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The NCLAT has ruled that only a Committee of Creditors (CoC) can choose the liquidator in cases where the resolution professional (RP) does not consent to continue in that role. The tribunal set aside two NCLT orders that had directly appointed liquidators, stating that such appointments exceeded the NCLT's authority. Under the Insolvency and Bankruptcy Code, an RP becomes liquidator only with written consent; if not, the NCLT may replace the RP, but the CoC must propose the new liquidator. The ruling also overturns a 2023 regulatory circular restricting RPs from becoming liquidators, reaffirming that statutory provisions prevail and that creditors must have the final say.
The appellate tribunal, acting on appeals dismissed recently, ruled that the CoC alone is empowered to choose the liquidator in insolvency cases where the RP has not provided written consent to continue as liquidator. Earlier this month, NCLAT struck down orders from NCLT benches that had appointed liquidators directly in two separate cases, emphasising that those appointments were beyond the tribunal's authority. The tribunal observed that under the insolvency law, while NCLT can replace a non-consenting RP under specified conditions, the right to select the replacement rests solely with the CoC. Advertisement
The Insolvency & Bankruptcy Code (IBC) provides that upon liquidation if no resolution plan succeeds, the RP becomes liquidator only if they consent in writing. In absence of such consent, although NCLT may replace the RP, the new candidate must be proposed by the CoC. The NCLAT noted that this clear legislative framework precludes NCLT from directly appointing a liquidator outside the CoC's choice. By setting aside the contested appointments, the tribunal reaffirmed that creditors, through the CoC, must have prime say in selecting those who will steer the liquidation and asset-realisation process.
The ruling overturns a 2023 circular by the regulatory authority that had sought to restrict a RP from becoming liquidator and allowed broader discretion for NCLT. NCLAT held that such an internal directive could not override the statutory scheme laid out in the IBC, and that liquidation appointments must strictly adhere to that scheme.
This ruling by NCLAT marks a pivotal clarification in insolvency jurisprudence, strengthening the role of creditors in determining liquidators and limiting the adjudicating authority's power.
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