2019 (10) TMI 378 - HC - Companies Law

Company's Winding-up Transfer Upheld, Directed to Comply with SARFAESI Act

Action Ispat & Power Pvt. Ltd. Versus Shyam Metalics & Energy Limited & Ors.

The High Court upheld the Company Judge's decision to transfer winding-up proceedings to the NCLT, dismissing the appeal. The transfer was deemed in line ... Winding up petition - appointment of Official Liquidator as the provisional Liquidator - Sections 433(e) and 433(f) of the Companies Act, 1956 - HELD THAT:- The proceedings under IBC are independent and have an object different from the one envisaged under the scheme of liquidation provided in the Company Law. The former aims resolution by way of revival in a manner that benefits all stakeholders, the creditors as well as the company. Thus, the scope of the proceedings before the NCLT is wider – with the object of preserving the company and its business/ commercial activities. When transfer of winding up petition can aid in achieving the aforementioned objective, it ought to be allowed in the interest of justice. Merely because the learned Company Judge had ordered the winding up of the appellant company on 03.08.2004, it does not follow that the appellant company should necessarily be liquidated and dissolved. The other options available, namely to resolve/ revive the appellant company can and should always be explored for which purpose the NCLT is invested with jurisdiction, unless irrevocable steps towards liquidation have already been undertaken. There is no merit in the submission of the appellant that respondent No.2 not being a party to the winding up petition could not have moved the application for transfer of the proceedings to the NCLT. Firstly, the SBI- Respondent No.2 had moved an application for impleadment. Entertainment of the application of SBI to transfer the proceedings to the NCLT itself shows that the Learned Company Judge impliedly allowed the impleadment application. Appeal dismissed. Issues Involved:1. Validity of the transfer of winding-up proceedings from the Company Court to the NCLT.2. Jurisdiction and discretion of the Company Judge in recalling the winding-up order.3. Locus standi of the appellant and the secured creditor (SBI) in seeking the transfer.4. Applicability and interpretation of Section 434 of the Companies Act, 2013, and the Companies (Transfer of Pending Proceedings) Rules, 2016.5. The impact of the Insolvency and Bankruptcy Code (IBC) on pending winding-up proceedings.6. Rights of the Official Liquidator and the secured creditor under the SARFAESI Act.Detailed Analysis:1. Validity of the Transfer to NCLT:The Learned Company Judge transferred the winding-up proceedings to the NCLT, emphasizing that the power to transfer under Section 434(1)(c) of the Companies Act, 2013, is discretionary and should be exercised to expeditiously deal with the proceedings. The Judge noted that the liquidation process was at an initial stage and that transferring the proceedings was in the interest of justice, the appellant company, and the creditors involved.2. Jurisdiction and Discretion of the Company Judge:The Company Judge has the inherent power to recall a winding-up order, as recognized in Rule 9 of the Company Court Rules, 1959. The Supreme Court has affirmed that a winding-up order can be revoked or recalled if circumstances warrant such action. The Judge's decision to transfer the proceedings was within this discretionary power, especially since the liquidation process had not progressed significantly.3. Locus Standi of the Appellant and Secured Creditor (SBI):The appellant, representing the ex-management, had limited standing compared to the secured creditor (SBI). The court noted that the interests of the creditors, particularly secured creditors like SBI, take precedence in winding-up proceedings. SBI's application for transfer was deemed valid, and their locus standi was implicitly recognized by the Company Judge's decision to entertain their application.4. Applicability and Interpretation of Section 434 of the Companies Act, 2013, and the Companies (Transfer of Pending Proceedings) Rules, 2016:Section 434(1)(c) and the Companies (Transfer of Pending Proceedings) Rules, 2016, allow for the transfer of winding-up proceedings to the NCLT. The fifth proviso to Section 434(1)(c) permits any party to the proceedings to seek a transfer, and the court 'may' transfer such proceedings to the NCLT. This discretionary power was exercised by the Company Judge in this case.5. Impact of the Insolvency and Bankruptcy Code (IBC):IBC is a special code that overrides other laws, including the Companies Act, by virtue of its non-obstante clause in Section 238. The objective of IBC is to resolve and revive corporate debtors, which aligns with the transfer of winding-up proceedings to the NCLT. The court emphasized that running parallel proceedings in the Company Court and NCLT would be futile and create confusion.6. Rights of the Official Liquidator and the Secured Creditor under the SARFAESI Act:The Official Liquidator's actions were limited to taking possession of the company's assets and records. Respondent No. 2 (SBI) had initiated proceedings under the SARFAESI Act, and the court directed the Official Liquidator to deseal the mortgaged asset and deliver possession to the Receiver appointed under the SARFAESI Act. The court recognized SBI's statutory rights under the SARFAESI Act.Conclusion:The High Court upheld the Company Judge's decision to transfer the winding-up proceedings to the NCLT, dismissing the appeal. The court found that the transfer was in line with the statutory framework and the objectives of the IBC. The court also directed the Official Liquidator to comply with the SARFAESI Act proceedings initiated by SBI. The applications for expenses by Manasvi Security Services and the release of the mortgaged property by SBI were directed to be considered by the NCLT.