2025 (10) TMI 127 - HC - Companies Law

Revival of insolvency proceedings ordered and transferred for CIRP under Section 434(1)(c) to protect creditors' interests

Sh. Naresh Chand Gupta & Anr. Versus Vigneshwara Developers Pvt. Ltd.

The HC allowed revival of insolvency proceedings and directed transfer to the NCLT for adjudication under the IBC, finding no irreversible steps in the ... Transfer of the proceedings to the National Company Law Tribunal - Petition is at a stage, where no irreversible steps have been taken towards liquidation - existence of a debt and a default already stand admitted. It is contended that, since the winding up Petition has been admitted, the matter be transferred to the NCLT and an Interim Resolution Professional be appointed to take over the assets of the company to proceed with the Corporate Insolvency Resolution Process (CIRP) u/s 7 of the IBC. HELD THAT:- It is no longer res-integra that unless irreversible steps, such as the sale of assets have occurred, pending winding up proceedings ought to be transferred to the NCLT in terms of the 5th proviso to Section 434(1)(c) of the 2013 Act. 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] has, 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. 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. In the present case, a Petition under Section 7 of the IBC was filed on 09.05.2019 in Lavkash Verma v. M/s Vigneshwara Developers Pvt. Ltd, seeking the initiation of the Corporate Insolvency Resolution Process against the Respondent Company - Vigneshwara Developers Pvt. Ltd. The admission was challenged in writ proceedings before this Court in captioned Sunil Kumar Dahiya v. Union of India and Ors [2019 (11) TMI 1015 - DELHI HIGH COURT] - A Coordinate Bench of this Court by its order dated 08.11.2019 had stayed the operation of the admission order passed by the NCLT directing that since a Scheme of revival of the Respondent Company had already been formulated and the Scheme would be set to naught if the order of the NCLT would be allowed to continue. Thus, the Scheme was approved by the Court on 27.01.2020 and the Ex-Directors/Propounders of the Scheme were allowed by this Court to take steps to revive the Company. However, inspite of the lapse of 3 years, thereafter, the Court found that pre-requisites for the implementation of the Scheme had not been worked out. The statutory authorities were not paid nor were the claims of the land owners settled. The land for the projects could also not be handed over since the Propounders of the Scheme were in judicial custody. Since the Scheme had become unworkable, the Scheme was set aside by this Court on 04.01.2023. The claims of over 1250 creditors have been filed before the Official Liquidator. The Official Liquidator has also contended 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. In view of the large number of investors involved, it would be apposite and in public interest that proceedings under the IBC be revived - Application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a winding-up petition admitted by the Company Court can be transferred to the National Company Law Tribunal (NCLT) under the discretion conferred by the 5th proviso to Section 434(1)(c) of the Companies Act, 2013 where the petition has been admitted and a provisional/proper liquidator appointed. 2. Whether transfer to the NCLT is permissible when the Official Liquidator has taken custody of assets but no irreversible steps (e.g., sale of assets or disbursement to creditors) have been taken. 3. Whether pending or initiated criminal investigations or other statutory inquiries (e.g., SFIO investigations) operate as a bar to transfer and to the initiation/continuation of proceedings under the Insolvency and Bankruptcy Code (IBC), including claims under Sections 43-51 and 66 of the IBC. 4. Whether the IBC (and related NCLT jurisdiction under Section 7/9) has overriding effect over continuing winding-up proceedings such that transfer should be ordered when the statutory parameters for CIRP are met or when transfer would avoid parallel, conflicting proceedings and better preserve creditor interests. 5. Whether public interest, multiplicity of small creditors/allottees and the state of the proposed revival scheme are relevant considerations in exercising the discretion to transfer to the NCLT. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Discretion to transfer admitted winding-up petitions to NCLT (Legal framework) Legal framework: The 5th proviso to Section 434(1)(c) of the Companies Act, 2013 permits parties to pending winding-up proceedings before High Courts to apply for transfer of such proceedings to the Tribunal, to be dealt with as applications for initiation of CIRP under the IBC; the provision confers a discretionary power on the Company Court to order transfer. Precedent Treatment: The Supreme Court in Action Ispat clarified that the Company Court retains discretion to transfer even post-admission and post-appointment of a liquidator, subject to factual determination whether irreversible steps have been taken. Kaledonia recognised creditor standing to seek transfer under the 5th proviso. A. Navinchandra affirmed Section 7 IBC as an independent remedy and held that discretionary provisions under Section 434 cannot curtail NCLT jurisdiction where IBC parameters are met. Interpretation and reasoning: The Court applies these decisions to hold that the discretion under Section 434(1)(c) should be exercised so long as the winding-up proceedings have not reached an irreversible stage; transfer is appropriate where nothing irreversible has occurred and transfer would enable adjudication under the special, time-bound, creditor-driven IBC framework. Ratio vs. Obiter: Ratio - Company Courts have discretion to transfer admitted winding-up petitions to NCLT under the 5th proviso to Section 434(1)(c), subject to the irreversible-steps test. Observational support from prior authorities is relied upon as binding guidance. Conclusion: The Court recognises and applies the discretionary power to transfer admitted winding-up petitions to the NCLT where factual