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2018 (12) TMI 674 - SC - Companies LawTransfer winding up proceedings pending before HC to the National Company Law Tribunal ( NCLT ) refused - Held that - If there is any inconsistency between Section 434 as substituted and the provisions of the Code, the latter must prevail. We are of the view that the NCLT was absolutely correct in applying Section 238 of the Code to an independent proceeding instituted by a secured financial creditor, namely, the Alchemist Asset Reconstruction Company Ltd. This being the case, it is difficult to comprehend how the High Court could have held that the proceedings before the NCLT were without jurisdiction. On this score, therefore, the High Court judgment has to be set aside. The NCLT proceedings will now continue from the stage at which they have been left off. Obviously, the company petition pending before the High Court cannot be proceeded with further in view of Section 238 of the Code. The writ petitions that are pending before the High Court have also to be disposed of in light of the fact that proceedings under the Code must run their entire course. We, therefore, allow the appeal and set aside the High Court s judgment.
Issues Involved:
1. Transfer of winding up proceedings from the High Court to the NCLT. 2. Jurisdiction of the NCLT in admitting a financial creditor's petition under Section 7 of the Insolvency and Bankruptcy Code, 2016. 3. Applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016. 4. Interpretation of Rule 5 and Rule 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016. 5. Impact of amendments to Section 434 of the Companies Act, 2013. Detailed Analysis: 1. Transfer of Winding Up Proceedings from the High Court to the NCLT: The employees' union challenged the High Court's refusal to transfer winding up proceedings to the NCLT and its setting aside of the NCLT's order admitting a financial creditor's petition. The High Court had initially registered the winding up case under Company Petition No. 19/2009 and directed the Official Liquidator to evaluate the company's assets for workers' dues. However, the NCLT admitted a financial creditor's petition under Section 7 of the Insolvency Code, leading to a moratorium and appointment of an interim resolution professional. The High Court stayed the NCLT's order, which led to the present appeal. 2. Jurisdiction of the NCLT in Admitting a Financial Creditor's Petition: The NCLT admitted the financial creditor's petition under Section 7 of the Insolvency Code, declaring a moratorium and appointing an interim resolution professional. The High Court, however, held that the NCLT's order was without jurisdiction. The Supreme Court clarified that the NCLT's proceedings were independent and could be initiated at any time before a winding up order was passed by the High Court. Section 238 of the Insolvency Code, which provides for the Code's provisions to override other laws, was correctly applied by the NCLT. 3. Applicability of Section 238 of the Insolvency and Bankruptcy Code, 2016: Section 238 of the Insolvency Code states that the Code's provisions override any inconsistent laws. The Supreme Court rejected the argument that the amended Section 434 of the Companies Act, 2013, being part of the Code, should prevail over the Code. The NCLT's application of Section 238 to the independent proceeding initiated by the financial creditor was upheld, emphasizing that the Code takes precedence. 4. Interpretation of Rule 5 and Rule 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016: The Supreme Court examined the applicability of Rule 5 and Rule 6 of the 2016 Transfer Rules. Rule 5(2) specifically dealt with cases where the BIFR forwarded an opinion to wind up a company under Section 20 of the SIC Act, indicating that such cases should continue in the High Court. The omission of Rule 5(2) did not automatically transfer these cases to the NCLT. The Court held that the High Court's application of Rule 6 was incorrect, but the High Court's decision could still be supported by Rule 5(2) and the amended Section 434 of the Companies Act, 2013. 5. Impact of Amendments to Section 434 of the Companies Act, 2013: Section 434 was amended to allow for the transfer of winding up proceedings to the NCLT at a stage prescribed by the Central Government. The Supreme Court noted that any party to a winding up proceeding pending before a Court could apply for transfer to the NCLT post-17.08.2018. The High Court should have transferred such proceedings upon application, and the NCLT would then handle them as corporate insolvency resolution processes under the Code. Conclusion: The Supreme Court allowed the appeal, setting aside the High Court's judgment. The NCLT proceedings were to continue from the stage they were left off, and the company petition pending before the High Court could not proceed further due to Section 238 of the Code. The writ petitions pending before the High Court were also to be disposed of, ensuring that proceedings under the Insolvency Code ran their entire course.
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