Cure, Not Nullity: Bombay High Court Holds Post-Facto NCLT Approval Saves Premature Arbitration Invocation

A Single Bench of the High Court of Bombay, vide its order dated July 22, 2026, in Tecpro Systems Limited (In Liquidation) v. Reliance Infrastructure Limited, Commercial Arbitration Application No. 245 of 2026., held that while the proviso to Section 33(5) of the Insolvency and Bankruptcy Code, 2016 (“Code”) mandates prior approval of the Adjudicating Authority (“NCLT”) before institution of legal proceedings by a liquidator on behalf of a corporate debtor, an invocation notice issued under Section 21 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) without prior approval shall not be void ab initio. Instead, the invocation of such proceeding would remain ineffective until approval is granted by the NCLT, and such invocation would take legal effect only from the date of such approval.

Brief Facts:

A Purchase Order (“Agreement”) was executed by and between Tecpro Systems Limited (“Applicant / Corporate Debtor”) and Reliance Infrastructure Limited (“Respondent”) on January 17, 2018 for the supply of goods.

On January 16, 2020, the NCLT, New Delhi, passed an order directing the liquidation of the Corporate Debtor. Subsequently, in terms of Clause 17 of the Agreement which contained an arbitration clause, the Liquidator, on March 10, 2022, issued a notice under Section 21 of the A&C Act invoking arbitration against the Respondent to recover claims arising under the Agreement, which was not replied to by the Respondent.

It is pertinent to note that at the time of issuing such notice, no prior approval from the NCLT as contemplated under the proviso to Section 33(5) of the Code had been obtained by the Liquidator, and it was only on December 23, 2022 when the NCLT granted post facto approval authorizing the Liquidator to initiate arbitration proceedings against the Respondent.

Subsequently, on January 10, 2024, the Liquidator filed an application under Section 11 of the A&C Act before the High Court of Bombay seeking the appointment of a sole arbitrator.

Issue:

In light of the aforementioned facts and circumstances, the following issues came up for consideration before the High Court of Bombay:

Issue1: Whether proviso to Section 33(5) of the Code is mandatory, i.e., whether prior approval of the NCLT is mandatory to institute any legal proceedings on behalf of the corporate debtor?

Issue 2: If prior approval is mandatory, what is the effect of post facto approval by the NCLT on proceedings already instituted without its approval?

Contentions of the Respondent:

It was argued by the Respondent that once an order for liquidation is passed under the Code, in terms of the proviso to Section 33(5) of the Code, no legal proceedings could have been instituted by the Liquidator on behalf of the Corporate Debtor, except with the prior approval of the NCLT, and that such requirement is mandatory and not merely directory.

It was further argued that in accordance with Section 21 of the A&C Act, arbitral proceedings commence on the date the invocation notice is received. Since in the instant case such notice was issued prematurely on March 10, 2022, without prior approval, such a notice invoking arbitration was incompetent and void ab initio.

Relying upon Bajaj Hindustan Limited v. State of Uttar Pradesh, (2016) 12 SCC 613., and Union of India v. Vinod Kumar, (1996) 10 SCC 78., it was submitted by the Respondent that where a statute mandates ‘prior approval’, ‘ex post facto approval’ cannot constitute compliance, and thus, in the absence of a valid Section 21 notice, no arbitral proceeding came into existence, and the mandatory precondition for an application under Section 11 of the A&C Act was not satisfied, thus the application being not maintainable.

Contentions of the Applicant/ Corporate Debtor:

Refuting the contentions of the Respondent, it was argued by the Applicant that a notice which has been issued without prior approval of the NCLT in terms of proviso to Section 33(5) of the Code is merely ineffective until approval is granted, rather than void ab initio, and once the approval is granted, the proceedings gain legal efficacy and are deemed instituted from the date on which such approval is granted. In the instant case, as the approval was granted by the NCLT on December 23, 2022, accordingly, the notice issued under Section 21 of the A&C Act ought to be deemed to have been issued on the date of grant of such approval.

