2022 (7) TMI 315 - HC - Companies Law

Seeking to transfer of proceedings relating to winding-up of a company to the NCLT - seeking appropriate directions for the Official Liquidator to handover the possession of the mortgaged properties of the company (in liquidation) to the applicant - transfer of pending proceedings as well - 5th proviso of the newly amended Section 434 (1) (c) of the Companies Act, 2013 - HELD THAT - In the newly introduced Insolvency regime and after the amendments to the Act, there is a radical change in the approach whilst dealing with companies in liquidation. It is true that there is no automatic transfer of all proceedings pending for winding-up of a company to the NCLT. In fact, there is an element of discretion which the Company Court retains in respect of pending winding-up proceedings even post amendment. However, such discretion has to be exercised in the facts and circumstances of each case. The sole test laid down in the decision of Action Ispat 2020 (12) TMI 535 - SUPREME COURT as followed in A. Navinchandra Steels (P) Ltd. 2021 (3) TMI 38 - SUPREME COURT is whether an irreversible situation has arisen warranting the Court to stay its hands and not transfer the proceeding to the NCLT. There are no facts whatsoever which justify the conclusion of an irreversible situation having arisen in the facts of the case. The company was directed to be wound-up on the 6th March, 2017. Thereafter, one of the contributories, namely Indo Wagon Engineering Ltd. had obtained diverse orders from Court whereby they continued to be in possession of the assets of the company (in liquidation). Admittedly, till date there is no scheme for repayment of the outstanding dues of the creditors which has been framed. There are no merit in the objection raised by the contributory that a petition under Section 7 and Section 9 of the Insolvency and Bankruptcy Code 2016 (the Code) should be pending before the NCLT, prior to directing transfer of the winding-up proceedings to the NCLT. Neither is this legislative intent nor is this pre-condition borne out from the language of the newly amended section. Accordingly, there are no merit in this submission and the same is rejected - also there are no merit in the submission that the fact that some moneys have been paid by the contributory would create an irreversible situation which justifies these proceedings being transferred to the NCLT. None of these grounds make it impossible to set the clock back compelling the Company Court to proceed which the winding-up of the company instead of transferring the proceeding to the NCLT. All such issues can always be decided by the NCLT during the course of winding-up. Hence, there is no impossible situation arisen which justifies this Court retaining this winding-up proceeding. It is to be remembered that, the jurisdictional change brought about in the amended Section 434 (1) (c) makes it clear that it is now obligatory for the Court (in the absence of any irreversible or exceptional circumstances) to transfer the proceedings to the NCLT. This is the clear legislative intent. In fact, to continue with the winding-up proceedings in the absence of an irreversible situation would tantamount to committing a jurisdictional error. The decision relied on by the contributory, UNION OF INDIA VERSUS AMRIT LAL MANCHANDA 2004 (2) TMI 361 - SUPREME COURT is distinguishable and inapplicable to the facts of this case. It is directed that this Company Petition being CP No. 387 of 2014 and all applications filed therein stand transferred forthwith to the National Company Law Tribunal Kolkata - application allowed.

Summary

Issues Involved:
1. Entitlement of a secured creditor to seek transfer of winding-up proceedings to the NCLT.
2. The applicability of the amended Section 434 (1) (c) of the Companies Act, 2013.
3. Whether an irreversible situation has arisen justifying the retention of jurisdiction by the High Court.
4. The role and actions of the Official Liquidator and contributory in the winding-up process.
5. The relevance of pending applications and schemes for repayment of creditors.
6. Legislative intent and judicial discretion in transferring proceedings to the NCLT.

Detailed Analysis:

1. Entitlement of a Secured Creditor to Seek Transfer:
The secured creditor, Edelweiss Asset Reconstruction Company Ltd., filed an application under the 5th proviso of the newly amended Section 434 (1) (c) of the Companies Act, 2013, seeking transfer of the winding-up proceedings of Jessop & Company Ltd. to the NCLT. The applicant argued that as a secured creditor, they are entitled to apply for such transfer, emphasizing that a secured creditor may stand outside the winding-up proceeding and still realize its security. This position is supported by precedents such as M.K. Ranganathan Vs. State of Madras and Food Controller Vs. Cork.

2. Applicability of Amended Section 434 (1) (c):
The amended Section 434 (1) (c) allows any party to the winding-up proceedings to apply for their transfer to the NCLT. The court noted that the legislative intent behind this amendment is to facilitate the transfer of such proceedings to the NCLT unless an irreversible situation has arisen. The court cited the Supreme Court's decision in Action Ispat & Power (P) Ltd. vs. Shyam Metalics & Energy Ltd., which clarified that winding-up proceedings should be transferred to the NCLT unless irreversible steps have been taken.

3. Irreversible Situation Justifying Retention of Jurisdiction:
The court examined whether any irreversible situation had arisen that would justify retaining jurisdiction. It was found that no significant steps had been taken by the Official Liquidator to sell the assets of the company, and no scheme for repayment of creditors had been framed. The court concluded that no irreversible situation had arisen, thus supporting the transfer of proceedings to the NCLT.

4. Role and Actions of the Official Liquidator and Contributory:
The contributory, Indo Wagon Engineering Ltd., argued against the transfer, citing payments made to security agencies and pending applications as irreversible steps. However, the court found that the Official Liquidator had not taken any substantial steps towards winding up the company, and the contributory's actions did not create an irreversible situation.

5. Relevance of Pending Applications and Schemes for Repayment:
The contributory's argument that the NCLT lacks the power to consider schemes for repayment was rejected. The court clarified that under Section 230 (1) of the Companies Act, a Scheme of Compromise and Arrangement can be submitted to the NCLT. The court also dismissed the argument that pending applications under Section 466 of the Act and for framing a scheme should prevent the transfer.

6. Legislative Intent and Judicial Discretion:
The court emphasized that the legislative intent of the amended Section 434 (1) (c) is to transfer winding-up proceedings to the NCLT unless exceptional circumstances exist. The court retained discretion but noted that in this case, no exceptional or irreversible circumstances justified retaining jurisdiction. The court referenced the decision in Maheswary Ispat Ltd. and Alaknanda Sponge Private Limited vs. Official Liquidator, which highlighted the legislative intent to transfer proceedings to the NCLT to prevent parallel proceedings and resuscitate corporate debtors.

Conclusion:
The court directed that the Company Petition (CP No. 387 of 2014) and all related applications be transferred to the NCLT, Kolkata Bench, rejecting the objections raised by the contributory. The court allowed CA No. 12 of 2022 and disposed of the records of the High Court concerning this case. The decision underscores the legislative intent to transfer winding-up proceedings to the NCLT and the absence of any irreversible situation justifying the retention of jurisdiction by the High Court.