2025 (6) TMI 30 - AT - IBC

Appeal succeeds as adjudicating authority lacks jurisdiction to prevent voluntary liquidator removal under Section 59

VINOD SINGH Versus CHANDRA PRAKASH JAIN, TRANSMISSIONS INTERNATIONAL HOLDING GMBH, ANDREA HILDA BRAGANCA ALEMAO PORTER, MARKUS GERD WILKE, REINER EPPINGER, ARUN GUPTA

VINOD SINGH Versus CHANDRA PRAKASH JAIN, TRANSMISSIONS INTERNATIONAL HOLDING GMBH, ANDREA HILDA BRAGANCA ALEMAO PORTER, MARKUS GERD WILKE, REINER ... Issues Presented and Considered1. Whether the Adjudicating Authority had jurisdiction to interfere with the removal of the voluntary liquidator appointed under Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC) and the corresponding Voluntary Liquidation (VL) Regulations, 2017, when the Corporate Debtor's Board of Directors and shareholders had passed resolutions for replacement of the liquidator.2. Whether the status quo order directing continuation of the erstwhile liquidator was legally sustainable and within the jurisdiction of the Adjudicating Authority.3. Whether the Adjudicating Authority was justified in de-reserving its order on procedural grounds relating to the validity of vakalatnamas, powers of attorney, and authorizations filed by the parties, after having earlier reserved judgment.4. Whether the appeal filed against the impugned orders was barred by limitation or delay.5. The procedural obligations of the outgoing liquidator to cooperate with the newly appointed liquidator in handing over documents and information as per Regulation 41(4) of the VL Regulations.Issue-wise Detailed AnalysisIssue 1: Jurisdiction of Adjudicating Authority to Interfere with Removal of Voluntary LiquidatorThe legal framework governing voluntary liquidation under the IBC is distinct from the insolvency resolution process or liquidation under other chapters. Section 59 of the IBC authorizes a corporate person to initiate voluntary liquidation if no default has been committed. The process is further regulated by the IBBI (Voluntary Liquidation Process) Regulations, 2017.Regulation 5 of the VL Regulations explicitly provides that the corporate person may appoint an insolvency professional as liquidator and may also replace him by passing a resolution under Section 59(3)(c). The resolution must specify terms and remuneration but does not require approval of the Adjudicating Authority.The Court noted that this statutory scheme grants the Board of Directors and shareholders the unfettered right to appoint and replace the liquidator during voluntary liquidation without judicial intervention. The procedure is self-contained and does not contemplate interference by the Adjudicating Authority in the appointment or removal of a voluntary liquidator.Applying the law to facts, the Corporate Debtor had duly passed Board and EGM resolutions replacing the first liquidator with Respondent No.1, and subsequently replacing Respondent No.1 with Respondent No.6 due to allegations of misconduct and breach of duties. These resolutions complied with the statutory procedure. Therefore, the Adjudicating Authority's order directing status quo of the liquidator was beyond its jurisdiction and contravened the statutory framework.The competing argument from the Respondent No.1 was that the removal was without proper authorization and violated procedural requirements. However, the Court emphasized that the statutory provisions do not require the Adjudicating Authority's approval or justification for removal in voluntary liquidation, distinguishing it from insolvency resolution processes.Conclusion: The Adjudicating Authority lacked jurisdiction to interfere with the removal of the voluntary liquidator once the Corporate Debtor complied with the prescribed procedure under Section 59 and VL Regulations.Issue 2: Legality and Tenability of Status Quo OrderThe Adjudicating Authority's order dated 28.03.2025 directed maintenance of status quo with respect to the liquidator, effectively restraining the Corporate Debtor from replacing Respondent No.1. The Appellant challenged this as illegal and beyond jurisdiction.The Court observed that since the statutory scheme allows replacement of the liquidator by resolution without Adjudicating Authority's approval, the status quo order was a transgression of jurisdiction. It stalled the voluntary liquidation process, which is required to be completed in a time-bound manner under the IBC.The Court vacated the status quo order, permitting the newly appointed liquidator to proceed with the liquidation process. It also directed the outgoing liquidator to cooperate