Karnataka High Court Rejects Ex-Director’s Objection to NHAI Settlement After Company’s Liquidation
Court Holds Former Director Cannot Oppose Settlement Once Company Is in Liquidation and Represented by Resolution Professional
In a significant ruling on the interplay between insolvency and arbitration proceedings, the Karnataka High Court has dismissed an objection raised by a former director of A.L. Sudershan Construction Co. Ltd. against a settlement reached with the National Highways Authority of India (NHAI). The Court held that once a company enters liquidation, its affairs are exclusively managed by the Resolution Professional or Liquidator, leaving erstwhile directors without authority to challenge decisions taken on behalf of the company.
A Division Bench comprising Justices Anu Sivaraman and Venkatesh Naik T approved the settlement between NHAI and the company under the Vivad Se Vishwas–III Scheme, while rejecting the objections filed by the company’s former director. The Bench observed that the company was already under liquidation and was being lawfully represented by the appointed Resolution Professional, who alone was competent to act in the company’s interests.
The dispute originated from an arbitral award dated 6 September 2014, passed in favour of A.L. Sudershan Construction Co. Ltd. NHAI had challenged the award before the High Court and, during the pendency of the appeal, deposited approximately ₹36.39 crore, representing 50% of the award amount along with accrued interest, in compliance with the applicable legal requirements.
Meanwhile, the company’s financial position deteriorated, leading to the commencement of the Corporate Insolvency Resolution Process (CIRP) on 9 May 2022 under the Insolvency and Bankruptcy Code. Subsequently, the National Company Law Tribunal ordered the company’s liquidation on 28 August 2023 and appointed Kalvakolanu Murali Krishna Prasad as the Liquidator to administer its assets and legal affairs.
During the hearing, the former director sought to oppose the proposed settlement between NHAI and the company. However, the High Court categorically held that an erstwhile director loses the authority to independently represent or contest proceedings concerning the company once liquidation commences. If the former director had any grievance regarding the liquidation process or the conduct of the Resolution Professional, the proper forum would have been the National Company Law Tribunal rather than the High Court hearing the arbitration appeal.
The Bench observed that permitting former management to intervene after liquidation would undermine the statutory framework of the Insolvency and Bankruptcy Code, which vests complete control of the corporate debtor’s affairs in the Resolution Professional or Liquidator. Consequently, the Court found no legal basis to entertain the objection and proceeded to record the settlement.
The judgment reinforces a key principle of insolvency law: once a company enters liquidation, the powers of its directors cease, and all decisions concerning litigation, settlements, and asset management are taken by the insolvency professional acting under the supervision of the insolvency framework. Former directors cannot independently challenge such decisions before other judicial forums.
The ruling is expected to serve as an important precedent in cases where arbitration proceedings overlap with insolvency proceedings. It clarifies that settlements entered into by Resolution Professionals or Liquidators on behalf of companies in liquidation will receive judicial recognition, while objections from former management must be pursued through the mechanisms provided under the Insolvency and Bankruptcy Code rather than collateral proceedings before the High Court.