circumstances warrant. Issue 2 - Effect of custody by Official Liquidator absent irreversible steps Legal framework: Section 290 (Companies Act, 2013) permits a liquidator to take custody and carry on business as necessary; transfer under Section 434(1)(c) remains available unless irreversible acts (sale/disposition) have occurred. Precedent Treatment: Action Ispat emphasises that appointment of a liquidator and assets being in custodia legis do not preclude transfer unless assets have been actually sold or other irreversible acts undertaken. Interpretation and reasoning: The Court examined the factual matrix: Official Liquidator in custody, valuation performed, claims filed (~1250+), but no sale of assets, no disbursement, no irreversible steps. The Court finds these circumstances fall within the class of cases where transfer is appropriate, as nothing irreversible prevents the clock from being turned back. Ratio vs. Obiter: Ratio - Custody by the Official Liquidator, valuation and ongoing administration do not by themselves make winding-up irreversible; transfer is permissible absent actual sale/disbursement. Conclusion: Transfer to the NCLT is appropriate because the Official Liquidator has not taken irreversible steps (no sales, no disbursements), and assets remain capable of preservation for CIRP. Issue 3 - Impact of pending criminal/statutory investigations on transfer and IBC proceedings Legal framework: The IBC provides for adjudication of insolvency and avoidance transactions (Sections 43-51, 66) and envisages that criminal or other statutory investigations do not stay civil insolvency processes unless a specific bar exists. Precedent Treatment: A. Navinchandra and related authorities recognise that pendency of other proceedings (including winding-up or criminal investigations) does not prevent initiation or continuation of IBC proceedings where statutory thresholds are met. Interpretation and reasoning: The Court notes the existence of SFIO investigations but finds no authority to treat such investigations as a bar to transfer or to proceedings under the IBC; allegations of fraud and parallel probes can be addressed within the IBC framework (avoidance and fraudulent conveyance provisions) and by the investigative agencies in their domain. Ratio vs. Obiter: Ratio - Pending criminal or statutory investigations do not of themselves preclude transfer to the NCLT or the initiation/continuation of IBC proceedings. Conclusion: Criminal or SFIO investigations do not operate as a bar to transfer to the NCLT or to proceedings under the IBC; such matters can proceed concurrently where legally permissible. Issue 4 - Overriding effect of IBC and avoidance of parallel proceedings Legal framework: IBC is a self-contained code with time-bound insolvency resolution processes; Section 7/9 proceedings before NCLT are independent remedies. The 5th proviso to Section 434(1)(c) aims to avoid multiplicity of forums by enabling transfer. Precedent Treatment: Kaledonia and A. Navinchandra stress that the object of IBC would be frustrated by parallel proceedings; discretionary transfer must not be used to subvert NCLT jurisdiction where IBC parameters are satisfied. Interpretation and reasoning: The Court reasons that transfer furthers the IBC objective of creditor-driven, time-bound resolution, avoids duplicative litigation, and affords broader powers (including avoidance of fraudulent/undervalued transactions) and potential for revival as a going concern to maximize asset value for stakeholders. Ratio vs. Obiter: Ratio - Where transfer avoids parallel, conflicting proceedings and better serves creditor interests within the IBC framework, Company Courts should transfer pending winding-up matters to the NCLT. Conclusion: Transfer is warranted to enable IBC processes to operate and to prevent parallel proceedings that would frustrate the IBC's objectives. Issue 5 - Relevance of public interest, multiplicity of small creditors and unworkability of revival scheme Legal framework: Court's discretion under Section 434 includes consideration of convenience, efficacy, and the interests of all stakeholders; IBC's creditor-driven scheme is designed to protect collective creditor interests, especially numerous small creditors. Precedent Treatment: Prior judgments have acknowledged that transfer may be in the public interest where efficient collective resolution and preservation of assets for many creditors are implicated. Interpretation and reasoning: The Court considered that over 1,250 claims were filed, the previously sanctioned revival scheme had become unworkable (statutory dues unpaid, propounders in custody, no funds), and continued custodial expenditure was depleting distributable assets. Transfer to NCLT was found likely to better serve the large class of small creditors by enabling CIRP, possible revival, and more effective scrutiny/recovery including avoidance actions. Ratio vs. Obiter: Ratio - Public interest and the protection of numerous small creditors are legitimate and material considerations in exercising the discretion to transfer winding-up proceedings to the NCLT. Conclusion: The multiplicity of small creditors, the unworkability of the court-sanctioned revival scheme, and attrition of estate value through custodial expenses support transfer to NCLT in the public interest. Final Disposition (Conclusions synthesized) The Court exercised the discretionary power under the 5th proviso to Section 434(1)(c) to allow transfer of the pending winding-up petition to the NCLT because: (a) no irreversible steps (no sale of assets, no disbursements) had been taken by the Official Liquidator; (b) the revival scheme had become unworkable after judicially-noted failures to clear statutory dues and secure landowner claims; (c) large numbers of creditors/allottees with pending claims and ongoing custodial expenses warranted adjudication under the IBC's time-bound and specialized framework; and (d) pending criminal/statutory investigations did not bar transfer or IBC proceedings. The parties were permitted to proceed before the NCLT and take appropriate steps in accordance with law.