TaxTMI 
TaxTMI 
2018 (7) TMI 1741
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..... 3. The appellant is original respondent in 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2003) was notified and the Sick Industrial Companies (Special Provisions) Act, 1985 (for short the SICA) came to be repealed.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 befo....
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....tion of the respondent-corporate debtor. On 7/2/2018, present 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 containe....
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....lution process with the Adjudicating Authority. (2) The application under sub-section (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 completi....
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....) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (4) The order of moratorium 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 ....
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....supplied) 231. Bar of jurisdiction.- No civil Court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order 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 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....
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.... 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." 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....
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....f the Act of 1956 is a discretionary power of the High Court, wherein proceedings could be restrained against a company. Section 442 of the Act of 1956 reads as under :- "442. Power of Court to stay or restrain proceedings against Company. At any time after 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.....
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....tion 13 and 14 of the Code and therefore, requires the Adjudicating Authority to exercise its discretion. (d) Section 22 of SICA cannot be considered pari materia to Section 14 of the Code. Section 22 makes express reference to the Companies Act 1956 and winding up proceedings; whereas, Section 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. ....
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....IBC, 2016 gets attracted. Inherent powers of the court cannot be exercised contrary to and inconsistent with express statutory provisions. It is submitted that a post notice winding up petition must be regarded to be in the same position as any other petitioning creditor who had filed a winding up petition against a company 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 ....
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.... of 1956 to warrant the interpretation placed by the appellant, according to the learned counsel. 20. On the effect of Repeal, it is submitted that Section 255 read with XI Schedule of the IBC, 2016 has amended the Companies Act, 2013. In the XI Schedule, Clause 34 (c) provides as under :- "34. For section 434, the following section 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 jud....
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....eurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development. 3. The Code seeks to provide for designating the NCLT and DRT as the Adjudicating Authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy. The Code separates 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 Ba....
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....created." The Apex Court quoted the relevant portions of the Bankruptcy Law Reforms Committee in para 16, which read as under: "As Chairman of the Committee on bankruptcy law reforms, I have had the privilege of overseeing the design and drafting of a new legal framework for resolving matters of insolvency and bankruptcy. This is a matter of critical importance: India is one 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....
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....o as the corporate debtor in the draft law) defaults, the question arises about what is to be done. Many possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another possibility 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, whil....
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.... The Committee set the following as objectives desired from implementing a new Code to resolve insolvency and bankruptcy: 1. Low time to resolution. 2. Low loss in recovery. 3. Higher levels of debt financing across a wide variety of debt instruments. The performance of the new Code in implementation will be based on measures of the above outcomes." In paras 27, 31 and 33, the Apex Court observed in respect of scheme 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 (Se....
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....in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins. 25. In 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 Compa....
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....ections (2) and (3) into Section 446. This Court pointed out that instead of allowing claims to be proceeded with against these companies in various civil courts, Parliament declared that wherever winding-up proceedings were pending or when an order of winding up was passed, it was necessary to save the company "from this prolix and expensive litigation and to accelerate the disposal of winding-up proceedings", and "a cheap and summary remedy" was devised 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 purposiv....
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....junct the NCLT in saved petitions wherein notice of winding up was issued? Amongst various issues and the consequences which were demonstrated by the learned counsel appearing for the appellant, the foremost is that in case the NCLT is allowed to go ahead with the proceedings filed before it, then the purpose of winding up proceedings would get frustrated. There is a definite purpose behind the legislature creating two classes of petitions, one saved petitions 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 propound....
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....ency professional is appointed to manage the company, the erstwhile directors who are no longer in management, obviously cannot maintain an appeal on behalf of the company. In the present case, the company is the sole appellant. This being the case, the present appeal is obviously not maintainable. However, we are not inclined to dismiss the appeal on this score alone. Having heard both the learned counsel at some length, and because this is the very first application 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 unde....
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....tever be the situation, whenever a reference is made to BIFR under Sections 15 and 16 of SICA, the provisions of SICA would come into play and they would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under SICA. 28. In this state of the law, insofar as the present appeal is concerned, we do not find any error in the view taken by the High Court in concluding that the winding-up proceedings before the Company 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 Chemica....
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.... importance, but public companies are more highly regulated than Private companies. Private companies are not authorised to offer any securities to the public. The FSMA in England generally deals with issue of securities to the public, including Listing Rules, the Prospectus Rules, and continuing obligation contained in the Disclosure and Transparency Rules, etc. the Companies Act, 1956 in India was enacted with the object to protect the interests of a large number of shareholders, safeguard 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 degre....
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....t is not possible to provide for them in terms free from all ambiguity. The English language is not an instrument of mathematical precession. Our literature would be much the poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticized ....." Purposive and Harmonious Interpretation: 32. There could be a situation where there are two special statutes operating in the field or a special statute and statute generally governing the field, which may be referred to as general 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....
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....rating in the similar fields:- (a) In the case of Allahabad Bank vs. Canara Bank and anr. (Supra), the Apex Court in para 40, observed as under :- "40. Alternatively, the Companies Act, 1956 and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, section 34. A similar situation 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 t....
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....ussed by G.P.Singh, in his treatise on 'Principles of Statutory Interpretation', we can observe that, a prior general Act may be affected by a subsequent particular or special Act if the subject-matter of the particular Act prior to its enforcement was being governed by the general provisions of the earlier Act. In such a case the operation of the particular Act may have the effect of partially repealing the general Act, or curtailing its operation, or adding conditions to its operation for the particular cases. The distinction may be important at times for 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 deali....