Failure to exercise due care and diligence is a ground to replace liquidator: NCLT

Failure to exercise due care and diligence is a ground to replace liquidator: NCLT

The bench found him guilty of sharing the valuation report of the corporate debtor with prospective scheme proponents

The Chennai Bench of the National Company Law Tribunal (NCLT) while ruling on the IDBI Bank Limited vs V Venkata Sivakumar has held that failure to exercise due care and diligence was a ground to replace a liquidator.

The bench of Justice S Ramathilagam (Judicial Member) and Anil Kumar (Technical Member) found that the liquidator did not have a valid Authorization For Assignment (AFA), as required under the Insolvency and Bankruptcy Board of India Regulations, 2016 to undertake operations as a liquidator.

Thus, the corporate debtor sought relief from the tribunal. It sought to declare all actions, duties and responsibilities undertaken by the liquidator as null and void, including the order to liquidate the entity.

Since the Insolvency & Bankruptcy Code, 2016 does not prescribe any provision for replacing a liquidator, the tribunal relied on the Companies Act, 2013, which provides such grounds.

The corporate debtor alleged that the liquidator had shared the entity's valuation report with the prospective proponents, which gave them an upper hand. As a result, they quoted a price that was at par with the valuation report.

The liquidator, in defence, stated that the IBC did not contain any provision for the removal/replacement of liquidators. Hence, the application should be dismissed. In addition, he submitted that it was only during the Corporate Insolvency Resolution Process (CIRP) that a Resolution Professional could not share the valuation report, but it could be done at the stage of liquidation.

However, unconvinced by the submission, the bench stated, "Such a statement by the liquidator has shaken the consciousness of this court."

The tribunal directed the liquidator to be replaced by a new one and ordered him to hand over the charge to the new liquidator within seven days.

While referring to the precedents, the bench reiterated that "non-holding of valid AFA will not render the order of liquidation passed by the Adjudicating Authority illegal or invalid."