TaxTMI 
TaxTMI 
2026 (3) TMI 1591
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....dran Subramanian, Erstwhile Liquidator of Tecpro Systems Limited under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the Order dated 09.01.2026 passed by the Ld. National Company Law Tribunal, Delhi Bench (Adjudicating Authority) in I.A. No. 4269 of 2024 and I.A. No. 5798 of 2025 in Company Petition (IB) No. 197 (PB) of 2017. By the said order, the Adjudicating Authority dismissed the application filed by the Appellant seeking declaration of Edelweiss Asset Reconstruction Company Limited (Respondent No. 2) as a "related party" under Section 5(24) of the IBC and also allowed the application filed by Respondent No. 2 for replacement of the Appellant as Liquidator. Consequently, Mr. Anil Kohli, New Liquidator of Tecpro Systems Limited (Respondent No. 1) was brought into the proceedings in his capacity as the newly appointed Liquidator. The other respondents in this proceeding are Bank of Baroda (Respondent No.3); Assets Care and Reconstruction Enterprise Ltd., assignee of Standard Chartered Bank (Respondent No. 4), and Pegasus Asset Reconstruction Company Ltd., assignee of IndusInd Bank (Respondent No. 5), all being stakeholders in the liquidation process of the ....
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.... the Adjudicating Authority ordered the liquidation of the Corporate Debtor on 16.01.2020 and appointed the present Appellant as Liquidator to conduct the liquidation proceedings in accordance with the provisions of the IBC and the Liquidation Process Regulations. vii. Respondent No.2, EARCL filed I.A. No. 4349 of 2020 on 08.10.2020 seeking replacement of the Liquidator, and parallel complaints were also filed before the IBBI; however, such attempts did not culminate in removal of the Appellant at that stage. viii. During the liquidation process, a property of the Corporate Debtor was auctioned in September 2022 yielding realization of approximately Rs. 28.28 crores against prior valuation of around Rs. 24 crores, and issues arose regarding payment of alleged past dues of Rs. 7.89 crores to HSIIDC, which according to the Appellant was commercially and legally justified in order to maximize value and ensure viability of the transaction. ix. Respondent No. 2 EARCL filed I.A. No. 5780 of 2023 on 13.10.2023 seeking replacement of the Appellant as Liquidator. The application was disposed of by the Adjudicating Authority on 26.09.2024 based on the undertaking g....
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....ssed by the Ld. NCLT, New Delhi Bench in I.A. 4269/2024 and I.A. 5798/2025 in Company Petition (IB) No. 197 (PB)/2017. By way of the Impugned Order, the Ld. NCLT has (a) dismissed the Appellant's application (I.A. 4269/2024) seeking declaration of Respondent No. 2, Edelweiss Asset Reconstruction Company Limited ("EARCL"), as a 'related party' of the Corporate Debtor ("CD"), and (b) allowed EARCL's application (I.A. 5798/2025) seeking replacement of the Appellant as Liquidator of the CD. 4. Ld. Counsel submits that during the tenure of the Appellant as Liquidator, the CD recovered approximately INR 620 Crores, which is significantly higher than the value of INR 470 Crores contemplated under the earlier Resolution Plan. Despite such demonstrable recovery and value maximization, the Appellant has been removed at the behest of an entity which is itself ineligible on account of being a related party. 5. It is submitted that on 23.03.2015, EARCL acquired the entire stressed asset portfolio of the CD from State Bank of India for a consideration of INR 171 Crores, thereby acquiring control over assets valued in excess of INR 2700 Crores, including six immovable properties and 30% of ....
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....nil Gaur. On 17.07.2025, the said voting was conducted and the resolution for replacement secured only 59%, thereby failing to meet the statutory 66% threshold. Despite this, the Impugned Order dated 09.01.2026 dismissed the Appellant's application and allowed replacement. 7. Ld. Counsel submits that the Impugned Order is unsustainable as the Ld. NCLT ignored material evidence demonstrating that EARCL qualifies as a related party. It failed to appreciate the IBBI Order which categorically recorded that the erstwhile RP was "guided by" EARCL and did not act independently. Further, the third Proviso to Regulation 31A(2) of the Liquidation Process Regulations bars a related party financial creditor from voting in the SCC. The replacement of the Appellant was proposed by EARCL itself, which also proposed the new Liquidator. Moreover, the Ld. NCLT's own direction for independent voting excluding EARCL was rendered meaningless by ignoring the outcome wherein the replacement failed. 8. Ld. Counsel submits that EARCL dictated the corporate management of the CD in multiple ways. It installed EY for day-to-day management, demonstrating conduct beyond agency and reflective of absolute o....
