NCLT Lacks Authority To Restrain Replacement Of Liquidator In Voluntary Liquidation: NCLAT Delhi

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) held that the National Company Law Tribunal can't compel the corporate debtor to retain the same liquidator once a valid board resolution has been passed for their replacement under voluntary liquidation. Background Facts: In February 2024, Transmissions International India Private Limited, Corporate Debtor, initiated voluntary liquidation under Section 59 of the Insolvency & Bankruptcy Code. Initially, Mr. Umesh Ved was appointed as the liquidator in the extra ordinary general meeting. Subsequently, Mr. Chandra Prakash Jain was appointed as the liquidator. However, due to allegations of breaches of fiduciary duties and lack of transparency, the Board of Directors passed a board resolution in February 2025, to remove Mr. Jain and appoint Mr. Arun Gupta as the new liquidator. However, Mr. Chandra Prakash Jain challenged his removal by filing an Interlocutory Application before the NCLT. In response, the NCLT directed parties to file replies to the Application and ordered that status quo be maintained with respect to the position of the liquidator. Aggrieved by the Status quo order, two appeals were filed under Section 61 of the Code by the Managing Director of the Corporate Debtor. First Appeal was filed challenging the status quo order passed by the NCLT. The Second Appeal was filed challenging the de-reserving of the judgement in the application. Contentions: The Appellant contended that as per Section 59 of the code along with Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, the power to replace a liquidator lies solely with the shareholders and directors of the corporate debtor. They do not have to take NCLT's approval and the liquidator can be replaced at any stage. Further, the Appellant contended that once the matter was reserved for judgment, the NCLT did not have the authority to re-open the case merely based on procedural objections. The de-reservation order was therefore legally impermissible. Findings: The NCLAT stated that Under Section 59 of the IBC, along with Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, the power to appoint or remove a liquidator rests entirely with the shareholders and directors of the company. They are under no legal obligation to give the NCLT a reason for removing the liquidator. Adjudicating Authority does not have the authority to interfere with the decision to appoint and/or replace a Voluntary Liquidator. It remarked that by directing the company to maintain the status quo and continue with already appointed person as liquidator, the NCLT went beyond its powers and violated the legal provisions. It observed that the shareholders and the directors of passed a resolution to remove the liquidator on 28.02.2025 because of his lack of cooperation and failure to carry out his duties properly and the decision was confirmed on 17.03.2025 and the status quo order was passed in 28.03.2025 which was after the liquidator was already appointed. Therefore, the NCLT went against the legal framework as it had no authority to impose status quo and prevent the company from proceeding with its decision. Therefore, the NCLAT held that as he company had followed the correct legal procedure to replace the Liquidator, no further approval from the NCLT was required. Therefore, the Tribunal set aside the status quo order dated 28.03.2025 and allowed the newly appointed liquidator to continue with the voluntary liquidation of the company. The NCLAT further remarked that the NCLT was legally wrong and went against the IBC and the Voluntary Liquidation Regulations, by de-reserving the judgment in IA No. 450 of 2025. It stated the process of voluntary liquidation must be completed within proper timeframe and by preventing the company from moving ahead with the new liquidator, the NCLT delayed the entire process. Since the Board and shareholders had already removed Mr. Jain through valid resolutions, the NCLT should not have reinstated him or prolonged his term without strong and valid reasons. Further, the NCLT failed to consider its own observation, where it had clearly stated that the application was filed by a liquidator who had already been replaced by the company through a valid process. However, instead of addressing the key issue that whether the liquidator even had the right to file the application challenging his removal. Thus, the NCLAT concluded that it will not interfere with the next hearing date of the application. However, it directed the NCLT to first address the core issue that whether the liquidator even had the right to file the application challenging his removal. Case Title: Vinod Singh V/s Chandra Prakash Jain ...

NCLT Lacks Authority To Restrain Replacement Of Liquidator In Voluntary Liquidation: NCLAT Delhi

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NCLT Lacks Authority To Restrain Replacement Of Liquidator In Voluntary Liquidation: NCLAT Delhi

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