2021 (4) TMI 260 - HC - Companies Law

Transfer of proceedings to the National Company Law Tribunal - whether the provisions of the Sick Industries Companies Act (Special Provisions) Repeal Act, 2003, as amended by Section 252 of the Insolvency and Bankruptcy Code, 2016 with effect from 01.12.2016 the date notified for the purpose of Section 4(b) of the Sick Industries Companies Act (Special Provisions) Repeal Act, 2003, can be transferred to the NCLT, at this stage? - HELD THAT - Since the final decision of the matter, either at the hands of this Court or at the hands of the NCLT, even if the proceedings were to be transferred to the NCLT, may take considerably long period from now, no useful purpose will be served by continuing with the aforesaid blanket Status Quo order, which is continuing in this Letters Patent Appeal for the last more than ten years, which, in turn, has not permitted any further negotiations or development or even use of the Assets, as it was informed to us that the production activity of the Respondent No.5 Shree Industries Ltd. is also stopped for the last 8 10 years. This, prima facie, means that while the productive Assets of the Company are going junk because of disuse and no effective resolution of the matter is happening, either by payment to the Secured Creditors and other Creditors nor the Secured Creditors are allowed to take further recovery measures, subject to the rights and contentions of the various parties involved in the matter, therefore, as an interim measure at this stage, it is deemed appropriate to modify the aforesaid blanket Status Quo order - the Respondent No.5 Shree Industries Ltd. and the Respondent No.9 ASREC (India) Ltd., the Assignee of Bank of Baroda and other Secured Creditors, who have not yet been finally settled and paid off by the Respondent No.5 Shree Industries Ltd., are directed to undertake the negotiation process for Settlement of the dues of such Secured Creditors and try to settle the dues of such Secured Creditors in the interregnum period. The matter shall be treated as Part-Heard. Put up on 15.03.2021, as prayed.

Issues Involved:
1. Transfer of winding-up proceedings to the National Company Law Tribunal (NCLT).
2. Application of the Insolvency and Bankruptcy Code, 2016.
3. Status and actions of the Official Liquidator.
4. Sale of assets by Gujarat State Financial Corporation under Section 29 of the State Financial Corporation Act, 1951.
5. Settlement negotiations between Shree Industries Ltd. and secured creditors.
6. Continuation and modification of interim status quo order.

Issue-wise Detailed Analysis:

1. Transfer of Winding-up Proceedings to NCLT:
The court considered the possibility of transferring the winding-up proceedings to the NCLT under the Insolvency and Bankruptcy Code, 2016. The Supreme Court's judgment in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd. was pivotal, establishing that such transfers are permissible unless the winding-up is at an irreversible stage. The court must determine if the proceedings have reached a point where transferring them would set the clock back, which depends on the specific facts and circumstances of each case.

2. Application of the Insolvency and Bankruptcy Code, 2016:
The judgment emphasized the application of the Insolvency and Bankruptcy Code, 2016, particularly its impact on ongoing winding-up proceedings. The Supreme Court's interpretation in various cases, including Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., and Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., clarified that pre-admission winding-up petitions should be transferred to the NCLT for resolution under the Code, while post-admission cases depend on whether irreversible steps have been taken.

3. Status and Actions of the Official Liquidator:
The Official Liquidator was directed to produce the latest status report of the winding-up proceedings of M/s. Ganpati Pulp and Paper Mills Ltd. The court sought detailed information on the current stage of the proceedings to decide whether to remit the matter to the NCLT or continue with the High Court's jurisdiction.

4. Sale of Assets by Gujarat State Financial Corporation:
The sale of the company's assets by Gujarat State Financial Corporation under Section 29 of the State Financial Corporation Act, 1951, without the Company Court's permission, was contested. The court noted that the Official Liquidator had not yet invited claims from other creditors, indicating that the winding-up process was not at an advanced stage.

5. Settlement Negotiations Between Shree Industries Ltd. and Secured Creditors:
The court directed Shree Industries Ltd. and ASREC (India) Ltd., the assignee of Bank of Baroda, to negotiate and attempt to settle the dues of secured creditors. The court modified the interim status quo order to facilitate these negotiations, emphasizing that any settlement reached would be subject to the final decision of the Letters Patent Appeal.

6. Continuation and Modification of Interim Status Quo Order:
The interim status quo order, which had been in place for over ten years, was modified to allow negotiations for settlement between Shree Industries Ltd. and secured creditors. The court recognized that continuing the blanket status quo order was counterproductive, as it hindered negotiations and the productive use of assets. The modification aimed to enable settlement efforts while preserving the rights and contentions of all parties involved.

Conclusion:
The court's judgment meticulously addressed the transfer of winding-up proceedings to the NCLT, the application of the Insolvency and Bankruptcy Code, the role of the Official Liquidator, the contested sale of assets, and the necessity of modifying the interim status quo order to facilitate settlement negotiations. The court's directions aimed to balance the interests of all parties and ensure a just resolution of the winding-up proceedings.

← Previous Next →