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TMI Blog2019 (10) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with jurisdiction, unless irrevocable steps towards liquidation have already been undertaken. There is no merit in the submission of the appellant that respondent No.2 not being a party to the winding up petition could not have moved the application for transfer of the proceedings to the NCLT. Firstly, the SBI- Respondent No.2 had moved an application for impleadment. Entertainment of the application of SBI to transfer the proceedings to the NCLT itself shows that the Learned Company Judge impliedly allowed the impleadment application. Appeal dismissed. - Co. App 11/2019 & C.M. No. 31047/2019, C.M. No. 34726/2019 - - - Dated:- 10-10-2019 - MR. VIPIN SANGHI AND MR. SANJEEV NARULA JJ. Appellant Through: Ms. Maneesha Dhir, Ms. Varsha Banerjee, Mr. Kund Godhwani and Mr. Kunal Godwani, Advs. Respondents Through: Mr. Ramji Srinivasan, Sr. Adv. With Ms. Sylona Mohapatra, Mr. R.S. Lakshman, Mr. Sindhu T P, Mr. Ashwini Kumar Singh and Mr. P.V. Dinesh, Advs. for R-2 along with Mr. Kishan Lal, AGM, SBI. Mr. Arjun Nanda and Ms. Shreya Nair, Advs. for Applicant in C.M. No. 34726/19. Mr. J. Amol Anand and Mr. Ytharth Kumar, Advs. for UOI. Mr. Ruchi Sindhwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator within 2 weeks, subject to any further amounts that may be called for by the liquidator for this purpose, if required. The Official Liquidator shall also endeavour to prepare a complete inventory of all the assets of the respondent-company when the same are taken over; and the premises in which they are kept shall be sealed by him. At the same time, he may also seek the assistance of a valuer to value all assets to facilitate the process of winding up. It will also be open to the Official Liquidator to seek police help in the discharge of his duties, if he considers it appropriate to do so. The Official Liquidator to take all further steps that may be necessary in this regard to protect the premises and assets of the respondent-company. 6. List on 09.01.2019. (emphasis supplied) 4. Thus, the Ld. Company Judge directed the O.L. to secure the assets/ books of the appellant and to take a stock thereof. It also directed publication of the citation, to inform the creditors, contributories and all others concerned of their development. However, evidently because the winding up proceedings were still at an early stage, by the order dated 27.08.2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, she submits that the Court had already passed the winding up order . According to the appellant, the company stood wound up, and the company petition could not be transferred to the NCLT. 9. The submission of the appellant is that the winding up proceedings, necessarily, had to continue before the Ld. Company Judge and the Official Liquidator alone has jurisdiction to liquidate the assets of the appellant company and settle the claims of all the creditors and contributors. 10. Reliance has been placed by Ms. Dhir upon the judgment of the Supreme Court in the case of Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd, Civil Appeal No. 818 of 2018 wherein, it had been observed that such proceedings, where only notice has been served, and which are pending in the High Courts can be transferred to NCLT. The relevant extract from this decision relied upon by the appellant reads as follows: 17. .In accordance with this objective, the Rules kept being amended, until finally section 434 was itself substituted in 2018, in which a proviso was added by which even in winding up petitions where notice has been served and which are pending in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion filed by a worker s union, and not in the winding up petition. In the present case, the Ld. Company Judge had already appointed the OL, following which the assets and books of account of the appellant were seized by the OL. Therefore, transfer of the winding up proceedings to the NCLT at this stage would be impermissible. 16. Submissions have been made on behalf of the OL to support the appellant. Learned counsel submits that in Forech India (supra) and Jaipur Metals (supra), no appointment of Liquidators were made, in contrast to the instant case wherein, the OL is in possession of the registered office of the appellant company, the factory premises and all its records/books of account as well. The winding up order is a proceeding in rem, and all creditors are entitled to file their claim before the Liquidator. Transfer at this stage would derail the winding up and dissolution proceedings. Therefore, reliance on these cases by Respondent No. 2 (SBI) is misplaced, since these cases are distinguishable on facts. 17. Emphasis was placed on the word may used in the amended section 434 of the Companies Act whereby, the court may transfer such proceedings when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the High Court . It was further held that, it was open for the Respondent No.3 at any time before a winding up order is passed to apply under section 7 of the Code. Hence, it was clear that unless a final winding up order i.e. an order for dissolution of the company was passed, there was no bar against the proceedings under section 7 of the IBC. 22. Mr. Srinivasan submitted that vide order dated 27.08.2018 the Learned Co. Judge merely admitted the winding up petition, but did not pass a liquidation order. The Liquidator was given only the limited mandate to take over all the assets, book of accounts and records of the Company, to publish citations in newspapers, to prepare a complete inventory of all the assets of the Company, to conduct valuation of the Company and to take steps to protect the premises and assets of the company. Hence, it could be said that no liquidation proceedings had commenced, and the winding up of the company had not been achieved. 23. In order to proceed with the matter, we must take note of the changes brought about by the recent amendments to Company Law and IBC (Code). 24. Section 255 of IBC reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment)Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (31 of 2016). (2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section. 26. Rule 5 of the Companies (Transfer of Pending Proceedings) Rules as amended reads as follows: (5) Transfer of pending proceedings of Winding up on the ground of inability to pay debts.