2022 (9) TMI 1350 - HC - Companies Law

Seeking to transfer of the Company Petition to the National Company Law Tribunal (NCLT) for being heard and decided in accordance with the provisions contained in Insolvency and Bankruptcy Code, 2016 (IBC) - alleged malafide conduct of the ex-directors of Futura - Section 434 of the Companies Act, 2013 - HELD THAT - Commitments and undertakings were made on umpteen occasions to be observed in breach. Simply, it cannot be urged that Futura and its ex-directors had no adequate opportunity to make amends. Thus, the touchstone, on which irreversibility is to be judged, is also indicated by observing that so long as no actual sale of the immovable or movable assets of the company in liquidation takes place, nothing irretrievable can be said to have been done which would preclude the Company Court from exercising discretion to transfer the proceedings to NCLT - the Company Court called upon to exercise the discretion has to pose unto itself a question; whether the winding up proceedings have progressed to such a stage of irreversibility as to render it impossible to set the clock back ? If the answer is in the negative, the transfer of the proceedings to NCLT would be in furtherance of the intent of the legislature. The conduct attributed to the ex-directors, prima facie borne out from the record, can certainly be not said to be unblameworthy. Surely, the conduct of the parties must enter into judicial determination while exercising discretion - The conduct of the parties to proceedings or for that matter, the ex-directors of the company, may not always be of determinative significance. When a situation comes to such a pass that the Company Court considers it appropriate to order winging up of a company, more often than not, such a situation would be brought about by mismanagement and improper conduct of the persons who were in charge of the affairs of the company or, in the least, imprudent decisions. Thus, to urge that such conduct of the parties should dissuade the Court from exercising the discretion, would deprive the creditors, contributors and other stake holders from the benefits which the insolvency resolution process under IBC affords. While ordering transfer of the winding up proceedings to NCLT, there does not seem to be a prohibition for continuing the position as it obtains in the winding up proceedings before the Company Court as an interim measure, till the time NCLT passes an appropriate order under Section 13 of IBC. Lest the interest of the company and all the stake holders would be a casualty, especially in a case like the present one, where the instantaneous setting aside of the order of winding up and putting the ex-directors again at the helm of the affairs of the company is fraught with imminent risk. It is directed that the winding up order would continue to operate despite the transfer of the proceedings to NCLT till an effective order is passed by NCLT under Section 13 of the IBC and only, thereafter, the Official Liquidator would stand discharged - Interim Application stands allowed.

Summary

Issues Involved:
1. Application for transfer of Company Petition to NCLT under Section 434 of the Companies Act, 2013.
2. Conduct of ex-directors in disposing of company assets post-winding up order.
3. Irreversibility of actions taken by the Official Liquidator.
4. Consideration of revival of the company under IBC.

Detailed Analysis:

1. Application for Transfer to NCLT:
The Applicant, a former Managing Director of Futura Polyesters Limited (Futura), sought the transfer of the Company Petition to the National Company Law Tribunal (NCLT) under Section 434 of the Companies Act, 2013. The goal was to explore the revival of the company under the Insolvency and Bankruptcy Code (IBC), 2016. The Applicant argued that the NCLT has broader powers under IBC to revive the company, which the Company Court lacks in a winding-up petition.

2. Conduct of Ex-Directors:
The Official Liquidator opposed the transfer, highlighting the malafide conduct of the ex-directors of Futura. Despite knowing the winding-up process was in effect, the ex-directors disposed of company assets without informing the Official Liquidator, violating Section 436(2) of the Companies Act, 1956. The Official Liquidator emphasized discrepancies in disclosures about the number of plots sold and misuse of sale proceeds, leading to a complaint with the CBI and registration of an FIR against the ex-directors.

3. Irreversibility of Actions by Official Liquidator:
The Applicant contended that the steps taken by the Official Liquidator, such as taking symbolic and physical possession of the office premises, did not constitute irreversible actions. The Official Liquidator argued that the transfer should be declined due to irreversible steps and the Applicant's conduct. However, the Court noted that no actual sale of assets had occurred, and the Official Liquidator had not invited claims from creditors or workers, implying that irreversible actions had not been taken.

4. Revival of the Company under IBC:
The Court acknowledged the Supreme Court's judgment in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd., which allows the transfer of proceedings to NCLT even post-admission of a winding-up petition, provided no irreversible actions have been taken. The Court emphasized the beneficial objective of IBC to revive corporate entities and considered the substantial assets still held by Futura, which could facilitate a successful resolution process under IBC.

Conclusion:
The Court allowed the transfer of the Company Petition to NCLT, Mumbai, to be treated as an application for initiation of the corporate insolvency resolution process under IBC. The winding-up order dated 22nd June 2018 was recalled but would continue to operate until NCLT passed an effective order under Section 13 of IBC. The Official Liquidator would be discharged only after such an order. The Court clarified that the transfer order would not affect ongoing criminal proceedings against the ex-directors or the rights and liabilities of the parties involved.