The Custodian vs. The Committee: NCLAT Navigates the “Solitary” Exception to CoC Autonomy

Introduction

The scheme of Insolvency and Bankruptcy Code 2016 (“IBC”) has always reflected positively on the authority that the Committee of Creditors (“CoC”) have during an ongoing Corporate Insolvency Resolution Process (“CIRP”) or the Liquidation Proceedings, as the case may be. Even the Hon’ble Supreme Court, time and again, has upheld the autonomy of the CoC’s decision for appointment of the Resolution Professional and approval of the Resolution Plan leaving no doubt that the Adjudicating Authority’s final decision of appointment is merely procedural with no powers to interfere with the decision of CoC. However, recently, the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) in the matter of Omkara Asset Reconstruction Private Limited v. Amit Vijay Karia  Anr.  Comp. App. (AT) (Ins) No. 914 of 2025 and a connected appeal has passed a common judgment dated 01.12.2025 wherein, NCLAT, has drawn attention to the inherent duty of the Adjudicating Authority to be a neutral judicial forum not be a "mute spectator" but a custodian of fairness, holding inherent powers to intervene in cases of systemic bad faith.

Facts of the case

In both the appeal, the CIRP was complete and the dispute arose at the stage of transition to liquidation stage. At the time of appointment of a liquidator, CoC named M/s Stress Credit Resolution Pvt Ltd (“SCRIL”) as the liquidator in both appeals. However, the Adjudicating Authority However, the Adjudicating Authority bypassed the CoC’s nominee, appointing independent professionals (Mohd. Raees Sheikh and Mayuri Durga) instead. The Appellant, challenged the Adjudicating Authority’s decision to appoint a liquidator of its own choice while ignoring the choice of the CoC.

The Statutory Hierarchy of Appointment: IRP, RP and Liquidator

The Hon’ble NCLAT, engaged in a meticulous discussed concerning provisions (Section 7, 9 and 10 of IBC) relating to appointment of IRP and held that at the time of filing of the applications for the initiation of CIRP under the aforesaid relevant provisions, it is only the Applicant who gets to select the IRP. If such an application for CIRP is admitted by the Adjudicatory Authority, then the Adjudicating Authority has to appoint the IRP which is already proposed by the Applicant and is subject only to the scrutiny by the Insolvency and Bankruptcy Board of India (“Board”). But In situations where no IRP is proposed, the Adjudicating Authority has no discretion of its own and must seek a recommendation from the Board.  Thus, the appointment of IRP by the Adjudicating Authority is purely formal one with the substantive decision resting either with the applicant or the IBBI.

NCLAT further expanded on powers of appointment of RP by the Adjudicatory Authority after the formation of CoC, and observed that it is the CoC which has powers under Section 22(2) read with 22(3) of IBC to either confirm the already appointed IRP as RP or replace IRP with a new RP, the latter being subject only to the scrutiny of the Board and thus, the Adjudicating Authority has no participatory role in such appointments. Importantly, while Section 27 gives powers to CoC to replace the existing RP with a new one, the CoC is even then not required to assign reasons for such a replacement. The role of the Adjudicating Authority remains limited to forwarding the name of the proposed RP to Adjudicating Authority for confirmation.

Role of the Adjudicating Authority During Liquidation Proceedings

Turning to liquidation, the NCLAT interpreted Section 34 of the IBC, particularly sub-sections (1) and (4). It clarified that while an RP is ordinarily required to act as the liquidator (subject to timely consent), refusal by the RP does not vest the Adjudicating Authority with the power to appoint a liquidator of its own choosing but rather, such RP will be replaced by a successor RP by the CoC as per Section 27 of IBC, who will, then, provide consent to be appointed as a liquidator in terms of Section 34(1) of IBC.

Therefore, the NCLAT had observed that even though the power of formal appointment of RP as liquidator lies with the Adjudicating Authority, the power to select the candidate for such appointment still lies with the CoC.

Adjudicating Authority has inherent powers to protect the objective and scheme of IBC

The Hon’ble NCLAT has opined that there will be a “solitary” circumstance where it will be futile for the Adjudicating Authority to rely on CoC and thus, Adjudicating Authority can act independently. Such circumstance, according to the Hon’ble NCLAT, is where there is a “gross misconduct” on the part of the IRP/RP/ Liquidator while holding its office or if there is a “collusion” between the party who is the beneficiary of the outcome of the liquidation/ CIRP and the party who has a pivotal role in carrying out such outcome. NCLAT stressed emphatically on the importance of the tribunals to be a neutral judicial forum despite having limited role under IBC in relation to appointment of RP/ Liquidator.

Conclusion

The NCLAT has successfully walked a judicial tightrope. NCLAT, while setting aside the decision of the Adjudicating Authority to appoint a liquidator of its own choice, has upheld the unimpeached authority that CoC has under IBC and further, has raised caution towards such autonomy of CoC. Simultaneously, by labelling the Tribunal as a “neutral judicial forum,” it sent a clear message that the CoC’s power is supreme, but its conduct is not immune to the principles of equity and justice. The NCLAT’s recognition of the Adjudicating Authority and Appellate Authority to be the ultimate guardian is also in line with powers under Section 30, 60(5) and 61 of IBC and therefore, is a check on the conduct of RP/ Liquidators and/ or CoC under certain circumstances. For stakeholders, this judgment is a reminder that while the IBC is “creditor-led,” it is “judicially-supervised.” Timely resolution cannot come at the cost of procedural integrity. However, there is a hidden danger that if the NCLT interprets “fairness” too broadly, we risk returning to the pre-IBC era of endless litigation and judicial delays. The success of this judgment depends entirely on the self-imposed judicial restraint by the lower benches. If the “solitary circumstance” remains an exception, the IBC remains robust; but if it becomes the rule, the “commercial wisdom” that made the IBC a success may unfortunately be a relic of the past.