NCLT Justified in Allowing Replacement of Existing RP for Smooth Liquidation of CD: NCLAT

Case Details: Dr. K.V. Srinivas, Resolution Professional of Sainath Estates (P.) Ltd. - [2023] 149 taxmann.com 254 (NCLAT-Chennai)

Judiciary and Counsel Details

• • M. Venugopal, Judicial Member & Naresh Salecha, Technical Member
  • Y. Suryanarayana, Adv. for the Appellant.

Facts of the Case

In the instant case, the CIRP was initiated against the corporate debtor and the appellant was appointed as the Interim Resolution Professional (IRP). Later, the Committee of Creditors (CoC) was constituted and the appellant was confirmed as the Resolution Professional (RP).

Subsequently, a resolution plan was presented before the CoC and the same was approved with a majority voting share. The Adjudicating Authority also approved the same.

However, due to non-adherence to the terms of the resolution plan, the corporate debtor was placed under liquidation. The National Company Law Tribunal (NCLT) passed the impugned order for liquidation of the corporate debtor and allowed the request of lenders to replace the appellant with another RP.

The appellant then filed an appeal before the National Company Law Appellant Tribunal (NCLAT), contending that the replacement of a liquidator was not permissible u/s 34(4) of the IBC.

It was noted that a memo was filed by a financial creditor before the NCLT, mentioning that a joint lenders meeting was held wherein lenders had expressed their opposition regarding the continuation of the appellant as RP.

NCLAT Held

The NCLAT observed that since there was no embargo in law for the replacement of the current RP as a liquidator by another RP, especially when the lenders had opted for such replacement, therefore the same could not be brushed aside.

The NCLAT held that since the NCLT had exercised its judicial discretion by making pertinent observations in the impugned order that the graceful exit of the appellant would have paved the way for a smooth liquidation process, the same was free from any legal infirmities. As a result, the appeal was to be dismissed.

List of Cases Reviewed

• • Dr. K.V. Srinivas Chairman, Monitoring Committee, Sainath Estates (P.) Ltd. v. K. Premsagar Rao [2023] 149 taxmann.com 253 (NCLT – Hyd.) affirmed. [See Annex]

List of Cases Referred to

• • Syed Yousuf Ali v. Mohd. Yousuf [C.R.P. No. 4794 of 2015, dated 5-2-2016] (para 17)
  • B. Srinivasa Reddy v. Karnataka Urban Water Supply & Drainage Board Employees’ Association [Civil Appeal No. 3719 of 2006 dated 28-8-2006] (para 18)
  • Re Keypak Homecare Ltd.’ In re [1987] BCLC 409 (Ch D.) (para 33)
  • Edennote Ltd. [1996] EWCA 1359) (para 35)
  • Devendra Padamchand Jain v. State Bank of India [2018] 99 taxmann.com 194 (NCL – AT) (para 38)