TaxTMI 
TaxTMI 
2018 (11) TMI 559
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....ns or having stakes in the insolvency resolution process and liquidation of the Company before this Court, which is the Corporate Debtor before the National Company Law Tribunal. 2. Company Application No. 10 of 2017: This application has been filed under Section 446 of the Companies Act, 1956 (for short the "Act of 1956) in Company Petition No. 6 of 2012 by the Resolution Professional on behalf of the Corporate Debtor, Murli Industries Limited, seeking leave to proceed with or continue with the ongoing Corporate Insolvency Resolution process of the Corporate Debtor under the Insolvency and Bankruptcy Code, 2016 read with rules and regulations framed thereunder, before the National Company Law Tribunal, Mumbai Bench. Similar applications under Section 446 of the Act of 1956 have been filed by the Resolution Professional being Company Applications No. 13 of 2017, 14 of 2017 and 15 of 2017 in connected Company Petitions. 3. The facts of the case, insofar as they are relevant for the present purpose, are stated in brief as follows : (a) The creditors of the Corporate Debtor have filed the present Company Petition No. 6 of 2012 as also Company Petitions No. 8 of 2011, 9 of 2011, 10 ....
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....ade aware of the same by the former Director of the Corporate Debtor Bajranglal Maloo, on 10th May 2017. The Resolution Professional almost immediately thereafter swung into action and addressed a communication dated 12th May 2017 to respondent no. 2 apprising him of various facts such as, his appointment as an Insolvency Resolution Professional, the Resolution Professional being unaware of the order dated 21.3.2017 passed by this Court, the powers and duties conferred and placed upon him under the IBC, the steps taken by him in pursuance of initiation of the corporate insolvency resolution process of the Corporate Debtor and requested him to address all future communications to the Resolution Professional. (e) The Resolution Professional also made aware the Committee of Creditors (for short, the "CoC") of the order of this court dated 21.3.2017. The CoC in its second meeting held on 6th June 2017 considered the ramifications of the order of this Court dated 21.3.2017 and unanimously resolved that the Resolution Professional must initiate steps to seek leave of this Court under Section 446 of the Act of 1956 to continue with the on­going proceedings of the resolution process. ....
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.... in Company Petition No. 6 of 2012 and also similar applications in the connected Company Petitions. (j) The reliefs claimed in all these applications are identical. The Resolution Professional firstly seeks recall of the order dated 21st March 2017 passed by this Court appointing respondent no. 2 as the provisional official liquidator. The Resolution Professional, in the alternative to the first prayer, seeks stay of the order dated 21st March 2017 passed by this Court pending completion of the Corporate Insolvency Resolution Process of the Corporate Debtor and further seeks leave of this Court under Section 446 of the Act of 1956 to continue with the on­going Insolvency Resolution process. 4. Respondent no. 1, the original petitioner in Company Petition No. 6 of 2012, is one of the financial creditors of the Corporate Debtor. It has opposed this application on the ground that the whole process initiated for resolution of insolvency of the Corporate Debtor being without jurisdiction, having been initiated without obtaining leave of this Court and also taken in suppression of the material facts by the Resolution Professional and the financial creditor, is not tenable under Se....
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....wed to be decided by the NCLT. In support of his argument he has taken me through the various provisions of the IBC. According to him, the focus under the IBC is upon revival of the Company unlike the Act of 1956 where the main object is to oversee winding up process of a Company. Learned Senior Advocate submits that the resolution plan submitted by the resolution professional makes a provision of substantial sum which is sufficient to satisfy all claims involved in these cases and also of the workers. This plan, according to him, is reasonable and balanced and it holds out a promise to brighten up the prospect of bringing back the Corporate debtor from the edge of death. 10. Shri Manohar, learned Senior Advocate further submits that what can be done under the provisions of the IBC possibly cannot be done under those of the Act of 1956 as there are comprehensive provisions in the IBC which lay down a detailed procedure to be adopted in a stage-wise manner. The IBC has been enacted to consolidate and amend the law relating to re­organization and insolvency resolution of corporate persons, partnership firms and individuals in a time-­bound manner and it aims at maximization ....
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.... retained under rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 (for short, the "Rules of 2016") are required to be dealt with, in terms of clause 2 of the Companies (Removal of Difficulties) Fourth Order, 2016 (for short, the "Order, 2016"), in accordance with the Act of 1956 and the Company (Court) Rules, 1959. He submits that these provisions of law make the retained or saved company petitions and pending before the Company Tribunal or the Company Court under the Act of 1956 independent, remaining unaffected by the proceedings, if any, initiated under the IBC and, therefore, it cannot be said that any inconsistency exists between the provisions of the Act of 1956 and that of IBC to the extent the provisions of the Act of 1956 apply to the winding-­up petitions pending before the Company Tribunal. He submits, these provisions rather would show that the proceedings relating to resolution process pending before the NCIT would themselves be governed by Section 446 of the Act of 1956, meaning thereby that no suit or other legal proceedings can be commenced or continued in respect of a company under liquidation in a retained petition, without the leave of the....
