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2019 (7) TMI 1519 - HC - Companies LawMaintainability of petition - Winding up of company - Inability/unable to pay its debt - transfer of application made by Financial Creditor to the National Company Law Tribunal in exercise of its Power under Section 434 of the Companies Act, 2013 - HELD THAT - The respondent company undisputedly owing a debt has failed to pay the same despite providing sufficient opportunities. Moreover, has failed to show the bonafides to prove the solvency. However, it is not necessary to examine the question whether the company is insolvent, the admission of debts and its inability to repay its current liabilities and demands would itself be sufficient to support the conclusion that the company is unable to pay its debts. It is true that an order of winding up is an order of last resort and should be exercised with great circumspection. The Court having been satisfied for ordering the winding up looking that the defence and conduct of the respondent company. More particularly, proof of the debt and the inability on the part of the company to pay the debt being established, winding up of the company cannot be denied. The arguments of the learned counsel for the applicant that no winding up proceedings is maintainable subsequent to the Code, 2016 and amendment to Section 434 of the Act, 2013 coming into force cannot be countenanced since the first amendment to Section 434 of the Act, 2013 with effect from 01.12.2016 conceptulates automatic transfer from the High Court to the NCLT relating to only such proceedings of the winding up of companies, where no notice under Rule 26 of the Companies Court Rules was served - In view of the subsequent amendment with effect from 06.06.2018, it is only on the application made by any party or parties to any proceedings relating to the winding up of companies, such proceedings may be transferred to NCLT. It is trite that under the company proceedings, any person, who intends to appear at the hearing of a petition is required to serve on the petitioner advocate notice of its intention in terms of Rule 34 of the Company Court Rules. Such notice shall be in Form No.9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit, if any, shall be furnished along with the notice. Any person who has failed to comply with this rule shall not except with the leave of the Hon'ble Judge, be allowed to appear at the hearing of the petition. The resultant position, therefore, is that the company petitions not transferred to NCLT under Section 434-(1)(C) not falling under the first proviso thereof shall be proceeded with, in accordance with the provisions of Companies Act 1956. Cases falling under second proviso to 434-(1)(C) cannot be transferred automatically unless the party/parties to the proceedings makes an application. Neither the petitioner nor the respondent has made any such application for transfer. Rule 2(16) of the NCLT Rules, 2016 cannot be imported to the Companies Act, 2013 to interpret the phrase 'party' or 'parties' employed in the proviso to Section 434(1)(C) of the Act, 2013 unless the Legislature specifies so. Neither by reference nor by incorporation, the definition clause of other enactment could be borrowed to interpret the words under the Act, 2013. Hence, the arguments of the learned Senior counsel for the applicant has to be negated. Company petition is allowed and an order is made to wind up the respondent-company with immediate effect - The Official Liquidator attached to this Court is appointed as the Liquidator of the company.
Issues Involved:
1. Failure of the respondent to redeem debentures and repay the debt. 2. Maintainability of the Company Petition for winding up on the ground of inability to pay debt. 3. Applicability and impact of the Insolvency and Bankruptcy Code, 2016 on the winding up proceedings. 4. Transfer of proceedings to the National Company Law Tribunal (NCLT). 5. Impleading applications filed by third parties. Detailed Analysis: 1. Failure of the respondent to redeem debentures and repay the debt: The petitioner, Milestone Real Estate Fund, invested ?30 Crores in the respondent company, Prisha Properties India Private Limited, through secured redeemable optionally fully convertible debentures as per an Investment Agreement dated 23.02.2013. The respondent failed to redeem the debentures within the stipulated time despite multiple reminders and a statutory legal notice dated 14.07.2016 demanding ?41,29,71,205/-. The respondent admitted its inability to repay due to unfavorable market conditions and sought an extension, which led to the filing of the present petition. 2. Maintainability of the Company Petition for winding up on the ground of inability to pay debt: The petitioner argued that the respondent's failure to repay the admitted debt despite court-provided opportunities establishes its inability to pay. The respondent admitted to the debt and its inability to pay in its reply dated 05.08.2016. The court noted that despite multiple opportunities and directions, including an order to deposit ?5 Crores, the respondent failed to show any substantial proof of its ability to pay. 3. Applicability and impact of the Insolvency and Bankruptcy Code, 2016 on the winding up proceedings: The impleading applicant argued that the Insolvency and Bankruptcy Code, 2016 (IBC) supersedes the Companies Act, 1956, and mandates the transfer of winding up proceedings to NCLT. However, the court held that the first amendment to Section 434 of the Companies Act, 2013, effective from 01.12.2016, allowed automatic transfer only for cases where no notice under Rule 26 of the Companies (Court) Rules was served. Subsequent amendments required an application by any party for transfer. The court found that no such application was made by either the petitioner or the respondent, and the applicant's impleading application was not maintainable. 4. Transfer of proceedings to the National Company Law Tribunal (NCLT): The court analyzed Section 434 of the Companies Act, 2013, and related rules, concluding that the transfer of pending proceedings to NCLT is not automatic and requires an application. Since no such application was made, the court decided to proceed with the winding up under the Companies Act, 1956. 5. Impleading applications filed by third parties: The court rejected the impleading applications filed by third parties, including CA No.357/2017 and CA No.274/2018, on the grounds that they were not maintainable under the Companies (Court) Rules, 1959. The court emphasized that any person intending to oppose or support the winding up petition must follow the prescribed procedure, which the applicants failed to do. Order: 1. The company petition is allowed, and the respondent company is ordered to be wound up with immediate effect. 2. The Official Liquidator attached to the court is appointed as the Liquidator of the company. 3. The petitioner is directed to file a copy of the order with the Registrar of Companies within 30 days. 4. The petitioner shall publish the order in 'TIMES OF INDIA' and 'VIJAYA KARNATAKA' newspapers within 14 days. 5. The petitioner shall deposit ?40,000/- with the Official Liquidator for the implementation of the order. 6. All pending company applications, including CA Nos.357/2017, 36/2018, and 274/2018, are dismissed.
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