2025 (1) TMI 230 - HC - Companies Law

Jurisdiction of High Court to transfer the Company Petition to the National Company Law Tribunal (NCLT) for initiating the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) 2016 - winding-up proceedings makes it appropriate or feasible to transfer the case to the NCLT or not - HELD THAT - This Court passed the winding up order on 21.09.2015 and the Liquidator was appointed. Since, nothing substantial could be achieved towards liquidation of the available assets of debtor company, this Court on the suggestions of stake holders ordered a meeting of Department of State Excise, official Liquidator and Bank of India (lead bank for consortium of creditors). Eventually, the creditors arrived at consensus and this Court passed an order dated 02.08.2019 authorizing Excise and Taxation Department of the State to conduct sale proceedings on the assets of debtor company. In ACTION ISPAT AND POWER PVT. LTD. VERSUS SHYAM METALICS AND ENERGY LTD. 2020 (12) TMI 535 - SUPREME COURT , the power of Company Court to transfer the matters before it dealing with winding up of the companies to NCLT under Section 434(1) (c) of Companies Act, 2013. This Court is having the jurisdiction to transfer Company Petition No.13 of 2014 to NCLT subject, however, to a condition that the winding up proceedings have not reached a stage where it would be irreversible, making it impossible to set the clock back - thus, partial sales of the assets of debtor company have already been made. Noticeably, the third party rights (auction purchaser) have come into being. There are pending issues with respect to confirmation of sales already effected. Conclusion - An irreversible situation has been created as partial sales of assets have been effected and a substantial amount has already been collected, therefore, it will not be in the interest of justice to exercise discretion in favour of the applicant-SBI. Application dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the High Court has the jurisdiction to transfer the Company Petition No.13 of 2014 to the National Company Law Tribunal (NCLT) for initiating the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) 2016.
Whether the current stage of the winding-up proceedings makes it appropriate or feasible to transfer the case to the NCLT.
What constitutes an "irreversible" stage in winding-up proceedings that would prevent the transfer to the NCLT?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction to Transfer to NCLT

Relevant Legal Framework and Precedents: The court refers to Section 434(1)(c) of the Companies Act, 2013, and the judgment in Action Ispat and Power Private Limited vs. Shyam Metalics and Energy Limited, which outlines the discretionary power of the Company Court to transfer winding-up proceedings to the NCLT.
Court's Interpretation and Reasoning: The court acknowledges its jurisdiction to transfer the petition to the NCLT, provided the proceedings have not reached an irreversible stage.
Key Evidence and Findings: The court notes that partial sales of the debtor company's assets have already occurred, and third-party rights (auction purchasers) have been established.
Application of Law to Facts: The court applies the precedent from Action Ispat, considering whether the proceedings have reached an irreversible stage due to asset sales.
Treatment of Competing Arguments: The applicant-SBI argued for the transfer to expedite the resolution process under the IBC. However, the court weighed this against the current status of the asset sales and third-party rights.
Conclusions: The court concludes that the proceedings are at an irreversible stage, thus rejecting the transfer application.

Issue 2: Stage of Winding-Up Proceedings

Relevant Legal Framework and Precedents: The judgment in Action Ispat is pivotal, as it discusses the stages of winding-up proceedings and the conditions under which a transfer to the NCLT is permissible.
Court's Interpretation and Reasoning: The court interprets the "irreversible" stage as one where substantial sales of assets have occurred, making it impractical to revert to an earlier stage.
Key Evidence and Findings: The court finds that significant asset sales have taken place, with substantial amounts already collected, indicating an irreversible stage.
Application of Law to Facts: The court applies the principle from Action Ispat to determine that the proceedings cannot be transferred due to the irreversible nature of the asset sales.
Treatment of Competing Arguments: The court considers the applicant's urgency and the benefits of the CIRP but ultimately prioritizes the current status of the proceedings.
Conclusions: The court concludes that the winding-up proceedings have reached an irreversible stage, and thus, the transfer to the NCLT is not feasible.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in accordance with the provisions of the Code."
Core Principles Established: The discretion to transfer winding-up proceedings to the NCLT is contingent upon the stage of the proceedings. If the proceedings have reached an irreversible stage due to asset sales, the transfer is not permissible.
Final Determinations on Each Issue: The court determined that it has jurisdiction to transfer the petition but concluded that the proceedings have reached an irreversible stage, thus rejecting the transfer application.

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