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2021 (7) TMI 1067 - HC - Companies LawValidity of one time settlement - hurried settlement - auction price converted to term loan - various aspects ignored in winding up proceedings - petitioners herein are guarantors of the default unit M/s Ganpati Pulp and Paper Mills Ltd. - HELD THAT - The hurried One Time Settlement of GSFC with SIL in favour of which even the major part of the auction price was converted into a term loan by GSFC and in the repayment of which, SIL defaulted, still instead of again taking over the assets and re-auctioning them, GSFC chose, for the reasons best known to it to enter into One Time Settlement with SIL at a mere ₹ 60 lakhs and that is a matter to be looked into by the NCLT. The said SIL is also said to have stopped its production activities and the assets of GPPML sold to it under Section 29 way back in the year 1990 are still in disuse or are not being used for any productive activity and that is not only a wastage of assets for the creditors and other stakeholders, but also a national waste. All these aspects cannot obviously be looked into by this Court in writ jurisdiction or even a winding-up Court while seized of the winding-up proceedings, but a Special Body like NCLT can definitely look into all the aspects of the matter as it is vested with the powers of CIRP (Corporate Insolvency Resolution Process) as enacted in the provisions of IBC, 2016, as defined in Chapter-2, Sections 6 to 32A of the IBC, 2016. In the inherent plenary jurisdiction under Article 226 of the Constitution of India read with Clause 15 of the Letters Patent vested in us, while deciding the present Letters Patent Appeal and Special Civil Application No.11116 of 2008, we are therefore of the considered opinion that entire litigation of these two corporate bodies viz. GPPML and SIL deserves to be decided by the NCLT by examining the claims, counter-claims, defences and other relevant aspects of all the parties involved in the matter afresh in respect of both the corporate entities in question GPPML SIL without being influenced by any observations made by any Forum below or OTS Settlement by GSFC SIL nor such transfer of proceedings depends upon filing of the application by any party - the development of new law in the form of IBC is an opportunity for all these stakeholders to get their claims adjudicated and corporate insolvency resolved in a best appropriate manner on the Forum of NCLT which is the most competent body under the law as available now for these issues. The learned Company Judge, who is seized of the winding-up proceedings of Company Petition No.139 of 1985 are requested to consider all the relevant aspects of the matter and then take appropriate decision in the matter to transfer the winding-up proceedings to NCLT, Ahmedabad Bench - petition disposed off.
Issues Involved:
1. Locus standi of the petitioners to challenge the One Time Settlement (OTS) between GSFC and SIL. 2. Validity of the auction and subsequent settlement under the SFC Act. 3. Jurisdiction and appropriateness of the High Court under Article 226 to adjudicate the complex financial disputes. 4. Applicability of the Insolvency and Bankruptcy Code (IBC), 2016, and the role of the National Company Law Tribunal (NCLT). Detailed Analysis: 1. Locus Standi of the Petitioners: The petitioners, who are guarantors-shareholders of the defaulter company (GPPML), challenged the OTS between GSFC and SIL. The learned Single Judge dismissed the writ petition, stating that the petitioners failed to establish their locus standi. The court noted that the petitioners could not demonstrate how their rights, especially their fundamental rights, were violated by the settlement. It was held that the rights and liabilities of the original debtor and guarantors were crystallized in 1990 when the auction sale occurred, and the subsequent settlement did not affect the petitioners' rights. 2. Validity of the Auction and Subsequent Settlement: The auction of GPPML’s assets was conducted under Section 29 of the SFC Act, and the sale was made to SIL for ?3.88 crores. The petitioners did not challenge this auction at the relevant time. GSFC later entered into an OTS with SIL, which was challenged by the petitioners. The court found that the OTS was a policy decision justified by the circumstances, including the financial position of GSFC and the depreciating value of the assets. The court also noted that the petitioners had no standing to challenge the OTS as it did not affect their crystallized liabilities from 1990. 3. Jurisdiction and Appropriateness of the High Court under Article 226: The court observed that the complex financial disputes involving multiple parties and detailed financial assessments were not suitable for adjudication under Article 226 of the Constitution. The court emphasized that the NCLT, established under the IBC, 2016, is the appropriate forum for such disputes. The court referred to the Supreme Court’s judgment in Action Ispat and Power Private Limited vs. Shyam Metalics and Energy Limited, which supports the transfer of such cases to the NCLT unless the winding-up proceedings have reached an irreversible stage. 4. Applicability of the IBC, 2016, and the Role of the NCLT: The court highlighted the evolution of insolvency laws and the establishment of the NCLT as a specialized body to handle insolvency and bankruptcy matters. Given the pending claims and the stage of the winding-up proceedings, the court found it appropriate to transfer the matter to the NCLT. The court noted that the NCLT is equipped to handle the claims, counterclaims, and defenses of all parties involved, ensuring a comprehensive resolution of the insolvency issues. Conclusion: The High Court disposed of the Letters Patent Appeal and the Special Civil Application, recommending the transfer of the winding-up proceedings to the NCLT. The court emphasized that the NCLT is the appropriate forum to adjudicate the complex financial disputes and insolvency issues, ensuring a fair and efficient resolution. The court left the merits of the claims and counterclaims to be decided by the NCLT, thereby facilitating a specialized and focused adjudication process.
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