Prior approval for liquidator-led proceedings under liquidation is mandatory, but later approval can regularize the action prospectively.

Under liquidation, the proviso to section 33(5) of the Insolvency and Bankruptcy Code requires prior approval before a liquidator institutes proceedings on behalf of the corporate debtor. Proceedings begun without that approval are initially unauthorized, but later approval can validate them prospectively from the date it is granted. The statutory scheme does not itself require notice or a hearing to the opposite party at the approval stage. On the facts noted, the order granting ex post facto approval and permission to continue the proceedings was supported by reasons and was not liable to be interfered with.

---

---

Issues: (i) Whether the requirement of prior approval under the proviso to section 33(5) of the Insolvency and Bankruptcy Code, 2016 for instituting proceedings by the liquidator on behalf of the corporate debtor is mandatory or directory; (ii) Whether proceedings instituted without such prior approval are unauthorized and what is the effect of post facto approval; (iii) Whether notice or hearing is required before granting approval under section 33(5); (iv) Whether the impugned order granting ex post facto approval and permission to proceed with the section 7 applications was liable to be set aside.

Issue (i): Whether the requirement of prior approval under the proviso to section 33(5) of the Insolvency and Bankruptcy Code, 2016 for instituting proceedings by the liquidator on behalf of the corporate debtor is mandatory or directory.

Analysis: The provision uses prohibitory language and creates a clear embargo that no suit or other legal proceeding shall be instituted by or against the corporate debtor after liquidation, subject only to the exception that the liquidator may institute proceedings on behalf of the corporate debtor with prior approval of the Adjudicating Authority. The scheme of the provision, the negative form of the command, and the object of protecting the liquidation estate indicate that the legislature intended strict compliance. The absence of an express consequence for breach does not make the proviso directory, particularly where the language is mandatory and the proviso carves out a limited exception.

Conclusion: The requirement of prior approval is mandatory.

Issue (ii): Whether proceedings instituted without such prior approval are unauthorized and what is the effect of post facto approval.

Analysis: Proceedings commenced without prior approval are initially unauthorized and incompetent. However, the legal effect of the provision, read with the principles governing leave or approval in winding up jurisprudence, is that subsequent approval can validate the proceedings from the date approval is granted. The proceedings are not treated as void in the sense of being incapable of being regularized. Post facto approval therefore operates to authorize continuation of the proceedings from the date it is granted.

Conclusion: Proceedings filed without prior approval were unauthorized, but post facto approval cured the defect prospectively from the date of approval.

Issue (iii): Whether notice or hearing is required before granting approval under section 33(5).

Analysis: The statutory scheme of section 33(5) does not contemplate notice or hearing to the proposed opposite party at the stage of seeking approval for institution of proceedings by the liquidator. The provision is concerned with supervisory control over the liquidation estate and does not make adversarial hearing a precondition for grant of approval.

Conclusion: No notice or hearing was necessarily required before granting approval.

Issue (iv): Whether the impugned order granting ex post facto approval and permission to proceed with the section 7 applications was liable to be set aside.

Analysis: The Adjudicating Authority recorded that the corporate debtor's only meaningful asset was the bond claim against the five entities and that allowing the proceedings was in aid of maximizing value in liquidation. The order therefore disclosed sufficient reasons for permitting continuation of the proceedings and granting post facto approval. On the facts, no ground was made out to interfere with the exercise of discretion.

Conclusion: The impugned order was not liable to be set aside.

Final Conclusion: The appeals failed, the liquidator's action was ultimately regularized by post facto approval, and the permission to continue the insolvency proceedings was upheld.

Ratio Decidendi: Where a liquidation statute uses prohibitory language and permits institution of proceedings by the liquidator only with prior approval, prior approval is mandatory; proceedings begun without it are unauthorized but may be validated prospectively by subsequent approval, and no adversarial hearing is inherently required at the approval stage unless the statute so provides.

---