TaxTMI 
TaxTMI 
2018 (7) TMI 1741
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.... Company Application No. 572 of 2017 and original petitioner in Company Petition No. 434 of 2015, which came to be filed on 10/3/2015 under Sections 433 and 434 of the Companies Act, 1956 (for short the Act of 1956). The respondent herein is original applicant in Company Application No. 572 of 2017 and original respondent in Company Petition No. 434 of 2015. 4. The appellant claimed an outstanding amount of Rs. 7.25 crores with interest in respect of unpaid invoices for the goods supplied by the appellant in favour of the respondent. The respondent - Corporate Debtor made a reference to Board of Industrial and Financial Reconstruction (for short BIFR). On 1/12/2016 the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (for short the Repeal Act, 2003) was notified and the Sick Industrial Companies (Special Provisions) Act, 1985 (for short the SICA) came to be repealed. Simultaneously, the Insolvency and Bankruptcy Code, 2016 (for short the IBC, 2016) was brought into force on 28/5/2016. Under the provisions of Section 4(b) of the Repeal Act, 2003 (as amended by the IBC, 2016), a company, whose reference was pending before the BIFR as on 1/12/2016, was entitled to file....
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....resent appeal came to be filed by the appellant challenging the order dated 5/1/2018. 8. Before we proceed to address the issues raised by the learned counsel appearing for the contesting parties, we may refer to certain provisions of the enactments which are relevant for the purpose of determination of the issues raised before us. RELEVANT PROVISIONS OF STATUTES: 9. Chapter III of the SICA refers to references, inquiries and schemes. Section 18 refers to preparation and sanction of schemes. Section 20 refers to winding up of sick industrial company. The important provision for the purposes of the present case would be Section 22 relating to suspension of legal proceedings, contracts, etc. Section 22 (1) of the SICA reads as under :- "22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or t....
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....ection (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed. (3) The corporate applicant shall, along with the application furnish the information relating to - (a) its books of account and such other documents relating to such period as may be specified; and (b) the resolution professional proposed to be appointed as an interim resolution professional. (4) The Adjudicating Authority shall, within a periodof fourteen days of the receipt of the application, by an order - (a) admit the application, if it is complete; or (b) reject the application, if it is incomplete: Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority. (5) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (4) of this section. 12. Time-limit for completion of insolvency resolution process.- (1) Subject to sub-section (2), the corporate insolvency resolution process shall....
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....torium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 22. Appointment of resolution professional. - (1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. (2) The committee of creditors, may, in the first meeting, by a majority vote of not less than seventy-five percent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolves under sub-section (2) - (a) to continue the interim resolution professional as resolution professional, it shall communicate its de....
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.... 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 order passed by such Adjudicating Authority under this Code." The Notifications issued by the Ministry of Finance (Department of Financial Services), New Delhi, dated 25/11/2016 reads as under : " NOTIFICATION S.O. 3568(E). - In exercise of powers conferred by subsection (2) of section 1 of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (1 of 2004), the Central Government hereby appoints the 1st day of December, 2016, as the date on which the provisions of the said Act shall come into force. [F.No.3/2/2011-IF-II] R.N. DUBEY, Economic Adviser" " NOTIFICATION S.O. 3569(E). - In exercise of powers conferred by clause (b) of section 4 of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (1 of 2004), the Central Government hereby notifies the 1st day of December, 2016, as the date for the purpose of clause (b) of section 4 of the said Act. [F.No.3/2/2011-IF-II] R.N. DUBEY, Economic Adviser" SUBMISSIONS : 10. Mr. Zal Andhyarujina, the learned counsel appearing for the appellant submitted that under the Act of 19....
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....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." 12. On 7/12/2016, the Central Government notified the Companies (Transfer of Pending Proceedings) Rules 2016 (for short the Transfer Rules 2016), by which it was clarified that all petitions filed under Section 433(e) of the Act of 1956 in the High Court which had not been served upon the respondent shall be transferred to the NCLT. On 29/6/2017, the Central Government notified the Companies (Trans....
