NCLT Reverses Order After Karnataka High Court Upholds Status Quo On IBBI Recommendation

NCLT Reverses Order After Karnataka High Court Upholds Status Quo On IBBI Recommendation

The National Company Law Tribunal (NCLT) Chennai Bench, comprising Technical Member Ravichandran Ramasamy and Judicial Member Jyoti Kumar Tripathi, has reversed its decision. This action comes in compliance with a directive from the Karnataka High Court, which mandated preserving the existing state regarding the Insolvency and Bankruptcy Board of India's (IBBI) proposals concerning the appointment of a liquidator distinct from the Insolvency Resolution Professional (IRP) or Resolution Professional (RP).

In 2023, IBBI issued notification Liq12011/214/2023-IBBI/840, recommending the appointment of a person other than the IRP or RP of the corporate debtor as the liquidator in liquidation cases. Previously, the RP automatically assumed the role of liquidator unless replaced by the adjudicating authority. IBBI's directive aimed to introduce a new insolvency professional as the liquidator when liquidation was necessary.

This recommendation faced legal challenges in the Karnataka High Court in the case of Ravindra Beleyur v. Insolvency and Bankruptcy Board of India. On January 9, 2024, the High Court heard arguments questioning the broad scope of IBBI's directive under Section 34(4)(b) of the Insolvency and Bankruptcy Code (IBC). The court issued an order maintaining the status quo regarding the appointment of the resolution professional as the liquidator in ongoing liquidation processes.

The High Court remarked that, until further notice, the petitioner appointed as Resolution Professional/Liquidator in the ongoing liquidation should not face immediate action.

The applicant highlighted to the NCLT that its previous decision appointing Mr. GS Sudhir as the liquidator did not take into account the interim directive from the Karnataka High Court.

Consequently, the NCLT invoked Rule 11 of the NCLT Rules, 2016, and subsequently rescinded its earlier order.