Introduction

The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, delivered a significant judgment on December 20, 2022, in the case of Venkata Sivakumar v. IDBI Bank Limited. This case revolved around the removal of Mr. V. Venkata Sivakumar, an Insolvency Professional (IP) and Liquidator, by IDBI Bank for non-compliance with the Authorisation for Assignment (AFA) requirements under the Insolvency and Bankruptcy Code, 2016 (I & B Code).

The primary parties involved included:

• Appellant: CA V. Venkata Sivakumar, the erstwhile Liquidator of The Jeypore Sugar Company Ltd.
• Respondents:
  • IDBI Bank Limited, a Secured Financial Creditor.
  • Insolvency Bankruptcy Board of India (IBBI), the regulatory authority.
  • Indian Institute of Insolvency Professionals of ICAI (IIIPI), the professional body issuing AFA.

Summary of the Judgment

The NCLAT dismissed the appeal filed by Mr. Venkata Sivakumar against the impugned order dated July 1, 2022, which had replaced him as the Liquidator of The Jeypore Sugar Company Ltd. The tribunal held that Mr. Sivakumar did not possess a valid AFA at the time of his appointment as Liquidator, thereby justifying his removal under the provisions of the I & B Code, 2016.

Key findings of the judgment include:

• The appellant failed to secure a valid AFA at the time of accepting the Liquidator role, contrary to Regulation 7A of IBBI's Insolvency Regulation 2017.
• The subsequent issuance of AFA on December 30, 2020, did not retroactively validate his earlier appointment.
• The NCLAT reaffirmed the tribunal's authority to remove a Liquidator under Sections 33 & 34 of the I & B Code, 2016 and Section 276 of the Companies Act, 2013.
• The appellant's allegations of bias and procedural impropriety were found to be unsubstantiated.

Analysis

Precedents Cited

The judgment referenced several key cases to substantiate its decision:

• Tax Officer, Alleppey vs MC Ponnoose & Ors. (1969) 2 SCC 351: Emphasized that laws are not to be applied retrospectively unless explicitly stated.
• State of Tamil Nadu and Ors. v. M.N. Sundararajan (1980) 4 SCC 592: Established that the power to appoint includes the power to terminate an appointment.
• Heckett Engineering Co. v. Their Workmen (1977) 4 SCC 377: Supported the principle that termination of service is an inherent part of the appointment power.
• Kiran Shah Vs. Punjab National Bank (CA (AT)(Ins.) No. 102 of 2020): Held that financial creditors cannot unilaterally remove a Liquidator based solely on complaints without sufficient grounds.
• Principal Bench, NCLAT (Company Appeal (AT) (Ins.) No. 1234 of 2022) dated 13.10.2022: Affirmed that Liquidators do not have personal rights to continue and can be removed by the Adjudicating Authority with valid reasons.

Legal Reasoning

The NCLAT delved into the nuances of the I & B Code, particularly focusing on:

• Regulation 7A of IBBI's Insolvency Regulation 2017: Mandated that Insolvency Professionals must hold a valid AFA at the time of accepting any assignment post December 31, 2019.
• Regulation 12A of IBBI's Model Bye-Laws: Stipulated that if an AFA application is not responded to within 15 days, it is deemed to have been issued.
• Section 16 of the General Clauses Act, 1897: Empowered authorities to suspend or dismiss appointees.
• Sections 33 & 34 of the I & B Code, 2016 and Section 276 of the Companies Act, 2013: Provided the framework for the removal and replacement of Liquidators.

The tribunal concluded that Mr. Sivakumar did not possess a valid AFA on the date of his appointment as Liquidator. His subsequent AFA approval did not retroactively legitimize his role, aligning with the principle that regulations do not apply retrospectively unless expressly stated.

Impact

This judgment reinforces the stringent compliance requirements for Insolvency Professionals under the I & B Code, 2016. It underscores that:

• Possession of a valid AFA at the time of assignment acceptance is non-negotiable.
• Regulatory bodies hold the authority to remove Liquidators who fail to meet mandatory compliance standards.
• The absence of retrospective application of regulations ensures clarity and predictability in insolvency proceedings.
• Financial creditors can uphold rigorous standards to ensure the integrity of the liquidation process.

Future Liquidators and Insolvency Professionals will need to ensure meticulous adherence to AFA regulations to prevent similar removals.

Complex Concepts Simplified

Conclusion

The NCLAT's decision in Venkata Sivakumar v. IDBI Bank Limited serves as a pivotal reference point for the enforcement of regulatory compliance among Insolvency Professionals. By upholding the removal of a Liquidator lacking a valid AFA at the time of his appointment, the tribunal has reinforced the sanctity of procedural adherence under the I & B Code, 2016.

This judgment emphasizes that:

• Regulatory frameworks are strictly implemented to maintain the integrity of the insolvency process.
• Retrospective validation of compliance is not permissible unless explicitly provided.
• Financial creditors possess the authority to ensure that appointed Liquidators meet all necessary legal and professional standards.

Moving forward, this case underscores the necessity for Insolvency Professionals to proactively secure and maintain valid AFAs, ensuring uninterrupted and lawful participation in insolvency proceedings.