Prior approval for liquidator arbitration is mandatory, but post facto approval makes an earlier invocation effective from approval.

Prior approval under the proviso to Section 33(5) of the Insolvency and Bankruptcy Code is mandatory before a liquidator invokes arbitration for a corporate debtor, because an arbitration request commences proceedings on receipt and approval must precede invocation. However, non-compliance does not make the invocation void from inception, as Section 33(5) does not prescribe that consequence. Post facto approval makes the invocation effective from the approval date, preserving potential recoveries for the liquidation estate while requiring subsequent arbitral steps to run from that date. The notes state that a sole arbitrator was appointed to determine the contractual disputes.

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Issues: (i) Whether prior approval of the Adjudicating Authority under the proviso to Section 33(5) of the Insolvency and Bankruptcy Code, 2016 is mandatory before a liquidator institutes legal proceedings for a corporate debtor; (ii) Whether post facto approval validates an arbitration invocation made without such prior approval.

Issue (i): Whether prior approval of the Adjudicating Authority under the proviso to Section 33(5) of the Insolvency and Bankruptcy Code, 2016 is mandatory before a liquidator institutes legal proceedings for a corporate debtor.

Analysis: The proviso expressly requires the liquidator to obtain "prior approval" before instituting proceedings. An arbitration request under Section 21 of the Arbitration and Conciliation Act, 1996 commences arbitral proceedings upon receipt by the respondent. The statutory expression "prior" requires approval to precede the invocation.

Conclusion: Prior approval of the Adjudicating Authority is mandatory before the liquidator invokes arbitration on behalf of the corporate debtor; this finding is against the applicant on the requirement of prior approval.

Issue (ii): Whether post facto approval validates an arbitration invocation made without such prior approval.

Analysis: Unlike Section 28(4) of the Insolvency and Bankruptcy Code, 2016, which expressly renders specified unauthorised actions void, Section 33(5) prescribes no consequence of voidness. The absence of prior approval therefore makes the invocation ineffective, rather than void ab initio. A purposive construction preserves the liquidation estate's recoveries and avoids requiring a fresh invocation with potential limitation consequences. Following approval, the invocation takes effect from the approval date, and subsequent procedural steps must run from that date.

Conclusion: Post facto approval renders the arbitration invocation effective from the date of approval, not from the original notice date; the application was maintainable and this finding is in favour of the applicant.

Final Conclusion: The Section 21 invocation was effective from 23 December 2022, when approval was granted, and a sole arbitrator was appointed to adjudicate the contractual disputes.

Ratio Decidendi: Where Section 33(5) requires prior approval for a liquidator to institute proceedings but does not prescribe voidness for non-compliance, an unauthorised arbitration invocation remains ineffective until approval is granted and is treated as commenced on the approval date.

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