TaxTMI 
TaxTMI 
TaxTMI 
2018 (1) TMI 433
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....1. Respondent­-applicant-­PSL Limited, who is respondent in the company petitions, has filed this application seeking the order dated 19th July 2017 in company application (lodging) no.333 of 2017 be vacated/recalled. By this non­-speaking order, the Learned Company Judge was pleased to stay the proceedings filed by respondent­-applicant under Section 10 of Insolvency and Bankruptcy Code, 2016 ("IBC") before National Company Law Tribunal (NCLT), Ahmedabad for insolvency resolution. The issue which arises for consideration in the present application is whether the Company Court has any jurisdiction to stay the proceedings filed by a Corporate Debtor before NCLT even though a previously instituted company petition by a creditor may have been admitted (and therefore does not get transferred to NCLT) but where a provisional liquidator has not been appointed. 2. On 10th March 2015 company petition no.434 of 2015 was filed by petitioner ­ Jotun India Private Limited against respondent-applicant (org. respondent) under Sections 433 and 434 of the Companies Act, 1956, claiming an outstanding sum of Rs. 7.25 Crores with interest in respect of unpaid invoices for goods ....
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....2017, petitioner herein, mentioned the company application (lodging) No.333 of 2017 before this Court for the appointment of a provisional liquidator. After hearing the counsels, the Learned Judge was pleased to pass an order restraining the Hon'ble NCLT, Ahmedabad, from continuing with IBC Application and placed the company application (lodging) No.333 of 2017 to be heard on 26th July 2017. This order for convenience is hereinafter referred to as "impugned order dated 19th July 2017". 8. On 20th July 2017 appeal (lodging) no.280 of 2017 was filed by respondent­-applicant challenging the order dated 19th July 2017. 9. On 1st August 2017 order was passed by the Division Bench of this Court in the said appeal­clarifying that the question whether the Learned Single Judge, acting as the Company Court, had the jurisdiction to pass the impugned order would expressly be kept open and left for determination. Upon this express liberty, respondent­-applicant withdrew the appeal. 10. On 15th September 2017 the present application was filed for recalling/vacating the impugned order dated 19th July 2017. This impugned order dated 19th July 2017, according to respondent­-appl....
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....ary to the view taken in Ashok Commercial Enterprises (Supra) in as much as in the impugned order, primacy has been given to winding up proceedings filed before this court. This despite the mandate of Section 64 (2) of IBC which is an express bar against any court granting any injunction in respect of proceedings before NCLT. [GhanshyamSarda v. Shiv Shankar Trading Company (2015) 1 SCC 298 (para 2628) and Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. (2004) 4 SCC 311 para 41] (g) The statutory bar against a corporate debtor from filing an application under section 10 of IBC operates, if and only if, there is an order of liquidation against the corporate debtor. Mr. Dwarkadas also relied upon the following judgments: 1. Innoventive Industries Ltd. Vs. ICICI Bank and Anr. (2017) SCC Online 1025 2. Mobilox Innovations Private Limited V/s. Kirusa Software Private Limited (2017) SCC Online SC 1154 3. National Textile Workers' Union v. P.R. Ramakrishnan & Ors. (1983) 1 SCC 228) 4. Madura Coats Ltd. v. Modi Rubber Ltd. and Anr., (2016) 7 SCC 603 5. Bank of New York Mellon v. Zenith Infotech (2017) 5 SCC 1 6. West Hills Realty Pvt. Ltd. v. Neelkamal Realtors Tower Pvt. ....