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....610/ND/2026 seeking payment of dues, and notice has been issued on 09.02.2026. Without prejudice, in the event this Hon'ble Tribunal upholds replacement, a specific direction may kindly be issued to ensure expeditious adjudication of the said application so that the Appellant is compensated for services rendered. 13. In view of the foregoing submissions, the Appellant prayed for setting aside the Impugned Order dated 09.01.2026 and allow the prayer made in I.A. 4269/2024 declaring EARCL as a related party and consequently hold that its participation and vote in the SCC are void, and restore the Appellant as Liquidator of the Corporate Debtor, along with such further orders as this Tribunal may deem fit in the interest of justice. Submissions of Respondent No. 1/ Liquidator Mr. Anil Kohli 14. Ld. Counsel for Respondent No. 1 respectfully submits that the Preliminary Compliance of Impugned Order dated 09.01.2026 has been made by the Respondent No. 1 by taking over charge as the newly appointed liquidator of the Corporate Debtor 15. Ld. Counsel submits that pursuant to the Impugned Order, representatives of Respondent No. 1 visited the office premises of the Corporate Debt....
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.... does not have any personal right to continue in the liquidation process and that replacement by the Adjudicating Authority, in exercise of its jurisdiction, is not liable to interference. 22. Ld. Counsel submits that in the present case, the jurisdiction of the Learned Adjudicating Authority to pass the replacement order has not been substantively challenged. No stakeholder has challenged the Impugned Order. The Appellant, being merely a professional, cannot claim to be an "aggrieved person" under Section 61 of the Code, as no legal right of his stands infringed. Accordingly, the present appeal is not maintainable and deserves dismissal on this ground alone. 23. Ld. Counsel submits that from the records, it is an admitted position that EARCL was a member of the Committee of Creditors from commencement of CIRP on 07.08.2017 (upon admission of CP (IB) 197 of 2017 under Section 7 filed by EARCL) until liquidation was ordered on 16.01.2020. It is submitted that EARCL held approximately 85% voting share in the CoC, which remained unchanged and was never challenged at any stage of CIRP, including when crucial commercial decisions were taken. 24. It is submitted that the Appella....
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....ruptcy Code, 2016 ("Code"). The allegations are factually incorrect, legally untenable, and devoid of any evidentiary basis. 31. Ld. Counsel submits that the Appellant's allegation is premised upon a fundamental misunderstanding of the nature of security interests. The shares referred to were not equity investments by EARCL, but pledged shares forming part of the original security package created in favour of SBI and later assigned to EARCL. Upon assignment, EARCL merely stepped into the shoes of the original lender and acquired the debt along with its underlying securities. 32. It is submitted that the pledged shares were never invoked during the CIRP. Consequently, no ownership rights, voting rights, or management rights ever vested in EARCL. In law, a pledgee has only a limited right to retain and, upon default, invoke and sell the pledged securities. Until invocation, ownership remains with the pledgor. Therefore, holding pledged shares cannot amount to management or policy control. 33. Ld. Counsel further submits that acceptance of the Appellant's argument would lead to an absurd result whereby every secured creditor holding pledged shares would automatically become a....
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....ctions 20(2)(a) and 25(2)(d) of the Code. The appointment was ratified by an overwhelming majority of the CoC. EY functioned only as a professional agency assisting the RP and not as a managerial arm of EARCL. Continuity of advisor was logical and commercially prudent. 39. Ld. Counsel submits that the allegation regarding facilitation of INR 55 crores funding from CGPGCL is wholly unsupported by evidence. No material has been produced demonstrating EARCL's role. Similarly, allegations regarding encashment of bank guarantees by NTPC are speculative. Even assuming financial consequences arose, such commercial arrangements do not establish managerial or policy control. 40. Regarding the sale of Property, Ld. Counsel submits that the sale was conducted under the SARFAESI Act through private treaty following due statutory procedure and was completed prior to initiation of CIRP. The transaction attained finality and was expressly consented to by the ex- management. It is impermissible for the Ex-Liquidator to challenge a concluded SARFAESI sale years later. In any event, the transaction has no nexus with related party determination. 41. It is the submission of the Ld. Counsel th....
