chandigarh: Suspended Directors Have No Vested Right In The Removal Of Liquidator

It held that the suspended director does not have the authority to recommend the liquidator's removal and the power rests with the Stakeholders Consultation Committee (SCC) as per Regulation 31A (11) substituted by Liquidation Process (Second Amendment) Regulations, 2021.

Background Facts:

The Applicant filed an application to seek direction for the removal of the Liquidator and for the appointment of a new Liquidator of the Corporate Debtor prior to the date of sale of assets of the Corporate Debtor i.e. 29.03.2023.

The Liquidator was accused of concealing crucial information from IBBI and NCLT involving allegations of criminal conspiracy, cheating, forgery, and the use of forged documents, resulting in a wrongful loss of Rs. 26.16 Crore to Union Bank of India. The said FIR was filed based on a Special Investigation Audit Report conducted by KPMG India. He is also accused of misconduct due to his failure to disclose this information in FORM A, II^nd Schedule, as per IBBI (Insolvency Professionals) Regulations. This failure to disclose could render the liquidator ineligible for appointment as an Insolvency Professional.

Contentions of the Liquidator:

The Liquidator rebutted the claims made by the Applicant and argued that the sale of the Corporate Debtor’s assets had been successfully completed through a composite e-auction conducted electronically on 01.04.2023, in compliance with the directions of the NCLT issued on 01.03.2023 with the entire proceeds from the sale being distributed as per the waterfall mechanism. Thus, the application is infructuous.

He also contended that he has duly disclosed, and declared all relevant information in Form 2/Form AA before the NCLT, IBBI, and Insolvency Professional Agency (IPA) and filed a response to the complaint before IBBI for which no adverse action has been initiated by IBBI and IPA against him.

The Liquidator argued that no information was given to him by CBI about such an FIR and there are no other details in the FIR matching the identity of the Liquidator other than the name of the person. He also asserted that the FIR incorrectly includes the name Sanjay Kumar Aggarwal, while omitting the name of Sanjay Gupta, the Promoter-Director of Supreme Tex Mart Limited which is pertinent to the case to which he has not provided any advice. He was appointed as an Additional Independent non-executing director on 14.11.2015 and resigned from the directorship on the same day.

He also placed reliance on RBI Master Circulars and circulars by the Ministry of Corporate Affairs stating that non-executive independent directors cannot be implicated in criminal proceedings.

NCLT Verdict:

The NCLT Chandigarh dismissed the application and held that the suspended director does not have the authority to recommend the liquidator's removal. It observed that the power to remove the liquidator rests with the SCC as per Regulation 31A (11) substituted by Liquidation Process (Second Amendment) Regulations, 2021. The SCC can propose to replace the liquidator by a majority vote of at least sixty-six percent and can submit the proposal through Form AA of Schedule II to the Adjudicating Authority. Further, if a liquidator is to be replaced, he should continue to work until their replacement and be appropriately remunerated for his work until then. It held that after perusal of the

The Tribunal reviewed the Interim Application filed by the SCC and found that it does not recommend the liquidator's removal. Instead, it requests directions for the liquidator to promptly distribute the proceeds obtained from the sale of the corporate debtor's assets, retaining only the disputed amount related to his alleged liquidator fee and liquidation expenses.

Case Title: Kulwinder Singh Makhni (Ex-Director, M/s. Punjab Basmati Rice Ltd.) vs. Mr. Sanjay Kumar Aggarwal

Case No.: CP (IB) No.340/Chd/PB/2018

Counsel for Applicant: Ms. Jyoti Sareen, Advocate

Counsel for Corporate Debtor: Mr. D.P. Garg, Advocate

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