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Insolvency and Bankruptcy Code, 2016 | Liquidation

Section 42 of IBC: Appeal Against the Decision of the Liquidator

Section 42 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides a statutory remedy for a creditor whose claim is rejected by the liquidator. The creditor may appeal to the Adjudicating Authority within 14 days of receiving the rejection decision.

14 daysPeriod for appealing from receipt of the liquidator's decision
NCLTAdjudicating Authority for a corporate debtor under Section 60 of the IBC

Text of Section 42: Appeal Against the Decision of Liquidator

42. A creditor may appeal to the Adjudicating Authority against the decision of the liquidator rejecting the claims within fourteen days of the receipt of such decision.

Meaning and scope of Section 42

Section 42 enables a creditor to challenge the liquidator's rejection of a claim during corporate liquidation. The rejection may concern the entire claim or a rejected portion of it. The section provides a route for review by the Adjudicating Authority rather than leaving the liquidator's rejection unchallenged.

Who may appeal?

A creditor whose claim has been rejected by the liquidator may invoke Section 42. Under Section 3(10) of the IBC, a creditor is a person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder. Whether a particular applicant qualifies depends on the facts and statutory definitions.

Where is the appeal filed?

For liquidation of a corporate debtor, the Adjudicating Authority is the National Company Law Tribunal (NCLT) having territorial jurisdiction under Section 60 of the IBC. The filing must follow the applicable NCLT procedural requirements and rules.

When does the 14-day period begin?

The statutory period runs from receipt of the liquidator's decision rejecting the claim, not automatically from the date of the liquidation order, submission of the claim or preparation of a list of stakeholders. A creditor should retain proof of when the rejection decision was received and act promptly.

How a claim-rejection appeal arises

  1. Submission of claim: Under Section 38, creditors submit claims to the liquidator in the prescribed manner.
  2. Verification: Under Section 39, the liquidator verifies the claims and may request supporting documents or evidence.
  3. Admission or rejection: Under Section 40(1), the liquidator may admit or reject a claim in whole or in part. Written reasons must be recorded when a claim is rejected.
  4. Communication: Under Section 40(2), the decision must be communicated to the creditor and corporate debtor within seven days of admission or rejection.
  5. Appeal: A creditor aggrieved by rejection may appeal to the NCLT under Section 42 within 14 days of receiving the decision.

Documents commonly relevant to an appeal

The documents required depend on the dispute and procedural directions. Commonly relevant material includes the liquidator's rejection communication and reasons, proof of the date of receipt, the original claim form, invoices or agreements, account statements, correspondence, records from an information utility where relevant, and other evidence establishing the debt and its amount.

The liquidator's decision and the applicable regulations should be checked carefully before filing. Section 42 itself does not prescribe a universal document checklist or filing form.

  • Section 3(10) - Creditor: A person to whom a debt is owed, including the creditor categories identified in the IBC.
  • Section 5(7) - Financial creditor: A person to whom a financial debt is owed, including a person to whom it has been legally assigned or transferred.
  • Section 5(20) - Operational creditor: A person to whom an operational debt is owed, including an assignee or transferee.
  • Section 38 - Consolidation of claims: Collection and submission of creditors' claims in liquidation.
  • Section 39 - Verification of claims: Liquidator's verification of submitted claims.
  • Section 40 - Admission or rejection of claims: Liquidator's decision and communication obligations.
  • Section 41 - Determination of valuation of claims: Determination of the value of admitted claims in the manner specified by IBBI.
  • Section 60 - Adjudicating Authority: NCLT jurisdiction in corporate insolvency and liquidation matters.

Frequently asked questions

Can a creditor appeal if only part of the claim is rejected?

Section 40 permits admission or rejection in whole or in part. A creditor may challenge the rejected portion under Section 42, subject to the applicable legal and procedural requirements.

Is the appeal period 14 days or 30 days?

Section 42 specifies 14 days from receipt of the liquidator's rejection decision. Other periods elsewhere in the IBC relate to different proceedings and should not be substituted for this provision.

Does filing an appeal automatically admit the claim?

No. Filing an appeal seeks review by the Adjudicating Authority; it does not, by itself, establish or admit the disputed claim.

Official legal sources

For the wider statutory framework, read The Insolvency and Bankruptcy Code, 2016.

Editorial note: This is a general explanation of Section 42. Filing rules, applicable amendments, tribunal directions and limitation issues should be verified against current official materials before taking legal action.