in handing over documents as mandated by Regulation 41(4) of the VL Regulations.Conclusion: The status quo order was untenable and vacated to uphold the statutory right of the Corporate Debtor to replace the liquidator and proceed with voluntary liquidation.Issue 3: De-reservation of Judgment on Procedural GroundsThe Adjudicating Authority initially reserved judgment on 02.04.2025 in the removal application filed by Respondent No.1. Subsequently, on 29.04.2025, it de-reserved the order citing procedural defects in the vakalatnamas, powers of attorney, and authorizations filed by Respondent Nos. 2 to 5 and the Appellant.The Appellant contended that these procedural issues were known at the time of reservation and could not justify de-reservation, violating the principle that there is no hiatus between reservation and pronouncement of judgment.The Court noted the contradiction between the two orders of the Adjudicating Authority. It observed that the Adjudicating Authority had earlier accepted the vakalatnama and authorizations on record and failed to apply its mind to the maintainability of the removal application itself, which was the core issue.The Court directed that on the next hearing, the Adjudicating Authority must first determine the maintainability of the removal application filed by Respondent No.1, who had already been replaced in accordance with the law, before delving into procedural infirmities.Conclusion: The de-reservation on procedural grounds was improper without addressing the substantive maintainability of the removal challenge. The Adjudicating Authority must prioritize the core jurisdictional issue.Issue 4: Limitation and Delay in Filing AppealThe Respondent No.1 alleged delay in filing the appeal against the status quo order. The Appellant explained that the appeal was filed promptly after the Adjudicating Authority de-reserved the order, effectively continuing the status quo.The Court held that under the proviso to Section 61(2) of the IBC, delay up to 15 days beyond 30 days may be condoned for sufficient cause. The appeal was filed within 45 days and the reasons for delay were bona fide.The Court also noted the Respondent No.1's counsel did not contest the limitation issue. Delay was accordingly condoned.Conclusion: The appeal was timely filed and delay, if any, was condoned in the interest of justice.Issue 5: Obligation of Outgoing Liquidator to CooperateThe newly appointed liquidator alleged non-cooperation by the outgoing liquidator in handing over documents and information as required under Regulation 41(4) of the VL Regulations.The Court directed the outgoing liquidator to comply with this obligation to ensure smooth continuation of the voluntary liquidation process.Conclusion: The outgoing liquidator must cooperate and hand over all relevant documents and information to the new liquidator as per statutory mandate.Significant Holdings'A plain reading of Regulation 5 of VL Regulations shows that the Corporate Debtor can appoint a Liquidator and 'wherever required' may replace him by another Liquidator by simply passing a resolution. Thus, in terms of the statutory construct of IBC read with VL Regulations, there is no need for obtaining any approval of the Adjudicating Authority for the appointment or replacement of the Liquidator engaged for the purposes for voluntary liquidation.''The Adjudicating Authority by the impugned order directing the continuance of Respondent No.1 as Liquidator on the Corporate Debtor acted in violation of the statutory framework of IBC.''The process of replacement of a Liquidator in the voluntary liquidation process of a solvent Corporate Debtor falls in an entirely different regime from liquidation process undertaken following CIRP.''The Adjudicating Authority must first look into the maintainability of the petition of the Respondent No.1 who has already been replaced by the Corporate Debtor by following the due process and not bypass this core issue by foraying into procedural deficiencies in the documents submitted.''The outgoing Liquidator is directed to hand over documents and other information as solicited from him by the new Liquidator in terms of Regulation 41(4) of the Voluntary Liquidation Regulations.'Final determinations include vacating the status quo order directing continuation of the erstwhile liquidator, allowing the newly appointed liquidator to proceed with voluntary liquidation, condoning delay in filing appeal, and directing the Adjudicating Authority to decide on the maintainability of the removal application on merit in the next hearing.