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2018 (1) TMI 433
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....cant in CAL/417/2017 (Intervenor). P.C.: 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 wit....
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....eeking the appointment of a Provisional Liquidator. 7. On 19th July 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 20....
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.... the pending IBC Application. (f) The impugned order dated 19th July 2017 is clearly contrary 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....
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....sue over which NCLT has jurisdiction. This Section is pari­materia to Section 34 of SARFAESI Act, 2002. Section 231 of IBC, specifically 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 O....
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....f petition and passing of orders by NCLT as the order of admission is merely commencement of proceedings and not final order of winding up which is passed 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 I....
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....ies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule." "The Eleventh Schedule Amendments to the Companies Act, 2013 34. For section 434, the 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." ....
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....petitions shall be dealt with and disposed of in accordance with the 1956 Act to the complete exclusion of IBC. g.3 In terms of the petitions in class (ii), the legislative intent is clear that those petitions are to be transferred 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 ....
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....y. NCLT Delhi has, vide its order dated 21st August 2017, escalated the following issues to a special bench to be constituted by the Hon'ble President of NCLT, in the matter of Union Bank of India v Era Infra Engineering Ltd. The issues have been 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....
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....IBC. Accordingly, in appropriate cases when Saved Petitions are brought at the instance of such creditors, the Company Court may exercise its discretion to retain such Saved Petitions and to prevent the Adjudicating Authority from exercising its jurisdiction. 38 Assuming 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....
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.... company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and (b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind up the company, to 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" includ....
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....spondent­-applicant observed that the CDR Scheme could not be implemented and that prima facie, respondent­-applicant cannot be revived. 46 Hon'ble Mr. Justice A. S. Gadkari J. has exercised powers under Sections 442 and 443 of 1956 Act, in the Stay Order and held as follows­ "1. Circulation is granted for 26.07.2017. To be placed high on board. 2. In the 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 - ....
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....g.7 of Innoventive (supra) the Reforms Committee has stated: "The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, the laws in India have brought arms of the government (legislature, executive or judiciary) 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 i....
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....Act, where a single creditor, whose debt was undisputed could wind up a company, thus bringing about its untimely financial death, IBC on the other hand mandatorily requires that an attempt at revival be made by appointing an IRP to examine whether such a company can be revived. (iv) The process of insolvency resolution is strictly time bound and as held by the Supreme Court in Innoventive (supra) "speed is of essence 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 ....
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....was made in time. 53 It has now been held by the Supreme Court in Bank of New York Mellon (Supra) that by virtue of Section 252 of IBC, even in the case of a company where a winding up order has been passed, it is open to such a company, whose reference was deemed to be pending with BIFR, to seek remedies under IBC before NCLT. (IV) No carving out of existing winding up proceedings : 54 Section 252 of IBC has amended the Sick Industrial 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....
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.... those winding up petitions, of which the jurisdictional high court remain seized, would have primacy over NCLT proceedings which may be filed in respect of the same company by another creditor, the legislature would have said so, either in IBC or in the transfer rules Notification. 60 On the contrary, the provisions of Section 64 (2) of IBC would indicate that the legislature did not intend that the Company Court would have the power to injunct proceedings before 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 b....
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....y be, and dealt with in accordance with Part II of the Code: ... 6. Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction 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) th....
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....r from the above that the winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. It only provides that winding up proceedings under Section 433 (1) (e) pending in the High Court would continue in the High Court ­ Prasanta Kumar Mitra (Supra). 71 Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC, vis­à­vis the company against whom a winding up petition is filed and retained 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 windin....
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....urisdiction under the Sick Industrial Companies Act, 1985 ("SICA"), Insolvency and Bankruptcy Code, 2016 Sick Industrial Companies Act, 1985 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. 26. Bar of Jurisdiction No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court 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 ....
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....isdiction and when all the financial affairs of such company were directly under the supervisory control of the BIFR, the power to decide whether it has since then lost the jurisdiction or not, is also in the exclusive domain of the BIFR. The BIFR alone is empowered to determine whether net worth has become positive as a result of which it would cease to have such jurisdiction. Any inquiry into such issue regarding net worth by anyone outside the Act including civil court, would be against the express intent of the Act and would lead to incongruous and undesired 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....
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....ion may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub­section (4) of Section 13." (Emphasis supplied) (VIII) No power to Injunct : 77 NCLT is not a court subordinate to the High Court and hence as prohibited by the provisions of Section 41 (b) of the Specific Relief Act, 1963 no injunction can be granted by the High Court against 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 approache....
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....rdinate to that from which the injunction is sought. ... At any rate the court is precluded by a statutory provision from granting an injunction restraining a person from instituting or prosecuting a proceeding in a court of coordinate jurisdiction or superior jurisdiction. ..." (emphasis supplied) 81 It may also be noted that apart from there being no provision in the Companies Act, 1956 to injunct proceedings before NCLT instituted under IBC, petitioner cannot take recourse under the inherent powers of the High Court to support the impugned order. This argument has been expressly rejected by the Hon'ble Supreme 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 canno....
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....low for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and rehabilitate 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....
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....attracted after the order of winding up of the company is passed. The words "no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court appears to have not taken note of the aforesaid words i.e. to be proceeded with further. As the impugned judgment is based upon wrong assumption of the provision of law and completely ignoring the vital words noticed hereinabove, the same cannot be sustained. 85 In view of the above since the IBC is admittedly a successor statute to SICA, and Section 64 (2) of IBC being pari­materia to Section 22 of SICA, the argument that the Company Court has the power to injunct proceedings before under NCLT in cases of pending winding up petitions is entirely misplaced and contrary to legislative intent. (IX) The Company Court has the jurisdiction to r....