Madras High Court
Unknown vs The Managing Director on 29 May, 2025
W.P.No.18536 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
(Special Original Jurisdiction)
RESERVED ON : 17.04.2025
PRONOUNCED ON : 29.05.2025
PRESENT:
THE HON’BLE DR. JUSTICE A.D. MARIA CLETE
W.P.No. 18536 of 2021
1. T.Sivasankar
S/o. Thukalakkanam,
No.3/11, Mariamman Koil Street,
Pallianeelianoor & Pos,
Villupuram District.
2. Krishnamoorthy,
S/o. Kannan,
No.15, Mangulam Street,
Andiyarpalayam,
Gengarampalayam Post,
Puducherry,
3. G.Srinuvasan,
S/o. Gobal,
No.2, Mangalvinayagar Koil Street,
Kavanipakkam,
Thirupachanur PoStreet,
Villupuram District.
1/21
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W.P.No.18536 of 2021
4(a) S.Chellasamy (dead)
S/o. Sinnavellai
4(b) T.Stella
W/o. Chellasamy
No.8 /162, middle Street,
Veeranapuram, Kalingappati,
Tirunelveli, Tamilnadu.
Note: (suo motu impleaded by the court
vide order dated 17.4.2025)
5. E.Lakshminarayanan,
S/o.Elumalai,
No.95, Perumal Koil Street,
Rajbhavan, Pondicherry. …. petitioners
Vs.
1.The Managing Director,
M/s. Associated Cylinders & Accessories
Private Limited,
Thirubhuvanai
Puducherry – 605 107.
2. CS.Satyadevi Alamuri,
Liquidator of Associated Cylinders & Accessories
Private Limited,
23, Lake Area, 3rd Cross Street,
Nungambakkam, Chennai – 600034. …respondents
2/21
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W.P.No.18536 of 2021
Prayer in W.P.
To issue an order, direction, writ more particularly a writ in the nature of Writ
of Certiorarified Mandamus, call for the records pertains to the impugned order
of the 2nd respondent dated 20.01.2021, and quash the same, consequently
direct the respondents to settle the petitioner due in terms of the order of the
NCLT, (National Company Law Tribunal), single Bench, Chennai made in
CP/607/(IB)/CB/2017, and pass such other as this Honourable court may be
deem fit and proper.
Appearance of Parties:
For petitioners: M/s.P.R.Thiruneelankandan and M.Rajalakshmi, Advocates
For respondents: Mr.P.Raghunathan, Advocate
For M/s.T.S.Gopalan & Co.
JUDGMENT
Heard.
2.Since the filing of the writ petition, the 4th petitioner, Chellasamy,
passed away on 27.12.2023, as evidenced by the death certificate produced
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before this Court. The said certificate also records that he is survived by his
wife, T. Stella. In the tripartite agreement dated 28.05.2024, signed by all five
petitioners, the deceased Chellasamy was represented by his wife, T. Stella,
who signed the agreement as his legal heir. In view of the above, this Court, by
order dated 17.04.2025, suo motu impleaded T. Stella as Petitioner No. 4(b) in
the writ petition, dispensing with the necessity for filing a formal application
for substitution.
3.The petitioners have filed the present 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. 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
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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.
4.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
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jurisdiction under Article 226 of the Constitution is not tenable in the absence
of any extraordinary or exceptional circumstances.
5.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.
6.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. The said dispute was
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referred by the Government to the Industrial Tribunal and Labour Court,
Puducherry, vide G.O.Rt. No. 48/AIL/LAB/J/2018 dated 03.04.2018. In that
proceeding, neither the Resolution Professional nor the Liquidator was
impleaded as a party. An ex parte award was passed on 05.04.2019.
Subsequently, Execution Petition No. 399 of 2019 was filed, and again, the
pendency of CIRP or liquidation proceedings was not disclosed to the
executing court. An ex parte order was passed therein on 09.04.2021.
Challenging these ex parte orders, the Liquidator has filed W.P. Nos. 2396 of
2022 and 22096 of 2024, which are pending consideration.
7.The Liquidator also brought to the notice of this 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.
8.The principal questions that arise for consideration in this writ petition
are whether the relief sought by the petitioners—predicated on the order of
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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.
9.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.
10.The first three petitioners, along with 28 others—making a total of 31
persons—had filed a petition under Section 9 of the Insolvency and Bankruptcy
Code, 2016, on 25.08.2017, treating themselves as operational creditors of the
1st respondent company. The said petition was taken on file and numbered as
C.P./607/(IB)/CB/2017. By order dated 10.01.2018, the NCLT admitted the
petition and initiated Corporate Insolvency Resolution Process (CIRP) against
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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.
11.The petitioners contend that since the National Company Law
Tribunal, while admitting C.P./607/(IB)/CB/2017 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. This contention is legally untenable and proceeds on a
fundamental misunderstanding of the scheme of the Insolvency and Bankruptcy
Code, 2016.
