IBBI Cannot issue General Circular to Bar RP Appointment u/s 34(4)(b) of IBC: NCLAT Sets aside NCLT Order [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi, has allowed an appeal filed by Resolution Professional of Rajesh Landmark Projects Private Limited by setting aside the NCLT order holding that the Insolvency and Bankruptcy Board of India (IBBI) cannot issue a general circular to bar the appointment of Resolution Professionals as liquidators under Section 34(4)(b) of the Insolvency Bankruptcy Code (IBC), 2016.

The appeal arose from a liquidation process where the Committee of Creditors (CoC), with 83.93% voting share, had resolved to liquidate the corporate debtor and recommended appointing the then-RP, Manish Jaju, as liquidator. However, the NCLT, relying on IBBI's circular dated 18.07.2023, appointed Ms. Smita Gupta from the IBBI panel as liquidator instead. Aggrieved by this order, the RP filed the present appeal challenging only the appointment of Ms. Smita Gupta as liquidator.

The appellant, represented by Mr. Devul Dighe, Advocate, contended that under Section 34(1) of the IBC, he was entitled to be appointed as liquidator, and the CoC had already resolved to appoint him. He argued that the IBBI circular was merely an internal communication and not a specific recommendation as contemplated by Section 34(4)(b) of the IBC. The CoC supported the appellant's position, while Ms. Smita Gupta, the appointed liquidator, submitted that the appointment was the complete prerogative of the adjudicating authority.

A two-member bench of Justice Ashok Bhushan, Chairperson, and Barun Mitra, Member (Technical), examined the legislative scheme under Section 34 of the IBC. The Tribunal observed that Section 34(1) clearly establishes that the RP shall act as liquidator unless replaced under the specific circumstances mentioned in Section 34(4).

The bench held that the power conferred on IBBI under Section 34(4)(b) is to recommend replacement of a particular RP based on specific facts related to that RP's work and conduct, and not a general power to issue a circular barring all RPs from being appointed as liquidators.

The NCLAT concluded that the IBBI had misinterpreted its powers under Section 34(4)(b) by issuing a general circular that militated against the legislative scheme of Section 34(1). The Tribunal emphasized that the power to recommend replacement must be exercised qua a particular RP in the CIRP of the corporate debtor, and not as a blanket directive applicable to all cases.

Accordingly, the NCLAT allowed the appeal, set aside the NCLT's order appointing Ms. Smita Gupta as liquidator, and substituted the appointment of the appellant as liquidator in the impugned order. The Tribunal further directed that Ms. Smita Gupta shall be entitled to the expenses incurred by her, totaling ₹45,625, as detailed in her reply.

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