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....lly curtails the power of Civil Courts or any other authority to restrain any action taken or to be taken before NCLT. This clearly curtails the power of this Court to pass any injunction against the Bank/Intervenor from pursuing the pending application. 17. The power of this Court to pass order to restrain proceedings before any other Court is under Section 446. The provisions of IBC, by virtue of Section 238 of IBC will override the provisions of the Companies Act to that extent. 18 Further, the powers of this Court, while acting as a Company Court under Companies Act, 1956, is in exercise of its ordinary and original jurisdiction and not any extraordinary or inherent jurisdiction. In furtherance thereto, while acting so, this Court will not have jurisdiction to stay the proceedings before NCLT. In fact, both the Company Court as well as NCLT are created under the provisions of Companies Act, 2013 itself. In order to support this contention, reference may be made to the judgment of Official Liquidator, Uttar Pradesh v. Allahabad Bank and Ors. (2013) 4 SCC 381. 19. In the matter of M/s. Innoventive Industries (Supra), the Hon'ble Apex Court, after considering the provisions....
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....sed under Section 481 of the Companies Act, 1956. Till the company is ordered to be wound up, i.e., the final order is passed, NCLT can entertain a petition or an application. 23 A similar issue had come up before the Hon'ble Supreme Court in the case of Madura Coats Ltd. (Supra) where the Hon'ble Supreme Court stayed the proceedings before the Company Court, in view of the applicability of Section 15 and 22 of SICA even when the Company Court has directed that the Company be wound up. It is not out of place to mention that Section 15 of SICA wherein a reference to BIFR is made and consequently, all the proceedings pending before other courts are stayed as per Section 22 of SICA, the situation is analogous to the filing of petition under Section 7 of IBC by virtue of which, NCLT is empowered to declare Moratorium under Section 14 of IBC. 24 In view of the aforesaid, the legislative intent behind the enactment of IBC is to consolidate provisions of SICA and Companies Act. Section 15 of SICA is pari­materia to section 10 of IBC and section 22 of SICA is similar to Section 14 of IBC. 25 IBC has been enacted to revive the Corporate Debtor by declaring a Moratorium of various pro....
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....following section shall be substituted, namely: - 434. Transfer of certain pending proceedings. - (1) On such date as may be notified by the Central Government in this behalf,- (a) ...... (b) ..... (c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer: Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government. (2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section." c. Further, Section 239 (1) of IBC empowers the Central Government to make rules for carrying out the provisions of IBC and states as follows ­ "239. Power to make rules (1) The Centra....
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....ansferred to NCLT and filed as applications under Sections 7, 9 and 10 in accordance with the provisions of IBC and the regulations thereunder. (II) Non­obstante provision under Section 238 of IBC not applicable: 29 The provisions of the 1956 Act are not inconsistent with the provisions of IBC in so far as the Saved Petitions are concerned and therefore, the provisions of IBC do not override the provisions of the 1956 Act under Section 238 of IBC. 30 Upon demurrer, that there is no bar against the proceedings continuing simultaneously before the High Court under the 1956 Act and NCLT under IBC and that Section 238 of IBC, as relied upon by respondent­-applicant, has no application in this present case. 30.1 In the matter of M/s. Ashok Commercial Enterprises (Supra), it has been, inter alia, held that ­ "62. In my view, it is clear that all winding up proceedings shall not stand transferred to the NCLT. It is clear that if the service of the notice of the Company Petition under Rule 26 of the Companies (Court) Rules, 1959 is not complied before the 15th December 2016 such Petitions shall stand transferred to NCLT whereas all other Company Petitions would continue to....
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....een heard by the bench constituted by the President of the NCLT and has been reserved for Orders. ­ "1. Whether the process under the Insolvency and Bankruptcy Code, 2016 can be triggered in the face of the pendency of the winding up petitions before the respective High Courts or it is to be considered as an independent process? 2. In case the process is considered to be not independent, whether the petition filed under the Code is required to be transferred to the concerned High Court which is having seisin over the winding up proceedings or await the outcome of the winding up proceedings by adjourning it sine die? 3. Whether the Code gives any room for discretion to be exercised for adjourning it sine die in view of the statutory mandate given under Section 7, 9 and 10 of the Code for expeditious disposal of cases by either admitting or rejecting it within the fixed time frame? 4. In case if the petition is adjourned sine die and if the winding up petition is dismissed or set aside in appeal subsequently, whether there is scope in such an eventuality for power of revival within the frame work of the Code conferred on this Tribunal?" (III) Respondent's submissions on the ....
