IBC Laws - Liquidator can be removed under IBC, 2016 on any of the grounds provided under Sec. 276 of the Companies Act, 2013 - State Bank of India Vs. Mr. Kari Venkateswarlu

(2023) ibclaw.in 999 NCLT

IN THE NATIONAL COMPANY LAW TRIBUNAL
Hyderabad Bench

State Bank of India
v.
Mr. Kari Venkateswarlu

IA (IBC)/1517/2022 in CP (IB) No.198/9/HDB/2017
Decided on 07-Dec-23

Coram: Shri Rajeev Bhardwaj (Judicial Member) and Shri Sanjay Puri (Technical Member)

Add. Info:

Corporate Debtor: Nawa Engineers and Consultants Pvt. Ltd.

For the Applicant: Dr. K.V. Srinivas, Advocate

For the Respondent: Mr. Naresh Kumar Sangem.

Brief about the decision:

Facts of the case

The present application has been filed by M/s State Bank of India (applicant) seeking the following reliefs:

a. Replace the existing Liquidator i.e., Mr. Kari Venkateswarlu and appoint Mr. Madhusudan Rao Gonugunta as the new Liquidator;

b. Impose an exemplary cost on the Liquidator for ill-will intention and contravention of rules and regulations of IBC.

The prayer for removal of the liquidator arose because of his act and conduct in processing the auction dated 01.03.2019 of various assets including Lot No.1 and Lot No.2, for which the highest bid made by M/s. Keshan Trading Corporation was cancelled. This has resulted in multifarious litigations thereby delaying the liquidation of the corporate debtor. Against the rejection of highest bid, M/s. Keshan Trading Corporation filed IA Nos.181, 334 and 335 / 2019, wherein our predecessor vide order dated 09.09.2019 made scathing remarks about the manner etc. in which the auction was conducted.
The allegations of the alleged bribe demanded by the liquidator also came to the notice of this Authority in its order dated 09.09.2019.
The IBBI also took cognizance of the matter relating to the alleged bribe on the basis of complaint dated 10.03.2019 filed by one Mr. Vikash Kumar Keshan and the directions given by this Authority to the IBBI vide order dated 09.09.2019 and accordingly, show cause notice was issued to the liquidator.
The IBBI did not find any direct evidence of bribe against the liquidator, but observed negatively the way auction of Lot Nos 1 & 2 was conducted and this was found the main cause for delaying the liquidation process. For all this, the IBBI imposed a penalty of 25% of the liquidator’s fees and also made some disparaging remarks about the entire process conducted by the liquidator.
In the face of the aforesaid background, Ld. Counsel for the applicant argued that there are reasonable grounds to remove the liquidator because of his actions encompassing allegations of bribe, observations made in orders dated 09.09.2019 of this Authority and dated 24.05.2022 of the IBBI. He has relied upon decisions in State Bank of India versus Dr. Kondapalli Venkat Srinivas, IA No.739 of 2023 in CP (IB) NO.166/7/HDB/2019 decided on 30.06.2023 and IDBI Bank Limited versus V. Venkata Sivakumar, (2022) ibclaw.in 628 NCLT decided on 01.07.2022. He has raised one more issue that filing of the appeal by the liquidator without taking into confidence the committee of creditors is also part of misconduct and in support of this contention, reliance has been placed on the decision of the Hon’ble Apex Court in the Regen Powertech Private Limited versus Giriraj Enterprises & another, (2023) ibclaw.in 111 SC.
Ld. Counsel for the respondent has submitted that the question about the execution of the order dated 09.09.2019 in M/s. Keshan Trading Corporation versus Mr. Venkateswarlu Kari, and the remarks made by the IBBI regarding the conduct of the liquidation process are sub-judice and therefore no reliance can be placed on those decisions and accordingly there is no question of removing the liquidator. It is also submitted that there is no provision under the IBBI in this regard.

