Supreme Court Clarifies Stakeholders Consultation Committee's Advice Not Binding On Liquidator In Liquidation Proceedings

Supreme Court Clarifies Stakeholders Consultation Committee's Advice Not Binding On Liquidator In Liquidation Proceedings

The Supreme Court recently clarified that the advice provided by the Stakeholders Consultation Committee (SCC), established in liquidation proceedings, is not binding on the liquidator.

In this case, the appellant argued that the liquidator failed to form an SCC before initiating the liquidation process. The respondent countered this by stating that the requirement to constitute an SCC was not applicable at the time, as the explanation appended to Regulation 31A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, was only introduced via a notification dated July 25, 2019. The liquidation process in this case had begun before that issuance.

The Supreme Court explained, “Regulation 31A mandates the liquidator to constitute a Stakeholders' Consultation Committee within a period of sixty days from the commencement of the liquidation process. The purpose of constituting the SCC is to advise the liquidator on matters relating to the appointment of professionals and their remuneration, as well as the sale of assets under Regulation 32.”

In this regard, the Court further noted: “By virtue of the Notification dated 28th April, 2022, an explanation was appended to Regulation 31A, which clarifies that the requirement to constitute a Stakeholders' Consultation Committee shall apply only to those liquidation processes that commenced on or after the date of commencement of the IBBI Regulations, 2016.”

Moreover, the Court emphasized that while the SCC provides advice, it is not binding on the liquidator. Citing R.K. Industries (Unit-II) LLP v. H.R. Commercials Private Limited and Other (2022), the Court stated, “The safeguard provided in the Regulation is that if the Liquidator arrives at a decision which is at variance with the advice given by the Stakeholders' Consultation Committee, he must record in writing reasons for doing so and mention it in the next progress report.”

In this case, the liquidation process for the company had started on July 17, 2019. Accordingly, the Supreme Court rejected the appellant’s claim, stating, “The submission made by the appellant that the liquidator has breached Regulation 31A of the IBBI Regulations, 2016 by not constituting a Stakeholders' Consultation Committee is devoid of merit.”