NCLT Chennai held that failure to exercise due care and diligence was a ground to substitute a liquidator

Case: IDBI Bank Limited v. V Venkata Sivakumar

Bench: Anil Kumar and Justice S Ramathilagam

Insolvency & Bankruptcy Code, 2016: IBC

The National Company Law Tribunal (NCLT) Chennai held that failure to exercise due care and diligence was a ground to substitute a liquidator. IBC does not prescribe any provision for replacing a liquidator. Hence, the bench relied on Section 276 of the Companies Act, 2013, which provides for the grounds for the removal of a liquidator. In addition, the bench found that the liquidator did not have a valid Authorization for Assignment (AFA), as is mandated under Regulation 7A of the IBC to undertake operations as a liquidator.

Consequently, the corporate debtor sought relief from the bench to declare all actions, duties and obligations undertaken by the liquidator as null and void, including the liquidation order. The corporate debtor also claimed that the liquidator shared the entity's valuation report with the prospective proponents, giving them an advantage. Thus, the proponents quoted an amount that was at par with the valuation report.

The liquidator contended that the IBC does not contain any provision for the removal of liquidators, and hence, the present application must be dismissed. He further also submitted that it is only during the CIRP that a Resolution Professional cannot share the valuation report. However, the same may be done at the stage of liquidation.

HELD

The submission made by the liquidator did not sit well with the Bench. The tribunal directed the liquidator to be replaced by a new one.