NCLAT Rules Adjudicating Authority Must Consider Committee Of Creditors Recommendation When Appointing Corporate Liquidator

In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that an Adjudicating Authority cannot ignore the unanimous recommendation of the Committee of Creditors (CoC) when appointing a liquidator. The bench, comprising Justice Sharad Kumar Sharma, Arun Baroka, and Indevar Pandey, set aside an order by the National Company Law Tribunal (NCLT), Chandigarh Bench-II, which had independently appointed a liquidator from an Insolvency and Bankruptcy Board of India (IBBI) panel.

The Dispute Over Liquidation

The case involved the insolvency proceedings of Macro Dairy Ventures Private Limited . Punjab National Bank, acting as the sole member of the CoC with a 100% voting share, had twice resolved to recommend Mr. Rajesh Mehru as the liquidator. Despite this, the NCLT appointed Mr. Rajeesh Gupta as the liquidator, citing general IBBI guidelines dated July 18, 2023, without acknowledging the CoC’s specific recommendation.

Key Arguments

The Appellant, Mr. Rajesh Mehru, argued that the NCLT's decision was legally flawed because it failed to engage with the CoC’s unanimous choice. He contended that the IBBI guidelines relied upon by the Adjudicating Authority were inapplicable to his situation, as he had never previously served as the Interim Resolution Professional (IRP) or Resolution Professional (RP) for the company.

Conversely, the appointed liquidator argued that he had already made substantial progress in the liquidation process—including verifying claims and constituting the Stakeholders' Consultation Committee—and that removing him at this stage would cause professional prejudice.

Legal Analysis and Precedents

The NCLAT observed that while the NCLT has the discretion to appoint a liquidator, it must operate within the framework of the Insolvency and Bankruptcy Code (IBC), 2016. The Tribunal reiterated the principle of "commercial wisdom," emphasizing that the CoC’s role is central to the insolvency process.

The NCLAT further clarified that the IBBI communication regarding the appointment of liquidators was being wrongly interpreted as a blanket prohibition. The bench noted that Section 34 of the IBC, which concerns the appointment of liquidators, does not authorize an Adjudicating Authority to bypass the CoC’s recommendation without a valid, fact-specific justification.

Key Observations

The NCLAT’s judgment highlighted the procedural failure of the lower court:

"An order that appoints a Liquidator without any reference to the CoC's recommendation cannot be said to have applied its mind to that recommendation at all."

Furthermore, regarding the reliance on general IBBI guidelines, the court observed:

"A communication aimed at preventing the outgoing resolution professional from becoming Liquidator, whatever its general validity, could have no application to a professional who held no such prior office."

Court’s Decision

The NCLAT allowed the appeal, setting aside the appointment of the respondent liquidator. It directed that Mr. Rajesh Mehru be appointed, subject to a verification of his Authorisation for Assignment (AFA) by the Adjudicating Authority. To ensure the liquidation process remains uninterrupted, the Tribunal ordered that all lawful steps already taken by the outgoing liquidator, such as asset verification and claim processing, remain valid. The court also ordered that the outgoing liquidator be compensated for the work performed during his tenure, balancing administrative fairness with the primacy of creditor decision-making.