Stakeholders Consultation Committee's Advice Not Binding On Liquidator: Supreme Court

Recently, the Supreme Court clarified that the advice offered by the Stakeholders Consultation Committee (SCC) constituted in liquidation proceedings is not binding on the Liquidator.

In this case, the appellant claimed that the Liquidator failed to constitute an SCC before initiating a liquidation process. However, the respondent refuted this argument stating that constituting an SCC was not a requirement at that time because an Explanation appended to Regulation 31A was inserted in the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, vide Notification dated July, 25 2019 requiring an SCC to be constituted. Whereas, the liquidation process in this case had begun before the issuance of Notification.

On this, the Supreme Court explained that Regulation 31A requires a Liquidator to constitute an SCC within a period of sixty days from the date of commencement of the liquidation process. The purpose of constituting an SCC is to advice the Liquidator on matters relating to the appointment of professionals and their remuneration as also in relation to sale of assets under Regulation 32.

In this regard, the Court noted: "By virtue of the Notification dated 28th April, 2022, an Explanation was appended at the foot of Regulation 31A which clarifies that the requirement of constituting a Stakeholders' Consultation Committee shall apply only to those liquidation processes that were to commence on/after the date of commencement of the IBBI Regulation, 2016."

However, the advice offered by the committee is not binding on the Liquidator as observed in R.K. Industries (Unit-II) LLP v. H.R. Commercials Private Limited and Other (2022).

The Court added: "The safeguard provided in the Regulation is that if the Liquidator arrives at a decision which is at variance with the advice given by the Stakeholders' Consultation Committee, he must record in writing reasons for doing so and mention it in the next progress report. In the present case, the liquidation process in respect of the company had commenced on 17th July, 2019 and therefore, the submission made by the appellant that the Liquidator has breached Regulation 31A of the IBBI Regulations, 2016 by not constituting a Stakeholders' Consultation Committee, is devoid of merits."

Other reports about the judgment can be read here.