Failure of due diligence, a liquidator can be replaced

The bench found the liquidator guilty of sharing the debtor’s valuation report with potential plan sponsors on failure to exercise due diligence.

The National Company Law Court (NCLT) Chennai recently ruled that failure and due diligence were the basis for replacing a liquidator (IDBI Bank Limited v. V Venkata Sivakumar). 

The Bankruptcy and Bankruptcy Code 2016 has no provision for replacing a liquidator. Therefore, the Court relied on Section 276 of the Companies Act 2013 to provide grounds for dismissing the liquidator. 

The controversial order issued by the arbitration body (National Company Law Court), Special Bench, Chennai has placed the debtor company in “liquidation” after refusing to extend the “procedure” period to resolve the company’s insolvency beyond the specified maximum period of 330 days, which includes time for judicial intervention. 

A time limit exceeding 330 days from the settlement specialist was supported by the “creditor committee”, but the adjudicator found no exceptions to justify such an extension due to the Court’s statement ‘respectable Apex in ‘Essar Steel India Ltd. 

Creditors Committee v Satish Kumar Gupta & Ors. – (2019) Online CSC SC 1478′. 

The bench of Anil Kumar and Judge S Ramathilagam further stated that the liquidator did not have a Valid Authorization to Designate (AFA) as required by Regulation 7A of the Bankruptcy Regulations 2016 and Bankruptcy of India (experts deal) to execute transactions as a liquidator. 

For this reason, the debtor company requests the Court to declare null and void all actions, functions, and responsibilities assumed by the liquidator, including the order to liquidate the unit. 

Additionally, the debtor company alleges that the liquidator shared the entity’s valuation report with potential promoters, to their advantage. 

Therefore, the investors have quoted a price equal to the appraisal report. 

In his defence, the liquidator stated that the IBC did not have any provisions regarding the removal/replacement of the liquidator and therefore the current application must be dismissed. 

He also argued that only during the corporate insolvency resolution (CIRP) process, the settlement professional must not share the valuation report. 

However, this can also be true at the liquidation stage. 

The Substitute did not accept this submission, who felt, “Such a statement by the liquidator has shaken the conscience of this court.” Therefore, the Court ordered the replacement of the current liquidator with a new one. 

The moving liquidator is ordered to hand over the charge on failure to the new liquidator within 7 days of placing the order. 

After hearing from erudite attorneys for the parties and reviewing the records, we believe, given the circumstances, that the contracting agency took the correct approach and could find no errors in the sequence complaint in this respect. 

However, the Chamber, while referring to case law, reiterated that “the failure on due diligence to hold a valid AFA shall not render a Liquidation Order issued by the Adjudicatory Authority illegal or invalid”. 

Concerning the appointment of a “Liquidator”, the erudite advisor to the Appellant submits that Shri V. Venkata Sivakumar has been appointed as a “Liquidator” by urgent order to carry out the liquidation proceedings, although it has not been licensed under Regulation 7 -A of the Bankruptcy and Insolvency Regulations of India (Bankruptcy Practitioners) 2016. 

“Liquidation”, he is identified as a “Person” liquidation”. After listening to the well-known advice of the parties, we consider that if there is any irregularity in the appointment/confirmation of Respondent 1 as “Liquidator”. 

There is no valid authorization to refer fixed on the date of acceptance or initiation of such assignment according to Rule 7-A of the foregoing Rules, which shall not adversely affect or render a liquidation order adopted by the contracting authority unlawful. legal or invalid. 

If there is an irregularity, as argued by the Appellant’s learned counsel, he may notify the Arbitration Body, which may consider the appointment of a “Liquidator” to the extent relevant in connection with the liquidation of Defendant 1 and place the appropriate order. 

The appeal was therefore dismissed. 

Attorney Varun Srinivasan represented the plaintiff, while liquidator Venkata Sivakumar appeared in person.