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....ming that such a question was to arise, it is submitted on demurrer, that a harmonious and purposive construction of Section 14 of IBC and the saving provisions of the 2013 Act must necessarily lead to an interpretation that the inconsistent provisions of IBC, including the moratorium will not apply to Saved Petitions. The effect of Section 14 of IBC would otherwise, snatch away irreversibly the jurisdiction of the Company Court which is expressly saved under Section 434 of the 2013 Act irretrievably. 39 The fact that if a contrary view is taken, the jurisdiction of the Company Court will be irretrievably lost is apparent from Section 6 to Section 54 of IBC, which result in entering a resolution or a liquidation under IBC. IBC has no provision to permit the Saved Petitions to revive when the effect of the moratorium under Section 14 is taken. (V) The High Court shall exercise its powers under the 1956 Act to dispose the Saved Petitions : 40 With respect to the Saved Petitions including this present Petition, the High Court has the discretion to exercise all powers under the 1956 Act in order to hear and dispose of these proceedings. Accordingly, the High Court has the power to s....
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....restrain further proceedings in the suit or proceeding; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit." c. It is an admitted position that Section 442 of the 1956 Act remains valid and subsisting and was not deleted by the Companies (Second) Amendment Act, 2002. So also, both parties before this Court have accepted that NCLT as the adjudicating authority is a "Court" for the purpose of Section 442 of the 1956 Act. In this regard see, M. Senthil Kumar & Anr. vs. Sudha Mills (India) Pvt. Ltd. & Ors. 1995 SCC Online Mad 551. that the Court can exercise its powers under Section 442 to stay or restrain proceedings in any other "court", which has been construed as "any adjudicating authority which is required to act judicially and is empowered to pass orders binding on the company" including the Company Law Board. d. Under the powers conferred under Section 443 (1) (c), the Company Court has the power to issue any interim orders that it thinks fit in aid of the final relief of winding up. Section 443 reads as under - 443. Powers of Tribunal on hearing petition (1) On hearing a winding up petition, the Tr....
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....he meantime the National Company Law Tribunal (NCLT), Ahmedabad is directed not to proceed further with CP (IB) No. 37 of 2017." (VII) Harmonious construction of the 1956 Act, the 2013 Act and IBC : 47 With respect to the Saved Petitions, the provisions of the 1956 Act, the 2013 Act and IBC must be read in a harmonious and purposive manner. NCLT being the Adjudicating Authority under IBC, in fact derives its powers from the provisions of the 2013 Act. Section 5(1) of IBC defines the Adjudicating Authority as follows ­ "Adjudicating Authority for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013." The powers of the Adjudicating Authority are derived from the provisions of the 2013 Act, under Chapter XXVII in Sections 407 - 434. 48 After hearing the counsel for opposing parties, I am inclined to agree with the submissions of Mr. Dwarkadas and my views are as under : (I) Background and Object - Purpose of Insolvency Code : 49 The Hon'ble Supreme Court of India, in Innoventive Industries Ltd. (Supra), has referred to the report of Bankruptcy Law Reforms Committee 2015 ("Reforms Committee") in order to ga....
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.... into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it." The Committee came to the conclusion that the creditors and debtors ought to be left to decide and realise and agree on whether the entity was facing financial failure or business failure and whether it was capable of being revived. The most significant change being, that when a company defaults on its debt, control of the company should shift to creditors rather than the management who was retaining control after default. It is apparent from a reading of the object and purpose for which IBC has been enacted is to set up an Insolvency and Bankruptcy resolution process, which has to be implemented in a strict time bound manner, by the appointment of an IRP and creation of a creditors Committee. These are powers which can be exercised only by NCLT and not by the Company Court. It is for this reason that pending the Insolvency Resolution Process a moratorium is provided for under Section 14 of IBC. Therefore, the most fundamental distinction between the provision of the Companies Act and IBC is, wherea....
