The Supreme Court has recently held in the case of V.S. Palanivel v/s P. Sriram CS Liquidator etc that advice given by the Stakeholders Consultation Committee (SCC) is not binding upon the liquidator in liquidation proceedings.

The Apex Court observed that Regulation 31A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“IBBI Regulations”) requires constitution of SCC within sixty [60] days from the date of commencement of liquidation proceedings. The SCC has to advise upon matters pertaining to appointment of professionals, remuneration, and sale of assets under Regulation 32. The notification dated 28th April 2022 that added an Explanation to Regulation 31A of the Regulations clarifies that constituting SCC is applicable only for those liquidation proceedings that commence on/ after the date of commencement of IBBI Regulation, 2016. In the present case, liquidation began before the date of notification.

The Apex Court referred to the decision of R.K. Industries (Unit-II) LLP v. H.R. Commercials Private Limited and Other (2022) where it was held that SCC’s advice in not binding upon the liquidator. The relevant observations are “The safeguard provided in the Regulation is that if the Liquidator arrives at a decision which is at variance with the advice given by the Stakeholders’ Consultation Committee, he must record in writing reasons for doing so and mention it in the next progress report. In the present case, the liquidation process in respect of the company had commenced on 17th July, 2019 and therefore, the submission made by the appellant that the Liquidator has breached Regulation 31A of the IBBI Regulations, 2016 by not constituting a Stakeholders’ Consultation Committee, is devoid of merits”.