2025 (11) TMI 1040 - HC - Companies Law

Mandatory transfer of pending winding-up proceedings under IBC and Companies (Transfer of Pending Proceedings) Rules, 2016 per Action Ispat

M/s. M.S. Glass Industries Limited (In Liqn) M/s. RMC Readymix (India) Versus The O/L, HCOS And Anr.

HC ordered mandatory transfer of pending winding-up proceedings to the NCLT Kolkata under the Insolvency and Bankruptcy Code and the Companies (Transfer ... Transfer of winding-up proceedings pending before the High Court to the National Company Law Tribunal (NCLT) - HELD THAT:- In terms of the provisions of the Insolvency and Bankruptcy Code, 2015, and in view of the amendment introduced to the provisions of the Act of 2013, Companies (Transfer of Pending Proceedings) Rules, 2016 was promulgated. The Transfer Rules of 2016 provided, compulsory transfer of all winding-up proceedings pending before the High Courts to the NCLT at a stage prior to the service of the petition in terms of Rule 26 of the Companies (Court) Rules, 1959 - Section 434(1)(c) of the Act of 1956 were amended to provide for mandatory transfer of all winding-up proceedings from the High Court to the National Company Law Tribunal. In understanding of Fortune Furnitech Private Limited [2023 (12) TMI 322 - CALCUTTA HIGH COURT], the Co-ordinate Bench did not lay down any parameters governing the field of the issue of transfer of winding-up petition to the National Company Law Tribunal broadly in respect of issue that it framed. It limited its enquiry on issue to the facts of the company before it only. In Action Ispat And Power Pvt. Ltd., Supreme Court is of the view that, a proceeding for winding-up pending before the High Court is mandatorily required to be transferred to the National Company Law Tribunal, save and except where, the winding-up proceedings reached a stage where it would be irreversible making it impossible to set the clock back. It also notes that so long as no actual sales of the assets of the company takes place, nothing irreversible would be done which would warrant the Company Court staying its hand on a transfer application made to it by a creditor or a party to the proceeding. Applying such ratio of Action Ispat And Power Pvt. Ltd. in the facts and circumstances of the present case, it is found that there is an application by the secured creditor for transfer of the proceeding to the National Company Law Tribunal, Kolkata. We also find that, the assets of the company (in liquidation) are yet to be put up for sale and at least not sold. Therefore, nothing irreversible is done which would warrant the Company Court to not transfer the Company Petition on the application for the same. Therefore, on the strength of the ratio of Action Ispat And Power Pvt. Ltd., the winding-up proceedings along with all connected applications therein are transferred to the National Company Law Tribunal, Kolkata, forthwith - application disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether winding-up proceedings pending before the High Court are mandatorily transferable to the National Company Law Tribunal (NCLT) under the amended Companies Act and the Insolvency and Bankruptcy Code framework. 2. Whether the continuation of security services for protection of assets, unpaid dues to the security agency, and the factual status of possession/sale of assets constitute an 'irreversible' stage preventing transfer of winding-up proceedings to the NCLT. 3. The relevance and applicability of the Supreme Court ratio concerning transfer (as articulated in Action Ispat) and the treatment of a co-ordinate bench decision that addressed transfer in its particular facts (Fortune Furnitech) - i.e., whether the latter alters or narrows the binding rule. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory transfer of winding-up proceedings to NCLT Legal framework: Section 434 of the Companies Act (as amended) read with the Insolvency and Bankruptcy Code and the Companies (Transfer of Pending Proceedings) Rules, 2016 prescribes transfer of proceedings under the Companies Act, 1956 (including winding up) pending before High Courts to the NCLT, subject to specified provisos and prescribed stages. Precedent treatment: The Supreme Court's decision in Action Ispat establishes the governing legal principle that winding-up proceedings are mandatorily transferable to the NCLT except where the proceedings have reached an irreversible stage making it impossible to set the clock back. A co-ordinate bench decision (Fortune Furnitech) dealt with facts of that case and did not purport to lay down broad additional parameters. Interpretation and reasoning: The Court analysed the statutory mandate for transfer and held that the legislative scheme contemplates compulsory transmission of winding-up petitions to the NCLT save in exceptional circumstances where reversal is impossible. The Transfer Rules and amended Section 434 