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NCLAT: Adjudicating Authority Cannot Appoint Liquidator Without CoC Recommendation Under the IBC

Writer: Kaustav Chowdhury
Kaustav Chowdhury
Aug 18
6 min read

The National Company Law Appellate Tribunal (NCLAT), Principal Bench at Delhi, in Rajesh Mehru v. Punjab National Bank & Rajeesh Gupta [Company Appeal (AT) (Insolvency) 530/2026, 2026 LLBiz NCLAT 312], has ruled that the adjudicating authority cannot appoint a liquidator without considering the Committee of Creditors' (CoC) unanimous recommendation under the Insolvency and Bankruptcy Code, 2016 (IBC). A bench comprising Justice Sharad Kumar Sharma (Judicial Member) and Technical Members Arun Baroka and Indevar Pandey set aside the NCLT Chandigarh order, holding that an order appointing a liquidator without any reference to the CoC's recommendation "cannot be said to have applied its mind to that recommendation at all." The order was delivered on August 4, 2026.


Background and Context

The case arose from the corporate insolvency resolution process (CIRP) of Macro Dairy Ventures Pvt. Ltd. Punjab National Bank (PNB), the sole financial creditor, resolved to liquidate the company after the CIRP failed to yield a viable resolution plan. The CoC unanimously recommended insolvency professional Rajesh Mehru (Registration No. IBBI/IPA-001/IP/P-02663/2022-23/14082) as the liquidator, and subsequently reaffirmed this decision on two separate occasions.

Under Section 34(1) of the IBC, when an order for liquidation is passed under Section 33, the resolution professional appointed during the CIRP is expected to continue as the liquidator, subject to submitting written consent. The provision permits the adjudicating authority to replace the resolution professional only on the limited grounds specified in Section 34(4), which include situations where the resolution professional fails to submit written consent, or where there is a recommendation by the Insolvency and Bankruptcy Board of India (IBBI). This scheme has been the subject of considerable judicial interpretation, particularly regarding the relative authority of the CoC and the NCLT in determining who serves as liquidator.

However, the NCLT Chandigarh bench, instead of considering the CoC's recommendation, independently appointed another insolvency professional from an IBBI panel. The NCLT relied upon an IBBI communication dated July 18, 2023, which sought to prevent the outgoing resolution professional from continuing as the liquidator. The evolving regulatory framework governing insolvency proceedings, including the IBBI CIRP Third Amendment Regulations 2026, has introduced revised procedures, but these developments do not override the statutory scheme for liquidator appointments. Mehru filed a rectification application, which the NCLT also dismissed, prompting the present appeal before the NCLAT.


Key Holdings and Observations of the Court

The NCLAT delivered a detailed ruling addressing the scope of the adjudicating authority's power under Section 34(1) and the primacy of the CoC's recommendation in liquidator appointments. The key holdings are as follows:

  • Section 34(1) of the IBC makes the resolution professional's continuation as liquidator the default position, which is "displaceable only on the grounds set out in Section 34(4)."

  • The CoC's unanimous recommendation of a named liquidator, arrived at unanimously and reaffirmed twice, was material that the adjudicating authority was required to consider before appointing someone else.

  • An order that appoints a liquidator without any reference to the CoC's recommendation cannot be said to have applied its mind to that recommendation at all.

  • The IBBI communication dated July 18, 2023, was factually inapplicable to Mehru because he had never served as either the interim resolution professional (IRP) or the resolution professional (RP) for the corporate debtor.

  • Section 34(4) cannot be "converted into a blanket prohibition through a general communication."

The Tribunal observed that the statutory scheme of the IBC consistently preserves the CoC's primacy in the selection of insolvency professionals at every stage of the process. While the NCLAT has on occasion curbed CoC powers by holding that approved resolution plans are immutable, these limits define the outer boundaries of CoC authority rather than diminish its central role in insolvency proceedings. The present ruling reinforces that the CoC's recommendation for the liquidator is not merely advisory; it constitutes material that the adjudicating authority is bound to consider.


The IBBI Communication and Its Applicability

A significant aspect of the ruling was the Tribunal's treatment of the IBBI communication dated July 18, 2023. The NCLT had relied on this communication as the basis for appointing a different liquidator, treating it as a prohibition against the outgoing resolution professional continuing as liquidator. The NCLAT held that this communication was factually inapplicable because Mehru had never held the position of IRP or RP for Macro Dairy Ventures. The Tribunal noted that a "communication aimed at preventing the outgoing resolution professional from becoming Liquidator, whatever its general validity, could have no application to a professional who held no such prior office." The adjudicating authority's reliance on the communication was therefore "misconceived on the facts before it, quite apart from the question of the communication's general validity."

