Powers and duties of Liquidator under Sec. 35, 37 of Insolvency and Bankruptcy Code 2016 (IBC)

Liquidation Process
Appointment & Remuneration of Liquidator

Powers and duties of Liquidator under Sec. 35, 37 of IBC

I. Powers & Functions of Liquidator [Sec. 34(2) & (3)]

On the appointment of a liquidator under section 34, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator. The personnel of the corporate debtor shall extend all assistance and cooperation to the liquidator as may be required by him in managing the affairs of the corporate debtor and provisions of section 19 shall apply in relation to voluntary liquidation process as they apply in relation to liquidation process with the substitution of references to the liquidator for references to the interim resolution professional.

Section 34 of the Code, deals with the appointment of a Liquidator with a view to carry out the Liquidation process of the Corporate Debtor. A Resolution Professional under Chapter -II of the Code shall act as Liquidator of the Corporate Debtor and shall have all the powers of the Board of Directors, Key Managerial Personnel. In Section 34 of the Code, the term ‘Vest’ is synonymous with title and it is concerned with title as per decision Daya Wanti Punj And Ors. vs New Delhi Municipal Committee report in 1982 Del. 534.

NCLAT in the matter of Rajive Kaul Vs. Vinod Kumar Kothari & ors 190(IBC)155/2020 held that Liquidator have power to replace or remove the Nominee Directors of the Corporate Debtor on the board of other Companies.

II. Powers and duties of liquidator [Sec. 35]

1. Subject to the directions of the Adjudicating Authority, the liquidator shall have the following powers and duties, namely:—

(a) to verify claims of all the creditors;

(b) to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor;

(c) to evaluate the assets and property of the corporate debtor in the manner as may be specified by the Board and prepare a report;

(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary;

(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;

It is to be remembered that as per Section 35(1)(e) of the Code is to carry on the business of the Corporate Debtor and not the business of any other entity which is not the Corporate Debtor.[NCLAT Rajive Kaul Vs. Vinod Kumar Kothari & ors 190(IBC)155/2020]

(f) subject to section 52, to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified.

However, the liquidator shall not sell the immovable and movable property or actionable claims of the corporate debtor in liquidation to any person who is not eligible to be a resolution applicant.

Proviso to Section 35(f) of the Code, fetters a Liquidator to sell the immovable or movable property or actionable claims of Corporate Debtor in Liquidation to any person who is not eligible to be Resolution Applicant.

NCLAT in the matter of State Bank of India Vs. Maithan Alloys Limited 144(IBC)109/2020 held that Sec 35(1)(f) of Code empowers liquidator to sell the property of the corporate debtor in liquidation by public Auction, Hence there was no need for adjudicating authority to direct the liquidator for considering the proposal of R- 2 to R-4 who has approached the Adjudicating Authority after due date of finalisation of Auction

(g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business;

(h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself;

(i) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities;

(j) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code;

(k) to institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor;

(l) to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions;

(m) to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as liquidator;

(n) to apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the corporate debtor and to report the progress of the liquidation process in a manner as may be specified by the Board; and

(o) to perform such other functions as may be specified by the Board.

2. The liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53. However, any such consultation shall not be binding on the liquidator. The records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board.

 

II. Powers of liquidator to access information [Sec. 37]

Notwithstanding anything contained in any other law for the time being in force, the liquidator shall have the power to access any information systems for the purpose of admission and proof of claims and identification of the liquidation estate assets relating to the corporate debtor from the following sources, namely:—

(a) an information utility;

(b) credit information systems regulated under any law for the time being in force;

(c) any agency of the Central, State or Local Government including any registration authorities;

(d) information systems for financial and non-financial liabilities regulated under any law for the time being in force;

(e) information systems for securities and assets posted as security interest regulated under any law for the time being in force;

(f) any database maintained by the Board; and

(g) any other source as may be specified by the Board.

The creditors may require the liquidator to provide them any financial information relating to the corporate debtor in such manner as may be specified.The liquidator shall provide information to such creditors who have requested for such information within a period of seven days from the date of such request or provide reasons for not providing such information.

 

1. Reporting [LP Reg.-5]

The liquidator shall prepare and submit following to the Adjudicating Authority in the manner specified under these Regulations:

(a) a preliminary report;

(b) an asset memorandum;

(c) progress report(s);

(d) sale report(s);

(e) minutes of consultation with stakeholders; and

(f) the final report prior to dissolution

The liquidator shall make the reports and minutes referred as above available to a stakeholder in either electronic or physical form, on receipt of:

(a) an application in writing;

(b) costs of making such reports and minutes available to it; and

(c) an undertaking from the stakeholder that it shall maintain confidentiality of such reports and minutes and shall not use these to cause an undue gain or undue loss to itself or any other person.

