2025 (12) TMI 242 - AT - IBC

Appeal Against Liquidator Change Fails; Resolution Professional Has No Right to Continue Against CoC Majority Choice

Mr. Nipan Bansal, Former Resolution Professional, M/s Cheema Spintex Limited Versus M/s Cheema Spintex Limited, Mr. Arun Gupta Liquidator, M/s Cheema Spintex Limited, IDBI Bank Limited and Punjab National Bank

The NCLAT dismissed the appeal challenging the replacement of the appellant as liquidator. It held that a resolution professional has no vested right to ... Reliability of circular of the IBBI, dated 18.07.2023 to change the liquidator and to appoint a liquidator of its choice - HELD THAT:- The appellant does not have any vested right to be appointed as the liquidator. It may not be appropriate to change the liquidator in the middle of the liquidation process as there will be cost implications, more so when the 3rd respondent, with majority voting share far in excess of 66% is happy with the second liquidator. The Adjudicating Authority apparently has felt bound by the letter of the IBBI dated 18.07.2023 and appointed the 2nd respondent as the liquidator, and was not seen to assert any exclusive authority to appoint a liquidator superseding the right of the CoC to replace the resolution professional for functioning as the liquidator. The 3rd respondent apparently has appreciated the circumstances in which the Adjudicating Authority has decided to replace the appellant with the 2nd respondent - The second respondent, though had a right to challenge the appointment of the 2nd respondent, yet is not concerned about who functions as the liquidator, and is only seen to be keen to complete the liquidation process. The appellant therefore, cannot claim any right to impose his wish to act as a liquidator on the 3rd respondent. There are no merit in the appeal and the same is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether reliance by the Adjudicating Authority on the IBBI communication dated 18.07.2023 to appoint a liquidator other than the resolution professional recommended by the committee of creditors is legally permissible. 1.2 Whether the resolution professional has a vested right to be appointed as liquidator once recommended by the committee of creditors and having given consent under Section 34(1) of the Insolvency and Bankruptcy Code. 1.3 Whether, after commencement and substantial progress of the liquidation process under a liquidator appointed by the Adjudicating Authority, it is appropriate or necessary to substitute that liquidator with the resolution professional originally recommended by the committee of creditors. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reliance on IBBI communication dated 18.07.2023 for appointment of liquidator Legal framework (as discussed): The Tribunal referred to its earlier decisions, including the order in Manish Jaju v. CoC and others and the batch of appeals in Omkara Asset Reconstruction Pvt. Ltd. v. Amit Vijay Karia & another, wherein it was held that the IBBI does not have authority to override the statutory scheme for appointment of a liquidator under Section 34(4) of the Insolvency and Bankruptcy Code, and that the Adjudicating Authority has no authority to appoint a resolution professional as liquidator overlooking the choice of the committee of creditors. Interpretation and reasoning: The Tribunal noted that the Adjudicating Authority 'apparently has felt bound' by the IBBI letter dated 18.07.2023 when appointing the second respondent as liquidator, and was 'not seen to assert any exclusive authority' to appoint a liquidator superseding the right of the committee of creditors to have its chosen resolution professional function as liquidator. In view of the Tribunal's own prior pronouncements, 'the cloud over the appointment of the appellant' arising from the IBBI communication stood removed. Conclusions: The IBBI communication dated 18.07.2023 cannot legally override the statutory scheme under Section 34(4) for appointment of a liquidator, nor can it confer on the Adjudicating Authority a power to disregard the choice of the committee of creditors. The Adjudicating Authority's reliance on the IBBI letter as binding was legally misplaced, though this misstep did not, in the circumstances, require reversal of the ongoing liquidation under the liquidator already in place. Issue 2 - Vested right of the resolution professional to be appointed as liquidator Interpretation and reasoning: The Tribunal expressly held that the appellant 'does not have any vested right to be appointed as the liquidator.' The facts that (i) the committee of creditors had resolved to appoint the appellant as liquidator, (ii) the appellant had given written consent in Form AA under Section 34(1), and (iii) no disciplinary proceedings were pending against him, were all noted. However, these factors did not elevate his claim to a legally enforceable or vested right to the office of liquidator. The Tribunal further observed that the third respondent, having more than 92% voting share, had no objection to the second respondent continuing and was focused only on completion of the liquidation process, thereby underlining that the appellant could not insist on 'impos[ing] his wish to act as a liquidator' on the majority creditor. Conclusions: Recommendation by the committee of creditors and the appellant's consent under Section 34(1) do not confer a vested or enforceable right on the resolution professional to be appointed or to continue as liquidator. The appellant cannot compel appointment merely because he was the prior resolution professional and was recommended by the committee of creditors. Issue 3 - Appropriateness of changing the liquidator mid-process where substantial steps have been taken and majority creditor supports the incumbent liquidator Interpretation and reasoning: The Tribunal noted that the second respondent, appointed by the Adjudicating Authority, had already made 'substantial progress' in the liquidation, including preparation of the liquidation estate, asset memorandum, verification of claims, and initiation of steps for sale of assets. It held that 'it may not be appropriate to change the liquidator in the middle of the liquidation process as there will be cost implications,' especially when the third respondent, holding more than 92% voting share and thus well above the 66% threshold, was 'happy with the second liquidator' and keen only to complete liquidation expeditiously. While reaffirming that the Adjudicating Authority cannot overlook the committee of creditors' choice (as clarified in the Omkara Asset Reconstruction decision), the Tribunal stressed the practical and economic consequences of a mid-stream change, and the fact that the creditor with an overwhelming majority had accepted the incumbent liquidator. Conclusions: Even though the legal 'cloud' created by the IBBI letter over the appellant's appointment stood removed, it was neither necessary nor appropriate to dislodge the second respondent as liquidator at an advanced stage of the liquidation. Considering the substantial progress made, the cost and delay implications of a change, and the explicit support of the majority creditor, the Tribunal declined to replace the current liquidator. The appeal challenging the appointment of the second respondent was held to be without merit and was dismissed without costs.