NCLT Denies Post-Facto Litigation Approval to Liquidator; Mandates Prior Stakeholders' Committee Consultation (Sec 33(5) IBC & Reg 31A Liquidation Process Regs) - 2025-01-17

NCLT Denies Liquidator's Post-Facto Litigation Approval, Stresses Need for Stakeholder Committee Nod

Chandigarh: The National Company Law Tribunal ( NCLT ), Chandigarh Bench, comprising Hon'ble Mr. Harnam Singh Thakur (Judicial Member) and Hon'ble Mr. Umesh Kumar Shukla (Technical Member), has dismissed an application by the liquidator of Isolux Corsan India Engineering & Construction Private Limited seeking post-facto approval to pursue litigation for an interest claim on a delayed customs refund. The Tribunal, in its order dated January 17, 2025, underscored the mandatory requirement for the liquidator to consult the Stakeholders' Consultation Committee (SCC) before initiating or continuing such legal proceedings.

Case Background: Pursuit of Delayed Customs Refund Interest

The case, IA(I.B.C) - 1331/2023 in CP(IB)No.97/Chd/Hry2018, arose from efforts by CA Rajeev Bansal , the liquidator of Isolux Corsan India (Corporate Debtor), to recover dues for the company. The Corporate Debtor was entitled to a Special Additional Duty (SAD) refund of Rs. 56,06,598/-, which was sanctioned by the customs authorities on January 9, 2020. However, the actual crediting of the amount was significantly delayed, occurring only on September 28, 2022, reportedly due to issues with bank account details.

Following the receipt of the principal refund, the liquidator initiated proceedings to claim interest amounting to Rs. 27,45,543/- for the delay, under Section 27A of the Customs Act, 1962, along with litigation costs. This claim was rejected by the Assistant Commissioner (Customs) and subsequently by the Commissioner (Appeals), Lucknow. The liquidator then filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench.

The present application before the NCLT sought de facto approval/ratification for these actions, taken to maximize recovery for the corporate debtor.

Liquidator's Arguments for Post-Facto Approval

The liquidator argued that the actions were taken in the best interest of the corporate debtor's beneficial liquidation. Reliance was placed on the NCLAT judgment in Slimline Realty Pvt Ltd Vs Jigar Bhatt (2024 SCC OnLine NCLAT 685) , which held that post-facto approval can render proceedings initiated without prior NCLT sanction competent from the date of approval. The liquidator also implicitly suggested that the limitation period under the Customs Act necessitated prompt action.

NCLT 's Rationale and Key Findings

The NCLT meticulously analyzed the liquidator's plea, focusing on three key issues:

Power to Grant Post-Facto Approval: The Tribunal acknowledged its power to grant post-facto approval under Section 33(5) of the Insolvency and Bankruptcy Code (IBC), 2016, citing the Slimline Realty case. The judgment stated: > "Post facto approval granted by the Adjudicating Authority with regard to continuation of proceedings already instituted by the Liquidator which were instituted without obtaining prior approval shall make the proceedings authorized and competent from the date when post facto approval is granted.”

Lack of Exigency for Not Seeking Prior Approval: Despite having the power, the NCLT found no compelling reason why prior approval was not sought. The liquidator failed to provide any justification for the urgency that purportedly prevented seeking NCLT 's nod before initiating the interest claim with the customs authorities or filing subsequent appeals. The Tribunal noted: > "In view of the above, this Adjudicating Authority is of the view that there no such exigency was present in the instant application due to which prior approval could not be sought." The delay in filing the current IA before the NCLT (filed in January 2023, after initiating customs proceedings in October 2022) was also found to be unjustified.

Mandatory Consultation with Stakeholders' Consultation Committee (SCC): This formed a critical basis for the dismissal. The NCLT highlighted Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016, particularly sub-regulations 31A(1)(g) and 31A(6A) (as amended up to February 12, 2024), which mandate the liquidator to consult the SCC and present an economic rationale before initiating or continuing any legal proceedings. The Tribunal observed that the appeal before CESTAT was filed after the strengthening of these SCC consultation requirements. It pointed out: > "...the Applicant, nowhere in the IA, has stated that whether he has consulted the Stakeholders’ Committee after presenting the economic rationale for the defending the said Appeal and whether or not, the Stakeholders’ Committee has advised to defend the said Appeal even after dismissal of the same from the Office of Commissioner (Appeals), and whether the IA has been filed based on the advice of the Stakeholders’ Committee."

Final Decision and Implications

The NCLT dismissed IA No. 1331/2023. However, it granted liberty to the liquidator to: * Present the matter before the Stakeholders' Consultation Committee with full facts and an economic rationale comparing the potential benefits against estimated litigation costs. * File a fresh application before the NCLT for approval if the SCC advises pursuing the litigation, providing proper justification.

This judgment reinforces the procedural discipline required of liquidators under the IBC. It underscores that while NCLT can grant post-facto approval for litigation, it is not an automatic right and requires strong justification for bypassing prior approval. More significantly, the ruling emphasizes the pivotal role of the Stakeholders' Consultation Committee in the decision-making process for initiating or continuing legal proceedings, ensuring that such actions are economically viable and in the best interest of all stakeholders.