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....r the presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may - (a) where any suit or proceeding against the 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." In the submission of the learned counsel for the appellant, Section 442 of the Act of 1956 has not been deleted. The learned counsel submits that under Section 443(1)(c) of the Act of 1956, the Company Court has power to issue any interim order. Relevant provisions of Section 443 of the Act of 1956 reads as under :- "443. Powers of Tribunal on hearing petition.-(1) On hearing a winding up petition, the Tribunal may (a) dismiss it, with or without costs; or (b) adjourn the hearing conditionally or unconditi....
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....on 14 of the Code does not expressly stay winding up proceedings or proceedings under the Companies Act, 1956. (e) Upon notification of the SICA Repeal Act, the stay granted under Section 22 of SICA abated with immediate effect and was not continued to protect the Company for the period of 180 days. In the submissions of the learned counsel, the learned Single Judge failed to consider the settled law on the point and the case law cited before him. 15. The learned counsel for the appellant, in support of his submission, placed reliance on the judgment delivered by the learned Single Judge of this court in the case of M/s. Ashok Commercial Enterprises vs. Parekh Aluminex Limited [Company Petition No. 136 of 2014 decided on 11/4/2017]. Para 62 of the said judgment reads as under :- "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 be heard and adjudicated upon only ....
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....mpany to which the provisions of Section 22 of SICA became applicable by operation of law, regardless of the stage at which the winding up may be. In the written submission, the respondent further submitted that, the fact that there was as yet no declaration made by NCLT under the IBC, 2016, cannot be taken as a ground / justification for exercising the power to grant an injunction restraining the Company from invoking the provisions of Section 10 of the IBC, 2016, as the same would be in the teeth of Section 64(2) of the IBC, 2016. If the submission of the appellant is accepted, it would mean that in respect of a Company where notice of a winding up petition has been served or a winding up admitted such a company itself would be completely outside the purview of and exempt from the applicability of the provisions of the IBC, 2016 for all times to come. It is further submitted that such an interpretation would be contrary to every cannon of interpretation and would in fact fall foul of the notification dated 7th December, 2016 by which the pre-notice winding up petitions were not only transferred to the NCLT, but were required to be disposed of in accordance with the provisions of ....
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....ion shall be substituted, namely:- "434. (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 (1 of 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." 21. The learned Senior Counsel appearing for the respondent, in support of his submissions, placed reliance on the following judgments: (a) Allahabad Bank vs. Canara Bank and anr. [(2000) 4 SCC 406]. (b) M/s. Innoventive Industries Ltd. vs. ICICI Bank and anr. [2017 SCC OnLine SC 1025]. (c) B. Gopal Das and ors. vs. Kota Straw Board (P) Ltd. [1972 (1) WLN 35]. (d) Kailash Prasad Mishra and ors. vs. Medwin Laboratory P. Ltd. and ors. [1985 SCC OnLine MP 194]. 22. We ha....
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....tes commercial aspects of insolvency and bankruptcy proceedings from judicial aspects. The Code also seeks to provide for establishment of the Insolvency and Bankruptcy Board of India (Board) for regulation of insolvency professionals, insolvency professional agencies and information utilities. Till the Board is established, the Central Government shall exercise all powers of the Board or designate any financial sector regulator to exercise the powers and functions of the Board. Insolvency professionals will assist in completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the Code. Information Utilities would collect, collate, authenticate and disseminate financial information to facilitate such proceedings. The Code also proposes to establish a fund to be called the Insolvency and Bankruptcy Fund of India for the purposes specified in the Code. 4. The Code seeks to provide for amendments in the Indian Partnership Act, 1932, the Central Excise Act, 1944, Customs Act, 1962, Income Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitization and Reconstruction of Financial Assets a....
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.... of the youngest republics in the world, with a high concentration of the most dynamic entrepreneurs. Yet these game changers and growth drivers are crippled by an environment that takes some of the longest times and highest costs by world standards to resolve any problems that arise while repaying dues on debt. This problem leads to grave consequences: India has some of the lowest credit compared to the size of the economy. This is a troublesome state to be in, particularly for a young emerging economy with the entrepreneurial dynamism of India. Such dynamism not only needs reforms, but reforms done urgently." xxx xxx xxx xxx "The limited liability company is a contract between equity and debt. As long as debt obligations are met, equity owners have complete control, and creditors have no say in how the business is run. When default takes place, control is supposed to transfer to the creditors; equity owners have no say. This is not how companies in India work today. For many decades, creditors have had low power when faced with default. Promoters stay in control of the company even after default. Only one element of a bankruptcy framework has been put into place: to a limited....
