2019 (12) TMI 194 - HC - Companies Law

Transfer of company petition to NCLT upheld over Official Liquidator's objections. Workmen's rights protected.

The court allowed the transfer of the company petition to the National Company Law Tribunal (NCLT), despite opposition from the Official Liquidator (OL). ... Winding up proceedings - conduct of Official Liquidator (OL) - rejection of application for impleadment and transfer moved by the appellant secured creditor herein - HELD THAT:- The OL really should have no interest in seeking to retain its control over the company under liquidation since, supposedly, it has no pecuniary interest in the matter. - OL is not willing to let go of its control over the company under liquidation. The working of the office of the OL has, in the past, left us with a sense of disappointment. In fact, if the office of the OL were to discharge its obligations and duties efficiently and completely transparently, may be, the need to evolve the NCLT with jurisdiction, inter alia, to liquidate a company may not have arisen. There are no merit in this submission for the reason, that the personal properties of the guarantors do not constitute the property of the company under liquidation. With those properties, the OL, in any event, would have no concern. In relation to the properties of the company under liquidation, possession whereof has been taken by the O.L., no irreversible steps have yet been undertaken. The impugned order passed by the learned Company Judge proceeded on the basis that the appointment of the IPR had been stayed by the NCLAT on 30.04.2019. The NCLAT stayed the appointment of the IRP on the ground that the Liquidator had already been appointed in the Company Petition. The learned Company Judge rejected the application for impleadment and transfer moved by the appellant secured creditor herein - appeal allowed - decided in favor of appellant. ISSUES PRESENTED AND CONSIDERED 1. Whether a company petition pending in the Company Court seeking winding up should be transferred to the National Company Law Tribunal (NCLT) on the application of a secured creditor. 2. Whether the Official Liquidator (OL) can resist transfer on the basis that workmen's dues under section 529A read with section 529 of the Companies Act, 1956 rank pari passu with secured creditors' debts and such protection is less extensive under the Insolvency and Bankruptcy Code, 2016 (IBC), specifically section 53(1)(b). 3. Whether steps said to be 'irreversible' in separate proceedings (sale/possession of guarantors' personal properties under the SARFAESI Act) prevent transfer of the company petition over company assets to the NCLT. 4. Whether the appointment or stay orders previously made by the NCLAT altering insolvency/liquidation appointment affect the maintainability of transfer to the NCLT. 5. Whether the OL's practices regarding engagement of security agencies and imposition of high security charges on the assets of the company under liquidation warrant court supervision; and whether adoption of measures such as geo-tagging and detailed disclosure of security arrangements is appropriate. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Transfer of Company Petition to NCLT Legal framework: The post-2016 insolvency regime confers exclusive jurisdiction on the NCLT/Tribunal for insolvency and corporate resolution processes, subject to statutory scheme and transitional provisions. Company Courts historically had jurisdiction over winding up under earlier Companies Act provisions. Precedent treatment: The Court relied on its own earlier decision holding that transfer to the NCLT is appropriate where the statutory scheme and facts warrant adjudication under the IBC and NCLT jurisdiction; that earlier approach was applied rather than distinguished or overruled. Interpretation and reasoning: The Court found no convincing basis to retain the petition in the Company Court. The secured creditor (appellant) sought transfer; the petitioner in the winding up supported transfer; only the OL opposed. The foundation of the Company Court's order (that the appointment of an IRP had been stayed by the NCLAT) had been rendered nugatory because the stay was vacated. In addition, no irreversible steps affecting company assets had been shown to have been taken in the liquidation proceedings that would make transfer prejudicial. The Court emphasized that the OL's mere opposition, without showing prejudice to company assets or stakeholders, did not justify retention. Ratio vs. Obiter: Ratio - where statutory jurisdiction and circumstances favour adjudication by the NCLT, and no irreversible steps affecting company assets have occurred, transfer from Company Court to NCLT is proper. Obiter - broader commentary on the OL's institutional role and past performance. Conclusions: The impugned order retaining the petition in the Company Court was set aside and the petition ordered transferred to the NCLT. Issue 2 - Priority of Workmen's Dues under Companies Act vis-à-vis IBC Legal framework: Section 529A read with section 529 (Companies Act, 1956) accords certain priorities to