NEW DELHI: The authority to appoint a liquidator for a company in debt undergoing insolvency procedures lies solely with the Committee of Creditors (CoC), not the National Company Law Tribunal (NCLT), in instances where a Resolution Professional has not provided written consent, as per the National Company Law Appellate Tribunal (NCLAT).
In a ruling concerning two similar cases where the NCLT had appointed liquidators for two struggling companies, the NCLAT overturned those decisions, emphasizing that “only the CoC has the authority to select a candidate to replace the RP.”
The NCLAT clarified that while the NCLT serves as the designated authority under the Insolvency and Bankruptcy Code (IBC) proceedings, its role is limited to replacing the resolution professional and does not extend to appointing a liquidator.
The IBC requires that debt-ridden companies be sold within a designated timeframe, otherwise the NCLT will order liquidation, allowing the resolution professional to step in as the company’s liquidator.
However, according to Section 34(1) of the IBC, the RP must provide written consent for this process. If they do not, Section 34(4)(c) empowers the NCLT to replace the RP and appoint a different liquidator.
The contention arose when the Indore Bench of the NCLT appointed a liquidator who was neither the RP designated during the corporate insolvency resolution process (CIRP) nor a candidate chosen by the CoC. The lenders contested this decision before the NCLAT, arguing that the latter part of Section 34(1) grants the NCLT authority only to replace the RP, not to override the CoC’s choice.
The counsels for the liquidators contended that under Section 27, the CoC possesses the authority to appoint the RP, implying that the ultimate power to appoint a liquidator rests with the Adjudicating Authority.
However, the NCLAT dismissed this claim, stating: “A careful reading of the second part of Section 34(1) and Section 34(4)(c) shows that the Adjudicating Authority is authorized only to replace the resolution professional but not to appoint a liquidator.” They further noted that the authority to replace the RP lies with the CoC as outlined in Section 27.
The NCLAT concluded: “In accordance with Section 27, the Adjudicating Authority can only appoint the RP selected by the CoC, subject to confirmation by the Board.” Thus, they affirmed that the CoC alone has the authority to identify a candidate for replacing the RP for the purposes of Section 34(4)(c) of the IBC. Despite the formal appointment resting with the Adjudicating Authority, the CoC’s choice is paramount.
Consequently, the NCLAT set aside both appeals and the orders of the NCLT Indore Bench, directing that the liquidators appointed by the CoC be formally recognized.