12.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.
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13.The Code entrusts the Interim Resolution Professional under Section
18, the Resolution Professional under Section 25, and the Liquidator under
Section 35, with the statutory obligation to receive, collate, and verify all
claims independently and in accordance with the law. The Supreme Court, in
Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, has
categorically held that the determination of default at the stage of admission is
only for triggering the insolvency process; it is not a final adjudication of
claims.
14.As affirmed by the Hon’ble Supreme Court in M/s. B.K. Educational
Services Pvt. Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633, the
purpose of admission under the Insolvency and Bankruptcy Code, 2016 is not
to adjudicate the precise quantum of the claim, but to determine whether a debt
exceeding the prescribed threshold exists and whether there has been a default
in its payment.
15.Thus, it is well settled that the Resolution Professional or the
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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. Further, in Jignesh Shah v.
Union of India, (2019) 10 SCC 750, the Hon’ble Supreme Court held that,
admission under Section 9 does not preclude the RP or Liquidator from ejecting
fraudulent or unsubstantiated claims.
16.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. Thus, NCLT Admission Order does Not Bind RP/Liquidator as
to Claim Validity. In this view of the matter, the relief sought in the writ
petition, which is premised on the assumption that the NCLT’s order of
admission conclusively establishes the petitioners’ entitlement, is legally
misconceived.
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17.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. In response, the petitioners have argued that, notwithstanding the
availability of an alternative remedy, the writ petition is maintainable under
Article 226 of the Constitution.
18.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.
19.The Hon’ble Supreme Court, in Embassy Property Developments
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Pvt. Ltd. v. State of Karnataka, (2020) 13 SCC 308, has categorically held
that matters falling within the exclusive domain of the NCLT/NCLAT are not
amenable to writ jurisdiction, except in exceptional circumstances, namely:
(i) where the Liquidator has acted wholly without jurisdiction;
(ii) where there is a blatant violation of the principles of natural justice; or
(iii) where the action is manifestly arbitrary or actuated by mala fides.
20.The case on hand does not fall within any of the aforesaid exceptions.
A Division Bench of this Court, in W.P. No. 712 of 2024 dated 23.01.2025
(Dharamshi K. Patel and another v. Kamala D. Patel and others), while
considering a writ petition filed against the order of admission passed by the
NCLT, Chennai Bench, initiating the corporate insolvency resolution process
against a corporate debtor, made the following observation:
(23)Both sides relied upon a few judgments on the
maintainability of the writ petition under Article 226 of the
Constitution of India in view of the alternative remedy available.
This Court in exceptional cases can entertain a writ petition
under Article 226, as there are several exceptions carved out by
this Court and Hon'ble Supreme Court to entertain a writ petition
under Article 226 despite there is an alternative remedy.
However, we find no extraordinary situation or circumstance
warranting this Court to entertain a writ petition when there is an
effective alternative remedy. Therefore, this Court finds no merit
in this writ petition.
(24)Accordingly, this writ petition stands dismissed.
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Consequently, connected miscellaneous petitions are closed.
21. The Apex Court, while examining the maintainability of writ
petitions filed before the High Court against orders passed by the Debt
Recovery Tribunal (DRT), in the context of availability of a statutory
alternative remedy, in Phr Invent Educational Society vs Uco Bank on 10
April, 2024 reported in 2024 INSC 297 observed as follows:
“29. It could thus clearly be seen that the Court has carved out
certain exceptions when a petition under Article 226 of the
Constitution could be entertained in spite of availability of an
alternative remedy. Some of them are thus:
(i) where the statutory authority has not acted in accordance with
the provisions of the enactment in question;
(ii) it has acted in defiance of the fundamental principles of
judicial procedure;
(iii) it has resorted to invoke the provisions which are repealed;
and
(iv) when an order has been passed in total violation of the
principles of natural justice.
30. It has however been clarified that the High Court will not
entertain a petition under Article 226 of the Constitution if an
effective alternative remedy is available to the aggrieved person
or the statute under which the action complained of has been
taken itself contains a mechanism for redressal of grievance.
31. Undisputedly, the present case would not come under any of
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the exceptions as carved out by this Court in the case of Chhabil
Dass Agarwal (supra).
32. We are therefore of the considered view that the High Court
has grossly erred in entertaining and allowing the petition under
Article 226 of the Constitution.
33. While dismissing the writ petition, we will have to remind the
High Courts of the following words of this Court in the case
of Satyawati Tondon (supra) since we have come across various
matters wherein the High Courts have been entertaining petitions
arising out of the DRT Act and the SARFAESI Act in spite of
availability of an effective alternative remedy:
“55. It is a matter of serious concern that despite repeated
pronouncement of this Court, the High Courts continue to
ignore the availability of statutory remedies under the
DRT Act and the SARFAESI Act and exercise
jurisdiction under Article 226 for passing orders which
have serious adverse impact on the right of banks and
other financial institutions to recover their dues. We hope
and trust that in future the High Courts will exercise their
discretion in such matters with greater caution, care and
circumspection.”
