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TMI Blog2020 (12) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... rt to the National Company Law Tribunal ["NCLT"] was upheld. The brief facts necessary to appreciate the controversy involved in these appeals are as follows: 2.1. A winding up petition under sections 433(e) and (f), 434 and 439 of the Companies Act, 1956, being Co. Pet. No.731 of 2016 was filed by one Shyam Metalics and Energy Limited (Respondent No.1 herein), seeking winding up of the appellant company inasmuch as for goods supplied to the appellant company, a sum of Rs. 4.55 crore was still due. The learned Company Judge in the Delhi High Court passed the following order in the aforesaid petition on 27.08.2018: "ORDER 27.08.2018 1. This petition is filed under sections 433(e) and (f), 434 and 439 of the Company Act, 1956 (hereinafter referred to as 'the Act') seeking winding up of the respondent company. 2. It has been pleaded in the petition that the respondent company had approached the petitioner company for supply of Iron Pellets. A specified quantity of 11612.34MTs of the goods was supplied to the respondent company. After making partial payment, a sum of Rs. 4,55,00,000/- is due and payable by the respondent company to the petitioner. The respondent company from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as pending before the NCLT. By order dated 14.01.2019, the learned Company Judge transferred the winding up petition as prayed for as follows: "ORDER 14.01.2019 CA No.1240/2018 1. This application is filed seeking transfer of the present petition being Co.Pet. No.731/2016 to NCLT. This application has been filed by State Bank of India stating that an application under section 7 of the IBC is pending before NCLT. It has been pleaded that the respondent company had failed to pay outstanding dues of about Rs. 722 crores to the applicant bank and hence this proceeding have been initiated before NCLT. The applicant bank is also a lead bank of the consortium of banks which have outstanding dues of about Rs. 1100 crores. 2. This court had admitted the present winding up petition on 27.08.2018 and appointed the OL as the provisional liquidator of the respondent company. 3. The learned counsel appearing for the OL submits that the OL has already sealed the registered office of the respondent company at New Delhi and factory premises at Orissa. He further submits that the OL has incurred heavy expenses in protecting the factory premises at Orissa in the given facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016." 7. This court has already in CP 152/2016 vide decision dated 27.9.2018 in Rajni Anand vs. Cosmic Structures Limited held that the power under section 434(1)(c) of the Companies Act, 2013 for transfer of a petition to NCLT is discretionary and has to be exercised in the facts and circumstances of the case so as to expeditiously deal with the proceedings/winding up. 8. In my opinion, it would be in the interest of justice and in the interest of the respondent company and the creditors that the matter be transferred to NCLT in exercise of the discretionary powers of the court under section 434 of the Companies Act, 1956. The order appointing the OL is a recent order and not much time has elapsed since then. The OL has only taken steps to seize the office of the respondent company and the factory premises and further exercise is yet to be carried out. The application is allowed as above. The present petition is transferred to NCLT. CO.PET. 731/2016 9. In view of the above order, the present petition is transferred to NCLT. All pending appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding before the Company Court could be transferred to the NCLT and there is no provision for transfer of proceedings from the NCLT to the Company Court. 43. We, thus uphold the impugned order passed by the Ld. Company Judge in C.A. No. 1240/2018, dated 14.01.2019 and dismiss the appeal." 3. Shri Sidharth Luthra, learned Senior Advocate appearing on behalf of the appellant company, referred to three judgments of this Court, namely, Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 ["Jaipur Metals"], Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., 2019 SCCOnLine SC 87 ["Forech"], and M/s Kaledonia Jute & Fibres Pvt. Ltd. v. M/s Axis Nirman & Industries Ltd. & Ors., 2020 SCCOnLine SC 943 ["Kaledonia"]. According to him, none of the judgments apply to the facts of the present case inasmuch as, on the facts in the present case, once a winding up order has been passed by the Company Judge, winding up proceedings alone must continue before the High Court and parallel proceedings under the Code cannot continue. He argued that Jaipur Metals (supra) makes it clear that even independent proceedings under the Code can on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een referred to in Innoventive Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] which states: (SCC pp. 421-22, para 12) "12. ... The Statement of Objects and Reasons of the Code reads as under: 'Statement of Objects and Reasons.-There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the courts. The existing framework for insolven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013. 5. The Code seeks to achieve the above objectives.'" (emphasis in original) The Court then went on to state: "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, "trial" having led to repeated "errors", ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made in the short period in which the Code has operated, both to the Code itself as well as to subordinate legislation made under it. This process is an ongoing process which involves all stakeholders, including the petitioners. 121. We are happy to note that in the working of the Code, the flow of financial resource to the commercial sector in India has increased exponentiall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the NCLT was taken by the Companies (Transfer of Pending Proceedings) Rules, 2016 ["Transfer Rules, 2016"], which compulsorily transferred all winding up proceedings pending before High Courts to the NCLT at a stage prior to the service of the petition in terms of Rule 26 of the Companies (Court) Rules, 1959. By an amendment made on 17.08.2018, the 5th proviso to section 434(1)(c) was added which states as follows: "434. Transfer of certain pending proceedings.