Replacement of Resolution Professional in Liquidation case

Replacement of Resolution Professional in Liquidation case

Section 33 of the IBC sets out the various circumstances in which the adjudicating authority must pass an order directing Liquidation case of the corporate debtor:

These include non-receipt of a resolution plan within the CIRP period or rejection of the resolution plan under section 31, or the decision taken by the committee of creditors to liquidate the company even prior to completion of the CIRP period of 180 or 270 days. The adjudicating authority, in any of the circumstances under which it passes an order for the liquidation of the company, is required to appoint a liquidator to conduct the liquidation process

Appointment of Liquidator:

Section 34 of the IBC, which relates to appointment of a liquidator, stipulates that upon passing of the liquidation order, the RP appointed for the CIRP shall act as the liquidator, unless the adjudicating authority decides to replace the RP on the grounds provided in section 34(4), i.e. the resolution plan submitted by the RP was rejected due to non-compliance with the requisites of section 30(2) or the Insolvency and Bankruptcy Board of India (IBBI) has recommended the replacement, for reasons to be recorded in writing

NCLAT Decision in the matter of Devendra Padamchand Jain Vs State Bank of India: (AA has replaced the RP with another Liquidator for the grounds specified under section 34(4))

The matter of replacing the RP was considered by the National Company Law Appellate Tribunal (NCLAT) in the matter of Devendra Padamchand Jain v State Bank of India. This case dealt with an appeal by Jain, the then-RP of VNR Infrastructures, against the order of the National Company Law Tribunal (NCLT), Hyderabad bench, removing him and appointing TSN Raja as the liquidator.

The NCLAT held that apart from the committee of creditors, the NCLT is also empowered to remove the RP, but it should be for the reasons and in the manner provided under the relevant section. In this case, Jain had failed to properly examine the resolution plan and had not stated that the plan he submitted met all the requirements of section 30(2). The NCLAT held that the NCLT has jurisdiction to remove the RP if it is not satisfied with its functioning, which amounts to non-compliance with section 30(2).

NCLAT Decision in the matter of Sandeep Kumar Gupta v Stewarts & Lloyds of India Ltd & Anr: (RP was replaced on grounds of non-satisfactory performance for reasons other than those in section 34(4))

However, a contrary view was taken by the NCLAT in the matter of Sandeep Kumar Gupta v Stewarts & Lloyds of India Ltd & Anr. In this case, the RP was replaced on grounds of non-satisfactory performance for reasons other than those in section 34(4), and the NCLT appointed a liquidator whose name was not specifically recommended by the IBBI.

The NCLAT, despite holding that the NCLT’s observations on the RP’s performance should not be construed as findings of misconduct, upheld the NCLT’s decision to replace the RP and engage another liquidator as it was not satisfied with the RP’s performance. The NCLAT further held that the list of RPs provided by the IBBI can be treated as recommendations of the IBBI.

NCLT, Mumbai Decision in the matter of Jitender Kumar Jain Vs Roofit Industries Limited:

This case dealt with an appeal by Jitender Kumar Jain stated that Mr. Jain is not willing to act as a liquidator of the Corporate Debtor. However, section 34(1) of the Code provides that where the Adjudicating Authority passes an order for Liquidation of the Corporate Debtor under section 33, the Resolution Professional appointed for the Corporate Insolvency resolution process under Chapter – II shall act as a Liquidator for the purpose of liquidation unless replaced by the Adjudicating Authority under sub-section (4). In view of this provision, this Adjudicating Authority cannot concede the request of Mr. Jain.

NCLT Observation: Apart from this, the Resolution Professional having dealt with the Corporate Debtor during the last six months it is not advisable to make somebody else as Liquidator because of the mere reason that no funds are available with the Corporate Debtor to pay the remuneration for RP.

Key observation:

The NCLAT’s view shows that the NCLT exercises power as well as discretion when appointing a liquidator, and may replace the RP who was appointed by the committee of creditors with any RP whose name appears in the list of RPs provided by the IBBI, to conduct liquidation proceedings if an order for liquidation of the corporate debtor is passed under section 33 of the IBC, even though the RP’s non-satisfactory performance does not fall under section 34(4).

This position does not appear to be in line with the spirit of the IBC, which specifically mentions the circumstances in which an RP can be replaced by the adjudicating authority in the event of liquidation Ultimately, it is for the Supreme Court, in an appropriate matter, to settle the law by interpreting the provisions of section 34 of the IBC which deal with the replacement of the RP in the event of liquidation of a corporate debtor under section 33, and to spell out the powers of the adjudicating authority in light of provisions under section 34(4)

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