Court Maintains Jurisdiction Over Petition Transfer, Emphasizes Companies Act Discretion

The court dismissed the application to transfer the petition to NCLT, maintaining jurisdiction due to advanced liquidation proceedings and ongoing SFIO investigations. Emphasizing the discretionary nature of section 434(1)(c) of the Companies Act, the court highlighted progress in the liquidation process and the pending Supreme Court decision on NCLT's authority. Flat buyers withdrew applications to proceed before the Consumer Court, with liberty to file claims before the OL granted.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a party not already a litigant in winding up proceedings can seek transfer of those winding up proceedings from the High Court to the National Company Law Tribunal (NCLT) under the proviso to section 434(1)(c) of the Companies Act, 2013.

2. Whether the word "may" in the proviso to section 434(1)(c) of the Companies Act, 2013 imposes a mandatory duty on the Court to transfer winding up proceedings to the Tribunal once an application for transfer is filed, or confers a discretionary power to be exercised in the facts and circumstances of each case.

3. Whether initiation of insolvency resolution proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC) before the NCLT (including appointment of an Interim Resolution Professional) ousts or prevails over winding up proceedings already admitted and being conducted by the High Court, and whether this Court should transfer existing winding up proceedings to NCLT to avoid conflict.

4. Whether appointment of a forensic investigation (SFIO) under section 212 of the Companies Act is appropriate notwithstanding parallel scrutiny by the Official Liquidator and criminal proceedings against former directors, and whether such an investigation affects the Court's exercise of discretion under section 434(1)(c).

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Transfer of winding up proceedings by a non-party under proviso to section 434(1)(c)

Legal framework: The proviso to section 434(1)(c) provides that any party or parties to proceedings relating to the winding up 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.

Precedent treatment: The Court considered principles on transfer and analogous discretionary remedial powers as explained in prior Supreme Court jurisprudence concerning the interpretation of "may" in statutory provisions (analysis below under Issue 2). The Division Bench of another High Court (dealing with parallel issues between company courts and NCLT) had held that company courts should not stay NCLT revival/resolution proceedings and that NCLT may proceed with resolution efforts while company courts retain jurisdiction if revival fails.

Interpretation and reasoning: The proviso is expressly limited to "any party or parties to any proceedings relating to the winding up of companies" - the applicant in the present motion is not a party to the winding up proceedings before this Court. The proviso confers a right to file an application for transfer only on parties to such proceedings. Even where an applicant is a proper party, the provision still contemplates the Court's exercise of its power to transfer. The Court therefore reasoned that a non-party cannot invoke the proviso to obtain a transfer of proceedings pending before this Court.

Ratio vs. Obiter: Ratio - the proviso permits only parties to pending winding up proceedings to apply for transfer; a non-party lacks standing under that proviso to seek transfer.

Conclusion: Transfer cannot be ordered at the instance of an applicant who is not a party to the winding up proceedings; the application by a non-party for transfer under the proviso is not maintainable.

Issue 2 - Nature of the word "may" in proviso to section 434(1)(c): discretionary or mandatory?

Legal framework: Statutory construction of discretionary words; interplay of sections conferring powers on courts to stay or transfer matters; section 434(1)(c) proviso employs "the Court may by order transfer such proceedings to the Tribunal."

Precedent treatment (followed): The Court relied on the Supreme Court's authoritative exposition that the word "may" generally confers a discretion, and its meaning (directory vs. mandatory) depends on statutory context and whether legally prescribed conditions attach to the power. The cited precedent instructs that where the statutory context does not annex an obligatory duty upon fulfillment of specified conditions, "may" remains discretionary.

Interpretation and reasoning: A close reading of section 434(1)(c) revealed no legally prescribed, evidentiary preconditions which, once satisfied, would compel transfer as a mandatory act. The proviso thus confers a discretionary power on the Court to transfer winding up proceedings to the Tribunal; the Court must examine the totality of facts and circumstances before exercising that discretion. The Court applied the contextual test from precedent to conclude that "may" here is directory/discretionary.

Ratio vs. Obiter: Ratio - the word "may" in the proviso to section 434(1)(c) is discretionary; the Court is not obliged to transfer pending winding up proceedings merely because an application for transfer is filed.

