Challenge against order passed by Liquidator is Appealable under IBC : Madras HC Dismisses Writ petition [Read Order]

The Madras High Court in its recent judgment has dismissed the writ petition holding that a challenge against order passed by Liquidator is appealable under the Insolvency and Bankruptcy Code, 2016.

The petitioners filed the writ petition challenging the communication issued by the second respondent in response to their letter dated 22.12.2020, wherein it was informed that the National Company Law Tribunal, Chennai, had ordered the liquidation of M/s. Associated Cylinders & Accessories Private Limited by order dated 16.07.2018. It was further stated that, in terms of Section 53 of the Insolvency and Bankruptcy Code, 2016, the distribution of assets was to be effected upon commencement of the liquidation process.

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The company had treated the petitioners as falling within the definition of “workers” under Section 53(1)(b)(i) and, with the consent of the secured creditor, had disbursed the first tranche of payment to all employees. They were also informed that the 1st and 3rd petitioners had resigned from the company in the year 2014. It was further clarified that both the first and second tranches of distribution had been made strictly in accordance with the provisions of the IBC, 2016, and as such, the request for further distribution from the liquidation account could not be acceded to. Aggrieved by the said communication, the petitioners seek a direction to the respondents to settle their dues in accordance with the orders passed by the National Company Law Tribunal.

When the writ petition was taken up for hearing on 06.09.2021, notice was ordered to the respondents. The first respondent, which is under liquidation, entered appearance through the second respondent—the Official Liquidator—who filed a counter affidavit dated 13.04.2025. In the said counter, it was submitted that, under Section 40 of the Insolvency and Bankruptcy Code, 2016, the Liquidator is empowered, upon verification of claims under Section 39, to either admit or reject such claims. In the event of rejection, the aggrieved creditor is entitled, under Section 42 of the Code, to prefer an appeal before the Adjudicating Authority within a period of 14 days. Alternatively, the petitioners also have a remedy under Section 60(5) of the Code to approach the National Company Law Tribunal if they are aggrieved by the non-admissibility of their claims. It was therefore contended that the invocation of writ jurisdiction under Article 226 of the Constitution is not tenable in the absence of any extraordinary or exceptional circumstances.

The Liquidator further stated that petitioners 1 to 3, along with other employees, had earlier filed a petition under Section 9 of the IBC, 2016 on 25.08.2017, seeking initiation of corporate insolvency resolution process (CIRP) against the first respondent company, treating themselves as operational creditors. The said petition was admitted by the NCLT, Chennai, on 10.01.2018. Initially, an Interim Resolution Professional was appointed. Subsequently, the Committee of Creditors resolved to appoint the deponent of the counter affidavit as the Resolution Professional, and the NCLT, Chennai, accordingly appointed him. However, since no resolution plan was received within the prescribed time, the Committee of Creditors resolved to liquidate the first respondent company, and a liquidation order was accordingly passed by the NCLT on 16.07.2018.

It was further pointed out that, after initiation of the CIRP, petitioners 4 and 5, who are members of the ACYL Workers Union, raised an industrial dispute in I.D(T). No. 12 of 2018 through their union. In that proceeding, neither the Resolution Professional nor the Liquidator was impleaded as a party.

The Liquidator also brought to the notice of the Court that, along with two trade unions, the petitioners entered into a tripartite settlement with the Liquidator on 28.05.2024. Under the terms of the said agreement, the five petitioners had expressly agreed to withdraw the present writ petition within a fortnight from the date of signing the agreement. However, despite such undertaking, the petitioners failed to do so.

The principal questions that arise for consideration in this writ petition are whether the relief sought by the petitioners—predicated on the order of admission passed by the National Company Law Tribunal in

C.P./607/(IB)/CB/2017—is legally tenable, and whether the present writ petition is maintainable in the face of an alternative and efficacious statutory remedy available under the Insolvency and Bankruptcy Code, 2016.

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The relief sought in the present writ petition is for quashing the order dated 20.01.2021 passed by the second respondent–Liquidator, rejecting the petitioners’ claim, and for a consequential direction to the Liquidator to settle the petitioners’ dues in terms of the order passed by the National Company Law Tribunal, Chennai Bench, in C.P./607/(IB)/CB/2017. A perusal of the prayer reveals that the petition has been filed without fully appreciating the nature and effect of the order passed by the NCLT in the said proceedings.

The NCLT admitted the petition and initiated Corporate Insolvency Resolution Process (CIRP) against the first respondent company, appointing an Interim Resolution Professional. This is the order referred by the petitioners in the writ prayer. In the said order the NCLT considered the existence of operational debt, default and threshold amount and admitted the petition.

The petitioners contend that since the National Company Law Tribunal, while admitting under Section 9 of the IBC, had accepted the existence of their debt and the default committed by the 1st respondent, the 2nd respondent–Liquidator lacks the authority to subsequently reject their claims.

An order of admission under Section 9 of the IBC is not a final adjudication of the claim or its quantum. At the stage of admission, the Adjudicating Authority merely records a prima facie satisfaction as to the existence of an operational debt, a default thereon, and compliance with the threshold monetary limit. It does not result in a conclusive determination of the validity, extent, or admissibility of individual claims.

Thus, it is well settled that the Resolution Professional or the Liquidator is vested with the authority to independently verify, and if necessary, reject claims, notwithstanding the admission of the Corporate Insolvency Resolution Process by the NCLT.

The order of admission passed by the NCLT under Section 9 of the Insolvency and Bankruptcy Code, 2016 is based solely on the prima facie satisfaction regarding the existence of a debt and default at the threshold stage. Such an order does not preclude the Resolution Professional or the Liquidator from subsequently rejecting an individual worker’s claim if it is found to be unsupported by adequate documentary evidence or otherwise inadmissible under the law.

On the question of maintainability, the respondents have raised a preliminary objection, contending that the present writ petition—filed against the rejection of claim by the Liquidator—is not maintainable in view of the specific statutory remedy available under the Insolvency and Bankruptcy Code, 2016.

It must be noted that Section 42 of the IBC, 2016 provides a specific statutory mechanism for appeal against an order passed by the Liquidator, which must be preferred before the Adjudicating Authority within a period of fourteen days. In the present case, the impugned order of the Liquidator is dated 20.01.2021, whereas the writ petition has been filed only on 23.03.2021, beyond the prescribed period of limitation. The petitioners, having failed to avail the remedy under Section 42, cannot now invoke the writ jurisdiction of this Court, particularly when an efficacious and statutorily prescribed remedy was available.

Instead, the petitioners have chosen to file the present writ petition, which is not maintainable in view of the availability of an efficacious statutory remedy.

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A single bench of Dr. Justice A.D. Maria Clete held that writ petition is liable to be dismissed as not maintainable, in view of the availability of an efficacious alternative remedy under the provisions of the Insolvency and Bankruptcy Code, 2016.

The petitioners, by bypassing the statutory mechanism, have misused the process of law and unnecessarily consumed valuable judicial time. It must be borne in mind that the IBC, 2016 is a codified and time-bound legislation enacted to ensure the expeditious resolution or liquidation of corporate debtors, with specific timelines prescribed at each stage. The conduct of the petitioners, in prosecuting this writ petition contrary to the statutory scheme, frustrates the very object and purpose of the Code.

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