2025 (9) TMI 936 - HC - Companies Law

Transfer of winding-up proceedings to insolvency forum under IBC allowed as no irreversible asset sale occurred

Col. P.K. Uberoi (Retd.) & Anr. Versus Vigneshwara Developwell Pvt. Ltd & Ors.

HC allowed the petition to transfer the winding-up proceedings to the NCLT, holding that no irreversible steps (no actual sale of assets) had occurred and ... Seeking the winding up of the Respondent Company - inability to pay its debts to the Petitioner - whether this Petition is at a stage where no irreversible steps have been taken towards liquidation, and should be transferred to the NCLT? - HELD THAT:- The Supreme Court in Action Ispat case [2020 (12) TMI 535 - SUPREME COURT] has held that where winding up petition pending before the High Court has not progressed to an advanced stage, it ought to be transferred to the NCLT. The Supreme Court has held that even post-admission of a winding up Petition, and after the appointment of a liquidator, the discretion is vested in the Company Court to transfer such Petition to the NCLT. It was emphasised by the Court that even post admission of winding up Petition and appointment of liquidator, as long as no actual sale of movable for immovable property of the company in liquidation has taken place and nothing irreversible is done, proceedings before the Company Court can be transferred to the NCLT. The Court cautioned that it is only when the winding up proceedings have reached an irreversible state making it impossible for the clock to be turned back, should the Company Court proceed with the winding up instead of a transfer to the NCLT. The Supreme Court in the Kaledonia Jute & Fibres case [2020 (11) TMI 587 - SUPREME COURT], while deciding whether a winding-up proceeding should be transferred to the NCLT, held that since all creditors would be parties to such proceedings in realm, a secured creditor could move to the Company Court under the 5th proviso to Section 434(1)(c) of 2013 Act to transfer proceedings to the NCLT to be tried as proceedings under Section 7 or section 9 of the IBC as the case may be. An analysis of the aforegoing judgments does show that a discretionary jurisdiction has been provided for under Section 434(1)(c) of the 2013 Act for transfer of proceedings to the NCLT for adjudication under Section 7 or Section 9 of the IBC. A review of this judgement, however, shows that although in the Deutsche Trustee Company case, an Application was filed under Section 434(1)(c) of the 2013 Act, the facts are distinguishable. In the present case, initially a Scheme of arrangement was sanctioned for the revival of that Company, the Scheme, however, the Scheme could not fructify since the steps that were proposed under the Scheme were not taken by the Ex-Director/promoter. In addition, the order also reflects that there was no appearance on behalf of the applicant at the time of arguments and thus the Application was not pressed by the Applicant. The Coordinate Bench, in the given facts, did not transfer the matter. The IBC is a self-contained creditor driven framework, where the costs of the corporate insolvency resolution process are defrayed from recoveries, and in terms of Section 12 of the IBC. The entire process is mandatory and to be undertaken in a time bound manner to ensure preservation of assets as well as that the creditors are paid in a defined framework. The IBC also contains a framework for effective powers to deal with fraudulent transactions - Undisputedly, no actual sale of properties has taken place and as such no irreversible steps have taken place so far as concerns the Respondent Company. The claims of over 1250 creditors have been filed before the Official Liquidator. The Official Liquidator has also set out in his Reply that the Claimant’s claims have not been scrutinized since many were incomplete. The Official Liquidator has valued the assets of the Respondent Company and has averred that in view of the recurring expenditure towards security and preservation of assets, storage and safekeeping of voluminous records and compliance of statutory obligations, expenses are being incurred from the common pool funds, reducing the distributable surplus for creditors and the claimants of the Respondent Company. The Application is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a winding-up petition admitted by the Company Court, with appointment of an Official Liquidator and assets in custodia legis, may be transferred to the National Company Law Tribunal under the 5th proviso to Section 434(1)(c) of the Companies Act, 2013 when no irreversible steps (e.g., sale of assets) have been taken. 2. Whether the pendency of criminal or regulatory investigations and filings by investigative agencies or the Official Liquidator operate as a bar to transfer and initiation or revival of proceedings under the Insolvency and Bankruptcy Code (IBC) (including appointment of an Interim Resolution Professional and initiation of CIRP under Section 7 of the IBC). 3. Whether the existence of a previously sanctioned-but-subsequently-failed scheme of arrangement and subsequent appointment of the Official Liquidator preclude transfer of the proceedings to the NCLT. 4. Whether the discretionary jurisdiction under Section 434(1)(c) is to be exercised in favour of transfer where transfer would better serve creditor interests, preserve assets as a going concern and enable IBC remedies (including avoidance provisions) to be invoked. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Transferability post-admission when no irreversible steps taken Legal framework: 5th proviso to Section 434(1)(c) of the Companies Act, 2013 permits transfer of winding-up proceedings pending before High Courts to the Tribunal where a party applies and the proceedings are suitable to be dealt with as an application under the IBC. Precedent treatment: The Court relied on and followed the Supreme Court's principles articulated in Action Ispat and Kaledonia Jute & Fibres: transfer is permissible post-admission and post-appointment of a liquidator provided no irreversible/irretrievable steps (notably actual sale of movable or immovable assets) have occurred; the discretion to transfer depends on facts and must preserve the possibility of revival under IBC. Interpretation and reasoning: The Court examined whether the winding-up had progressed to an irreversible stage. Although the Official Liquidator held assets and had caused valuations, there was no actual sale or disposition of assets or disbursement of funds; assets remained in custodia legis and claims were yet to be scrutinized. Recurring preservation costs were being incurred but such expenses did not equate to irreversible disposition. Given these facts, the transfer discretion under Section 434(1)(c) favoured transfer so that IBC's time-bound, creditor-driven framework and avoidance powers could be deployed to maximize value and permit revival as a going concern. Ratio vs. Obiter: Ratio - where no irreversible steps (sales or irreversible dispositions) have occurred post-admission, the Company Court may transfer the petition to NCLT under the 5th proviso to Section 434(1)(c). Obiter - factual observations on recurring expenses diminishing distributable surplus (relevant but fact-specific). Conclusion: Transfer ordered; the petition transferred to NCLT as no irreversible steps had been taken. Issue 2 - Effect of pendency of criminal/regulatory investigations and SFIO/other inquiries on transfer and IBC initiation Legal framework: IBC is a self-contained, overriding, creditor-driven code; Sections permitting avoidance of preferential, undervalued and fraudulent transactions (Sections 43-51, 66 IBC) and Section 7 initiation are independent proceedings. Precedent treatment: The Court followed A. Navinchandra and related authorities holding that pendency of admitted winding-up proceedings or criminal investigations does not bar initiation of IBC proceedings; discretionary bar under Section 434(1)(c) cannot prevail over NCLT jurisdiction where IBC parameters are met. Interpretation and reasoning: The Court accepted submissions that pending investigations (including SFIO) and alleged diversion of funds do not preclude transfer or revival under IBC; NCLT's broader remedial powers are suitable to address alleged misconduct and to invoke avoidance provisions. Criminal/ regulatory processes are not a ground to deny transfer when preservation and collective creditor remedies under the IBC are available. Ratio vs. Obiter: Ratio - pendency of criminal/regulatory investigations is not a bar to transfer and to initiation/revival under IBC where statutory parameters are satisfied. Obiter - procedural interplay between investigative agencies and insolvency proceedings (fact-specific management of cooperation). Conclusion: Pendency of SFIO/criminal matters does not prevent transfer; parties may seek appropriate reliefs before NCLT, including invocation of avoidance provisions. Issue 3 - Effect of previously sanctioned scheme of arrangement that later failed Legal framework: Company Court may have supervised a scheme under Sections 391-393 (1956 Act), but failure of implementation may lead to setting aside, appointment of liquidator and filing of claims under liquidation; Section 434(1)(c) governs transfer of pending winding-up proceedings. Precedent treatment: Courts have recognised that a sanctioned scheme's failure does not automatically render proceedings irreversible; the decisive question remains whether irreversible steps have occurred. Interpretation and reasoning: The Court recited that a scheme had been sanctioned but became unworkable due to non-infusion of funds, unresolved statutory dues and incarceration of propounders. The Court held that failure of the scheme and appointment of the Official Liquidator did not equate to irreversible disposition of assets; hence those circumstances did not preclude transfer. The contrast with Deutsche Trustee (where factual stage was advanced and applicant did not press transfer) was highlighted and that decision was distinguished on facts. Ratio vs. Obiter: Ratio - failure of a previously sanctioned scheme and subsequent appointment of a liquidator do not, by themselves, preclude transfer if no irreversible steps have been taken. Obiter - detailed factual findings about non-payment of supervisor's fees and inability to implement the scheme (contextual, fact-specific). Conclusion: The prior scheme's failure does not defeat transfer in the absence of irreversible actions; transfer allowed. Issue 4 - Exercise of discretionary jurisdiction under Section 434(1)(c) in the interests of creditors and preservation of assets Legal framework: Section 434(1)(c) confers discretion to transfer pending winding-up proceedings to the Tribunal; IBC's objects include timely resolution, preservation of assets and maximization of value. Precedent treatment: Followed authorities emphasising that parallel proceedings defeat IBC objectives, and that transfer should be allowed to avoid fragmentation of remedies and to enable the IBC's time-bound, creditor-driven process. Interpretation and reasoning: The Court weighed the large number of small investors (over 1,250 claimants), the public interest in resolution, the absence of irreversible acts, and the Official Liquidator's concurrence that transfer was viable. The Court found that NCLT's specialised powers and the IBC's avoidance and revival mechanisms better serve stakeholder interests and asset maximization. The discretionary jurisdiction was exercised to transfer accordingly. Ratio vs. Obiter: Ratio - where transfer would further the objectives of the IBC, preserve assets and benefit a large class of creditors, the Company Court should exercise its discretion under Section 434(1)(c) to transfer pending winding-up proceedings to the NCLT, absent irreversible steps. Obiter - comments on speed and efficiency of NCLT proceedings. Conclusion: Discretion exercised in favour of transfer to NCLT to enable IBC remedies and collective resolution for creditors. Overall Disposition The Court allowed the transfer application, holding that (i) no irreversible steps (such as sales of assets) had occurred despite appointment of the Official Liquidator; (ii) pendency of criminal/regulatory investigations did not bar transfer or IBC proceedings; (iii) failure of a sanctioned scheme did not preclude transfer; and (iv) transfer to NCLT was appropriate to enable creditor-driven, time-bound resolution under the IBC and to maximize value for stakeholders. The petition was transferred to the NCLT and parties were permitted to take further steps in accordance with law.