2026 (2) TMI 478 - HC - Companies Law

Transfer of winding up proceedings to insolvency framework allowed; enforcement by secured creditors not automatically fatal to CIRP application.

Transfer under Section 434(1)(c) was granted because the court found the threshold of irreversible corporate death was not met; sales by secured creditors ... Transfer of winding up proceedings u/s 434(1)(c) - corporate insolvency resolution process under the Insolvency and Bankruptcy Code - test of irreversible stage / corporate death - sale of assets by secured creditors and effect on transfer - primacy of IBC and its legislative intent to prioritise resolution over liquidation - prejudice to workmen as a ground to refuse transfer - exclusive jurisdiction of NCLT to determine feasibility of resolution - HELD THAT:- The Applicant has made out a case for transfer of the proceedings to the National Company Law Tribunal under Section 434(1)(c) of the Companies Act, 2013. The IBC is a special enactment intended to provide a comprehensive, uniform and time-bound mechanism for the resolution of corporate insolvency, replacing the earlier regime under the Companies Act. The legislative intent and scheme of the IBC is to give primacy to resolution over liquidation. Section 238 of the IBC also expressly provides that the provisions of the IBC shall have effect notwithstanding anything inconsistent contained in any other law for the time being in force. While in the facts of the present case, it is true that from the material placed on record, several assets of the Company in liquidation have been taken over and dealt with by secured creditors in proceedings before the DRT. However, as held by the Supreme Court in A. Navinchandra Steels [2021 (3) TMI 38 - SUPREME COURT], the sale of assets by secured creditors enforcing their security interest while standing outside the winding-up does not, by itself, constitute an irreversible step so as to bar transfer under Section 434(1)(c). Though the Official Liquidator has, in the Affidavit, stated that ‘irreversible steps’ have been taken, on a query from the Court, learned counsel was unable to justify how the steps taken would meet the test laid down by the Hon’ble Supreme Court in the case of A. Navinchandra Steels. In this case, the winding-up order was passed on 4th February 2008, and to date, the steps taken by the Official Liquidator are limited to (i) taking possession of two immovable properties of the Company in liquidation and (ii) inviting claims from workmen and creditors. The process of verification of claims is admittedly still ongoing. As observed by the Supreme Court in Action Ispat [2020 (12) TMI 535 - SUPREME COURT], such steps do not amount to irreversible progress of winding-up proceedings. Thus, clearly, the Official Liquidator has not taken any irreversible steps in the course of winding up. Though certain assets of the Company in liquidation have been sold and/or otherwise dealt with by secured creditors, it is not in dispute that the Official Liquidator continues to remain in possession of some assets of the Company, in addition to substantial funds. In these circumstances, it is impossible for me to conclude with certainty that there is not even the slightest possibility of revival or resolution of the Company in liquidation, as bleak as they may appear to be. Further, the determination of whether resolution is ultimately possible or not lies squarely within the exclusive domain of the NCLT and must be undertaken in accordance with the statutory framework of the IBC. Also, the fact that revival under SICA did not materialise is not a factor that, by itself, would assume revival under the scheme of the IBC would fail. The objection raised on behalf of the Official Liquidator that a transfer of the proceedings to the NCLT would prejudice the workmen also cannot be accepted as a ground to refuse transfer. As held by the Supreme Court in Moser Baer Karamchari Union v. Union of India [2023 (5) TMI 143 - SUPREME COURT], the distribution waterfall under the IBC is a matter of legislative policy. Parliament has consciously recalibrated priorities in furtherance of value maximisation and revival. The Court cannot, therefore, decline transfer on the basis of perceived differences in distributive outcomes under two statutory regimes. To my mind, it is plain that the real objection to the transfer by IFCI and the Official Liquidator is that such a transfer would affect their position as secured creditors and impact proceedings initiated by them for recovery. That, however, cannot be a valid ground to oppose transfer, having regard to the legislative intent and the larger public interest sought to be achieved by the IBC. The High Court allowed the application to transfer the winding up proceedings to the NCLT under Section 434(1)(c), holding that the threshold of irreversible corporate death was not satisfied, that sales/enforcement by secured creditors do not automatically bar transfer, and that potential distributive differences under the IBC do not justify withholding transfer; directions issued for filing of a CIRP application and for workmen to pursue claims before the NCLT. Issues: Whether Company Application seeking transfer of winding-up proceedings to the National Company Law Tribunal under Section 434(1)(c) of the Companies Act, 2013 should be allowed.Analysis: The statutory framework gives primacy to the Insolvency and Bankruptcy Code, 2016 as a later special enactment for time bound corporate insolvency resolution (Section 238, IBC). The settled test for refusing transfer under Section 434(1)(c) is whether the winding up has reached an irreversible stage of 'corporate death' making revival impossible; mere appointment of receivers or sale of some assets by secured creditors does not, by itself, constitute such an irreversible stage. The material showed that some assets were in possession of DRT receivers or secured creditors and that limited sales had occurred, while the Official Liquidator retained possession of other assets and substantial funds and the claims verification process remained ongoing. The objections based on potential prejudice to workmen arising from prioritisation under the IBC engage legislative policy (waterfall) and do not, by themselves, justify refusal of transfer. The determinative question of whether revival is possible falls within the exclusive remit of the NCLT under the IBC framework.Conclusion: Company Application allowed; transfer to the NCLT to enable initiation of corporate insolvency resolution in terms of Section 434(1)(c) of the Companies Act, 2013. The Applicant to file application in the NCLT within seven days; workmen permitted to file claims before the NCLT; actions by secured creditors and prior orders preserved for appropriate application to the NCLT.