Litigation News

NCLT grants post-facto approval to Liquidator under IBC to initiate legal proceeding on behalf of Corporate Debtor

Aditi Singh

The National Company Law Tribunal, Cuttack has granted post-facto approval in terms of Section 33(5) of Insolvency & Bankruptcy Code, 2016 to a Liquidator for initiation of a legal proceeding on behalf of the corporate debtor.

The order was passed by a single-member Bench of Member (Judicial), Sucharitha R in a Section 60 (5) IBC application by the Liquidator of the Corporate Debtor ie. M/s Coastal Projects Ltd.

The order of liquidation was passed by the NCLT in December 2018.

Meanwhile, an award was passed by an Arbitral Tribunal in a proceeding between the Corporate Debtor and the respondent, M/s Bharat Heavy Electricals Ltd.

The Award allowed a portion of the amount in favour of the Corporate Debtor and the other part of the claim was rejected.

Aggrieved by the Award, BHEL filed an application under Section 34 of Arbitration and Conciliation Act, 1996 before a City Civil Court in Bangalore. Another Section 34 application was made by the Corporate Debtor.

Subsequently, the Corporate Debtor, through the Liquidator, filed the present application seeking approval to proceed with the Section 34 application.

BHEL opposed the application on the ground that it was misconceived, false and frivolous.

It was argued that as per Section 33 IBC, the Liquidator was prohibited from filing any application/suit without prior approval of the Adjudicating Authority. Therefore, in terms of Section 33(5) IBC, the Liquidator ought to have taken “prior approval from the Adjudicating Authority” and the present plea was seeking a post-facto leave, it was submitted.

The NCLT also noted an objection with respect to the invocation of Rule 11 of the NCLT Rules, 2016 which provided for the inherent jurisdiction of the Tribunal in case there was vacuum in the statute.

It thus observed,

There is a specific provision under the enactment i.e Section 33(5) for obtaining prior approval for initiation of the suit, Can an application under Rule 11 be invoked? So as to override the existing provision.”

To support his application, the Liquidator relied on a Bombay High Court decisions on Section 446 of the erstwhile Companies Act. Based on the decision, the Liquidator argued that non-compliance of Section 33(5) would not result in nullification of the proceedings.

It was submitted that the sanction of approval was merely a formality to regularize a pending proceeding and could be done subsequently in the interest of justice and maximization of the value of assets of Corporate Debtor.

Reliance was also placed on judgements from the Delhi High Court and Himachal Pradesh High Court.

The NCLT observed that while BHEL had duly obtained its approval to go on appeal against the Corporate Debtor from the Adjudicating Authority.

The Liquidator also could have taken steps at that stage to obtain necessary permission for filing the appeal. However, it is the fact that Liquidator failed to do so.
NCLT, Cuttack

The Tribunal nonetheless proceeded to grant sanction to the Liquidator and stated,

“In view of the foregoing judgement, and in the interest of justice, keeping in mind the spirit of IBC, focus of the company in liquidation is 'maximization of the assets'. This application is allowed."
NCLT, Cuttack

In view of the above, the Liquidator's application was allowed.

The Liquidator was represented by Advocate Saswat K Acharya, S Pholgu, Ashish K Dey.

BHEL was represented by Senior Advocate Ratnanko Banerjee with Advocates Touseef Ahmed Khan and Abid Jamal.

Read the Order:

Liquidator, Coastal Projects vs BHEL.pdf
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