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....tion Process) (Second Amendment) Regulations, 2022, the liquidator within thirty days of the commencement of the said Regulations, shall re-constitute the consultation committee as required under the said Regulations and provisions provided under amended Regulation 31A shall come into effect only after such constitution." 47. It is clear from the aforesaid regulation that the Stakeholders' Consultation committee with a majority vote of not less than 66% may propose replacement of Liquidator to the Adjudicating Authority. 48. In the facts of the present case, it is seen that as early as 08.10.2020, an application was filed seeking removal of the Appellant. In the 22nd SCC meeting held on 15.09.2023, it was noted that the Appellant had released INR 3,71,06,440 to HSIIDC allegedly in violation of Section 53 of the Code and the Process Memorandum, and the SCC decided to file an application for replacement. Thereafter, voting in October 2024 reflected an overwhelming majority of 92.25% in favour of replacement. Based on this, EARCL filed the third removal application and the Impugned Order was passed on 09.01.2026. 49. The Appellant argues that an independent voting exercise ex....
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.... he has a legal right to continue in office or challenge the validity of the very decision-making body from which his authority originated. The ratio of this judgment directly supports the position that the Appellant has no vested right to insist upon continuation and that replacement, by itself, does not give rise to a cause of action unless some statutory violation is shown. 52. The matter relating to removal of liquidator was examined by Chennai bench of this Tribunal in V. Venkata Sivakumar v. IDBI Bank Limited, in Company Appeal (AT) (Ins.) No. 269/decided on 20.12.2022. The relevant extracts of para 48 relevant portions of which are extracted below: • "This 'Appellate Tribunal' also notes that in recent judgement passed by Principal Bench, NCLAT vide order dated 13.10.2022 in Company Appeal (AT) (Ins.) No. 1234 of 2022 as held: "The Liquidator does not have any personal right to continue in the Liquidation Process and the reasons which have been noted in the order are sufficient to exercise even the inherent power by NCLT to replace the Liquidator. It is not a fit case to interfere in exercise of our Appellate Jurisdiction." [emphasis supplied] ....
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....quidator is appointed under the statutory scheme of the IBC. He acts as an officer of the process and performs fiduciary duties for the benefit of all stakeholders. He does not acquire any personal or vested right to continue in office. It is well settled that once the Adjudicating Authority, for reasons recorded, directs replacement of a Liquidator, he cannot claim continuation as a matter of right. Section 61 permits an appeal by a "person aggrieved." Removal from a statutory assignment, without affecting any independent civil or proprietary right, does not automatically create a vested entitlement to continue and such a person can not be treated as "person aggrieved" and would therefore have no locus to maintain an appeal before this tribunal merely on the ground of replacement. 55. We now turn to the address the appeal on merit on whether EARCL is a related party within the meaning of Section 5(24) of the IBC. The Appellant contends that EARCL exercised control over the Corporate Debtor by virtue of pledged shares, appointment of EY, oversight over board meetings, escrow arrangements, facilitation of funding, and alleged influence over the Resolution Professional. It is argu....
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.... The allegation that EARCL facilitated external funding of Rs. 55 crores or permitted encashment of bank guarantees has not been supported by documentary evidence, demonstrating management control. Even assuming such commercial events occurred, they do not automatically establish policy control or managerial takeover. These are mere allegations, not based on any documentary evidence. 61. The Appellant has placed reliance on the IBBI Order dated 05.03.2021. The relevant para 11.6(iv) of the IBBI order is extracted below: "11.6 (iv) Mr. Venkatesan was guided by one of the members of CoC Edelweiss while appointing professional services of EY and did not act independently nor did he discharge his duty of undertaking due diligence before appointing any professional, therefore, has contravened section 208(2)(a) and (e) of the Code, Regulation 7(2)(a) and (h) of the IP Regulations read with clauses 3, 5 and 14 of the Code of Conduct." 62. It can be seen from the findings in that order relates to the conduct of the Resolution Professional and his independence. The observation that the RP was "guided by" EARCL while appointing EY is not equivalent to a finding that EARCL exer....
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.... related party could not have taken part in meeting of Committee of Creditors. We now have a look at the Section 21 (2) of the Code which is extracted below: "21. (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a financial creditor or the authorised representative of the financial creditor referred to in sub- section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors: Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed], prior to the insolvency commencement date." 66. It can be seen from the first proviso debars the related parties from participating in the CoC meetings. However, it can be seen that the present case is covered by the s....