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....y is to sell the firm as a going concern and use the proceeds to pay creditors. Many hybrid structures of these broad categories can be envisioned. 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, 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." xxx xxx xxx xxx "Speed is of essence Speed is of essence for the working of the bankruptcy code, for two reasons. First, while the 'calm period' can help keep an organisation afloat, without the full clarity of ownership and control, significant decisions cannot be made. Without effective leadership, the firm will tend to atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only answer. Second, the liquidation value tends to go down with time as many assets suffer from a high economic r....
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....cheme of the IBC, 2016 as under:- 27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning nonpayment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an installment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disburse....
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....n the case of Allahabad Bank vs. Canara Bank and anr. (Supra), in paras 13, 33, 34 and 50, the Apex Court observed as under :- "13. From the aforesaid contentions, the following points arise for consideration: (1) Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the Banks or financial institutions and at the stage of execution for recovery of monies under the RDB Act, the Tribunal and the Recovery Officers are conferred exclusive jurisdiction in their respective spheres? (2) Whether for initiation of various proceedings by the Bank sand financial institutions under the RDB Act, leave of the Company Court is necessary under Section 537 before a winding up order is passed against the Company or before provisional liquidator is appointed under section 446(1) and whether the Company Court can pass orders of stay of proceedings before the Tribunal, in exercise of powers under section 442? (3) Whether after a winding up order is passed under Section446 (1) of the Companies Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions....
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....sed by conferring jurisdiction on the Company Court to entertain suits and proceedings in respect of claims for and against the company. That being the object behind enacting Section 446(2), it was held (at SCC p. 661, para 8) that the Companies Act "must receive such construction at the hands of the court as would advance the object and at any rate not thwart it" (emphasis supplied). In other words, the principle of purposive interpretation was, as contended by the respondent's counsel, applied while construing these provisions of the Companies Act. This principle was applied by some High Courts to hold that provisions of the Companies Act can be invoked against the Tribunal. 34. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour jurisdiction and powers of the Company Court in Sudarsan Chits (I) Ltd. case, and other cases the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal / Recovery ....
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....ns and other petitions pending before the NCLT, according to the learned counsel for the appellant. Therefore, in the category of saved petitions, the outcome shall be winding up of the company in accordance with the Companies Act. Allowing NCLT to proceed, would delay winding up proceeding and would further frustrate the cause of filing of company petition which may cause loss, hardship and prejudice to the appellant herein. Considering the various provisions of the Repeal Act 2003, IBC, 2016, Scheduled attached to the IBC, 2016, Central Government Rules issued from time to time and the notifications and more precisely the statement of objects and reasons of the IBC, 2016, we are not convinced to accept the proposition propounded by the learned counsel appearing for the appellant. IBC, 2016 is framed with a purpose to make sincere efforts for revival of the company. The scheme under the IBC, 2016 is to revive the Company within the stipulated time frame of 180 days and in case the efforts fail then the outcome is to take necessary steps under the provisions of IBC, 2016 for initiation of liquidation process in accordance with Chapter III of the IBC, 2016. Under the scheme of IBC, ....
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....tion that has been moved under the Code, we thought it necessary to deliver a detailed judgment so that all Courts and Tribunals may take notice of a paradigm shift in the law. Entrenched managements are no longer allowed to continue in management if they cannot pay their debts." 27. The issue raised is that these principles stated above may be made efficaciously applicable to petitions which are not saved but as regards saved petitions are concerned, provisions of the Act and the Rules therein alone shall govern. We are not convinced to accept the said proposition. 28. The learned Single Judge had a comparative analysis of SICA and IBC, 2016. The learned Single Judge observed in para 85 of the impugned order as under :- "85. In view of the above since the IBC is admittedly a successor statute to SICA, and Section 64(2) of IBC being pari materia 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." 29. A comparative analysis of provisions of SICA clearly indicates that under the provisions of Section 22 of SICA once the ....
