Adjudicating Authority Lacks Power to Replace Resolution Professional as Liquidator Without Specific IBBI Recommendation under IBC Section 34
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal, Principal Bench, clarified that under Section 34 of the Insolvency and Bankruptcy Code, the Adjudicating Authority has no power to replace the Resolution Professional as liquidator unless the Insolvency and Bankruptcy Board of India (IBBI) issues a specific, case-based recommendation. The Tribunal held that a general advisory letter from the IBBI cannot be treated as a valid ground for such replacement.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, held that the Adjudicating Authority cannot replace the Resolution Professional as liquidator unless the IBBI provides a specific case-based recommendation. The Tribunal observed that a general advisory letter issued by the IBBI does not meet the statutory requirement under Section 34 of the Insolvency and Bankruptcy Code for such substitution.
The Appellate Tribunal considered an appeal preferred by the erstwhile Resolution Professional of the Corporate Debtor challenging the order of the Adjudicating Authority, which, while allowing the liquidation of the Corporate Debtor, appointed another Insolvency Professional as liquidator in place of the Appellant. The record showed that the Committee of Creditors, exercising its commercial wisdom, had earlier passed a resolution with a voting share exceeding 83 per cent to liquidate the Corporate Debtor and had expressly recommended that the existing Resolution Professional be appointed as the liquidator. The Appellant had furnished the requisite written consent as well as a valid authorisation for assignment in accordance with the Insolvency and Bankruptcy Board of India regulations.
Despite these undisputed facts, the Adjudicating Authority relied on a communication dated 18 July 2023 issued by the Insolvency and Bankruptcy Board of India and appointed a different professional as the liquidator. The Tribunal undertook a detailed analysis of Section 34 of the Insolvency and Bankruptcy Code, 2016, which provides that once the Adjudicating Authority passes an order for liquidation under Section 33, the Resolution Professional shall ordinarily act as the liquidator unless he is replaced for reasons specifically set out in Section 34(4). Those limited circumstances include the rejection of a resolution plan for statutory non-compliance, a specific recommendation by the Board for replacement of the particular Resolution Professional concerned, or failure of the professional to give written consent to act as liquidator.
The Tribunal observed that the communication of 18 July 2023 issued by the Board was only a general advisory suggesting that a person other than the Resolution Professional be appointed as liquidator in all cases. Such a blanket advisory, the Tribunal held, could not be equated with a “recommendation” contemplated under Section 34(4)(b), which envisages a case-specific assessment of the conduct or eligibility of the professional. It was clarified that the Board’s powers under Section 34(4)(b), read with Section 196 of the Code, are confined to recommending replacement in relation to an identified professional on the basis of material facts and cannot be exercised to issue a general directive binding all adjudicating authorities.
Having regard to these statutory provisions, the Tribunal concluded that the Adjudicating Authority had acted contrary to the mandate of the Code by ignoring the Committee of Creditors’ recommendation and the Appellant’s valid consent. It emphasised that the legislative intent is that the Resolution Professional, who has managed the affairs of the corporate debtor throughout the insolvency resolution process and is familiar with its assets and liabilities, is best placed to carry forward the liquidation unless disqualified on specific grounds. Since none of the statutory exceptions existed in the present case, there was no justification for replacing the Appellant.
Consequently, the Appellate Tribunal set aside the portion of the impugned order appointing a different professional as liquidator and directed that the Appellant be forthwith appointed as the liquidator of the Corporate Debtor. It further ordered that the professional initially appointed as liquidator pursuant to the Adjudicating Authority’s order would be entitled to reimbursement of the reasonable expenses already incurred in the discharge of her fiduciary duties prior to the appellate decision.
Mr. Devul Dighe, Advocate, represented the Appellant.
Mr. Pranjit Bhattacharya, Ms. Salonee Shukla and Ms. Aashima Gautam, Advocates, appeared for the Respondent No. 1.
Mr. Adeel Parker, Advocate, appeared for the Liquidator.
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