Indian Kanoon - Search engine for Indian Law

Question No.1

12. We need to first examine as to whether the provision of Section 33(5) is a mandatory provision as contended by learned counsel for the Appellant or the provision is only directory as submitted by learned counsel for the Respondent. When we look into the expression used in Section 33 Sub- section (5), Section 33(5) provides that when a liquidation order has been Company Appeal (AT) (Insolvency) No. 690, 693, 694, 695 & 714 of 2024 passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor. The provision begins with a negative injunction with regard to suit or legal proceeding by or against the Corporate Debtor after an order of liquidation has been passed. The object of such provision is not far to seek. When a liquidation order has been passed, the estate of the Corporate Debtor has to be protected, hence, there is an embargo on initiating any suit or legal proceeding against the Corporate Debtor. The moratorium as enforced under Section 14 after commencement of insolvency is also with the same objective of protecting the assets of the Corporate Debtor. Proviso to Sub-section (5) contains an exception to the prohibition i.e. a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. The question to be answered is as to whether requirement of prior approval of the Adjudicating Authority for instituting a suit or proceeding by the Liquidator is a mandatory requirement or a directory requirement. Learned counsel for the parties have relied on various judgments of Hon'ble Supreme Court and this Tribunal on statutory interpretation, which need to be briefly noticed.

14.)"

23. Now reverting to Section 33 Sub-section (5) of the IBC Code, it is clear that Section 33 Sub-section (5) uses a negative expression and contains an injunction that no suit or other legal proceeding shall be instituted by or against the Corporate Debtor, when the liquidation order has been passed. The legislative intendment of the said provision is clear i.e. that no suit or proceeding be instituted by or against the Corporate Debtor to protect the liquidation estate. Further, institution of proceeding by the Corporate Debtor has also prohibited so as to save the liquidation estate from unnecessary expenses. There is an exception to the above injunction i.e. legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. The proviso is an exception to the main provision of Section 33(5). In event, we accept the submission of the Respondent that prior approval of the Adjudicating Authority is directory, the Liquidator will be free to initiate Company Appeal (AT) (Insolvency) No. 690, 693, 694, 695 & 714 of 2024 proceedings against any entity without obtaining prior approval of the Adjudicating Authority, which cannot be the intendment of the provision of Section 33(5).