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.... for the working of the bankruptcy code" Paragraph 16 page 7. The Supreme Court has held that there cannot be any relaxation of the time lines prescribed in the Code Paragraph 16 page 7 and Paragraph 28 page 18. (v) The initial period of attempting a resolution process is 180 days from the admission of the Petition which can be extended by a further period of 90 days only if 75% of the committee of creditors consent. (vi) What is, however, of crucial importance is that unlike SICA, once an application filed under IBC either by a financial/operational creditor is admitted, the Board of Directors of the company are immediately displaced and the management of the company rests in the hands of IRP. (vii) The function, power and duty of an IRP is to invite from 'any person' proposal for resolution/revival of the Company in question, which in order to be binding upon the company and all its creditors must be approved by a majority of 75% of the committee of financial creditors (COC); (viii) If on the other hand, (a) NCLT does not receive a resolution plan under Section 30(6) of IBC, within the expiry of the insolvency resolution process period of 180 days or its further extension by ....
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....ial Companies (Special Provisions) Repeal Act, 2003 in the manner specified in 8th Schedule of IBC. The 8th Schedule provides as under: "In section 4, for sub­clause (b), the following sub­clause shall be substituted, namely- "(b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act,1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016:" 55 The effect of this substituted Section 4(b) is therefore to confer an express power upon the company to make a reference to NCLT under IBC within 180 days of the commencement of IBC, i.....
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....ore NCLT. Furthermore, when IBC was enacted and the provisions of SICA were repealed by the Notification dated 21st December 2016, companies which had filed a reference under SICA were given a period of 180 days to file a petition under the provisions of IBC. Thus, the period of moratorium which operated vis­à­vis winding up proceedings as a result of Section 22 of SICA could be continued (if found fit by NCLT) under IBC in the time prescribed by the said Notification. 61 It is pertinent to note that on 19th June 2015, respondent­-applicant filed a reference under Section 15(1) of SICA with BIFR. This was registered on 9th September 2015 and two hearings took place. On 1st December 2016 SICA came to be repealed. On 29th May 2017 respondent­-applicant filed its petition under Section 10 before NCLT, Ahmedabad, i.e., within the prescribed period of 180 days. 62 In fact, the Hon'ble Supreme Court in the case of Madura Coats Ltd. v. Modi Rubber Ltd. (supra) has held that the provisions of SICA would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under SICA. Therefore, since SICA is repealed ....
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....ction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013)." 65 The Companies (Removal of Difficulties) Fourth Order, 2016 issued under sub­section (1) of section 470 of the Companies Act, 2013 states as under: "1. Short title and commencement.­ (1) This Order may be called the Companies (Removal of Difficulties) Fourth Order, 2016. (2) It shall come into force with effect from the 15th December, 2016. 2. In the Companies Act, 2013, in Section 434, in sub­section (1), in clause (c), after the proviso, the following provisos shall be inserted, namely:­ "... Provided further that - (i) ...; or (ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959". 66 It is clear from a reading of the aforementioned notifications that while pre­notice winding up proceedings (transferred to NCLT) are governed by the provisions of IBC, post notice winding up proceedings (retained in High Court) are required to be "dealt with in accordance with provis....
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....ained in the High Court, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation. This is contrary to the plain language of IBC. If the contentions of petitioner were to be accepted, it would mean that in respect of companies, where a post notice winding up petition is admitted or a provisional liquidator appointed, provisions of IBC can never apply to such companies for all times to come. 72 Even under the 29th June 2017 Notification, it is only those petitions pending in the High Court where a notice may not have been issued which would not get transferred, if a winding up petition against such a company has already been admitted. But even in such a case, there is no express or implied bar from other creditors of such a company or the corporate debtor from filing fresh proceedings under IBC. If at all, such creditors/corporate debtors are barred from approaching the High Court and not NCLT under IBC. 73 The mere fact that post notice winding up proceedings are to be "dealt with" in accordance with the provisions of the Companies Act, 1956 does not bar the applicability of the provisions ....
