Liquidator can be replaced on ground of failure to exercise due diligence: NCLT Chennai

The National Company Law Tribunal (NCLT) Chennai recently held that failure to exercise due care and diligence was a ground to replace a liquidator (IDBI Bank Limited v. V Venkata Sivakumar)..The Insolvency & Bankruptcy Code, 2016 does not prescribe any provision for replacing a liquidator. Hence, the Tribunal relied on Section 276 of the Companies Act, 2013, which provides for the grounds of removal of a liquidator..The Bench of Anil Kumar and Justice S Ramathilagam, in addition, found that the liquidator did not have a valid Authorization for Assignment (AFA), as is required under Regulation 7A of the Insolvency and Bankruptcy Board of India (Resolution Professionals) Regulations, 2016 to undertake operations as a liquidator. .On this ground, the corporate debtor sought relief from the Tribunal to declare all actions, duties and responsibilities undertaken by the liquidator as null and void, including the order to liquidate the entity.In addition, the corporate debtor alleged that the liquidator had shared the entity’s valuation report with the prospective proponents, which gave them an upper hand. Consequently, the proponents quoted a price that was at par with the valuation report.In his defence, the liquidator stated that the IBC does not contain any provision on removal/replacement of liquidators, and hence, the present application must be dismissed. He also submitted that it is only during the Corporate Insolvency Resolution Process (CIRP) that a Resolution Professional cannot share the valuation report. However, the same may be done at the stage of liquidation.This submission did not sit well with the Bench, which opined,“Such a statement by the liquidator shook the consciousness of this court.".Thus, the Tribunal directed the present liquidator to be replaced by a new one. The outgoing liquidator was directed to handover the charge to the new liquidator within 7 days from the date of the order.However, the Bench, while referring to precedents reiterated that “non holding of valid AFA will not render the Order of liquidation passed by the Adjudicating Authority illegal or invalid”. .Advocate Varun Srinivasan represented the applicant, while the liquidator Venkata Sivakumar appeared in person..[Read the Order]