-(1) On such date as may be notified by the Central Government in this behalf,- (a) xxx xxx xxx (b) xxx xxx xxx (c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements 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: xxx xxx xxx Provided further that any party or parties to any proceedings relating to the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the scheme of Section 434 (as amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17-8-2018. Once this is done, the High Court must transfer such proceedings to NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code. 18. The High Court judgment, therefore, though incorrect in applying Rule 6 of the 2016 Transfer Rules, can still be supported on this aspect with a reference to Rule 5(2) read with Section 434 of the Companies Act, 2013, as amended, with effect from 17-8-2018." In a significant passage, the Court then went on to hold: "19. However, this does not end the matter. It is clear that Respondent 3 has filed a Section 7 application under the Code on 11-1-2018, on which an order has been passed admitting such application by NCLT on 13-4-2018. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding-up proceedings before the High Court. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred 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 to resuscitate the corporate debtors who are in the red. 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 the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which would then have to be transferred by the High Court to the adjudicating authority and treated as an insolvency petition under the Code. This statutory scheme has been referred to, albeit in the context of Section 20 of the SICA, in our judgment which is contained in Jaipur Metals & Electricals Employees Organization Through General Secretary Mr. Tej Ram Meena v. Jaipur Metals & Electricals Ltd. Through its Managing Director, being a judgment by a Division Bench of this Court dated 12.12.2018." R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (c) of Sub-section (1) of Section 434 would take within its fold any creditor of the company in liquidation. 45. The above conclusion can be reached through another method of deductive logic also. If any creditor is aggrieved by any decision of the official liquidator, he is entitled under the 1956 Act to challenge the same before the Company Court. Once he does that, he becomes a party to the proceeding, even by the plain language of the section. Instead of asking a party to adopt such a circuitous route and then take recourse to the 5th proviso to section 434(1)(c), it would be better to recognise the right of such a party to seek transfer directly. 46. As observed by this Court in Forech India Limited (supra), the object of IBC will be stultified if parallel proceedings are allowed to go on in different fora. If the Allahabad High Court is allowed to proceed with the winding up and NCLT is allowed to proceed with an enquiry into the application under Section 7 IBC, the entire object of IBC will be thrown to the winds. 47. Therefore, we are of the considered view that the petitioner-herein will come within the definition of the expression "party" appearing in the 5th prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inks fit; to appoint a provisional liquidator of the company till the making of a winding up order; to make an order for the winding up of the company; or to pass any other order as it thinks fit - see section 273(1). 13. Sections 278 and 279 of the Companies Act, 2013 then follow, which state: "278. Effect of winding-up order.-The order for the winding-up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories." "279. Stay of suits, etc., on winding-up order.-(1) When a winding-up order has been passed or a provisional liquidator has been appointed, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as the Tribunal may impose: Provided that any application to the Tribunal seeking leave under this section shall be disposed of by the Tribunal within sixty days. (2) Nothing in sub-section (1) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court." 14. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany or the steps which, in his opinion, are necessary for maximising the value of the assets of the company. (4) The Company Liquidator may also, if he thinks fit, make any further report or reports. (5) Any person describing himself in writing to be a creditor or a contributory of the company shall be entitled by himself or by his agent at all reasonable times to inspect the report submitted in accordance with this section and take copies thereof or extracts therefrom on payment of the prescribed fees." 15. The Tribunal is then to consider the aforesaid report and fix a time limit within which the proceedings shall be completed and the company dissolved, which time limit may be revised - see section 282(1). 16. Importantly, the company's properties shall, on the order of the Tribunal, be taken over by the Company Liquidator and be deemed to be in custodia legis - see section 283(1) and 283(2). 17. Thereafter, the Tribunal is to settle a list of contributories under section 285. The Company Liquidator is then to make periodical reports to the Tribunal with respect to the progress of the winding up proceedings as follows: "288. Submission of periodical reports to Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the company in the course of its business; (k) to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the purpose of enabling the Company Liquidator to take out the letters of administration or recover the money, be deemed to be due to the Company Liquidator himself; (l) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities and for protection of the assets of the company, appoint an agent to do any business which the Company Liquidator is unable to do himself; (m) to take all such actions, steps, or to sign, execute and verify any paper, deed, document, application, petition, affidavit, bond or instrument as may be necessary,- (i) for winding-up of the company; (ii) for distribution of assets; (iii) in discharge of his duties and obligations and functions as Company Liquidator; and (n) to apply to the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, in a winding up proceeding where the petition has not been served in terms of Rule 26 of the Companies (Court) Rules, 1959 at a pre- admission stage, given the beneficial result of the application of the Code, such winding up proceeding is compulsorily transferable to the NCLT to be resolved under the Code. Even post issue of notice and pre admission, the same result would ensue. However, post admission of a winding up petition and after the assets of the company sought to be wound up become in custodia legis and are taken over by the Company Liquidator, section 290 of the Companies Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern. So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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