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....ny Court cannot continue after a reference has been registered by BIFR and an enquiry initiated under Section 16 of SICA. The present appeal is squarely covered by the primacy given to the provisions of SICA over the Companies Act as delineated in Real Value, Rishabh Agro and Tata Motors. Consequently, the High Court was right in concluding that the provisions of Section 22 of SICA would come into play and that the Company Court could not proceed further in the matter pending a final decision in the reference under SICA. While considering the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Apex Court in the case of Marida Chemicals Ltd. & ors. vs. Union of India and ors. [(2004) 4 SCC 311] , in para 50, observed as under:- 50. It has also been submitted that an appeal is entertainable before the Debts Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-....
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....uard the interests of the creditors to attain the ultimate ends of social and economic policy of the Government. Provisions have also been incorporated making provisions for prospectus, allotment and other matters relating to issue of shares and debentures, etc. 65. Parliament has also enacted the SEBI Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. SEBI was established in the year 1988 to promote orderly and healthy growth of the securities, market and for investors' protection. The SEBI Act, Rules and Regulations also oblige the public companies to provide high degree of protection to the investors' rights and interests through adequate, accurate and authentic information and disclosure of information on a continuous basis. 67. The powers and functions of SEBI are dealt with in Chapter IV of the SEBI Act. Section 11 states that, subject to the provisions of the Act, it shall be the duty of SEBI to protect the interests of investors in securities and to promote the development of and to regulate the securities market. SEBI is also duty-bound to pr....
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....eral law. Even if it is considered that in respect of subject matter there are two special statutes operating, one Companies Act and other IBC, 2016, we need to have a purposive approach and harmonious interpretation to the provisions of law. A harmonious and balanced approach is required to be adopted for the purpose of interpreting the IBC, 2016 and the jurisdictional limitations and areas operating in respect of saved petitions before the Company Court. 33. The purpose of the IBC, 2016 and the NCLT hearing petitions is primarily to revive the company by having a resolution method. Whereas in the winding up petition pending before the Company Court, ultimate approach and object is to wound up the company. Even under the IBC, if efforts to revive the company fails, then the liquidation proceedings get initiated under Chapter III of the IBC, 2016. Taking into consideration the statutory scheme of the IBC, 2016, we are of the view that NCLT constitutes a separate and distinct forum and it cannot be attributed to be a subordinate forum to the Company Court as constituted under the Companies Act. 34. Section 63 of the IBC, 2016 injuncts a Civil Court or authority to entertain any su....
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....tion arose in Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. where there was inconsistency between two special laws, the Finance Corporation Act, 1951 and the Sick Industries Companies (Special Provisions) Act, 1985. The latter contained Section 32 which gave overriding effect to its provisions and was held to prevail over the former. It was pointed out by Ahmadi, J. that both special statutes contained non-obstante clauses but that the "1985 Act being a subsequent enactment, the non-obstante clause therein would ordinarily prevail over the non-obstante clause in Section 46-B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one". (SCC p. 157, para 9) Therefore, in view of section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts. (b) In the case of Raghunath Rai Bareja and anr. vs. Punjab National Bank and ors. [(2007) 2 SCC 230], the Apex Court in paras 21 and 27 observed as under:- "21. In the aforesaid decision this Court also upheld the view of some of the High Courts that the Company Act is a general sta....
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....r determining the applicability of those provisions of the General Clauses Act, 1897, (Interpretation Act, 1889 of U.K. now Interpretation Act, 1978) which apply only in case of repeals. (e) In the case of Commercial Tax Officer, Rajasthan vs. Binani Cements Limited and anr. [(2014) 8 SCC 319], the Apex Court observed in paras 31, 34 and 36 as under : "31. .............. Thereby implying that though there exists an overlap between the general and special provision, the general provision would also be sustained and the two would co-exist. 34. It is well established that when a general law and a special law dealing with some aspect dealt with by the general law are in question, the rule adopted and applied is one of harmonious construction whereby the general law, to the extent dealt with by the special law, is impliedly repealed. This principle finds its origins in the Latin maxim of generalia specialibus non derogant, i.e., general law yields to special law should they operate in the same field on same subject. (Vepa P. Sarathi, Interpretation of Statutes, 5th Ed., Eastern Book Company; N. S. Bindra's Interpretation of Statutes, 8th Ed., The Law Book Company; Craies on Statute ....