 

2. Preserve for 8 years [LP Reg.- 5(2)]

The liquidator shall preserve a physical as well as an electronic copy of the reports and minutes referred as above for eight years after the dissolution of the corporate debtor.

 

3. Registers and books of account [LP Reg. -6]

Where the books of account of the corporate debtor are incomplete on the liquidation commencement date, the liquidator shall have them completed and brought up-to-date, with all convenient speed, as soon as the order for liquidation is passed. The liquidator shall maintain the following registers and books, as may be applicable, in relation to the liquidation of the corporate debtor, and shall preserve them for a period of eight years after the dissolution of the corporate debtor-

(a) Cash Book;

(b) Ledger;

(c) Bank Ledger;

(d) Register of Fixed Assets and Inventories;

(e) Securities and Investment Register;

(f) Register of Book Debts and Outstanding Debts;

(g) Tenants Ledger;

(h) Suits Register;

(i) Decree Register;

(j) Register of Claims and Dividends;

(k) Contributories Ledger;

(l) Distributions Register;

(m) Fee Register;

(n) Suspense Register;

(o) Documents Register;

(p) Books Register;

(q) Register of unclaimed dividends and undistributed proceeds; and

(r) such other books or registers as may be necessary to account for transactions entered into by him in relation to the corporate debtor.

The registers and books may be maintained in the forms indicated in Schedule III, with such modifications as the liquidator may deem fit in the facts and circumstances of the liquidation process. The liquidator shall keep receipts for all payments made or expenses incurred by him.

 

4. Appointment of professionals [LP Reg.-7]

A liquidator may appoint professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the liquidation cost. The liquidator shall not appoint a professional who is his relative, is a related party of the corporate debtor or has served as an auditor to the corporate debtor in the five years preceding the liquidation commencement date. A professional appointed or proposed to be appointed shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders, or the concerned corporate debtor as soon as he becomes aware of it, to the liquidator.

 

5. Consultation with stakeholders [LP Reg.-8]

The stakeholders consulted under section 35(2) shall extend all assistance and cooperation to the liquidator to complete the liquidation of the corporate debtor. The liquidator shall maintain the particulars of any consultation with the stakeholders made under this Regulation, as specified in Form A of Schedule II.

 

6. Personnel to extend cooperation to liquidator [LP Reg.-9]

The liquidator may make an application to the Adjudicating Authority for a direction that following  person shall cooperate with him in the collection of information necessary for the conduct of the liquidation, who:

(a) is or has been an officer, auditor, employee, promoter or partner of the corporate debtor;

(b) was the interim resolution professional, resolution professional or the previous liquidator of the corporate debtor; or

(c) has possession of any of the properties of the corporate debtor;

An application may be made under this Regulation only after the liquidator has made reasonable efforts to obtain the information from such person and failed to obtain it.

 

7. Disclaimer of onerous property [LP Reg.-10]

1. Where any part of the property of a corporate debtor consists of-

(a) land of any tenure, burdened with onerous covenants;

(b) shares or stocks in companies;

(c) any other property which is not saleable or is not readily saleable by reason of the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or

(d) unprofitable contracts;

the liquidator may, notwithstanding that he has endeavored to sell or has taken possession of the property or exercised any act of ownership in relation thereto or done anything in pursuance of the contract, make an application to the Adjudicating Authority within six months from the liquidation commencement date, or such extended period as may be allowed by the Adjudicating Authority, to disclaim the property or contract.

2. The liquidator shall not make an application, if a person interested in the property or contract inquired in writing whether he will make an application to have such property disclaimed, and he did not communicate his intention to do so within one month from receipt of such inquiry.

3. The liquidator shall serve a notice to persons interested in the onerous property or contract at least seven days before making an application for disclaimer to the Adjudicating Authority:

Explanation: A person is interested in the onerous property or contract if he-

(a) is entitled to the benefit or subject to the burden of the contract ; or

(b) claims an interest in a disclaimed property or is under a liability not discharged in respect of a disclaimed property.

4. Subject to the order of the Adjudicating Authority approving such disclaimer, the disclaimer shall operate to determine, from the date of disclaimer, the rights, interest and liabilities of the corporate debtor in or in respect of the property or contract disclaimed, but shall not, except so far as is necessary for the purpose of releasing the corporate debtor and the property of the corporate from liability, affect the rights, interest or liabilities of any other person.

5. A person affected by the disclaimer under this Regulation shall be deemed to be a creditor of the corporate debtor for the amount of the compensation or damages payable in respect of such effect, and may accordingly be payable as a debt in liquidation under section 53(1)(f).

 

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