NCLT cannot compel corporate debtor to retain liquidator once valid resolution is passed for replacement: NCLAT

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that the National Company Law Tribunal (NCLT) has no authority to compel a corporate debtor to retain a liquidator once a valid resolution for their replacement has been passed under Section 59 of the Insolvency and Bankruptcy Code, 2016.

In Vinod Singh v. Chandra Prakash Jain, the appellant challenged an NCLT order directing status quo with respect to the position of liquidator during voluntary liquidation proceedings of Transmissions International India Pvt. Ltd. Initially, Mr. Umesh Ved was appointed as the liquidator, followed by Mr. Chandra Prakash Jain. Due to alleged misconduct and breach of fiduciary duties, the Board of Directors resolved in February 2025 to replace Mr. Jain with Mr. Arun Gupta.

Mr. Jain, however, filed an interlocutory application before the NCLT challenging his removal, and the NCLT directed the parties to maintain status quo. Aggrieved, the Managing Director of the company filed two appeals before the NCLAT: one challenging the status quo order and another challenging the NCLT’s de-reservation of judgment.

The Appellate Tribunal upheld the appellants’ contentions, stating that under Section 59 of the Code and Regulation 5 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, the power to replace a liquidator rests solely with the shareholders and directors of the company, without any requirement to seek NCLT’s approval.

The Tribunal held that the NCLT had acted beyond its jurisdiction by imposing status quo and interfering in a process that is statutorily reserved for the corporate debtor’s internal decision-making. It observed that the liquidator had already been replaced through valid board resolutions prior to the NCLT’s status quo order dated 28.03.2025, and therefore, the NCLT’s directive was contrary to the legal scheme.

Furthermore, the NCLAT criticized the NCLT’s decision to de-reserve judgment in the interlocutory application without sufficient justification, thereby delaying the voluntary liquidation process unnecessarily.

Accordingly, the Appellate Tribunal set aside the NCLT’s orders, upheld the validity of the new liquidator’s appointment, and directed the NCLT to first decide whether the removed liquidator had the right to file the application at all.

Vinod Singh v. Chandra Prakash Jain

Company Appeal (AT) (Insolvency) No. 800 of 2025