Thursday, 21 January 2021

IFCI Limited & Ors. Vs. M/s. B S Limited (in liquidation) - CoC members cannot move application for removal/replacement of Liquidator.

NCLT Hyderabad (07.01.2021) in  IFCI Limited & Ors.  Vs. M/s. B S Limited (in liquidation)  [IA   No. 1148/2020 in CP(IB) No. 278/7/HDB/2018]  held that; 

  • Therefore, the Liquidator has been endowed with very wide powers as a quasi-judicial functionary under the IB Code. Subsection (2) of Section 35 empowers the Liquidator to consult any of the stakeholders entitled to a distribution of proceeds under section 53, but the proviso makes it amply clear that such consultation is not binding on the Liquidator.

  • Thus, the Hon’ble NCLAT have categorically laid down that after the Liquidation process is initiated, the ‘erstwhile CoC members’ have no role to play and they remain simply a group of claimants, whose claims are to be determined by the Liquidator and they cannot move any Application for removal of Liquidator, since there are no such provisions under the Law.


Excerpts of the order;

# 13. On due consideration of the facts and arguments advanced by both sides, we frame the following two questions which are required to be answered for adjudicating upon the issue of removal of the Liquidator as prayed for by the Applicants herein:

  • (i) Whether the actions of the Liquidator in this case have been beyond the scope of his powers and duties as expressly provided in Section 35 of 1B Code, 2016 ? And

  • (ii) Whether the IB Code, 2016 provides for any provisions for process of removal of Liquidator on an Application made by Financial Creditor(s)/ Member(s) of erstwhile CoC?

 

# 15. On a perusal of the above-extracted section, particularly Sub-section (1) and especially Clauses (d) (l) and (m) thereof, it is seen that these provisions enjoin upon the Liquidator to (d) take such measures to protect and preserve the assets and properties of the corporate debtor as he necessary; (I) to investigate the Financial affairs of the Corporate Debtor to determine the undervalued or preferential transactions and (m) to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as liquidator. Therefore, the Liquidator has been endowed with very wide powers as a quasi-judicial functionary under the IB Code. Subsection (2) of Section 35 empowers the Liquidator to consult any of the stakeholders entitled to a distribution of proceeds under section 53, but the proviso makes it amply clear that such consultation is not binding on the Liquidator.

 

# 16. Keeping in view the powers and duties of the Liquidator as enumerated above, the actions initiated by the Liquidator would not fall beyond the scope of Liquidator’s duties to protect and preserve the assets and properties of the Corporate Debtor, and to investigate the Financial affairs of the Corporate Debtor, to determine undervalued or preferential transactions, which, when undone, ultimately would benefit the claimants or the stakeholders of the Corporate Debtor in Liquidation. 

 

# 17. Accordingly, keeping in view the provisions of Section 35 of the Code, the first question framed above has to be answered in the negative i.e., the action initiated by the Liquidator is not beyond the scope as provided under the Law.

 

# 20. As to the second question framed above, it is seen that the Application has been made under Section 60(5) read with 34(4) to 34(7) of the IB code, 2016 and Rule 11 of NCLT Rules, 2016. A reference to section 34, reveals that sub section (4) deals with replacement of RP in three situations as enumerated in clauses (a), (b) and (c) therein. It therefore does not deal with replacement or removal of the Liquidator at the instance of Creditors/claimants. 

 

# 21. As far as Sub-section (7) is concerned, it relates to the power of this Adjudicating Authority to appoint an Insolvency Professional as a Liquidator on receipt of recommendation for such appointment from the Board. This subsection also does not provide for replacement or removal of the Liquidator at the instance of Creditors/ claimants. 

 

# 22. In the instant case, Mr. Yadavilli Sai Karunakar was appointed as Liquidator on 25.10.2019, on the recommendations of IBBI vide its letter No. IP-13011/1 599/5044 Dated 24.10.2019. 

 

# 23. Therefore, the legal provisions under which this Application has been sought to be filed are not relating to replacement or removal of the Liquidator.

 

# 24. It is extremely pertinent to note that the Hon’ble  NCLAT in the matter of PNB Vs. Mr. Kiran Shah Liquidator of ORG Informatics Ltd.[Company Appeal (AT) 102 of 2020] have dealt with the issue of the removal of the Liquidator at the instance of Creditors / Claimants in the following manner;

  • 21.01.2020─ In the ‘Corporate Insolvency Resolution Process’ of ‘M/s. ORG Informatics Limited’- (‘Corporate Debtor’), the ‘Committee of Creditors’ of which the ‘Punjab National Bank’ is the lead Bank, decided to move application for liquidation of the ‘Corporate Debtor’. 

  • 2. The ‘Resolution Professional’ was asked to move an application for liquidation under Sections 33 & 34 of the Insolvency and Bankruptcy Code, 2016. The said application has been accepted by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad by impugned order dated 20th November, 2019. The ‘Resolution Professional’ has been asked to continue as Liquidator. 

  • 3. The grievance of the Appellant is that he is against the appointment of the Liquidator. However, we are not inclined to interfere with the impugned order as after the liquidation the ‘Committee of Creditors’ has no role to play and they are simply a claimant whose matters are to be determined by the Liquidator and cannot move an application for removal of Liquidator in absence of any provisions under the law. 

  • We find no merit in this appeal. It is accordingly dismissed. No costs

 

# 25. Thus, the Hon’ble NCLAT have categorically laid down that after the Liquidation process is initiated, the ‘erstwhile CoC members’ have no role to play and they remain simply a group of claimants, whose claims are to be determined by the Liquidator and they cannot move any Application for removal of Liquidator, since there are no such provisions under the Law. 

 

# 26. Following the guidance available in the form of the orders of Hon’ble NCLAT Supra, we observe that the prayers sought in the instant Application cannot be allowed.

 

# 27. Further, the Liquidator is at liberty to conduct the Liquidation process strictly in accordance with the provisions of the IB Code, 2016 and Regulations made thereunder, so as to maximize the value of the Liquidation Estate of the Corporate Debtor and to balance the interest of the stakeholders. 

 

# 28. With the above observation, IA No. 1148/2020 stands disposed. No order as to costs.


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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.