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2025 (9) TMI 1165
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...., adjudicating authority allowed the I.A. (LIQ.)/14/2025 filed by the appellant seeking liquidation of the corporate debtor, however, by allowing the liquidation application instead of appointing the appellant as liquidator has appointed R-2 Ms. Smita Gupta as the liquidator, relying on circular dated 18.07.2023 of the IBBI. Aggrieved by the said order, this appeal has been filed. 2. Brief facts of the case necessary to be noticed for deciding the appeal are: i. The corporate insolvency resolution process (CIRP) against the corporate debtor Rajesh Landmarks Project Private Limited was initiated by order dated 10.10.2022 passed by the adjudicating authority, appellant was appointed as a Resolution Professional (RP) by the Committee of Creditors (CoC). ii. CoC in its 33rd meeting held on 10.12.2024 resolved to not approve the resolution plan submitted by RARE ARC and with 83.93 voting share decided to liquidate the corporate debtor. iii. In pursuance of the resolution of the CoC, the appellant who was the RP filed IA Liquidation 14/2025. The CoC by its resolution had resolved to appoint the appellant as liquidator. iv. The liquidation applicatio....
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.... IBBI has displaced the legislative scheme as contained in Section 34(1) of the IBC. Present is not a case where IBBI has recommended for replacement of the appellant and circular dated 18.07.2023, which is relied by the adjudicating authority is not a recommendation as contemplated by Section 34(4)(b). The adjudicating authority has not followed the statutory scheme under Section 34 of the IBC and the order of the adjudicating authority thus is unsustainable. 6. Learned counsel for the CoC submits that CoC has already recommended appellant for appointment as liquidator, hence, they support the submission of the appellant. 7. Learned counsel appearing for the R-2 submits that appointment of liquidator is complete prerogative of the adjudicating authority hence, R-2 has no submission qua merits of the appeal. R-2 has filed the reply in which R-2 has referred to certain expenses incurred by the R-2 totalling to Rs.45,625/-. 8. We have considered the submissions of the counsel for the parties and perused the records. 9. From the facts as noted above, it is clear that CoC while passing the resolution for liquidation of the corporate debtor has resolved to appoint the appell....
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....gerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator. (3) The personnel of the corporate debtor shall extend all assistance and cooperation to the liquidator as may be required by him in managing the affairs of the corporate debtor and provisions of section 19 shall apply in relation to voluntary liquidation process as they apply in relation to liquidation process with the substitution of references to the liquidator for references to the interim resolution professional. (4) The Adjudicating Authority shall by order replace the resolution professional, if (a) the resolution plan submitted by the resolution professional under section 30 was rejected for failure to meet the requirements mentioned in sub- section (2) of section 30; or (b) the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded [in writing; or] [(c) the resolution professional fails to submit written consent under sub-section (1).] (5) For the purposes of [clauses (a) and (c)] of sub- section (4), the Adjudicat....
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....recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded [in writing; or] [(c) the resolution professional fails to submit written consent under sub-section (1).]" 12. The replacement of RP thus is contemplated under sub-Section (4) and three circumstances has been mentioned as a, b & c. The present is a case where adjudicating authority relies on circular dated 18.07.2023 of the IBBI, which circular claim to have been issued under Section 34(2)(b). We need to notice the entire circular 18.07.2023 relied by adjudicating authority. The copy of the letter dated 18.07.2023 has been brought on record as Annexure - E, which is the following effect: "Liq-12011/214/2023-IBBI/840 18th July 2023 To Secretary, National Company Law Tribunal Principal Bench New Delhi Subject: Recommendation for appointment of Liquidator other than IRP/RP under section 34(4)(b) of the IBC, 2016 - regarding The Code envisages time bound resolution of the Corporate Debtor (CD) to maximise the value of the assets. In cases where the CD has not been resolved successfully, Adjudicatin....
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....e CD difficult and would induce liquidation, thereby destruction of value for the stakeholders. Thus, an independent IP needs to be entrusted to conduct the Liquidation process of the CD for value maximisation while also ensuring the transparency and complete independence in two separate assignments. (iii) The Code envisages CIRP and liquidation as two distinct processes with distinct roles and responsibilities. Thus, an IP undertakes the two different assignments as RP and Liquidator, separately. Segregating the dual role of an IP in the same CD as RP and liquidator will foster an inbuilt system of check and balance in the process, thereby enhancing the accountability of each job and strengthening stakeholder's trust in the processes under the Code. Further, it would eliminate any perverse incentives, whatsoever, available with RP in deliberately pushing the CD towards liquidation and secure next assignment on ex-ante basis. 3. In view of above justification, the Board in exercise of its powers conferred under section 34(4)(b) recommends that an IP other than the RP/IRP may be appointed as liquidator in all the cases where liquidator order is to be passed hen....
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....l replace the RP if the board recommends the replacement of the RP to the adjudicating authority. When we look into the legislative scheme under Section 34, the liquidation order under Section 33 is contemplated with respect to CIRP under Chapter II and RP which is then referred to in Section 34(1) is the RP who was functioning in the CIRP process and the replacement contemplated is the replacement of a Resolution Professional, which clearly means the RP who was functioning in the CIRP of the corporate debtor, for the purpose of present case RP functioning in the CIRP of the corporate debtor, Rajesh Landmark Projects Private Limited. 16. Under the IBC 2016, the board exercises various powers and functions according to IBC Code the board act as a regulator who register insolvency professional, monitor the insolvency professionals and pass any direction as may be required for compliance of the provisions of the Code and the regulation issued there under. Standard for functioning of the insolvency professional is also to be specified by the regulation. It is useful to look into Section 196 of the IBC, which provides for power and functions of the Code. Section 196(1)(a) (aa) (b) (c....
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....rs;" 18. Insolvency professional functions under regulatory control of the IBBI hence Section 34(4) the board has been given right to recommend for replacement of the RP. The right given for board to recommend the replacement of the RP under Section 34(4)(b) is right to recommend the replacement of a resolution professional i.e., resolution professional of the corporate debtor with regard to whom liquidation order has been passed. The decision to recommend for replacement has to be qua the particular RP which may be due to work and conduct of the RP, which is under constant monitoring and gaze of the IBBI. The power under Section 34(4)(b) cannot be exercised by the board to take a decision that in all cases of liquidation, IRP and RP be not appointed as liquidator. The power envisages under Section 34(4)(b) is a power to recommend replacement of the particular RP on the facts specific to that particular RP and that is not a general power which can be exercised by the board for passing the circular dated 18.07.2023, as has been brought on the record. In event, it is accepted that IBBI has power to issue general circular in exercise of power under Section 34(4)(b) that in all case....