Opinion of the Stakeholders’ Consultation Committee Non-binding on the Liquidator: Supreme Court

The Supreme Court recently clarified that advice provided by the Stakeholder Consultative Committee (SCC) appointed in liquidation proceedings is not binding on the liquidator.

In this case, the complainant contended that the liquidator had not constituted an SCC before initiating the winding up process. However, the respondent rejected this argument by stating that the constitution of an SCC was not a requirement at that time as the explanation attached to Regulation 31A was inserted in the provisions of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 vide Notification dated 25th July, 2019, requiring constitution of an SCC. Whereas the winding up process in this case had commenced before the issuance of the notification.

In this regard, the Supreme Court clarified that Regulation 31A requires the liquidator to constitute an SCC within a period of sixty days from the date of commencement of the winding up process. The purpose of the SCC is to advise the liquidator on matters relating to the appointment and remuneration of specialists, as well as in connection with the sale of assets under Regulation 32.

In this respect, the Court noted: “By the Notification dated 28 April 2022, an Explanation has been attached at the bottom of Regulation 31A which clarifies that the requirement to constitute a Stakeholders’ Consultative Committee shall apply only to those winding-up processes which were to commence on or after the date of commencement of the IBBI Regulation, 2016.

However, the advice given by the committee is not binding on the liquidator as set out in RK Industries (Unit-II) LLP vs HR Commercials Private Limited and others (2022).

The court added: “The Regulation provides for a safeguard in that if the liquidator takes a decision that is contrary to the opinion given by the Stakeholder Consultative Committee, he must record the reasons for his decision and mention it in the next progress report. In the instant case, the liquidation process of the company commenced on 17th July 2019 and, therefore, the complainant’s contention that the liquidator violated Regulation 31A of the IBBI Regulations, 2016 by failing to constitute a Stakeholders’ Consultative Committee is unfounded.“

You can read other reports about the verdict here.