effectuate the legislative intent that such matters be dealt with by the NCLT under the Code. Ratio vs. Obiter: The binding ratio is that mandatory transfer is the norm under the amended statute, subject to the irreversible-stage exception articulated by the Supreme Court. Observations distinguishing or limiting co-ordinate bench treatment to its facts are explanatory, not contrary binding law. Conclusions: The Court applied the statutory scheme and Action Ispat's ratio to conclude that, as a general rule, winding-up proceedings pending before the High Court must be transferred to the NCLT unless the irreversible-stage exception is shown. Issue 2 - Whether continuation of security services and unpaid dues render the winding-up proceedings irreversible Legal framework: Section 434 and the Transfer Rules; Section 290 of the Companies Act, 2013 (company liquidator's powers) as interpreted in Action Ispat regarding what constitutes reversible vs irreversible steps in a winding-up. Precedent treatment: Action Ispat recognized that the Company Liquidator may carry on business and take steps (including sales) necessary for beneficial winding up, but held that unless actual sales or other irreversible acts have occurred, a Company Court should not decline transfer. Fortune Furnitech addressed transfer in its peculiar factual matrix and did not displace the Action Ispat test. Interpretation and reasoning: The Court examined factual indicia - possession by the official liquidator, engagement of security services, and the absence of actual sales or other irreversible dispositions of assets. It concluded that guarding of assets and unpaid service bills do not amount to irreversible actions that would prevent transfer. The absence of completed sales or irreversible dispositions means the statutory policy favoring transfer is not defeated by such operational continuations. Ratio vs. Obiter: It is ratio that continuation of guard services and outstanding service claims, in the absence of completed sales or irreversible dispositions, do not satisfy the irreversible-stage exception. Observations about the operational inconveniences to a creditor or service provider are ancillary and form guidance for relief post-transfer, not a bar to transfer. Conclusions: The Court held that continuation of security services and unpaid dues do not, by themselves, render the winding-up proceedings irreversible; therefore they do not prevent mandatory transfer to the NCLT where no irreversible acts (such as sale) have occurred. Issue 3 - Applicability of Action Ispat and of co-ordinate bench decision (Fortune Furnitech) Legal framework: Hierarchy of judicial precedent and the need to follow Supreme Court rulings on legal questions concerning statutory transfer of proceedings. Precedent treatment: Action Ispat is binding and sets the test for when transfer should be refused (irreversible stage). Fortune Furnitech was treated as addressing its own facts without laying down broader rules that would modify the binding test in Action Ispat. Interpretation and reasoning: The Court expressly applied Action Ispat's principles, noting that Fortune Furnitech did not or could not overrule or expand that ratio beyond its facts. The Court distinguished the co-ordinate bench's factual findings and confined its application to similar fact situations only. Ratio vs. Obiter: The Court treated Action Ispat as ratio binding the decision; aspects of Fortune Furnitech were treated as limited to factual context and therefore not binding beyond those facts (obiter or narrowly applicable factual precedent). Conclusions: Action Ispat governs the transfer question; the co-ordinate bench decision does not supplant the Supreme Court ratio and is limited to its facts. The Court followed Action Ispat to allow transfer in the present circumstances. Relief and ancillary directions Legal framework and reasoning: While transfer was ordered, the Court recognized the appellant's unresolved claim for unpaid dues and the practical concern that transfer might affect remedies available to the service provider. Conclusions: The Court ordered immediate transfer of the winding-up proceedings and connected applications to the NCLT, directed transmission of records, and granted leave to the appellant to pursue its monetary claim before the appropriate authority in accordance with law. No order as to costs. Conclusive ratio of the Court Under the amended statutory scheme transfer of winding-up proceedings to the NCLT is mandatory except where the proceedings have reached an irreversible stage (principle from Action Ispat). Continuation of guarding services and unpaid service claims, absent actual sales or other irreversible dispositions of assets, do not constitute such an irreversible stage; accordingly transfer was ordered, with an express preservation of the service provider's right to pursue its claim post-transfer.