NCLAT Affirms Shareholders’ Absolute Right to Replace Voluntary Liquidator Without NCLT Intervention

The NCLAT affirmed that shareholders have the absolute right to replace a voluntary liquidator under Section 59 of the IBC without requiring intervention or approval from the Adjudicating Authority.

On 30 May 2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson), Justice N. Sesha Sayee (Judicial Member), and Mr. Barun Mitra (Technical Member), considered two appeals and held that, in a voluntary liquidation under Section 59 of the IBC, the Adjudicating Authority lacks jurisdiction to interfere with or impose a status quo on the replacement of a liquidator duly appointed by the corporate debtor’s shareholders and board in accordance with Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017; such replacement is an internal matter of corporate governance and does not require judicial approval.

The National Company Law Appellate Tribunal (NCLAT), while deciding two appeals under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), addressed the issue of whether the Adjudicating Authority (NCLT Ahmedabad Bench-II) was justified in directing a status quo on the position of a Liquidator in a voluntary liquidation proceeding under Section 59 of the IBC. The appeals arose from two impugned orders dated 28.03.2025 and 29.04.2025. The Appellant, Managing Director of the Corporate Debtor (Transmissions International India Pvt. Ltd.), had challenged the maintainability of these orders as being beyond the jurisdiction of the Adjudicating Authority, contending that shareholders and directors had the exclusive right to replace the Liquidator without judicial intervention.

The factual matrix involved a voluntary liquidation initiated on 22.02.2024, followed by the appointment of the first liquidator, Mr. Umesh Ved. Subsequently, a resolution was passed on 18.09.2024 replacing him with Mr. Chandra Prakash Jain (Respondent No. 1). Dissatisfaction with Respondent No. 1’s conduct led the Board and shareholders to resolve on 28.02.2025 and 17.03.2025, respectively, to remove him and appoint Respondent No. 6 as the new Liquidator. However, Respondent No. 1 refused to hand over charge and challenged his removal by filing IA No. 450 of 2025, leading to the Adjudicating Authority issuing the impugned status quo order on 28.03.2025, which effectively halted the change.

NCLAT held that the powers under Section 59 of the IBC and Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, unequivocally empower the shareholders and board to appoint or replace a voluntary liquidator without requiring NCLT’s approval. The Appellate Tribunal observed that the process of replacement was legally completed through board and shareholder resolutions and that any interference by the Adjudicating Authority contravened the statutory scheme of voluntary liquidation, which differs materially from corporate insolvency resolution or compulsory liquidation under Chapter III of the IBC.

Furthermore, NCLAT found the order dated 29.04.2025, by which the NCLT de-reserved its judgment on the removal application, to be unjustified. It held that the procedural irregularities relied upon by the Adjudicating Authority—such as improper authorisation and defects in affidavits or Power of Attorney—were already known at the time of reserving judgment on 02.04.2025. Therefore, reversing that reservation based on the same known facts was contrary to judicial principles, particularly the principle that no hiatus should occur between reservation and pronouncement of judgment, as upheld in Arjun Singh v. Mohindra Kumar.

The NCLAT allowed Appeal No. 800 of 2025, vacating the status quo order dated 28.03.2025 and permitting Respondent No. 6 to proceed with the voluntary liquidation process. Respondent No. 1 was directed to hand over all records and documents as required under Regulation 41(4) of the VL Regulations. As for Appeal No. 801 of 2025, the NCLAT disposed of it with directions to the Adjudicating Authority to first decide on the maintainability of the removal application filed by the ousted Liquidator (Respondent No. 1) in the hearing fixed for 09.06.2025.

Mr. Abhijeet Sinha Sr. Advocate with Mr. Divyam Aggarwal, Mr. Aniket Aggarwal and Ms. Kavya Jha, Advocates, represented the Appellant.

Mr. Gaurav Mitra Sr. Advocate with Mr. Ravi Raghunath, Ms. Honey Satpal and Mr. Nipun Singhvi, Ms. Aishwarya Modi and Mr. Kanishk Khullar, Advocates, appeared for the Respondent No. 1.

Mr. Abhimanyu Bhandari, Sr. Advocate with Mr. Vishal Ganda, Mr. Anshit Aggarwal and Ms. Diksha Joshi, Advocates, appeared for Respondent No. 6.

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REEDLAW 2025 NCLAT Del 05594