2019 (1) TMI 1442 - SC - Companies Law

Winding up petition - financial creditor s application which has been admitted by the Tribunal - Held that - Section 11 of the Code specifies which persons are not eligible to initiate proceedings under it. This Section is of limited application and only bars a corporate debtor from initiating a petition under Section 10 of the Code in respect of whom a liquidation order has been made. From a reading of this Section, it does not follow that until a liquidation order has been made against the corporate debtor, an Insolvency Petition may be filed under Section 7 or Section 9 as the case may be, as has been held by the Appellate Tribunal. Hence, any reference to Section 11 in the context of the problem before us is wholly irrelevant. We decline to interfere with the ultimate order passed by the Appellate Tribunal because it is clear that the financial creditor s application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code. Though, we are not interfering with the Appellate Tribunal s order dismissing the appeal, we grant liberty to the appellant before us to apply under the proviso to Section 434 of the Companies Act (added in 2018), to transfer the winding up proceeding pending before the High Court of Delhi to the NCLT, which can then be treated as a proceeding under Section 9 of the Code.

Issues Involved:
1. Maintainability of the winding up petition filed by the operational creditor.
2. Impact of the Insolvency and Bankruptcy Code, 2016 (the Code) on pending winding up petitions.
3. Interpretation of the Companies (Transfer of Pending Proceedings) Rules, 2016 and subsequent amendments.
4. Application of Section 11 of the Code regarding eligibility to initiate insolvency proceedings.
5. Jurisdiction and authority of the National Company Law Tribunal (NCLT) versus High Courts.

Issue-wise Analysis:

1. Maintainability of the winding up petition filed by the operational creditor:
The case originated from an operational creditor's appeal to continue with a winding up petition filed in 2014 against the respondent company under Section 433(e) of the Companies Act, alleging inability to pay dues. The High Court of Delhi served notice in 2014, and subsequent orders indicated an admitted debt or liability. The operational creditor argued that the winding up petition should continue under Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2015, as notice had been served prior to the commencement of the Code.

2. Impact of the Insolvency and Bankruptcy Code, 2016 (the Code) on pending winding up petitions:
The respondent, a financial creditor, filed an insolvency petition under Section 7 of the Code, which was admitted by the NCLT. The appellant's appeal against this order was dismissed by the Appellate Tribunal, which held that the financial creditor's petition was maintainable since no winding up order had been made by the High Court. The respondent argued that the Code's objective to revive corporate debtors would be frustrated if High Court winding up petitions continued. Section 238 of the Code was cited to assert the primacy of insolvency proceedings under the Code over pending winding up petitions.

3. Interpretation of the Companies (Transfer of Pending Proceedings) Rules, 2016 and subsequent amendments:
The judgment reviewed various amendments and rules, including the Companies (Transfer of Pending Proceedings) Rules, 2016, and the Companies (Removal of Difficulties) Fourth Order, 2016. The rules initially transferred winding up petitions where no notice under Rule 26 of the Companies (Court) Rules, 1959, had been served to the NCLT. Subsequent amendments allowed for the transfer of pending winding up petitions to the NCLT to be treated as insolvency petitions under the Code. The court clarified that Rules 26 and 27 referred to pre-admission notices, thus supporting the Bombay High Court's interpretation over the Madras High Court's.

4. Application of Section 11 of the Code regarding eligibility to initiate insolvency proceedings:
Section 11(d) of the Code bars a corporate debtor from initiating insolvency proceedings if a liquidation order has been made against it. The Appellate Tribunal's reliance on Section 11 was deemed incorrect as it does not preclude the filing of an insolvency petition under Sections 7 or 9 until a liquidation order is made. The court emphasized that insolvency proceedings under the Code are independent and must be decided according to its provisions.

5. Jurisdiction and authority of the National Company Law Tribunal (NCLT) versus High Courts:
The court upheld the NCLT's jurisdiction to admit insolvency petitions even when winding up petitions are pending in High Courts. The statutory scheme under the Code and its amendments aimed to centralize insolvency proceedings under the NCLT to avoid parallel proceedings and ensure the objective of corporate debtor resuscitation. The court granted liberty to the appellant to apply for the transfer of the winding up proceeding to the NCLT under the proviso to Section 434 of the Companies Act, as amended in 2018.

Conclusion:
The appeal was dismissed, affirming the NCLT's authority to proceed with the insolvency petition. The appellant was granted the liberty to seek the transfer of the winding up petition to the NCLT, aligning with the Code's objective to centralize and streamline insolvency proceedings. The judgment clarified the interpretation of relevant rules and provisions, emphasizing the primacy of the Code in insolvency matters.

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