Section 42 of the Insolvency and Bankruptcy Code, 2016 (IBC), occupies a distinctive place within the liquidation framework. While the Code is designed to function within strict procedural timelines, the liquidation stage is particularly sensitive to delay because it directly affects the realization and distribution of the corporate debtor’s assets. Within this limited time window, creditors whose claims have been rejected, partly admitted, or incorrectly valued by the liquidator are granted a narrow statutory remedy under Section 42 an appeal to the Adjudicating Authority. What appears to be a simple appellate provision has, however, generated considerable litigation on the nature and rigidity of its limitation period. Two recent decisions from the National Company Law Tribunal, Hyderabad Bench—IFCI Limited v. BS Limited (In Liquidation) (order dated 28.08.2023) and TSSPDCL v. Priyadarsini Ltd (In Liquidation) (order dated 17.07.2023)—make it clear what Section 42 can and can't do.
These decisions are valuable not just for the creditors involved but for the doctrinal understanding of the section as a whole. Together, they establish that Section 42 is a tightly confined remedy, its limitation period is uncompromising, and the Tribunal cannot resort to inherent powers or the Limitation Act to expand a timeline intentionally left narrow by the legislature.
I. Position of Section 42 in the Liquidation Scheme
The structure of liquidation under IBC creates a sequential and time-bound mechanism for claim determination. Section 38 mandates that the liquidator call for claims and consolidate them. Section 39 requires verification of each claim based on the records of the corporate debtor and supporting documentation. Section 40 empowers the liquidator to accept or reject claims, in whole or in part, through a reasoned determination. Section 41 requires the liquidator to determine the value of each admitted claim.
Section 42 is situated immediately after this process as the exclusive remedy against any “decision of the liquidator accepting or rejecting the claims.” The statutory placement shows that it is not designed to reopen the entire verification exercise. Instead, it functions as a narrow appellate window, aimed at correcting manifest errors without impeding the liquidation timeline. The section also embodies the principle that the Code seeks finality, not prolonged adversarial litigation.
II. Scope of “Decision of the Liquidator”: Whether Limited to Rejection
A common question about how to read Section 42 is whether it only applies to outright rejection of claims or also to partial acceptance, reclassification, or valuation. The Tribunal in IFCI Limited v. BS Limited addressed this at the outset. In paragraph 5, the Bench observed that although the applicant attempted to argue that the liquidator had not issued a rejection order, “a perusal of the order would show that part of the claim was accepted.” The Tribunal held that Section 42 not only deals with orders of rejection but also with orders of acceptance.
More significantly, the Tribunal referred to the Supreme Court’s decision in Swiss Ribbons, noting that even the determination of value of an admitted claim under Section 40 is a “decision” appealable under Section 42. This interpretation aligns with the purpose of liquidation. If valuation errors or improper deductions were excluded from challenge merely because some portion of the claim was admitted, the remedy would be rendered ineffective.
Thus, the section’s scope extends to:
- Complete rejection of a claim;
- Partial acceptance or admission;
- Valuation determinations under Section 40; and
- The process also includes the reclassification of a creditor's status or security.
This wide coverage is doctrinally sound given that liquidation distribution depends entirely on accurate quantification of claims.
III. The Fourteen-Day Limitation Period: Statutory Construction and Rigor
The most significant issue under Section 42 is its limitation. The statutory text requires an appeal to be filed “within fourteen days of the receipt of such decision.” The Tribunal in both judgments treated this limitation as absolute.
A. Findings from IFCI Limited v. BS Limited
In paragraph 1, the Tribunal records that the applicant sought condonation for a delay of 184 days, even after excluding the pandemic-related suspension period. The petition invoked Section 60(5) of the Code, Rule 11 of the NCLT Rules (inherent powers), and Section 5 of the Limitation Act.
The Tribunal's reasoning is anchored in the statutory text. In paragraph 5, after holding that the liquidator’s order qualifies as a Section 42 decision, the Bench explicitly states:
“There is no provision under Section 42 for condoning the delay in filing an appeal.”
This unequivocal declaration underscores that Section 42 is a self-contained provision. The Tribunal further reinforced this in paragraph 13, holding that where the statute prescribes a period for filing an appeal and does not provide for extension, the Tribunal cannot exercise inherent powers to condone delay. The opening line of paragraph 13 is unambiguous:
“When there is a clear statutory bar in entertaining an appeal… the Tribunal cannot exercise its inherent powers and condone the delay.”
This principle is rooted in Supreme Court jurisprudence as well.
B. Reliance on Precedents Limiting Judicial Discretion
The liquidator relied on the Supreme Court’s decision in National Spot Exchange Ltd. v. Anil Kohli, which is discussed in paragraph 3 of the IFCI judgment. The principle extracted from the Supreme Court is that where the statute explicitly prescribes the limitation period and the extent to which condonation is allowed, tribunals have “no inherent powers” to extend further.
Further, paragraph 6 of the IFCI decision extracts the NCLAT ruling in Regional Provident Fund Commissioner v. Titanium Tantalum Products, a detailed affirmation that the law of limitation must be applied with “vigour and rigour,” and tribunals cannot invent a device to grant relief where the statute does not permit it. The extract highlights that just because a litigant is a statutory body, “no indulgence or latitude can be shown.”
C. Confirmation through an Earlier Parallel Case
The Tribunal also referred to another judgment of the same Bench—State Bank of India v. BS Limited in paragraph 7, which had earlier held, based on National Spot Exchange, that an appeal under Section 42 filed beyond fourteen days is not maintainable.
