Company petition transferred to NCLT under section 434(1)(c) proviso 5 despite post-petition transactions objections

The Bombay HC allowed transfer of a company petition to NCLT under section 434(1)(c) proviso 5 of Companies Act, 2013. Following SC precedent in Action Ispat, the court held that winding up petitions should be transferred to NCLT unless irreversible events occurred. Despite petitioner's objections regarding post-petition transactions by the company, the HC found no irreversible circumstances warranting retention of jurisdiction. The court emphasized IBC's beneficial nature prioritizing corporate revival over liquidation. The petition was transferred to NCLT Mumbai to be treated as corporate insolvency resolution process application, with the original admission order recalled.

---

---

Issues Involved:
1. Application for transfer of Company Petition to NCLT.
2. Admission and winding up of the Applicant - Company.
3. Discretionary powers of the Court under the 5th proviso to Section 434 (1) (c) of the Companies Act, 2013.
4. Conduct of the Applicant - Company and its Directors.
5. Allegations of irreversible events and fraudulent transactions.
6. Application of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Application for transfer of Company Petition to NCLT:
The Applicant - Company filed Interim Application Lodg No. 13530 of 2021 to transfer the Company Petition to the NCLT based on the 5th proviso to Section 434 (1) (c) of the Companies Act, 2013. The Applicant argued that the transfer is permissible under the law and aligns with the objective of the IBC to restructure the Company rather than wind it up.

2. Admission and winding up of the Applicant - Company:
The Company Petition No. 708 of 2016 was filed on 7th September 2016, admitted on 18th September 2018, and the Company was finally wound up on 7th August 2019. The winding up order was set aside upon the deposit of Rs. 2.50 Crores, and the Petition was remanded for hearing and final disposal.

3. Discretionary powers of the Court under the 5th proviso to Section 434 (1) (c) of the Companies Act, 2013:
The Court has discretionary powers to transfer winding up petitions to the NCLT even post-admission or after the appointment of an Official Liquidator. The Supreme Court in Action Ispat and Power Pvt Ltd v/s Shyam Metalics and Energy Ltd [(2021) 2 SCC 641] and A. Navinchandra Steels Pvt Ltd v/s SREI Equipment Finance Ltd and Ors [(2021) 4 SCC 435] clarified that the discretion should be exercised unless irreversible steps towards winding up have been taken.

4. Conduct of the Applicant - Company and its Directors:
The conduct of the Applicant - Company and its Ex-Director, Mr. Sunil Kotecha, was found to be reprehensible. The Applicant - Company had admitted its liability (at least Rs. 9.6 Crores) but failed to make payments, issued dishonored cheques, and attempted to delay proceedings with malafide intentions.

5. Allegations of irreversible events and fraudulent transactions:
The Petitioner argued that irreversible events had occurred, including the illegal transfer of shares, sale of a duplex apartment, and withdrawal of funds from a project during liquidation. These transactions were purportedly entered into after the filing of the winding up petition and were liable to be rendered void under the Companies Act.

6. Application of the Insolvency and Bankruptcy Code (IBC), 2016:
The IBC aims to revive and continue the Corporate Debtor's operations rather than liquidate it. The Court found that the transactions alleged by the Petitioner could be assailed under the IBC, specifically under Section 49, which deals with fraudulent and undervalued transactions. The Court emphasized that the IBC is a beneficial legislation, and transfer to the NCLT should be the norm unless an irreversible situation is created.

Conclusion:
The Court allowed the Interim Application Lodg No. 13530 of 2021, transferring the Company Petition No. 708 of 2016 to the NCLT, Mumbai, to be treated as an application for initiation of the Corporate Insolvency Resolution Process under the IBC. The order of admission of the Petition was recalled/revoked. Protective directions were continued, subject to any order by the NCLT. The other applications listed were disposed of, and the order was digitally signed for execution.

---