workmen's dues pari passu with certain secured creditors; the IBC (section 53(1)(b)) prescribes liquidation waterfall and limits protection for workmen to wages for a specified preceding period (24 months prior to insolvency commencement). Precedent Treatment: The Court addressed the apparent conflict by reference to statutory operation and practical posture rather than re-writing statutes; no attempt was made to overrule prior holdings of law. Interpretation and reasoning: The Court considered the OL's submission to protect workmen's interests. It held the point was academic because no workman had raised the issue and assets were not yet sold. Further, rights in relation to assets dealt with under the SARFAESI Act are protected by section 13(9) of that Act. Thus, the Court rejected the OL's contention that transfer should be resisted on the ground that the IBC affords lesser protection to workmen than the Companies Act provision. Ratio vs. Obiter: Ratio - in absence of an actual claim by workmen and prior to disposition of assets, speculative conflicts between statutory regimes do not justify retention of the petition by the Company Court. Obiter - observations on SARFAESI protection of assets. Conclusions: The OL's contention based on workmen's priority under the Companies Act did not prevent transfer to the NCLT. Issue 3 - Effect of SARFAESI proceedings relating to guarantors' properties on transfer Legal framework: Property belonging to personal guarantors of debtors is not company property; SARFAESI permits secured creditors to take enforcement action over secured assets and separate proceedings may follow in relation to guarantor assets. Precedent treatment: The Court applied established principles distinguishing company assets from guarantors' personal properties and their non-interference with liquidation vesting of company assets. Interpretation and reasoning: The Court found that sales and possession of guarantors' personal properties under SARFAESI do not constitute actions in respect of company assets and do not create irreversible steps affecting the company under liquidation. Since the OL's concern related to guarantors' properties (outside company estate), it could not be a basis to retain the company petition. Ratio vs. Obiter: Ratio - actions in relation to guarantors' personal properties under SARFAESI do not preclude transfer of company winding up petition to NCLT because such properties are not part of the company estate. Obiter - remarks on locus of OL and ex-management. Conclusions: The alleged irreversible SARFAESI actions against guarantors' properties do not preclude transfer. Issue 4 - Effect of prior NCLAT stay and vacatur on maintainability Legal framework: Orders of appellate tribunals altering appointment or stay are operative facts relevant to jurisdictional questions; vacatur of a stay removes the factual basis relied upon by a lower court. Interpretation and reasoning: The impugned order by the Company Judge was founded on an NCLAT stay of IRP appointment. That stay was later vacated, eroding the factual foundation of the Company Judge's decision. Accordingly, the Court found the impugned order unsustainable. Ratio vs. Obiter: Ratio - where a decision of a lower court is based on an interim order that is subsequently vacated, the basis for that decision may be destroyed, warranting reconsideration/transfer. Conclusions: The vacatur of the NCLAT stay removed the basis for the Company Court's retention of the petition. Issue 5 - Oversight of OL's engagement of security agencies, security charges and adoption of geo-tagging Legal framework: The OL is charged with duties to manage and protect assets of companies under liquidation, but must act transparently and in the interest of the company's creditors; expenses charged to the company must be reasonable and supported by disclosure. Interpretation and reasoning: The Court expressed concern at recurring high security charges billed to company estates and the opaque manner of engagement and billing by security contractors. The Court directed detailed disclosures by the OL including empanelment process, agreements with security agencies, identities and particulars of deployed guards, statutory contributions, salary particulars, all bills raised, and explanation of rate negotiation. The Court also invited the OL to examine and express views on geo-tagging and geo-attendance technology to monitor guards, noting precedent in other governmental deployments. Ratio vs. Obiter: Ratio - where OL engages security services and incurs charges on the company estate, the OL must disclose comprehensive particulars and is subject to court scrutiny; adoption of technology (e.g., geo-tagging) is an appropriate subject for consideration to ensure accountability. Obiter - criticism of historical functioning of the OL and policy observations about need for NCLT evolution. Conclusions: The OL was ordered to file an affidavit within a fixed time containing specified disclosures and to consider geo-tagging/monitoring measures; the Court reserved the matter for further hearing on this compliance aspect.