TaxTMI 
TaxTMI 
2026 (7) TMI 1678
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.... Any dispute or difference arising out of this Supply Contract shall be discussed between the Purchaser and Contractor. Both shall endeavor to reach an amicable settlement within a period of fifteen (15) days. If an agreement could not be reached within this period then the dispute shall be referred to arbitration under the Indian Arbitration and Conciliation Act, 1996, as may be amended from time to time. The venue of arbitration shall be Mumbai. The award shall be a reasoned award and shall be final and binding on both the parties and shall not be subjected to appeal. Subject arbitration, the Courts at Mumbai shall have exclusive jurisdiction over all matters arising under this Purchase Order. During pendency of arbitration, the parties shall continue to perform respective obligation under this Supply Contract." 4. It is stated that the Applicant Company is under liquidation and the Liquidator of the Applicant-Company issued a notice dated 10th March 2022 to the Respondent invoking arbitration clause under Section 21 of the Arbitration and Conciliation Act, 1996. 5. The invocation notice dated 10th March 2022 was not replied to by the Respondent. In these cir....
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.... Authority, as mandated under Section 33(5) of the Insolvency and Bankruptcy Code, before issuing the notice under Section 21 of the Arbitration Act. Consequently, the initiation of arbitral proceedings by the Liquidator, without such prior approval, is unauthorized, incompetent, and contrary to the statutory mandate. Any approval obtained subsequently cannot cure this fundamental defect or be construed as compliance with Section 33(5). Accordingly, the proceedings initiated pursuant to such notice are without jurisdiction and are liable to be declared void. 11 It is submitted that where a statute expressly mandates prior approval for the performance of a particular act, such a requirement cannot be validated by obtaining post facto approval. In support of this proposition, reliance is placed on the judgments of the Hon'ble Supreme Court in Bajaj Hindustan Limited v. State of Uttar Pradesh & Ors (2016) 12 SCC 613. and Union of India v. Vinod Kumar (1996) 10 SCC 78. It is, therefore, contended by the learned counsel that, in the absence of a valid notice under Section 21 of the Arbitration and Conciliation Act, 1996, the present application under Section 11 of the said Act is not....
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....on. 16. Having considered the rival submissions, the issues that arise for consideration are: (i) Whether proviso to Section 33(5) of the IBC is mandatory i.e. prior approval of the Adjudicating Authority is mandatory to institute any legal proceedings on behalf of the corporate debtor? (ii) If prior approval is mandatory, what is the effect of post facto approval by the Adjudicating Authority on proceedings already instituted without approval of the Authority? 17. The relevant Sections of the I.B. Code and the Arbitration Act are noted below. "28. Approval of committee of creditors for certain actions. -(1) Notwithstanding anything contained in any other law for the time being in force, the resolution professional, during the corporate insolvency resolution process, shall not take any of the following actions without the prior approval of the committee of creditors namely:- (a) raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting; (b) create any security interest over the assets of the corporate debtor; (c) change the capital structure of the corporate debtor, ....
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.... process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or (b) rejects the resolution plan under section 31 for the noncompliance of the requirements specified therein, it shall- (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that the corporate debtor is in liquidation; and (iii) require such order to be sent to the authority with which the corporate debtor is registered. (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that 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.." "21. Commencement of arbitral proceedings.-Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.....
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....the proceedings would be regarded as having been instituted on the date on which the leave was obtained from the High Court. 22. We have referred to the aforesaid decisions solely for two purposes. First, grant of leave of the court is not a condition precedent for initiation of a civil action or the legal proceedings. It is because the section does not expressly provide for annulment of a proceeding that is undertaken without the leave of the court. There can be no shadow of doubt that leave of the winding-up court can be obtained even after initiation of the proceeding. Second, the seminal object behind engrafting of the said provision is to see that the interest of the company is safeguarded so that it does not face deprivation of its right and claims are adjudicated without the knowledge of the Company Court and further the court has a discretion to see whether leave should be granted and, if so, with what conditions or no condition. That apart, the court may grant leave if it felt that the company should not enter into unnecessary litigation and incur avoidable expenditure." 20. From the aforesaid observations of the Supreme Court, it is apparent that, although pri....
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....th Edn.), the word "approval" has been explained thus: 'Approval. The act of confirming, ratifying, assenting, sanctioning, or consenting to some act or thing done by another. Hence, approval to an act or decision can also be subsequent to the act or decision. 12. In U.P. Avas Evam Vikas Parishad, this Court made the distinction between permission, prior approval and approval. Para 6 of the judgment is quoted hereinbelow: (SCC pp. 458-59) '6. This Court in LIC v. Escorts Ltd., considering the distinction between "special permission" and "general permission", "previous approval" or "prior approval" in para 63 held that: (SCC p. 313). "63. we are conscious that the word "prior" or "previous" may be implied if the contextual situation or the object and design of the legislation demands it, we find no such compelling circumstances justifying reading any such implication into Section 29(1) [of the Act]". Ordinarily, the difference between approval and permission is that in the first case the action holds good until it is disapproved, while in the other case it does not become effective until permission is obtained. But permission sub....
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...., therefore, allow this appeal and set aside the impugned judgment¹ of the High Court as well as the penalty. No order as to costs. Civil Appeal No. 1468 of 2006.". 22. From the aforesaid judgments of the Hon'ble Supreme Court in Erach Boman and Bajaj Hindustan (supra), it is apparent that where the word "prior" is used in the statutory provision, the approval contemplated therein must be obtained before the proposed action is undertaken. Consequently, where the statute requires prior approval for initiating legal proceedings on behalf of the corporate debtor, such approval must necessarily precede the institution of those proceedings. 23. It is evident from the proviso to Section 33(5) that prior permission of the N.C.L.T. is mandatory before the Liquidator initiates any legal proceedings on behalf of the corporate debtor. The word 'prior' shows that the approval has to be prior in point of time before initiating the proceedings. A notice issued for invocation of arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 constitutes the commencement of arbitral proceedings. In the present case, it is an admitted position that the notice under Section 21 ....
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....ny further steps have already been taken pursuant to the notice under Section 21, those steps would also have to be undertaken afresh. The effective date of the Section 21 notice shall be the date on which the requisite permission is granted, and all subsequent procedural requirements shall follow from that date. This interpretation neither causes violence to the statutory provision nor amounts to rewriting the legislation. It merely postpones the effective date of invocation until the mandatory permission under Section 33(5) is obtained. In the present case, the notice issued under Section 21 of the Arbitration and Conciliation Act, 1996, would be deemed effective from 23rd December 2022. The present application has been filed on 10th January 2024. Accordingly, there is no legal impediment in allowing the present application. 30. Accordingly, this Court process to appoint an Arbitrator and pass following Order : ORDER (A) Mr. Nitin Jamdar, Former Chief Justice of Kerala High Court, is appointed as the sole Arbitrator to adjudicate upon the disputes and differences between the parties arising out of and in connection with the Agreement referred to above. The contact ....