2018 (1) TMI 433 - HC - Insolvency and Bankruptcy

IBC Prevails Over Companies Act: Court Recalls Order, Emphasizes Jurisdiction

Jotun India Private Limited, Edelweiss Asset Reconstruction Co. Ltd., SK Networks Company Ltd. & Anr., Hanwa Company Limited, M/s. J.P. Engineering, M/s. Bhotika Trade & Services Pvt. Ltd. Versus PSL Limited

The respondent-applicant's application was allowed, and the impugned order dated 19th July 2017 was recalled/vacated. The court held that the Company ... Corporate insolvency resolution process - whether the Company Court has any jurisdiction to stay the proceedings filed by a Corporate Debtor before NCLT even though a previously instituted company petition by a creditor may have been admitted (and therefore does not get transferred to NCLT) but where a provisional liquidator has not been appointed? - Power to stay proceedings pending before NCLT - Held that:- Section 446 of the Companies Act, 1956 is not applicable to the present petition and therefore, no leave, as stipulated thereunder has to be obtained. This position has been settled by the Supreme Court in the case of Allahabad Bank v. Canara Bank and Ors. [2000 (4) TMI 757 - SUPREME COURT OF INDIA] wherein the issue of the impact of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDB Act”) on the provisions of the Companies Act, 1956 arose. The Supreme Court has held that leave of the Company Court is not required in order to commence proceedings under RDB Act, for the reason that RDB Act is a special law which would prevail over the Companies Act, 1956 being the general law and even assuming that both the statutes are special enactments, the latter one would prevail over the former, if the latter law contains a provision giving an overriding effect. In the case at hand, in view of Section 34 of RDB Act, it was held that the said Act overrides the Companies Act, to the extent of any inconsistency between the two enactments. Therefore, applying the ratio of this judgment to the present case, in view of Section 238 of IBC, provisions of IBC shall supersede and prevail over the Companies Act, to the extent of any inconsistency between the two. This judgment has been approved by a larger bench of the Supreme Court in the case of Rajasthan State Financial Corporation v. Official Liquidator (2005 (10) TMI 280 - SUPREME COURT OF INDIA) . Whether NCLT can entertain a petition after the order of admission or appointment of Provisional Liquidator by Company Court? - Held that:- The legislative intent behind the enactment of IBC is to consolidate provisions of SICA and Companies Act. Section 15 of SICA is pari­materia to section 10 of IBC and section 22 of SICA is similar to Section 14 of IBC. IBC has been enacted to revive the Corporate Debtor by declaring a Moratorium of various proceedings and appointing an Interim Resolution Professional (IRP) to manage the affairs of the Corporate Debtor. Similarly, both SICA and IBC contains non­obstante provisions to the effect of overriding the provisions of any other law in force except as excluded expressly. There is in fact no inconsistency between the provisions of IBC and Companies Act. However, in the event of any inconsistency, the provisions of IBC will prevail in view of Section 238 of IBC. The provisions give overriding effect to any other law for time being in force, in case of any inconsistency or conflict with respect thereof. Since the IBC is admittedly a successor statute to SICA, and Section 64 (2) of IBC being pari­materia to Section 22 of SICA, the argument that the Company Court has the power to injunct proceedings before under NCLT in cases of pending winding up petitions is entirely misplaced and contrary to legislative intent. As per rule 6 of the Companies (Court) Rules, 1959, the provisions of the Code of Civil Procedure, 1908, will apply to proceedings under the Companies Act, 1956, unless such application would be contrary to the express provisions of the said rules. Rule 9 of the Companies (Court) Rules, 1959, provides that the Company Court may exercise its inherent powers. Section 141 of the Code of Civil Procedure, 1908, makes it applicable to all proceedings in any court of civil jurisdiction. A combined reading will show that the Company Court has ample powers to recall any order previously passed by it. In the circumstances, there is no bar on NCLT, Ahmedabad from proceeding with IBC application. This application, therefore, has to succeed. The impugned order dated 19th July 2017 is recalled/vacated. Company application accordingly stands disposed. Issues Involved:1. Jurisdiction of the Company Court to stay proceedings before NCLT.2. Applicability of the Insolvency and Bankruptcy Code (IBC) over the Companies Act, 1956.3. Effect of the Sick Industrial Companies (Special Provisions) Repeal Act.4. Powers of the Company Court versus NCLT.5. Legislative intent behind the IBC.6. Bar on Civil Courts' jurisdiction under the IBC.7. The power of the Company Court to recall its orders.Detailed Analysis:1. Jurisdiction of the Company Court to Stay Proceedings Before NCLT:The primary issue is whether the Company Court has jurisdiction to stay proceedings initiated by a corporate debtor before the NCLT under Section 10 of the IBC. The court held that the jurisdiction of the Company Court to stay such proceedings is expressly barred by Section 63 of the IBC, which states that no civil court shall have jurisdiction over matters where NCLT has jurisdiction. Additionally, Section 64(2) of the IBC prohibits any court from granting an injunction against actions taken or to be taken by NCLT.2. Applicability of the IBC Over the Companies Act, 1956:The court emphasized that the IBC, being a later and special statute, prevails over the Companies Act, 1956. Section 238 of the IBC contains an overriding provision, ensuring that the IBC's provisions prevail in case of any inconsistency with other laws. The court cited the Supreme Court's decision in Allahabad Bank v. Canara Bank, which supports the primacy of special statutes over general ones.3. Effect of the Sick Industrial Companies (Special Provisions) Repeal Act:The court noted that with the repeal of SICA and the enactment of the IBC, companies whose references were pending before BIFR could file applications under Section 10 of the IBC within 180 days. The respondent-applicant had filed such an application within the prescribed period, thus complying with the legal requirements.4. Powers of the Company Court Versus NCLT:The court clarified that while the Company Court retains jurisdiction over winding-up petitions filed under the Companies Act, 1956, this does not preclude the NCLT from exercising its jurisdiction under the IBC. The court referred to the legislative intent, which does not indicate that winding-up proceedings retained by the High Court would have primacy over NCLT proceedings.5. Legislative Intent Behind the IBC:The court discussed the legislative intent behind the IBC, which aims to provide a time-bound insolvency resolution process to maximize asset value and balance the interests of all stakeholders. The IBC introduces a paradigm shift by placing the control of the company in the hands of an Interim Resolution Professional (IRP) and a Creditors Committee, rather than the company's management.6. Bar on Civil Courts' Jurisdiction Under the IBC:The court reiterated that Sections 63, 64(2), and 231 of the IBC bar the jurisdiction of civil courts in matters where NCLT has jurisdiction. The court cited the Supreme Court's decisions in Ghanshyam Sarda v. Shiv Shankar Trading Company and Mardia Chemicals Ltd., which support the exclusion of civil court jurisdiction in cases where specialized tribunals are empowered.7. The Power of the Company Court to Recall Its Orders:The court acknowledged that under Rule 6 of the Companies (Court) Rules, 1959, read with Section 141 of the Code of Civil Procedure, the Company Court has the inherent power to recall its orders if they were passed without jurisdiction. The impugned order dated 19th July 2017 was recalled as it was beyond the jurisdiction of the Company Court.Conclusion:The application by the respondent-applicant was allowed, and the impugned order dated 19th July 2017 was recalled/vacated. The court held that the Company Court does not have jurisdiction to stay proceedings before the NCLT and emphasized the primacy of the IBC over the Companies Act, 1956, in matters of insolvency resolution.