--( 1) All petitions relating to winding up of a company under clause (e) of Section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under Rule 26 of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant company, is much higher and it is their claims which would have to be first met, before turning to the ex-management. More often than not, it is the ex-management of the company under winding up/ liquidation which is responsible for the state of affairs that the company finds itself in. Thus, in our view, when the plea of a creditor particularly the secured creditor, to transfer the proceedings to the NCLT from the Company Court is pitted against the plea of the ex-management not to do so, unless very strong reasons for accepting the plea of the ex-management are brought forth such as a clear statutory bar, the Company Court would lean in favour of transferring the winding up proceedings pending before it to the NCLT. This is also for the reason that the scope of the proceedings before the Company Court after admission of the winding up petition is uni-directional inasmuch, as, the liquidator acts with the mandate of liquidating the assets of the company with a view to satisfy the claims of the secured and other creditors. On the other hand, the NCLT is a specialized body which looks to revive the company, if feasible, and only if the revival of the company is not feasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, i.e. the company of which the winding up is sought under Rule 26 of the Companies (Code) Rules 1959. In such circumstances, the Company Court has no discretion in the matter. 30. But that is not the only category of cases in which the transfer of the winding up petition may be ordered by the Learned Company Judge. The fifth proviso to Section 434(1)(c) shows that the transfer of winding up proceedings to the Tribunal is not restricted only to the situation provided for in Rule 5(1) of the aforesaid Rules. Transfer of the pending winding up proceedings (on whichever ground preferred), could be sought by any party or parties to the proceedings. This itself shows that even the respondent in the winding up proceedings which necessarily would include the company under winding up itself, could move an application for transfer of such proceedings, and if such an application is moved, the Court may by order transfer such proceedings to the Tribunal . Thus, even after service of notice on the respondent/ company in respect of whom the winding up proceedings are filed, an application for transfer is maintainable and the Court may transfer the proceedings to the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the IBC. Even if the Companies Act and the IBC 2016 are considered as special statutes operating in their respective field, we are of the view that the IBC 2016 being later enactment and in view of the statement and objects and the purpose for which it was enacted, the provisions relating to revival/resolution of the company incorporated under Chapter II will have to be given primacy over the provisions of the winding up proceeding pending before the Company Courts which are referred as saved petitions. (emphasis supplied) 34. The object behind introduction of IBC, as well as its special status has been elaborated upon in paragraph 17 of Forech India (supra) as follows: 17. The resultant position in law is that, as a first step, when the Code was enacted, only winding up petitions, where no notice under Rule 26 of the Companies (Court) Rules was served, were to be transferred to the NCLT and treated as petitions under the Code. However, on a working of the Code, the Government realized that parallel proceedings in the High Courts as well as before the adjudicating authority in the Code would stultify the objective sought to be achieved by the Code, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution by way of revival in a manner that benefits all stakeholders, the creditors as well as the company. Thus, the scope of the proceedings before the NCLT is wider with the object of preserving the company and its business/ commercial activities. When transfer of winding up petition can aid in achieving the aforementioned objective, it ought to be allowed in the interest of justice. The court must be sensitive to the scheme and object of the Code; running of parallel proceedings will indeed be futile, create chaos and confusion as held in Jotun (supra). Reliance placed by the appellant on Jotun (supra) is misconstrued, in that it failed to appreciate the true rationale of the case, wherein the court was clearly of the opinion that the parties would benefit from such transfer, and the court would try the petition only if revival efforts by NCLT were unsuccessful. The Court observed in Jotun (supra) as follows: 45. In view of the aforestated reasoning and the case laws cited, we are of the considered opinion that the Company Court while dealing with the winding up petitions (saved petitions) shall have no jurisdiction to stay the proceedings before the NCLT in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to prevent abuse of the process of the court. 38. The Supreme Court in Sudarshan Chits v. Sukumaran Pillai, AIR 1984 SC 1579 has recognized the well settled position that a winding up order once made can be revoked or recalled but till it is revoked or recalled it continues to subsist. This position was also recognized in G.T. Swamy v. M/s. Goodluck Agencies, ILR 1988 KAR 3147. The Karnataka High Court had the occasion to again deal with the aforesaid issue in Government of Karnataka v. NGEF Limited (In Liquidation), 2017 SCC Online Kar 4817. In this case, a winding up order passed 13 years earlier was recalled on 22.06.2017 in the interest of equity and justice by invoking the inherent power of the Court recognized in Rule 9 of the Company Court Rules. The Karnataka High Court held that there is no compulsion in law that the winding up must finally culminate into the dissolution order in all cases. The relevant extract from this decision reads as follows: 20. ..There is no compulsion in law that the winding up order must finally culminate into a Dissolution order in all the cases. If during the process of winding up, the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No.2 not being a party to the winding up petition could not have moved the application for transfer of the proceedings to the NCLT. Firstly, the SBI- Respondent No.2 had moved an application for impleadment. Entertainment of the application of SBI to transfer the proceedings to the NCLT itself shows that the Learned Company Judge impliedly allowed the impleadment application. Respondent No. 2 being the secured creditor of the appellant clearly has a stake in the proceedings for winding up and their impleadment was really a foregone conclusion. Thus, we reject this submission of the appellant. 41. The process under IBC is meant to find the best possible solution in a given case, which is beneficial to the company concerned as well as its creditors and other stakeholders. Therefore, in the interest of equity and justice, and keeping in mind the special nature of the IBC, if the Learned Company Judge has found it fit to transfer the winding up petition to NCLT on the application of respondent No. SBI who is a secured creditor, this Court would not ordinarily interfere with the judgment of the Learned Company Judge, and that too, on the asking of the erstwhile manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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