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....t shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. The Hon'ble Supreme Court held that in view of the express bar of jurisdiction contained in SICA, the jurisdiction of the Civil Court, even to grant temporary injunctive relief is completely excluded where the jurisdiction of BIFR is correctly exercised. Paragraphs 29 to 31 read as under : "29. ...The Act is a self­contained Code and has conferred upon the BIFR complete supervisory control over a sick industrial company to adopt such methodology as provided in Chapter III for detecting, reviving or winding up such sick company. The authority to determine the existence and extent of sickness of such company and to adopt methodology for its revival are, in the exclusive domain of the BIFR and by virtue of Section 26 there is an express exclusion of the jurisdiction of the Civil Court in that behalf. 30. As laid down by this Court the Act is a complete Code in i....
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.... results. The suit as framed seeking declaration that the company was no longer a sick company within the meaning of the Act, was therefore not competent and maintainable. The Civil Court was not right and justified in issuing injunction as it did. The counsel who represented the company before the BIFR on 04.04.2013, correctly submitted that before discharging the company the BIFR can examine the audited balance sheet and satisfy itself whether the net worth had turned positive." 76 In Mardia Chemicals Ltd. (supra), the Hon'ble Supreme Court considered the bar of jurisdiction contained in Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 ("SARFAESI Act"). Insolvency and Bankruptcy Code, 2016 SARFAESI Act, 2002 64. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code 34. Civil Court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of an....
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....nst a corporate debtor from institution of proceedings in NCLT. 78 Section 41 (b) of the Specific Relief Act, 1963 states: "41. Injunction when refused.­An injunction cannot be granted­ ... (b) to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought." The Hon'ble Supreme Court in the case of Nahar Industrial Enterprises Ltd. (Supra) has held that: "92. We have held that the Tribunals are neither civil courts nor courts subordinate to the High Court. The High Court ordinarily can be approached in exercise of its writ jurisdiction under Article 226 or its jurisdiction under Article 227 of the Constitution of India." 79 It has been held by this Hon'ble Court in the case of Rentworks India Pvt. Ltd. (Supra) while considering whether DRT was subordinate to the High Court in paragraph 19 that: "19. It is, thus, clear that the DRT is not a court subordinate to this court when the latter exercises its ordinary original civil jurisdiction. If that is so, this court cannot, whilst hearing a suit in its ordinary original civil jurisdiction, injunct any bank from prosecuting a proceeding befor....
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....reme Court in Cotton Corporation of India Limited (supra) while holding at paragraph 21 : "In view of the majority decision, it must be conceded that the court can in appropriate cases grant temporary injunction in exercise of its inherent power in cases not covered by 0.39 C.P.C. But while exercising this inherent power, the court should not overlook the statutory provision which clearly indicates that injunction to restrain initiation of proceeding cannot be granted. Section 41(b) is one such provision. And it must be remembered that inherent power of the court cannot be invoked to nullify or stultify a statutory provision. ..." 82 Besides there is an express bar contained in Section 64 (2) of IBC which prevents any court, tribunal or authority from granting any injunction in respect of any action taken, or to be taken, in pursuance of any power conferred on NCLT under IBC. 83 If petitioner's arguments were to be accepted it would mean that under the Companies Act, 1956, even after a winding up petition was admitted (or a winding up order was passed) and a reference then came to be made to BIFR, Section 22 of SICA would not apply and the High Court seized of the winding up pet....
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....ehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or some other body seeks to have it declared as a sick Company, it is, in our opinion, necessary that the Company be heard before any final decision is taken under the Act. It is also the legislative intention to see mat no proceedings against file assets are taken before any such decision is given by the BIFR for in the case the Company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation v. Maharashtra Steels Ltd., AIR 1988 All 170, the High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima Steels Ltd., the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishab Ispat Ltd., (1993) 78 Comp. Cas 264 are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company's assets must remain stayed as stated in....