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Can an Adjudicating Authority appoint a liquidator independently without considering the unanimous recommendation of the Committee of Creditors (“CoC”)? The National Company Law Appellate Tribunal (“NCLAT”), New Delhi, examined this question in Rajesh Mehru v. Punjab National Bank & Rajeesh Gupta1, and clarified the limits of the Adjudicating Authority’s discretion under Section 34 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The NCLAT held that the National Company Law Tribunal (“NCLT”) erred in appointing a liquidator from the IBBI panel without considering the CoC’s unanimous recommendation, which had been reaffirmed twice. The Tribunal further held that the IBBI communication dated 18 July 2023 could not justify the appointment, particularly when the proposed liquidator had never served as the Interim Resolution Professional (“IRP”) or Resolution Professional (“RP”) of the Corporate Debtor. The decision consequently reinforces the importance of the CoC’s recommendation while recognising that such recommendation remains subject to the statutory requirements of Section 34.
The proceedings concerned Macro Dairy Ventures Private Limited (“Corporate Debtor”). Punjab National Bank (“PNB”) was the sole member of the CoC with 100% voting share. The Section 7 application was admitted on 30 November 2022. Krishan Vrind Jain was appointed as IRP and was subsequently replaced by Anand Sonbhadra as RP. Rajesh Mehru, the appellant, was never appointed as either IRP or RP.
At its 8th meeting on 21 November 2023, the CoC resolved to initiate liquidation under Section 33(2) of the IBC. Subsequently, PNB proposed Appellant as liquidator. At the 9th CoC meeting on 1 February 2024, his appointment was unanimously approved with 100% voting share and was reaffirmed at the 17th meeting on 9 October 2024.
Despite this, the NCLT, by order dated 30 January 2026, appointed Rajeesh Gupta (Respondent No. 2) as liquidator from the IBBI panel. The NCLT relied upon the IBBI communication dated 18 July 2023. The NCLAT noted that the NCLT had not actually considered the CoC’s recommendation of Appellant.
Appellant contended that the NCLT had failed to consider the CoC’s unanimous recommendation and had appointed another professional without identifying any statutory basis for doing so. He further argued that the IBBI communication dated 18 July 2023 was inapplicable because he had never served as IRP or RP of the Corporate Debtor.
Reliance was placed upon Manish Jaju v. Committee of Creditors of Rajesh Landmark Projects Pvt. Ltd.2, Omkara Asset Reconstruction Pvt. Ltd. v. Amit Vijay Karia3, Indo Spirits v. Shailesh Chandra Ojha4 and CoC of Eskay K’N’IT (India) Ltd. v. Ajit Kumar5.
Respondent No. 2 challenged Appellant’s eligibility on the ground of his Authorisation for Assignment (“AFA”) and argued that substantial steps had already been taken in the liquidation. Reliance was placed on Nipan Bansal v. Cheema Spintex & Ors.6
The Statutory Boundary of NCLT
The NCLAT allowed the appeal and set aside the NCLT’s order to the extent that it appointed Respondent No. 2 as liquidator, while leaving the liquidation order undisturbed.
The Tribunal observed that Section 34(1) provides for continuation of the RP as liquidator as the statutory default, subject to the circumstances contemplated under Section 34(4). Since Appellant had never been the RP, he did not claim appointment by virtue of Section 34(1).
However, the NCLT was required to consider the CoC’s unanimous recommendation before appointing another professional. The NCLAT found that the NCLT had failed to do so. The recommendation, having been made with 100% voting share and subsequently reaffirmed, was a material consideration that could not simply be ignored.
The decision therefore does not confer an absolute right on the CoC to select a liquidator. It instead requires the Adjudicating Authority to apply its mind to the CoC’s recommendation before departing from it.
The NCLAT relied on Manish Jaju7 and subsequent decisions to hold that Section 34(4)(b) cannot be treated as a blanket prohibition against appointing an erstwhile IRP/RP as liquidator.
More importantly, the communication was factually inapplicable to Appellant, since he had never served as IRP or RP of the Corporate Debtor. The NCLT therefore could not rely upon it as a basis for appointing Respondent No. 2 instead of the Appellant.
Further, The NCLAT directed the NCLT to verify Appellant’s current and valid AFA before he assumed charge as liquidator. The Tribunal also considered the work already undertaken by Respondent No. 2 but found no sufficient basis to continue his appointment. His lawful actions and expenses were protected, and he was directed to hand over charge after Appellant established his eligibility.
The NCLAT directed that Appellant be appointed as liquidator in terms of the CoC resolutions dated 1 February 2024 and 9 October 2024, subject to verification of his valid AFA. Respondent No. 2 was directed to hand over charge within two weeks thereafter. The Tribunal also directed that the lawful steps taken during Respondent No. 2’s tenure would remain protected.
Conclusion
The NCLAT clarifies that while the Adjudicating Authority retains statutory authority over the appointment of a liquidator, it cannot disregard a unanimous CoC recommendation without considering it as per Section 34(4)(b) of the Insolvency and Bankruptcy Code, 2016.
The judgment does not make the CoC’s recommendation binding in every case. Rather, it requires the Adjudicating Authority to exercise its discretion within the framework of Section 34 and provide a legally sustainable basis for departing from the CoC’s decision.
Thus, as per this judgment, appointment of the liquidator cannot be done without considering the unanimous decision of the Committee of Creditors’ (CoC).
Accordingly, the decision reinforces that a unanimous CoC recommendation regarding the appointment of a liquidator cannot be ignored and must receive due consideration from the Adjudicating Authority.
Citations
Expositor(s): Adv. Vatsala
