The NCLAT, Chennai Bench opined that per Regulation 7A of the IBBI Insolvency Regulation 2016 mandates that after 31.12.2019, no Insolvency Professional shall undertake any assignment without holding a valid ‘AFA’ as on the date of acceptance or commencement of the assignment. Regarding removal of the Liquidator, it was noted that the IBC does not explicitly provide for grounds of removal of a Liquidator and since Adjudicating authority has the power to appoint a Liquidator, it can also remove/replace the Liquidator. It was opined that there is no such personal right with a Liquidator to continue in Liquidation.
Brief Facts:
The Appellant is an Insolvency Professional who was the liquidator of the Jeypore Sugar Company Ltd. (Corporate Debtor) and was replaced by the Adjudicating Authority on an application preferred by Respondent No. 1.
Respondent No. 1 is a secure financial creditor of the Corporate Debtor who has a 43.57% stake in the liquidation process.
Jeypore Sugar Company Ltd. Is engaged in the manufacturing of sugar and allied products. It defaulted on the repayments of loans secured from financial creditors. An application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) was filed by Respondent No. 1 pursuant to which the Appellant was appointed as the Resolution Professional. The Adjudicating Authority ordered for liquidation of the Corporate Debtor and appointed the Appellant as the liquidator.
The case of Respondent No. 1 was that during the review of the performance of the Insolvency Professionals, the Appellant was asked to submit the documents required and self-declaration confirming that the documents submitted by the Appellant continue to be valid, effective, and in force. The letter ‘Empanelment’ obligated the Insolvency Professionals to comply with the requirements of IBC and relevant rules and regulations. Regulation 7A of the IBBI Insolvency Regulation 2016 mandated the Insolvency Professional to have ‘AFA’ to take up assignments and without this, the Insolvency Professional could not be engaged in any capacity under the IBC.
On filing an application with the Adjudicating Authority, the Appellant was removed and replaced by a new liquidator, and it is against this order, that the present appeal has been preferred by the Appellant.
Contentions of the Appellant:
It was submitted that the Appellant did apply for ‘AFA’ but got rejected twice and later disciplinary proceedings were initiated against him by Respondents No. 2 and 3. The Appellant had to pay a fine under protest and thereafter, a writ petition was filed by him in the High Court of Madras wherein an interim injunction was granted in favour of the Appellant. Meanwhile, ‘AFA’ was granted to the Appellant and the same was communicated to the Adjudicating Authority who still passed an order replacing the Appellant as the liquidator. It was alleged that the Technical Member of the Adjudicating Authority was biased against the Appellant. The order of the Adjudicating Authority was challenged on the grounds of judicial impropriety and the issue of non-est. It was further contended that Respondent No.1 wanted to replace the Appellant as the Appellant did not accept the Resolution Plan submitted.
It was argued that as per Regulation 7A of the IBBI Insolvency Regulation 2016 if no reply is received concerning issuance, renewal, or rejection of ‘AFA’, it would be deemed to have been issued or renewed. Since the Appellant did not receive any response from the Respondent within 15 days of the first time he applied for ‘AFA’, it is deemed to have been issued.
Contentions of the Respondent:
The Respondent alleged that the Appellant informed vide an email that he is not interested in getting empanelled with Respondent No. 1 and on verifying from the IBBI website, it came to the notice of Respondent No.1 that the Appellant did not have a valid ‘AFA’ as on the date of his appointment as the Liquidator. It was argued that the Adjudicating Authority passed the replacement order of the Appellant on several grounds including non-possession of ‘AFA’, illegal sharing of the valuation report, etc. It was submitted that the authority who appoints Liquidator also has the power to remove the Liquidator.
It was alleged that the proceedings in the High Court of Madras are valid only for initiating disciplinary proceedings against the Appellant. It was argued that any assignment under IBC can only be accepted if there is a valid ‘AFA’ and all the decisions and actions taken before having a valid ‘AFA’ is null and void. It was further submitted that if the liquidator has lost the faith of all lenders and violated IBC, there is no reason for him to continue. Further, it was argued that there is a clear prohibition on sharing the valuation report with the prospective Resolution Applicant, and the same was breached by the Appellant.
Observations of the Tribunal:
It was observed that Regulation 7A of the IBBI Insolvency Regulation 2016 mandates that after 31.12.2019, no Insolvency Professional shall undertake any assignment without holding a valid ‘AFA’ as on the date of acceptance or commencement of the assignment. In the present case, the Appellant did not have a valid ‘AFA’ as of the date of acceptance of the assignment.
It was clarified by the Appellate Tribunal that one assignment cannot automatically give an extension to the next assignment as all assignments are to be treated independently. Therefore, criteria need to be met at different stages and at the time of liquidation. Hence, the claim of the Appellant that there was no need for fresh ‘AFA’ for the assignment as the Liquidator cannot be sustained.
Regarding the proceedings of the High Court of Madras, the Tribunal observed that the proceedings were only limited to the disciplinary proceedings and did not comment on the requirements of IBBI regulations.
Regarding the removal of the Liquidator, it was noted that the IBC does not explicitly provide for grounds of removal of a Liquidator. Therefore, Sections 33 and 34 of the IBC and Section 276 of the Companies Act, 2013 read with Section 16 of the General Clauses Act, 1897 have to be seen. The tribunal opined that there is no such personal right with the Liquidator to continue in Liquidation and therefore, Adjudicating Authority can order for replacement of a Liquidator after recording reasons for the same.
The decision of the Tribunal:
Hence, based on the reasons, the Appellate Tribunal dismissed the appeal and upheld the order passed by the Adjudicating Authority.
Case Title: CA V. Venkata Sivakumar v. IDBI Bank Ltd. & Ors.
Coram: Hon’ble Mr. Justice M. Venugopal (Judicial Member), Mr. Naresh Salecha (Technical Member)
Case No.: Company Appeal (AT) (CH) (Ins) No. 269 of 2022
Advocate for Appellant: Mr. V. Venkata Sivakumar, erstwhile Liquidator
Advocates for Respondents: Advs. Mr. Arun Kathpalia, Mr. Varun Srinivasan, Mr. P. Wilson, Ms. N. Kalaivani, Mr. J. Manivannan
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