NCLAT Rules, NCLT Lacks Authority To Restrain Replacement Of Liquidator In Voluntary Liquidation
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, in Vinod Singh v. Chandra Prakash Jain & Ors., has ruled that the National Company Law Tribunal (NCLT) does not possess the authority to interfere with the corporate debtor's decision to replace a liquidator appointed under a voluntary liquidation process as long as the due procedure has been followed. The Bench comprising Justice Ashok Bhushan (Chairperson), Justice N. Sesha Sayee (Judicial Member), and Mr. Barun Mitra (Technical Member), was deciding on two appeals filed under Section 61 of the Insolvency and Bankruptcy Code, 2016.
Background
Transmissions International India Private Limited (TIIPL), a solvent corporate debtor, initiated voluntary liquidation proceedings in February 2024 under Section 59 of the Insolvency and Bankruptcy Code (IBC), following a board resolution. In the Extraordinary General Meeting (EGM) held in March 2024, Mr. Umesh Ved was appointed as the liquidator. Later, in September 2024, he was replaced by Mr. Chandra Prakash Jain.
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Due to serious concerns regarding transparency, misconduct, and breach of statutory duties on the part of Mr. Jain, the Board of Directors passed a resolution on 28.02.2025 to replace him with Mr. Arun Gupta. This decision was ratified by the shareholders in an EGM held on 17.03.2025. Mr. Jain, however, challenged his removal by filing an Interlocutory Application (IA No. 450/2025) before the NCLT, Ahmedabad Bench-II.
On 28.03.2025, the NCLT directed parties to maintain status quo with respect to the liquidator's position. This order was challenged in Appeal No. 800 of 2025. Subsequently, on 29.04.2025, the NCLT de-reserved its previously reserved order on the IA, which led to Appeal No. 801 of 2025.
Legal Contention
The appellant, Managing Director of TIIPL, argued that the voluntary liquidation process is governed by Section 59 of the IBC and Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017. Under these provisions, the power to appoint or remove a liquidator lies solely with the shareholders and directors of the corporate debtor. No prior approval from the Adjudicating Authority is necessary, nor is the corporate debtor obligated to disclose reasons for the replacement.
It was also submitted that once the judgment was reserved on 02.04.2025 in the IA challenging the removal, the NCLT’s subsequent decision to de-reserve the order on 29.04.2025 was impermissible and contrary to established legal principles laid down by the Supreme Court in Arjun Singh v. Mohindra Kumar [(1964) 5 SCR 946].
In contrast, Mr. Jain’s counsel argued that the removal was not supported by proper authority and procedural compliance, particularly questioning the stamping and authorization of documents submitted by foreign shareholders and their board resolutions.
Observations and Findings
The NCLAT found that the replacement of Mr. Jain with Mr. Arun Gupta was carried out strictly in compliance with the statutory framework. A Board Resolution was passed on 28.02.2025, followed by its ratification in the EGM on 17.03.2025, satisfying the requirement of Regulation 5. The Tribunal emphasized that the power to replace the liquidator vests with the shareholders and directors, and the Adjudicating Authority is not required to be involved in such a decision.
The Tribunal noted that “the Adjudicating Authority did not have the jurisdiction to force status quo upon the Corporate Debtor for continuing with Respondent No.1 as the Liquidator.” It was further held that directing a company to retain a liquidator who had already been lawfully removed was ultra vires the Adjudicating Authority’s powers under the IBC.
Referring to the legislative framework, the Tribunal underscored that Regulation 5 of the 2017 Regulations allows replacement of a liquidator by simply passing a resolution. There is no requirement for adjudication by the NCLT in such voluntary processes, unlike corporate insolvency proceedings under Chapter III of the IBC.
The NCLAT also criticized the NCLT for de-reserving the matter after having reserved it for judgment. It found that the procedural issues regarding authorization and stamping had already been considered while reserving the order on 02.04.2025. Revisiting those grounds to de-reserve the order contradicted the principle of continuity in judgment delivery and was unjustified.
The Appellate Tribunal further noted that while the NCLT acknowledged that the liquidator filing the application had already been replaced, it failed to address the key issue of whether such a person even had the locus to file the removal challenge.
Verdict
The NCLAT allowed Appeal No. 800 of 2025 and set aside the NCLT’s status quo order dated 28.03.2025. It permitted the newly appointed liquidator, Mr. Arun Gupta, to continue with the voluntary liquidation process and directed the erstwhile liquidator, Mr. Chandra Prakash Jain, to hand over all relevant documents and information in accordance with Regulation 41(4) of the 2017 Regulations.
As for Appeal No. 801 of 2025, while the Tribunal refrained from interfering with the next date of hearing fixed by the NCLT (09.06.2025), it directed the Adjudicating Authority to first decide on the maintainability of Mr. Jain’s application, considering he had already been replaced through a valid legal process.
Appearance
For Appellant: Mr. Abhijeet Sinha Sr. Advocate with Mr. Divyam Aggarwal, Mr. Aniket Aggarwal and Ms. Kavya Jha, Advocates.
For Respondent: Mr. Gaurav Mitra Sr. Advocate with Mr. Ravi Raghunath, Ms. Honey Satpal and Mr. Nipun Singhvi, Ms. Aishwarya Modi and Mr. Kanishk Khullar, Advocates for R-1. Mr. Abhimanyu Bhandari Sr. Advocate with Mr. Vishal Ganda, Mr. Anshit Aggarwal and Ms. Diksha Joshi, Advocates for R6.
Cause Title: Vinod Singh V. Chandra Prakash Jain & Ors.
Case No: Company Appeal (AT) (Insolvency) No. 800 of 2025
Coram: Justice Ashok Bhushan [Chairperson], Justice N. Sesha Sayee [Judicial Member], Mr. Barun Mitra [Technical Member]
