NCLT Clarifies Procedure for Initiating Legal Proceedings under IBC

NCLT Clarifies Procedure for Initiating Legal Proceedings under IBC

Introduction

The National Company Law Tribunal (NCLT) Guwahati Bench has held that prior approval of the Adjudicating Authority under Section 33(5) of the Insolvency and Bankruptcy Code (IBC) is mandatory and not merely directory before initiating any legal proceedings, including money recovery suits, against any party.

Factual Background

The Liquidator of Sree Bajrang Infracon Private Limited filed an application seeking permission to initiate a money recovery suit against Kamakhya Biofuels Private Limited for the recovery of outstanding dues.

Procedural Background

The Applicant relied on the judgment of the National Company Law Appellate Tribunal (NCLAT) in Slimline Realty Pvt. Ltd. v. Jigar Bhatt, which held that prior approval of the Adjudicating Authority under Section 33(5) proviso of the IBC is mandatory.

Issues

The primary issue was whether prior approval under Section 33(5) is mandatory before instituting any legal proceedings against any party during liquidation.

Contentions of the Parties

Applicant’s Contentions:

• The Liquidator produced evidence showing the dues remain unpaid despite multiple demand notices and letters.
• The Respondent manipulated records to deny its liability.

Respondent’s Position:

• The Respondent’s detailed position was not recorded in the order, but it had filed claims before the Liquidator, which were rejected.

Reasoning & Analysis

The Bench of Rammurti Kushawaha (Judicial Member) and Yogendra Kumar Singh (Technical Member) relied on Slimline Realty and held that prior approval under Section 33(5) is mandatory. The Tribunal clarified that the party against whom proceedings are proposed is not required to be heard at this stage.

Implications

This decision reinforces the mandatory nature of obtaining prior approval before initiating legal proceedings under the IBC and provides clarity for liquidators on compliance with Section 33(5).

Final Outcome

The NCLT allowed the Liquidator to initiate proceedings for recovery of the outstanding dues and directed the Liquidator to keep the Adjudicating Authority informed of the initiation, progress, and outcome of such proceedings.

In this case, the applicant was represented by Mr. N. Goenka, Advocate.