2018 (8) TMI 435 - HC - Companies Law

Winding up petition - invalid advertisement of the winding up application published in the newspapers - Held that - In the present case, it is a fact that when the company (presently in liquidation) failed to deposit ₹ 50,00,000/- as directed by the Division Bench on September 04, 2015 the petitioning creditor caused the advertisement of the winding up application being published in newspapers stating that application would be heard by the Court on October 14, 2015. However, when the company (presently in liquidation) was registered with the BIFR, by the order dated March 22, 2016 a learned Single Judge of this Court adjourned the hearing of the winding up application sine die. Until the company (presently in liquidation) filed the said application the winding up application did not appear before this Court. Even in the said application the company (present in liquidation) claimed the advertisement of the winding up application published in the newspapers on September 14, 2015 to be invalid advertisement.

Issues Involved:
1. Recalling of the winding-up order dated June 07, 2018.
2. Validity of the advertisement of the winding-up application.
3. Rights of the secured creditors and other creditors to participate in the winding-up application.
4. Compliance with the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

1. Recalling of the Winding-Up Order Dated June 07, 2018:
The applicant bank sought the recall of the order dated June 07, 2018, which directed the winding up of the company (presently in liquidation) and the Official Liquidator to take possession of all assets. The bank argued that it was not given an opportunity to participate in the winding-up proceedings, which led to the order being passed without considering the interests of all stakeholders, including the bank.

2. Validity of the Advertisement of the Winding-Up Application:
The applicant bank contended that after the initial advertisement of the winding-up application in 2015, the proceedings were adjourned sine die due to the company's registration with the Board of Industrial and Financial Reconstruction (BIFR). The bank argued that no fresh advertisement was made when the application was revived, which deprived the bank and other creditors of the opportunity to participate. The court found merit in this argument, noting that fresh advertisement should have been directed before allowing the application on June 07, 2018.

3. Rights of the Secured Creditors and Other Creditors to Participate in the Winding-Up Application:
The applicant bank emphasized that the winding-up application, once advertised, assumes a representative character, entitling all creditors to participate. The bank argued that the consent order dated April 17, 2017, obtained by the petitioning creditor and the company (presently in liquidation), was done without giving any opportunity to the bank and other creditors to participate. The court agreed, stating that the secured creditors and other creditors should have been enabled to participate in the winding-up application through fresh advertisement.

4. Compliance with the Insolvency and Bankruptcy Code (IBC), 2016:
The applicant bank had filed an application under Section 7 of the IBC before the National Company Law Tribunal (NCLT) for initiating the corporate insolvency resolution process. The bank argued that the winding-up application should have been transferred to the NCLT as per the IBC provisions. The petitioning creditor countered that since the winding-up application was already admitted, it was entitled to proceed under the Companies Act, 1956. The court noted that the winding-up application should have been advertised afresh to allow all stakeholders to participate, aligning with the IBC's intent for a comprehensive resolution process.

Conclusion:
The court concluded that the order dated June 07, 2018, should be recalled due to the lack of fresh advertisement and the exclusion of other creditors from participating in the winding-up proceedings. The application C.A. No. 165 of 2018 was allowed, and the order dated June 07, 2018, was recalled. The court directed that the winding-up application be advertised afresh in newspapers to enable participation from all creditors. The matter was scheduled for further directions on July 09, 2018, under the heading 'Company Matter Adjourned.' The allegations against the petitioning creditor were deemed not admitted due to the lack of an affidavit-in-opposition. No order as to costs was made, and urgent certified copies of the judgment were to be made available to the parties upon compliance with requisite formalities.

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