Decision of the Adjudicating Authority

When the provisions of the IBC and the liquidation regulations are read together, it becomes clear that there is no provision for the removal of the liquidator. On the question of consultation or taking directions from the CoC/stakeholders there are only few provisions in the IBC i.e section 35(2) of IBC and Regulation 31(A) of the IBBI (Liquidation Process) Regulations 2016.(p11)
Both Section 35(2) and Regulation 31A are not of much importance because the latter shall be applicable to those liquidation processes which commenced after the date of commencement of the Liquidation Process (Amendment) Regulations, 2019, while liquidation was started before the coming into force of the amendment and Section 35(2) only says about consultation with the stakeholders, though the advice tendered of the consultation stakeholder including COC is not binding on the liquidator.(p12)
Another fact which has bearing on the maintainability of the present application is the IA 443/2019, wherein same relief was prayed for. Both the IAs are about the removal of the liquidator, but the IA 443/2019 has already been disposed of by order dated 03.02.2023 and therefore, the contention of the respondent is without any basis.(p13)
The moot question still remains as to whether the liquidator can be removed when there is no specific provision in the IBC. If the contention of the learned counsel of the respondent is to be accepted that liquidator cannot be removed in the absence of any provision, there would be anarchy as the liquidator will be able to do anything whatever he wants, whether it is in the interest of the stakeholders or not. This is also not the intention of law which can be explained from this dictum that power tends to corrupt and absolutely power corrupts absolutely.(p14)
When the IBC is silent, we may refer to Section 16 of the General Clauses Act,1897. Hence, when this Authority has power to appoint a liquidator, it has also implied authority to dismiss or remove him. This is also the ratio of decision in IDBI Bank Limited versus Shri. Versus Venkata Sivakumar (2022) ibclaw.in 628 NCLT.(p15-16)
Similar to the absence of specific provision about the dismissal or removal of the liquidator in IBC, there is also no provision as on what ground (s) the liquidator can be removed. Here, we may profitably refer to Section 276 of the Companies Act, 2013. Thus, under the Companies Act, the liquidator can be moved under the following grounds:
- (a) misconduct;
- (b)fraud or misfeasance;
- (c) professional incompetence or failure to exercise due care and diligence in performance of the powers and functions;
- (d) inability to act as provisional liquidator or as the case may be, Company Liquidator;
- (e) conflict of Interest or lack of independence during the term of his appointment that would justify removal.(p17-18)
The grounds as detailed above have direct link with the functioning of the liquidator and if he treads the path which clash with the interest of the stakeholders or shock the conscience of the common man, he can be removed. On the same analogy, the liquidator can also be removed under the IBC on any of the above grounds. The Hon’ble NCLAT in Dr. K.V. Srinivas, Resolution Professional of M/s. Sainath Estates Private Limited (2022) ibclaw.in 1038 NCLAT even went to the extent to say that apart from the grounds mentioned for change of Liquidator under the Companies Act, change can be done on grounds other than those mentioned under Section 34(4) of the I & B Code, 2016.(p19)

Present case

Now the question arises whether the acts and conduct of the liquidator are sufficient to remove him.

The competence of the liquidator to reject the bid has been explained by the Hon’ble Apex court in State of Jharkhand and others versus Cwe-Soma Consortium (2016) 14 SCC 172 and R.K. Industries (UNIT-II) LLP versus H.R. Commercials Private Limited and others, Civil Appeal Nos. 7722 and 7731 of 2021, decided On: 26.08.2022. Without commenting upon whether the Liquidator has rightly or wrongly rejected the bid given by M/s. Keshan Trading Corporation in view of the stay order dated 12.12.2019 granted by Hon’ble NCLAT against the impugned order dated 09.09.2019 in M/s. Keshan Trading Corporation case supra and filing of writ petition No.28818/2022 titled Mr. Venkateswarlu Kari versus IBBI challenging the comments of the IBIBI against the liquidator in the order dated 24.05.2022, it is to be determined whether the material on record is sufficient to remove the liquidator.(p21)
The liquidator is the appointee of this Authority. He is supposed to act as a neutral umpire vis-a-vis various stakeholders in the game. Therefore, it was either for the COC/SEC or M/s. Keshan Trading Corporation to challenge the impugned order dated 09.09.2019 and instead of this, the liquidator has challenged the decision before the Hon’ble NCLAT. Apart from this, he has also knocked the doors of the Hon’ble High Court of Telangana against the order dated 24.05.2022 of the IBBI. The Hon’ble Apex Court in Regen Powertech Private Limited versus Giriraj Enterprises & another, (supra) held that in such circumstances, it is for the CoC etc. but not the Resolution Professional, to take appropriate proceedings or file an appeal and the Resolution Professional should have maintained a neutral stand.(p22)
The liquidation process has delayed because of the litigation initiated by the liquidator, otherwise the entire process would have come to an end 3 years back and there is no chance of litigation coming to an end in near future if the present situation continues.(p23)
There are no two opinions that the liquidator actions are to be under the parental supervision of the Adjudicating Authority. The liquidator has not unfettered powers to discharge his duties but he is required to function in a reasonable and prudent manner.(p24)
The relationship between the liquidator and the Adjudicating Authority is sort of fiduciary. Similarly, the liquidator has also to maintain highest regard to the principles of integrity and honesty in dealing with all the stakeholders.(p25)
When we analyse the related facts with the object of the IBC to maximise the value and avoid delay, we think that the liquidator is lacking in his approach and prima facie we can say that his actions fall under clauses (a) and (c) and therefore, it is better to appoint some other liquidator.(p26)
In view of our observations/discussions as above, we can say that the act and conduct of the liquidator falls within the clauses (a) and (c) as mentioned above and as a result, the application is allowed. Accordingly, prayer No.1 is granted.(p27)