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2020 (11) TMI 587 - SC - Companies LawLiquidation proceedings - Scope of the term Party - Transfer the winding up petition pending to the National Company Law Tribunal - circumstances under which a winding up proceeding pending on the file of a High court could be transferred to the NCLT - at whose instance, such transfer could be ordered? - HELD THAT - The transferability of a winding up proceeding, both under Rule 5 as well as under Rule 6, is directly linked to the service of the winding up petition on the respondent under Rule 26 of the Companies (Court) Rules, 1959. If the winding up petition has already been served on the respondent in terms of Rule 26 of the 1959 Rules, the proceedings are not liable to be transferred. But if service of the winding up petition on the respondent in terms of Rule 26 had not been completed, such winding up proceedings, whether they are under Clause (c) of Section 433 or under Clauses (a) and (f) of Section 433, shall peremptorily be transferred to the NCLT. Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules 2016, fix the stage of service of notice under Rule 26 of the Companies (Court) Rules, 1959, as the stage at which a winding up proceeding can be transferred. This is because the first proviso under Clause (c) of Subsection (1) of Section 434 enables the Central Government to prescribe the stage at which proceedings for winding up can be transferred and subsection (2) of section 434 confers rule making power on the Central Government. The right to invoke the 5th proviso is specifically conferred only upon the parties to the proceedings. Therefore, on a literal interpretation, such a right should be held to be confined only to the parties to the proceedings. Who are the parties to the winding up proceedings? - HELD THAT - The Companies Act, 1956 does not define the expression party . The Companies (Court) Rules, 1959 also does not define the expression party . The Companies Act 2013 does not define the expression party . The Companies (Transfer of pending proceedings) Rules, 2016 also does not define the expression party . Even the IBC, 2016 does not define the expression party . Thus, the proceedings for winding up of a company are actually proceedings in rem to which the entire body of creditors is a party. The proceeding might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition. The official liquidator acts for and on behalf of the entire body of creditors. Therefore, the word party appearing in the 5th proviso to Clause (c) of Subsection (1) of section 434 cannot be construed to mean only the single petitioning creditor or the company or the official liquidator. The words party or parties appearing in the 5th proviso to Clause (c) of Subsection (1) of Section 434 would take within its fold any creditor of the company in liquidation. The petitioner herein will come within the definition of the expression party appearing in the 5th proviso to Clause (c) of Subsection (1) of Section 434 of the Companies Act, 2013 and that the petitioner is entitled to seek a transfer of the pending winding up proceedings against the first respondent, to the NCLT - the impugned order is set aside and the proceedings for winding up pending before the Company Court (Allahabad High Court) against the first respondent herein, is ordered to be transferred to the NCLT - Appeal allowed.
Issues Involved:
1. Circumstances under which a winding up proceeding pending on the file of a High Court could be transferred to the NCLT. 2. At whose instance such transfer could be ordered. Issue-wise Detailed Analysis: 1. Circumstances Under Which a Winding Up Proceeding Pending on the File of a High Court Could Be Transferred to the NCLT: The judgment discusses the legislative framework governing the transfer of winding up proceedings from High Courts to the NCLT. Initially, it highlights that the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016 (IBC), along with subsequent amendments, provide the legal basis for such transfers. Section 434 of the Companies Act, 2013, as substituted by the IBC, 2016, and further amended, is pivotal in this context. Section 434(1)(c) and its provisos, particularly the first proviso, restrict the transferability of winding up proceedings to those at a stage prescribed by the Central Government. The Companies (Transfer of Pending Proceedings) Rules, 2016, issued under Section 434(2), categorize winding up proceedings into three types: voluntary winding up, winding up on the ground of inability to pay debts, and winding up on other grounds. Rule 5 specifically deals with the transfer of proceedings for winding up on the ground of inability to pay debts, stating that such petitions pending before a High Court, where the petition has not been served on the respondent under Rule 26 of the Companies (Court) Rules, 1959, shall be transferred to the NCLT. Rule 6 addresses the transfer of proceedings for winding up on grounds other than inability to pay debts, with similar conditions regarding the stage of service under Rule 26. The judgment clarifies that the stage of service of the winding up petition on the respondent, as per Rule 26, is crucial for determining transferability. If the petition has been served, it is not liable to be transferred; if not, it must be transferred to the NCLT. 2. At Whose Instance Such Transfer Could Be Ordered: The judgment delves into the interpretation of the fifth proviso to Section 434(1)(c), which allows for the transfer of winding up proceedings at the instance of "any party or parties to any proceedings." The court emphasizes that the term "party" is not explicitly defined in the Companies Act, 1956, the Companies Act, 2013, the Companies (Court) Rules, 1959, the Companies (Transfer of Pending Proceedings) Rules, 2016, or the IBC, 2016. However, the judgment interprets the term "party" broadly, considering the nature of winding up proceedings as proceedings in rem, which involve the entire body of creditors. It references several provisions of the Companies Act, 1956, that imply the involvement of all creditors and contributories in winding up proceedings. For instance, Section 447 of the 1956 Act (equivalent to Section 278 of the 2013 Act) treats any petition by a single creditor or contributory as a joint petition of creditors and contributories. Additionally, creditors have various rights under Sections 454(6), 457(3), 460(6), and 466(1) of the 1956 Act, indicating their status as parties to the proceedings. The court concludes that the term "party" in the fifth proviso includes any creditor of the company in liquidation, thereby allowing such creditors to seek the transfer of winding up proceedings to the NCLT. This interpretation aligns with the objective of the IBC to avoid parallel proceedings in different fora, which could undermine the insolvency resolution process. Conclusion: The appeal is allowed, and the impugned order of the High Court is set aside. The proceedings for winding up pending before the Company Court (Allahabad High Court) against the first respondent are ordered to be transferred to the NCLT, to be taken up along with the appellant's application under Section 7 of the IBC. The judgment underscores that the restriction under Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016, relating to the stage of transfer, does not apply to transfers sought under the fifth proviso to Section 434(1)(c).
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