Distinguishing the proviso to Section 33(5) of the Code from Section 28(4) of the Code, it was argued by the Applicant that under Section 28(4) of the Code, if any action is taken by a resolution professional without prior approval of the Committee of Creditors, such action is explicitly declared void, while under Section 33(5) of the Code, there is no such statutory clause for actions undertaken without prior approval.

Relying upon Erach Boman Khavar v. Tukaram Shridhar Bhat, (2013) 15 SCC 655., and Slimline Realty Private Limited v. Jigar Bhatt, (2024) SCC OnLine NCLAT 6895., it was argued by the Applicant that lack of prior leave does not bar subsequent grant of leave and the proceedings shall be deemed to be instituted on the date when such leave is obtained.

It was lastly submitted that Section 33(5) of the Code must be construed in light of the core object of liquidation under the Code, namely, maximizing the liquidation value of the Corporate Debtor which can be achieved only by enabling liquidator to pursue recovery of claims and receivables.

Decision:

The High Court of Bombay noted that the proviso to Section 33(5) explicitly uses the term “prior approval”. Consequently, obtaining prior approval of the NCLT is mandatory and must precede the institution of legal proceedings. Since an invocation notice under Section 21 of the A&C Act marks the formal commencement of arbitral proceedings, issuing such notice without prior NCLT leave constitutes a non-compliance with the statutory mandate.

However, while analyzing the statutory framework of Sections 28 and 33(5) of the Code alongside Section 21 of the A&C Act and applying the ratio laid down under Erach Boman Khavar (supra), the High Court of Bombay held that where a statute does not expressly provide for the annulment or voidness of a proceeding undertaken without prior leave, the lack of prior approval is not a fatal defect that renders the proceeding void ab initio. The same was in light of the critical structural difference between Section 28(4) of the Code (which expressly provides that actions taken without approval of the Committee of Creditors shall be void) and Section 33(5) of the Code (which contains no such clause).

It was observed that forcing parties to issue a fresh Section 21 notice would serve no real purpose under Section 33(5) of the Code and could severely prejudice the liquidation estate by triggering limitation hurdles due to time lost during the proceedings. Accordingly, a purposive interpretation requires that proceedings initiated without prior permission remain ineffective until permission is obtained, taking effect from the date of grant. Therefore, the High Court of Bombay further held that the commencement of proceedings which has been initiated without the prior approval of the Adjudicating Authority remains ineffective until the date on which the required permission is granted by the Adjudicating Authority, and all subsequent procedural requirements shall follow from that date.

In the instant case, since approval of the NCLT was granted on December 23, 2022, the Section 21 notice became legally effective on that date and therefore, the High Court of Bombay held that Section 11 application filed on January 10, 2024 was maintainable.

Argus view:

It is a settled principle of jurisprudence that procedural law is the handmaid of justice, not its mistress, and mere procedural technicalities must not be allowed to defeat the substantive objects of a statute. The Bombay High Court’s ruling in Tecpro Systems (supra) is a pragmatic application of this principle at the intersection of insolvency and arbitration law.

While the proviso to Section 33(5) of the Code strictly mandates prior approval to ensure Adjudicating Authority supervision over a liquidation estate, treating an unsanctioned notice under Section 21 of the A&C Act as void ab initio would allow procedural rigor to defeat the core mandate of the Code, the maximisation of the asset value of the corporate debtor. By holding that the lack of prior approval renders the notice merely ineffective rather than an incurable nullity, the High Court of Bombay rightly drew a distinction with Section 28(4) of the Code, which explicitly mandates voidness. This balanced interpretation prevents legitimate recovery claims from being extinguished by limitation bars due to procedural delays, ensuring that administrative oversight under the Code functions as an instrument of justice rather than an obstacle to recovery.

However, it is important to note that while post facto approval cures inefficacy, liquidators should still seek prior leave under Section 33(5) of the Code to avoid threshold jurisdictional challenges and delays.

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