NCLT Has No Authority to Restrain Replacement of Liquidator in Voluntary Liquidation: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench held that the National Company Law Tribunal (NCLT) has no authority to restrain replacement of liquidator under voluntary liquidation and l set aside the status quo order.

A set of two appeals filed under Section 61 of Insolvencyand Bankruptcy Code, 2016 (“IBC”) by the common Appellant-Managing Director of the Corporate Debtor , Vinod Singh which arises out of two orders dated 28.03.2025 and 29.04.2025 (“Impugned Order”) passed by the Adjudicating Authority( NCLT).

How to deal with GST special audit and departmental audit? Register Now

The appellant argued that the shareholders and directors of the corporate debtor alone have the authority to substitute a liquidator in accordance with Section 59 of the code and Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017. The liquidator may be removed at any time, and they are not required to obtain NCLT's consent.

Furthermore, the appellant argued that the NCLT lacked the power to reopen the case on the basis of procedural concerns once the matter had been reserved for decision. As a result, the de-reservation order was illegal.

According to the NCLAT, the shareholders and directors of the firm have complete authority to choose or dismiss a liquidator under Section 59 of the IBC and Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017. They are not required by law to provide the NCLT with a justification for dismissing the liquidator.The decision to designate and/or replace a Voluntary Liquidator is not within the Adjudicating Authority's jurisdiction.

It was viewed that the NCLT was legally wrong and went against the IBC and the Voluntary Liquidation Regulations, by de-reserving the judgment in IA No. 450 of 2025. It stated the process of voluntary liquidation must be completed within proper timeframe and by preventing the company from moving ahead with the new liquidator, the NCLT delayed the entire process. Since the Board and shareholders had already removed Mr. Jain through valid resolutions, the NCLT should not have reinstated him or prolonged his term without strong and valid reasons.

It stated that the NCLT had overreached itself and breached the law by ordering the company to keep things as they were and continue using the liquidator who had already been appointed.

It was noted that on February 28, 2025, the directors and shareholders passed a resolution to remove the liquidator due to his lack of cooperation and improper performance of his duties. The decision was confirmed on March 17, 2025, and the status quo order was passed on March 28, 2025, after the liquidator had already been appointed. Since the NCLT lacked the power to enforce the status quo and stop the business from carrying out its judgment, it violated the law.

The New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) held that as the company had followed the correct legal procedure to replace the Liquidator, no further approval from the NCLT was required.

The Tribunal set aside the status quo order and allowed the newly appointed liquidator to continue with the voluntary liquidation of the company. Further directed the NCLT to first address the core issue that whether the liquidator even had the right to file the application challenging his removal.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates