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TMI Blog2019 (12) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... utta, Mr. Ajay Sankar Sanyal, Ms. Shreyasi Sanyal, Mr. Sanket Sarawgi, Mr. A. K. Upadhyay, Ms. Anuradha Sengupta, Ms. U. Chakraborty, Mr. Chayan Gupta, Mr. Soumyajyoti Nandy, Ms. Shreeradha Ghosh, Mr. Sajjan Kumar Kasera Advocates . For other applicants ORDER Arindam Mukherjee, J. 1) C.P 1 of 2016 is a creditor's winding up petition (hereinafter referred to as the said petition) made under the provisions of section 433(e) of the Companies Act, 1956 (in short "Act of 1956"). The said petition was filed on or about 4th January, 2016 and was directed to be served by an order dated 14th January, 2016. By an order dated 24th February, 2016, the direction for exchange of affidavits in the said petition was given. 2) The said petition was admitted for a sum of Rs. 73,95,617/- by an order dated 1st December, 2017 against Avani Projects & Infrastructure Ltd. (hereinafter referred to as the said Company). Three weeks' time from the date of the said order was granted to the said Company to pay off the amount for which the petition was admitted failing which the petition was directed to be advertised. The Company failed to pay the said sum of Rs. 73,95,617/- or any part thereof within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution plan. 6) It appears that the said application was filed on 14th March, 2018 and the order was passed after a year when Section 7(4) of IBC provides for appointment of IRP within 14 days from the date of receipt of an application under Section 7(2) of IBC. The said order was also passed by NCLT at such delayed stage with the specific knowledge of appointment of Provisional Liquidator by this Court at least 6 months before. The relevant portion of the said order is set out hereunder:- "3. The Corporate Debtor appeared in this proceeding through one of its directors Mr. Bhaskar Biswas. He filed affidavit-in-reply. The main defence raised is that Hon'ble Calcutta High Court by order dated 14.01.2016, admitted the Petition of winding up of the Corporate Detor filed by one of its other creditors. Hon'ble Calcutta High Court also appointed Provisional Liquidator. The Corporate Debtor is restrained from dealing in any manner with any of its assets. Hence, this application under Section 7 of Insolvency and Bankruptcy Code is not maintainable." The application being C.A No.92 of 2019 (hereinafter referred to as the said application) is an application filed by the IRP praying for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 121 (SC) are relied on to support the maintainability of their application before NCLT. Relying upon those two judgments, it is further submitted that this Court cannot stay the implementation of the order passed by the NCLT and the said petition cannot be proceeded with any further in view of the provision of section 238 of IBC. The proceedings before the NCLT should continue. It is further submitted that until a liquidation order has been made against the said Company, an insolvency petition maybe filed under section 7 of the IBC which being an independent proceedings must be decided in accordance with the provisions of IBC. It will be more beneficial if, the winding up proceedings pending before this Court be transferred to the NCLT, which can be treated as proceedings under section 9 of IBC and further proceeded with before the NCLT, instead of keeping the same stayed and retained in this Court. 8) After adopting the submissions made on behalf of Devi Trading, it is submitted on behalf of some of the creditor supporting the action of Devi Trading that the winding up petition cannot be proceeded with any further after the passing of an order by NCLT under the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjudicating authority under the IBC stand admitted." 9) On behalf of State Bank of India, a secured creditor of the said Company, who has initiated action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act) in respect to one of the projects of the said Company, submits that the application of Devi Trading under the provisions of section 7 of IBC was filed on 14th March, 2018 that is much prior to 7th September, 2018 when the Provisional Liquidator was appointed. In that view of the matter, the provisions of section 446 of the Act of 1956 has no manner of application in the instant case. No leave was required to be obtained from this Court under the provisions of section 446 of the Act of 1956 prior filing of the application under section 7 of IBC. The order dated 13th March, 2019 passed by the NCLT is, therefore, a valid order and should be honoured. Furthermore, paragraph 19, 20, 21 and 22 of the judgment in Forech India Ltd.(supra) is relied on for the proposition that the proceedings under section 7 of IBC is an independent proceedings, which has to be brought to a logical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p situation. 11) To counter the arguments made on behalf of the Devi Trading and the creditors supporting Devi Trading, it is submitted by the other set of creditors opposing Devi Trading that the Division Bench judgment of this Court in Impex Ferro Tech Limited (supra) while hearing an appeal from rejection of an application seeking transfer of winding up petition to the NCLT clearly held that a case analysis on the grounds of balance and convenience and the like to be undertaken by the Company Court before directing or refusing to direct the transfer of any pending proceedings. The Company Court is also required to be satisfied that the proceedings under IBC are firmly in place before transferring a pending creditor's or like petition under Clauses (a) and (f) of Section 433 of the Act of 1956 to the Tribunal in terms of the second proviso to Section 434(1)(c) of the Act of 2013. It is submitted that Devi Trading after filing the said application has, in fact, applied under IBC before NCLT for withdrawal of its petition. It is at the instance of a creditor who opposed the withdrawal of the said application, the said application is kept pending under IBC before the NCLT. This in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Industrial and Financial Reconstruction (in short BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (in short SICA) and it was not a creditors winding up petition, the savings of the two types of petitions are under two different rules of the 2016 Rules. Rule 5(2) of the 2016 Rules relating to initiation of winding up on recommendation of BIFR has been subsequently repealed, however, Rule 5(1) and 6 of the 2016 Rules in respect of creditor's winding up petition is still retained. The ratio decidendi of Forech India Ltd. (supra) cannot be applied to the instant case as there has been no focused argument and consequent discussions regarding creditor's winding up petition in Forech India Ltd. (supra). They rely upon the judgment reported in (2018) 2 SCC 39 (Union of India & Anr. vs. Pfizer Limited & Ors.) and in particular paragraph 18 thereof. In respect of Jaipur Metals (supra) the said creditors submit that the background under which the winding up petition was initiated was again the recommendation of BIFR and in a workers' writ petition the provisional liquidator was appointed to value the assets of the Company. The ratio of the said judgment is also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Supreme Court, the Provisional Liquidator had been appointed and as such the rigours of the provisions of section 446 were not present in those two cases. In the instant case, in view of the provisions of section 446 of the Act of 1956, it is mandatory for any creditor to either file or to continue with any legal proceedings to obtain leave from this Court in terms of the said provision. A proceeding under section 7 of IBC may be an independent proceeding but for the want of leave under the provisions of section 446 of the Act of 1956, no order could have been obtained or passed in an application under the IBC. There is as such no scope of the winding up petition to be stayed or transferred before NCLT. No question as to the discharge of the Provisional Liquidator also arise in the facts of the instant case. With regard to the applications filed by intending purchasers or the application for leave to proceed with the suit, it is submitted that NCLT in any event, does not possess the jurisdiction and competence to receive, entertain and try such applications. 13) The creditors supporting Devi Trading in reply submitted that the insolvency proceedings before the NCLT is firmly pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no manner of application to the instant case. The winding up proceedings should either be transferred to NCLT or the same should remain stayed till the insolvency proceedings is brought to a logical conclusion before the NCLT as held in Forech (supra). 14) Before I proceed to deal with the relief claimed in the said application, I shall indicate the changes brought in to the legal field in the recent times which are apt mentioning:- i. The Act of 1956 was enacted to consolidate the law relating to companies and certain associations subsequently, the Act of 1956 was amended from time to time to keep pace with time. With the passage of time, due to changes in national and international economic environment, expansion and growth of economy of our country it was found difficult to retain the Act of 1956 by making amendments thereto. It was thus required to be replaced. The Act of 2013 is such replacement. The object of the Act of 2013 is the same that of the Act of 1956. ii. The Act of 1956 has been repealed by Section 465 of the Act of 2013. The proviso to Section 465 of the Act of 2013, however, provide that until a date is notified by the Central Government under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original provisions of Section 271 of the Act of 2013 by a new one with effect from 15th November, 2016. The creditor's winding up was provided in the original Section 271(2) which is no more there in the substituted Section 271 of the Act of 2013. Though just an equitable ground provided in Section 434 (f) of the Act of 1956 has been retained as Section 271(e) but by specifying the persons who are entitled to file a winding up before the Tribunal, the creditors of the company have been eliminated from coming within that domain. vi. On 28th May, 2016, the IBC came into operation. However, all the provisions of IBC were not made operational on and from 28th May, 2016. They were made operational subsequently in phasewise manner. The object of IBC is to consolidate and amend the laws relating to insolvency and bankruptcy. Its main aim is reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons to promote entrepreneurship, availability of credit and balance the interest of shareholders including alteration of priority of payment of Government dues and to establish an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than inability to pay debts. - All petitions filed under clauses (a) and (f) of Section 433 of the Companies Act 1956 pending before a High Court and where the petition has not been served on the respondent as required under Rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013)". By an amendment dated 29.06.2017, Rule 5 was then substituted 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 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 (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of Section 419 of the Companies Act, 2013 exercising territorial jurisdiction and such petitions shall be treated as applications under Sections 7, 8 or 9 of the Code, as the case may be, and dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G: Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government]. At the time when Act of 2013 repealed the Act of 1956, "Tribunal" referred to in the Act of 1956 meant Company Law Board (in short CLB) subsequently, the CLB gave away to NCLT constituted in terms of the Act of 2013. 446. Suits stayed on winding up order. - (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the [Tribunal] and subject to such terms as the [Tribunal] may impose. (2) [The Tribunal] shall, notwithstanding anything contained in any other law for the time being in force, have jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the copy of the petition to the company by registered post. (2) Every petition and, save as otherwise provided by these rules or by an order of Court, every application, shall unless presented by the company, be served on the company at its registered office, or if there is no registered office, at its principal or last known principal place of business, by leaving a copy thereof with an officer or employee of the company, and in case no such person is available, in such manner, as the Judge or registrar may direct, or, by sending a copy thereof by prepaid registered post addressed to the company at its registered office, or, if there is no registered office, at its principal or last known principal place of business, or to such person and at such address as the Judge or registrar may direct. Where the company is being wound-up the petition or application shall also be served on the liquidator, if any, appointed for the purpose of winding-up the affairs of the company. R. 29. Petitioner to effect service. - Save as otherwise provided by these rules and subject to any directions of the Judge or Registrar, the petitioner, applicant or any other person having the conduct of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer: Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government: [Provided further that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal]: [Provided also that - ] (i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or (ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts, shall be dealt with in accordance with provisions of the Companies Act, 1956 an the Companies (Court) Rules, 1959:] [Provided also that proceedings relating to cases of voluntary winding up of a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Eleventh Schedule". 16) After hearing the parties, considering the materials on record and the provisions of law referred to by them, the following questions arise which needs to be answered for complete adjudication of the said application though the prayer in the said application is for release of the Official Liquidator appointed as Provisional Liquidator and handing over of the assets and books of the said Company to the IRP:- i) Does this Court retain jurisdiction to hear the winding up petition being CP 1 of 2016 and the connected applications thereto? If so, what are the provisions of law applicable to adjudicate the said petition? ii) Should the Provisional Liquidator be released/discharged and directed to make over possession of the properties and assets, books of accounts of the said Company in his possession to the IRP appointed by NCLT? iii) Should further hearing of the winding up petition (C.P 1 of 2016) along with all connected applications be stayed? iv) Should the winding up petition along with all connected applications be transferred to NCLT to be further heard by it? Does NCLT have the jurisdiction to hear out the petitions filed by the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, this Court thus retains the jurisdiction to hear out the said petition and on 1st December, 2017 with the admission of the said petition coupled with advertisement thereof the same assumed a representative capacity. c) Having considered the judgments in Jaipur Metal (supra), I find that the winding up proceedings being the subject matter in the said judgment was initiated under the recommendation BIFR. It does not relate to a creditor's winding up petition. Forech (supra) deals with a case where an "Operational Creditor" filed a winding up petition before the Company Court which was a saved petition. Subsequently another creditor filed an application under section 9 of the IBC which was later on withdrawn. Thereafter an application under section 7 of IBC was filed before NCLT. In the context of the saved petition and section 7 application under IBC it was held that proceedings before NCLT under IBC is an independent proceeding and has to be brought to a logical conclusion and till such time the winding up petition should not be proceeded with. Neither of these judgments say that the High Court does not have jurisdiction to deal with saved petitions. The legislative intent is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing independent and should be brought to a logical conclusion. If "logical conclusion" is interpreted as to the liquidation of a company on failure of a resolution plan then retention of a saved petition before Company Court becomes inconsequential. This cannot also be the legislative intent otherwise there was no need to create a separate category of winding up petitions like the saved petition. Considering the said judgment and the legal provisions, my interpretation as to bring a logical conclusion will mean up to the stage of either acceptance or rejection of the resolution plan. This view is supported by the fact that unlike IBC, the Act of 1956 in itself does not contain any provision for revival of the company being a default in paying its debts. Courts have devised the mechanism of approving a scheme for its operation and revival. IBC has a separate chapter for making an attempt to revive the company at the first instance before sending it to liquidation. f) Jotun India (supra) on the other hand deals with a creditor's winding up petition and discusses issues more similar to those which are subject matter of the instant case. The view of NCLAT also appears to vacillate w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Company being wound up, the distribution of proceeds of sale of the assets, held at the instance of the Financial Institutions coming under the RDB Act or the State Financial Corporation Act (in short SFC Act) can only be with the association of the Official Liquidator and under the supervision of Company Court. In paragraph-18 of the said report, the Hon'ble Supreme Court has summarised the legal position. "(i) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him. (ii) A District Court entertaining an application under Section 31 of the SFC Act will have the power to order sale of the assets of a borrower company-inliquidation, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him. (iii) If a financial corporation acting under Section 29 of the SFC Act seeks to sell or otherwise transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m deals with the mechanism to find out as to whether a Company against whom insolvency proceedings has commenced can be revived through a resolution plan. A time frame is also provided for conclusion of the insolvency resolution process under chapter-II. A moratorium as provided in section 14 of IBC may also be declared to enable the IRP appointed by NCLT to work out the resolution plan. In the event, the resolution plan fails or is rejected, the liquidation process is initiated under chapter-III. The resolution professional is appointed as liquidator and the liquidation process is set to motion for being continued under the various provisions of chapter-III, to end with the dissolution of the corporate debtor. The Act of 1956 in the event of a Company being wound up also provides for dissolution of the Company (in liquidation) after distribution of the sale proceeds available by selling the assets and properties of the Company (in liquidation). The procedure to be followed by the Liquidator of the Company (in liquidation) may be different from that under chapter-III of IBC, to be followed by the resolution professional but the main goal under the Act of 1956 and IBC appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Since I have held that the Company Judge of this Court retains the jurisdiction in respect of the said petition (CP 1 of 2016) there is no question of the Provisional Liquidator from being released or discharged as prayed for by the IRP in the instant application being CA 92 of 2019. There is also no need in the facts and circumstances of the instant case to direct the Provisional Liquidator to make over possession of the property and assets, books of accounts of the said company presently in possession of the IRP appointed by the NCLT. As I have held that the proceedings under Section 7 of the IBC now pending before NCLT should be proceeded until the stage of the resolution plan being either accepted or rejected, the said petition (CP 1 of 2016) shall not be proceeded with till this stage is arrived at before the NCLT. Once the resolution plan is accepted, further orders may be sought for regarding the discharge of the Provisional Liquidator depending upon the provisions of the resolution plan. There may also be a situation where a Provisional Liquidator may be allowed to carry out the resolution plan that may be approved by the NCLT. In the event, the resolution plan to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder IBC made by Devi Trading before NCLT appears to have been filed on 14th February, 2018 which is prior to the date of appointment of Provisional Liquidator. It is though surprising that the said application of Devi Trading remained dormant for about an year despite there being a clear mandate under the IBC for hearing of the same within 14 days from the date of filing of the same. It cannot be, however, outrightly said that NCLT could not have passed the order dated 13th March, 2019, since the application was stillborn in view of leave under Section 446 of the Act of 1956 having not been obtained prior to instituting such application, inasmuch as the winding up order has not been made in the said petition till now and the Provisional Liquidator having not been appointed on 14th March, 2018. The NCLT was well within its competence to entertain such application despite prior leave under the provisions of Section 446 of the Act of 1956 having not been obtained. The NCLT, however, should have been cautious before passing the order dated 13th March, 2019 at the instance of a creditor (Devi Trading) when the fact that the Provisional Liquidator had been appointed in a saved petition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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