Conclusion: The Court's exercise of power under the proviso is discretionary and must be guided by facts, stage of proceedings, public interest, and need for expeditious resolution; no mandatory right to transfer arises simply on application.

Issue 3 - Effect of parallel IBC proceedings before NCLT and whether transfer is warranted to avoid conflict

Legal framework: The IBC empowers the NCLT to initiate corporate insolvency resolution processes; section 434 and its proviso permit transfer of certain winding up proceedings to the NCLT. Jurisdictional overlap and potential conflict arise where winding up proceedings before Courts and resolution/insolvency proceedings before NCLT co-exist.

Precedent treatment (followed/distinguished): The Court considered a decision of a Division Bench of another High Court which held that company courts should not stay NCLT resolution proceedings and that NCLT may proceed with revival/resolution efforts, with the company court handling matters if NCLT's revival fails. The Court distinguished the facts: in the present matter, winding up was admitted and a provisional liquidator (Official Liquidator) appointed long prior to the NCLT's appointment of an Interim Resolution Professional; liquidation processes and asset custody were advanced; criminal allegations and SFIO-directed investigation were in progress.

Interpretation and reasoning: The Court emphasized the advanced stage of winding up (appointment of provisional liquidator, assets seized, valuation processes underway, and prior orders for SFIO investigation based on allegations of siphoning and multiple FIRs/chargesheets). Given these circumstances, simultaneous progression of NCLT insolvency proceedings could create practical difficulties and duplicative or conflicting processes. The Court further noted the absence of record before NCLT indicating the earlier pending winding up proceedings, and that the Supreme Court had pending consideration of closely related jurisdictional questions. Balancing the need to expeditiously adjudicate claims in winding up against revival attempts under IBC, the Court concluded that transfer was not warranted where winding up is at an advanced stage and serious allegations of fraud and misappropriation require investigation and asset preservation under the Court's supervision.

Ratio vs. Obiter: Ratio - where winding up proceedings are advanced, assets are under court-appointed custody, and significant fraud/investigation issues exist, the Court may refuse transfer to NCLT notwithstanding initiation of IBC proceedings; NCLT's appointment of an IRP does not automatically oust or require transfer of advanced winding up proceedings.

Conclusion: On the facts - advanced winding up, appointment of Official Liquidator, assets seized, SFIO investigation ordered and criminal proceedings pending - the Court declined to transfer the petition to NCLT to avoid disrupting ongoing liquidation and investigative processes.

Issue 4 - Appointment of SFIO investigation under section 212 alongside Official Liquidator scrutiny and its bearing on transfer discretion

Legal framework: Section 212 authorizes SFIO investigation where public interest or allegations of fraud/misappropriation warrant inquiry into company affairs; Official Liquidator performs liquidation duties including asset valuation and account scrutiny.

Precedent treatment: The Court relied on prior local authority recognizing "public interest" as a valid ground for SFIO investigation where investors' pecuniary interest and allegations of wrongdoing exist.

Interpretation and reasoning: The Court reviewed the chargesheet and material alleging large-scale siphoning of funds to associated entities and noted multiple FIRs/chargesheets and custodial status of erstwhile directors. Given prima facie evidence of misappropriation and the presence of large numbers of investors, the Court found SFIO investigation appropriate in the public interest despite the Official Liquidator's ongoing account scrutiny. The Court considered potential practical difficulties from parallel inquiries but concluded investigation by SFIO was warranted to comprehensively probe alleged frauds critical to fair realization of assets and protection of investors' interests.

Ratio vs. Obiter: Ratio - where prima facie evidence of siphoning/fraud exists and investor interests are implicated, the Court is justified in directing SFIO investigation under section 212 even though the Official Liquidator has undertaken scrutiny.

Conclusion: The Court ordered SFIO investigation to proceed expeditiously and found that the need for a thorough forensic probe further supported refusal to transfer the winding up proceedings to NCLT at that stage.

Ancillary procedural outcome - consumer claims and liberty to file claims with Official Liquidator

Legal framework and reasoning: Parties who had sought continuation of consumer forum proceedings were permitted to withdraw their applications before this Court with liberty to present claims to the Official Liquidator in the liquidation process.

Conclusion: Leave to withdraw was granted with liberty to submit claims to the Official Liquidator; the applications were disposed accordingly.

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