AA Empowered To Remove The Liquidator: NCLAT Chennai

Background Facts

The Jeypore Sugar Company Ltd. (“Corporate Debtor”) is engaged in manufacturing of sugar in Andhra Pradesh and Orissa. The IDBI Bank Ltd. (“Financial Creditor”) had filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor. The Adjudicating Authority initiated CIRP against the Corporate Debtor on 25.02.2019. Mr. V. Venkata Sivakumar (“Appellant/Mr. Sivakumar”) was appointed as Interim Resolution Professional and subsequently confirmed as the Resolution Professional. On 29.05.2020 the Adjudicating Authority ordered for liquidation of the Corporate Debtor and appointed Mr. Sivakumar as the Liquidator.

The Financial Creditor filed an application before the Adjudicating Authority seeking replacement of Mr. Sivakumar with another Liquidator. It was alleged that Mr. Sivakumar did not possess a valid Authorisation for Assignment (“AFA”) on the relevant date and had suppressed the facts. It was contended that Regulation 7A of IBBI (Resolution Professional) Regulation, 2016, mandated 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. Mr. Sivakumar was appointed as the Liquidator on 29.05.2020 and did not possess an AFA on the relevant date. The Adjudicating Authority vide an order dated 01.07.2020 replaced Mr. Sivakumar with the new liquidator, Mr. S. Hari Karthik.

Mr. Sivakumar challenged the Order dated 01.07.2020 before the NCLAT.

Issue

Whether the Adjudicating Authority can remove the Liquidator?

NCLAT Verdict

The Bench observed that Mr. Sivakumar had admitted that the application for AFA was filed on 31.12.2019 and the same was rejected on 14.01.2020. It cannot be claimed that there was no requirement for issue of fresh AFA for his assignment as the Liquidator. Mr. Sivakumar’s assignment as the Liquidator got confirmed on 29.05.2020, which is beyond the prescribed threshold date i.e. 31.12.2019. Therefore, the regulatory provisions of IBC were not complied with.

Reliance was placed on NCLAT judgment in Subrata Maity v Amit C Poddar, Company Appeal (AT) (Ins.) No. 1234 of 2022, wherein it was held that: “The Liquidator does not have any personal right to continue in the Liquidation Process and the reasons which have been noted in the order are sufficient to exercise even the inherent power by NCLT to replace the Liquidator. It is not a fit case to interfere in exercise of our Appellate Jurisdiction.”

The Bench held that no Liquidator has any personal rights to continue in Liquidation and the Adjudicating Authority can order for replacement of the Liquidator, recording sufficient reasons as per Law.

“Further, since the ‘Adjudicating Authority’, is vested with the power, to `appoint a Liquidator’, under Section 33 and 34 of the I & B Code, 2016. It is by the virtue of the Section 16 of the General Clauses Act, 1897, that an ‘Adjudicating Authority’, who also, has the power, to remove the `Liquidator’.”

It was observed that the combined reading of Case Laws along with Section 33 and Section 34 of IBC, clarifies that the Adjudicating Authority also has the power to remove the Liquidator for reasons it may find fit, just, valid and proper. The Bench upheld the Adjudicating Authority’s order and dismissed the appeal.

Case Title: CA V. Venkata Sivakumar v IDBI Bank Limited & Ors.

Case No.: Company Appeal (AT) (CH) (Ins.) No. 269/2022

For Appellant: Mr. V. Venkata Sivakumar, erstwhile Liquidator.

Counsel for Respondents: Mr. Arun Kathpalia (Senior Advocate) For Mr. Varun Srinivasan, Advocate. Mr. P. Wilson (Senior Advocate) For Ms. N. Kalaivani, Advocate. Mr. J. Manivannan, Advocate.

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