IV. The Priyadarsini Ltd Case: A Parallel Affirmation of Limitation
The second judgment you uploaded—TSSPDCL v. Priyadarsini Ltd (17.07.2023)—reinforces the strictness of Section 42, but through a slightly different factual matrix.
In this case, the applicant sought to challenge the liquidator’s rejection of part of its claim, amounting to approximately Rs. 28 crores. The communication rejecting the claim was sent on 06.07.2021, but the application under Section 42 was filed only on 22.02.2022 resulting in a delay of 209 days.
In paragraph 5, the Tribunal reaffirms the statutory position by quoting Section 42 and noting that the appeal must be filed within fourteen days from receipt of the liquidator’s order. In paragraph 6, the Tribunal calculates the delay, confirming that the application was filed 209 days late.
The applicant attempted to invoke Section 5 of the Limitation Act, relying on the NCLAT’s decision in Canara Bank v. Commercial Tax Department. However, the Tribunal expressly rejected this reliance. In paragraph 7, it stated that condonation under Section 5 may be permissible in certain factual contexts, but only when reasons are pleaded and justified.
Crucially, paragraph 10 records that the applicant did not even provide a whisper of explanation for the delay. The Tribunal held that without pleading reasons, condonation cannot be granted, even orally. In paragraph 11, it held that a delayed Section 42 application is barred by limitation, and without grounds for condonation, the Tribunal cannot step in.
While the Priyadarsini case does not engage deeply with Supreme Court precedents, it reaffirms that Section 42’s limitation is not a formality. It is a jurisdictional threshold.
V. The Interplay Between Section 42 and the Code’s Time-Bound Structure
The doctrinal significance of these judgments lies in their insistence on aligning Section 42 with the Code’s overall architecture. The IBC is fundamentally distinct from traditional civil litigation. It values speed, certainty, and time discipline.
This is evident from paragraph 6 of the IFCI judgment, where the NCLAT’s Titanium Tantalum extract emphasises that liquidation must be completed “within one year.” The extract also states:
“Speed is the essence of the Code… Time wasted/lost cannot be revisited/regained.”
Therefore, Section 42’s fourteen-day limit is not an arbitrary cut-off. It is a structural necessity. Every day of delay in challenging claim decisions delays the finalisation of the stakeholder list—crippling asset distribution and prolonging liquidation.
The IFCI and Priyadarsini decisions show that Section 42 is designed not merely as a procedural timeline but as a substantive bar on delayed appeals.
VI. Synthesis of Principles Emerging from Both Judgments
Taken together, the two NCLT Hyderabad judgments establish the following doctrinal principles regarding Section 42:
- Section 42 is a self-contained remedy and its limitation period cannot be expanded through inherent jurisdiction or equitable considerations (IFCI, paras 5 & 13).
- The fourteen-day period is mandatory, and no condonation is possible in the absence of statutory language permitting it (IFCI, para 5; Priyadarsini, para 11).
- Both rejection and acceptance (including valuation) of claims fall within the scope of Section 42 (IFCI, para 5).
- Supreme Court’s NSEL v. Anil Kohli principle applies, restricting condonation strictly to what is provided in the Code (IFCI, para 3).
- The Tribunal cannot invent a device for relief when the statute creates a jurisdictional bar (IFCI, para 6).
- Applications lacking explanation for delay cannot succeed, even if Section 5 were theoretically invoked (Priyadarsini, paras 10–11).
- IBC’s objective of time-bound completion mandates strict enforcement of Section 42 timelines (IFCI, para 6).
FAQ
1. What is Section 42 of the Insolvency and Bankruptcy Code?
Section 42 of the IBC provides a statutory remedy for creditors during liquidation. If a liquidator accepts, rejects, or partially admits a creditor’s claim, the creditor may challenge that decision before the NCLT. This appeal must be filed within fourteen days from the date the liquidator communicates the decision. It is the only appellate route available against the liquidator’s determination of claims.
2. Can the 14-day limitation under Section 42 be extended by the NCLT?
No. The NCLT cannot extend the fourteen-day limitation prescribed under Section 42. The section does not contain any provision allowing condonation of delay, and the Tribunal cannot rely on inherent powers or Section 5 of the Limitation Act to enlarge this timeline. Recent NCLT Hyderabad rulings, including IFCI Limited v. BS Limited, confirm that delayed appeals are not maintainable.
3. Does Section 42 apply only to rejection of claims, or also to partial acceptance and valuation?
Section 42 applies to both rejection and acceptance of claims, including partial admission of amounts and valuation decisions under Section 40. Courts have clarified that any “decision of the liquidator” that affects the quantum or classification of a creditor’s claim is appealable under Section 42, provided the appeal is filed within the fourteen-day period.
4. Can a creditor use Section 60(5) of the IBC or inherent powers to challenge a Section 42 timeline?
No. Section 60(5) gives the NCLT wide jurisdiction, but it cannot be used to override the specific limitation in Section 42. Likewise, Rule 11 of the NCLT Rules cannot be invoked to condone delay. Courts consistently hold that when the IBC provides a specific timeline without an extension clause, the Tribunal has no jurisdiction to modify it.
5. What happens if the liquidator’s email or communication is received late by the creditor?
The limitation period under Section 42 starts from the date of receipt of the liquidator’s decision. If the creditor can demonstrate the exact date the communication was received from the liquidator, the fourteen-day period will be calculated from that date. However, once the fourteen days expire, the right to appeal is extinguished, and the NCLT cannot examine the merits of the case or condone the delay.