The Tribunal also cited its earlier decision in Omkara Asset Reconstruction Pvt. Ltd. v. Amit Vijay Karia [(2025) ibclaw.in 1006 NCLAT], where a coordinate bench had extensively examined the same question and concluded that the CoC holds the exclusive authority to select a liquidator, with the adjudicating authority's role being limited to formal appointment. The earlier ruling had recognized only one exception: where there is tangible and incontrovertible evidence of gross misconduct or collusion between the CoC and the insolvency professional, amounting to fraud on the statute. The NCLAT has similarly exercised its oversight function in cases concerning fraudulent transactions under Section 66 of the IBC, demonstrating that while the Tribunal safeguards stakeholder interests, substantive appointment decisions remain with the CoC.


Analysis and Implications

This ruling carries significant implications for insolvency practitioners, financial creditors, and NCLT benches across the country. First, it reinforces the principle of CoC primacy in liquidator appointments, making clear that the adjudicating authority cannot exercise independent judgment in selecting a liquidator when the CoC has made a unanimous recommendation. The NCLT's role is confined to formal appointment, not substantive selection.

Second, the decision clarifies the limited scope of IBBI communications in overriding the statutory scheme. While the IBBI plays a critical regulatory role in the insolvency ecosystem, its circulars and communications cannot operate as blanket prohibitions that override the specific provisions of the IBC. This builds upon the earlier NCLAT ruling in Manish Jaju v. CoC of Rajesh Landmark Projects Pvt. Ltd. [(2025) ibclaw.in 763 NCLAT], which had held that the IBBI's circular could not override the statutory mandate of Section 34(4).

Third, the ruling has practical significance for the resolution of pending CIRP cases. Financial creditors who hold a majority or entirety of voting shares in the CoC can now proceed with greater confidence that their recommended liquidator will be appointed, provided the recommendation is properly documented and the nominee holds valid credentials. The Tribunal directed that Rajesh Mehru be appointed as the liquidator after verification of his current Authorization for Assignment (AFA), and ordered the outgoing liquidator to hand over charge within two weeks. All lawful steps already taken during the liquidation process were to remain valid.



Key Takeaways

  • The adjudicating authority cannot appoint a liquidator of its own choice when the CoC has made a unanimous recommendation; the NCLT's role is limited to formal appointment.

  • Section 34(1) of the IBC establishes the resolution professional's continuation as liquidator as the default position, displaceable only on specific grounds under Section 34(4).

  • IBBI communications and circulars cannot override the statutory scheme of the IBC or be applied to professionals who were never the IRP or RP for the corporate debtor.

  • The CoC's recommendation, particularly when unanimous and reaffirmed, constitutes material that the adjudicating authority is bound to consider before making an appointment.

  • The only exception permitting independent action by the adjudicating authority is where there is tangible evidence of gross misconduct or collusion amounting to fraud on the statute.



Conclusion

The NCLAT's ruling in Rajesh Mehru v. Punjab National Bank represents a clear articulation of the boundaries between the adjudicating authority's formal power and the CoC's substantive authority in liquidator appointments under the IBC. By setting aside the NCLT order and directing the appointment of the CoC's recommended liquidator, the Tribunal has reinforced the statutory scheme that places the CoC at the centre of insolvency decision-making. The decision serves as a reminder to NCLT benches that their role in liquidator appointments is one of implementation, not selection, and that departures from the CoC's recommendation must be grounded in specific statutory provisions rather than general regulatory communications.


Case Title: Rajesh Mehru v. Punjab National Bank & Rajeesh Gupta

Case Number: Company Appeal (AT) (Insolvency) 530/2026

Citation: 2026 LLBiz NCLAT 312

Bench: Justice Sharad Kumar Sharma (Judicial Member), Arun Baroka and Indevar Pandey (Technical Members)

For Appellant: Advocates Viren Sharma, Yash Srivastava, and Naman Tripathi

For Respondents: Advocate Ajay Shanker (for R1); Advocates Sandeep Bajaj, Mayank Biyani, and Ashwani Sharma (for R2)

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