Liquidator Can Defend Pending Civil Suits Filed Before Liquidation Under IBC: Bombay High Court

The Bombay High Court has recently held that a liquidator can be impleaded and can defend a civil suit instituted prior to the commencement of liquidation proceedings, observing that the Insolvency and Bankruptcy Code, 2016 does not bar the continuation of such pending suits.

“Since Liquidator can sue, I do not see any reason why Liquidator cannot defend an action on behalf of the corporate debtor” Justice Sandeep V. Marne observed.

The court clarified that Section 33(5) of the IBC bars only the institution of fresh suits and does not prohibit the continuation of suits instituted prior to liquidation.

Anupam Dikshit, a former Chief Operating Officer of S. Kumars Nationwide Limited, resigned in 2014 alleging irregularities in the payment of salary. While he received gratuity, he claimed that substantial salary and allowance dues remained unpaid.

In October 2017, Dikshit filed a summary suit before the City Civil Court, Greater Mumbai, seeking recovery of Rs. 76.85 lakh. The company did not contest the case, and the suit proceeded ex parte.

During the pendency of the suit, insolvency proceedings were initiated against the company. Dikshit informed the Interim Resolution Professional about the pending suit and also lodged his claim. The National Company Law Tribunal later ordered the company's liquidation and appointed a liquidator.

Dikshit then moved an application seeking to implead the liquidator in the pending suit. The City Civil Court dismissed the application, prompting him to approach the Bombay High Court.

The liquidator argued that since the company was in liquidation, the suit was not maintainable and that once liquidation commences, there is a separate mechanism under the IBC for adjudication of claims.

The High Court noted that the City Civil Court had dismissed Dikshit's application on the ground that it lacked jurisdiction under Section 63 of the IBC, holding that the matter fell within the jurisdiction of the NCLT.

Clarifying the scope of Section 63, the court observed that civil court jurisdiction is barred only in respect of matters over which the NCLT or NCLAT has jurisdiction. It noted that the suit in the present case had been filed well before the liquidation of the company.

“In my prima facie view therefore, bar of jurisdiction under Section 63 of the IBC would not be attracted in the present case. Also, what effect Section 63 of the IBC would have on pending suit also needs to be decided independently and cannot be mixed up with the issue of amendment of Plaint and impleadment of the Liquidator.,” the court held.

Relying on decisions of various High Courts, the court held that there is no embargo under Section 33(5) of the IBC on a liquidator defending a pending suit and that the provision does not apply to suits instituted prior to liquidation.

Accordingly, the court allowed the petition, set aside the order passed by the City Civil Court, and directed that the necessary amendments be carried out within four weeks.

For Petitioner: Advocates Rohan Savant and Huzefa Khokhawala

For Respondents: MDP Legal