Liquidator’s Arbitral Notice does not perish for want of NCLT prior approval

The petitioner liquidator of the company has invoked clause 17 arbitration clause of the Purchase Order for appointment of arbitrator.

The liquidator issued section 21 arbitration notice on 10.3.2022 and NCLT granted post facto approval under Section 33(5) of the IBC for arbitration.

(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?

This Court is, therefore, of the view that while prior permission under Section 33(5) is mandatory, the absence of such prior permission before the initiation of the legal proceedings, does not render the proceedings void ab initio. Instead, the commencement of such proceedings remains ineffective until the date on which the required permission is granted by the Adjudicating Authority.

Accordingly, in the present case, the notice issued for invocation of arbitration under Section 21 of the Arbitration and Conciliation Act would become effective only from the date on which permission under Section 33(5) is obtained. Any further steps in the proceedings can be taken only thereafter. Relegating the parties to issue a fresh notice would not serve the purpose of the proviso to Section 33(5), as it may also create issues relating to limitation on account of the time lost during the intervening period. A purposive interpretation of Section 33(5) requires that proceedings initiated without prior permission remain ineffective for all purposes until such permission is obtained, and that the proceedings shall be treated as having commenced from the date of grant of permission.

Judgment dated 22.7.2026 of the High Court of Bombay in Commercial Arbitration Application No.245 of 2026 of Teepro Systems Limited (In Liquidation)  Vs.  Reliance Infrastructure Limited

Arbitration invoked by the Liquidator before obtaining prior approval of NCLT under Section 33(5) of IBC is not necessarily void ab initio but once the NCLT granted approval, the defect stands cured and the arbitration process can validly proceed.