22. Just as the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 and the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 are recognised as complete and self-
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contained codes, the Insolvency and Bankruptcy Code, 2016 is also a
comprehensive and exhaustive piece of legislation. The Supreme Court, in
Embassy Property Developments Pvt. Ltd. v. State of Karnataka, (2020) 13
SCC 308, made the following observations with regard to the nature and scope
of the Code:
“11. It is beyond any pale of doubt that IBC, 2016 is a
complete Code in itself. As observed by this Court in
M/s Innoventive Industries Limited vs. ICICI Bank, it is an
exhaustive code on the subject matter of insolvency in relation
to corporate entities and others. It is also true that IBC, 2016 is
a single Unified Umbrella Code, covering the entire gamut of
the law relating to insolvency resolution of corporate persons
and others in a time bound manner. The code provides a three
tier mechanism namely (i) the NCLT, which is the
Adjudicating Authority (ii) the NCLAT which is the appellate
authority and (iii) this court as the final authority, for dealing
with all issues that may arise in relation to the reorganisation
and insolvency resolution of corporate persons. In so far as
insolvency resolution of corporate debtors and personal 3 AIR
2017 SC 4084 guarantors are concerned, any order passed by
the NCLT is appealable to NCLAT under Section 61 of the
IBC, 2016 and the orders of the NCLAT are amenable to the
appellate jurisdiction of this court und"er Section 62. It is in
this context that the action of the State of Karnataka in by
passing the remedy of appeal to NCLAT and the act of the
High Court in entertaining the writ petition against the order
of the NCLT are being questioned.”
23.Thus, the Insolvency and Bankruptcy Code, 2016, being a complete
and self-contained code, provides a well-structured three-tier remedial
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mechanism. In view of the same, the present writ petition, filed by the
petitioners by bypassing the statutory framework under the IBC, 2016, is not
maintainable.
24.Another relevant aspect pertains to the pendency of two writ petitions,
W.P. No. 2396 of 2022 and W.P. No. 22096 of 2021, filed by the second
respondent challenging the ex parte award dated 05.04.2019 passed by the
Industrial Tribunal in I.D. (T) No. 12 of 2018 and the order dated 09.04.2021
passed in E.P. No. 399 of 2019. It is an admitted position that these orders were
passed after the admission of the first respondent company into the Corporate
Insolvency Resolution Process (CIRP) by the NCLT on 10.01.2018 and
subsequent liquidation order dated 16.07.2018.
25.In terms of Section 14 of the Insolvency and Bankruptcy Code, 2016,
once an order of admission is passed initiating CIRP, a moratorium is triggered,
which prohibits the institution or continuation of any legal proceedings against
the corporate debtor. Furthermore, under Section 33(5) of the Code, upon
commencement of liquidation, no suit or other legal proceeding shall be
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instituted or continued against the corporate debtor by any creditor or third
party without prior approval of the Adjudicating Authority.
26.In the present case, the ex parte orders were obtained without
apprising the Industrial Tribunal or the Executing Court of the CIRP and
liquidation orders passed by the NCLT against the first respondent. In such
circumstances, the proceedings conducted and orders passed in violation of the
express prohibitions under Sections 14 and 33(5) of the IBC, 2016, are
rendered void and non-est in the eyes of law.
27.In the impugned order, the second respondent rejected the claim of the
petitioners on the ground that they do not fall within the definition of
“workmen” under the applicable provisions, and further noted that the 1st and
3rd petitioners had resigned from service in the year 2014, nearly four years
prior to the initiation of liquidation order. If the petitioners were aggrieved by
the said rejection, the appropriate course of action would have been to prefer an
appeal under Section 42 of the Insolvency and Bankruptcy Code, 2016. 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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28.Moreover, it is also pertinent to note that the petitioners have not
adhered to the procedure established under the statute, nor have they honoured
the undertaking given in the tripartite agreement dated 28.05.2024, wherein
they had categorically agreed to withdraw the present writ petition within
fifteen days from the date of execution of the said agreement. Despite such
commitment, the petitioners have continued to prosecute the present writ
petition in clear breach of the terms of the aforesaid settlement.
29.For the reasons discussed above, the 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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30.Accordingly, the writ petition is dismissed. Although this Court was
initially inclined to impose costs on the petitioners, it is noted upon
consideration that the petitioners are employees with limited means and appear
to have acted on erroneous legal advice. In view of the same, this Court refrains
from imposing costs.
29.05.2025
ay
NCC : Yes / No
Index : Yes / No
Speaking Order / Non-speaking Order
To
The National Company Law Tribunal,
(Single Bench), Chennai.
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DR. A.D. MARIA CLETE, J
ay
Pre-Delivery Judgment made in
29.05.2025
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