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....t the judgment rendered by the learned single Judge in Jotun India (supra) has no application to the facts of this case because the facts in Jotun India were different as in that case an application had been filed initially under Section 22 of the Sick Industrial Companies Act, 1985 (for short, the "SICA"), which Act was later on repealed by the IBC and, therefore, the applicant had to approach the NCLT under the provisions of the IBC. He further submits that the objects and reasons of the IBC need not be considered as there is no ambiguity in understanding any of the provisions of the provisions of the IBC or for that matter, Section 446 of the Act of 1956. 18. Shri S. P. Dharmadhikari, learned Senior Advocate for another intervener, CoC in Company Application No. 15 of 2018, submits that the objects and reasons of IBC are relevant in this case, at least for knowing the sweep of IBC and how beneficial would it be to grant leave under Section 446 of the Act of 1956. He submits that for this purpose, it would also be useful for all of us to consider the scheme of IBC and the scheme of winding-­up proceedings under Part VII of the Act of 1956. According to him, if the objects an....
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....ese provisions rehabilitation of the sick company can always be explored and made possible. He submits that all the proceedings which have been undertaken before the NCLT are void ab initio as they have been taken without obtaining any leave of this Court. He submits that as the provisions of Part VII Act of 1956 are applicable here, there is no inconsistency with the IBC and as such, it cannot be said that there are any two parallel proceedings being continued in the present case. He also submits that the whole proceedings before the NCLT are very expensive and inconvenient for the Company under liquidation. 21. Shri Kohli, learned counsel for the workers has submitted his argument more or less on similar lines as Shri M. G. Bhangde, learned Senior Advocate for the intervener and Shri A. C. Dharmadhikari, learned counsel for respondent no. 1 and, therefore, I do not think it necessary to reproduce his submissions in the matter. His other submission is that where a secured creditor has opted to realize security, then so much of the debt due to such secured creditors as could not be realized by him by virtue of statutory charge created in favour of the workmen shall, to the extent ....
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....g up initiated under the Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act." Clause 2 of Order, 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 only such proceedings relating to case other than winding-­up for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided further that ­ (i) all proceedings under the Companies Act, 1956 other than the case relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; 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." 24. It would be clear from Section 238 of the IBC that its provisions have been given overriding effect over any other law for ....
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.... PSL Limited (Appeal Lodging No. 68 of 2018, decided on 26th July 2018 and other provisions of law such as Sections 11 and 238 of IBC and Rules of 2016 and Order, 2016. 27. The Division Bench in Jotun India (supra), in paragraph 35, observed that the Act of 1956 could be treated as general law and IBC a special statute to the extent of the provisions relating to revival or resolution of the Company under Chapter II of IBC. The Division Bench, however, held that even if the Act of 1956 and IBC are considered as special statutes operating in their respective fields, the IBC being a later enactment and in view of its objects and purpose for which it has been enacted, the provisions relating to revival of the company incorporated under Chapter II will have to be given primacy over the provisions relating to the winding-­up proceedings pending before the Company Courts, referred to as saved petitions. After having so observed, the Division Bench, relying upon the law laid down by the Hon'ble Apex Court in the case of Commercial Tax Officer, Rajasthan v. Binani Cements Limited reported in (2014) 8 SCC 319, observed that when a general law and a special law dealing with some aspe....
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....liquidation in the present retained petitions, cannot think of resolution of its insolvency under the IBC and if any effort in that direction is to be made, it has to come from other stakeholders and the Corporate Debtor has to stay put in and be satisfied with whatever comes its way in the pending liquidation proceedings. Such disability is not made applicable to a financial or operational creditor or corporate applicant and he or it can make an application under Part­II, Chapter-­II of the IBC to initiate resolution process. As and when such a creditor or applicant, in the present case the EARC, makes an application for resolution of insolvency of the Corporate Debtor involved in a saved company petition filed under Part VII of the Act of 1956, what becomes applicable to it is the IBC by virtue of its overriding effect in terms of Section 238, but only to the extent it is not taken away by rule 5 of Rules of 2016 and clause 2 of Order, 2016. 31. Section 238 IBC, we have seen, came into force with effect from 1st December 2016 and from that date onwards, it eclipsed the provisions of other laws in force including the Act of 1956. But, later came a relief, at least for the....
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....o conflicting claims being made and allowed in respect of the Company and authorities allowing such claims would be at their wit's end in implementing them. Resolution of insolvency of a Company and liquidation of a Company are two processes which pull at each other. Former is about rejuvenation of life and the latter is about termination of life. In such a case, the logic of law, here Section 446 of the Act of 1956, would require that a forum dealing with a proceeding more drastic in consequences is allowed to take a call on the revival possibility of the Company before it is too late in the day. This would mean that no application can be filed or continued with regard to initiation of resolution process under Chapter II of Part II of the IBC without leave of the Company Court under Section 446 (1) of the Act of 1956. It would then follow that if any resolution process is initiated without leave of the Company Court, it would be a defective proceeding in the eye of the IBC read with the Act of 1956. Such a proceeding will acquire sanctity only when leave under Section 446 (1) of the Act of 1956 is granted and till that time, it cannot be said that the prohibition contained in ....
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....ision of learned single Judge in Jotun India (supra), relied upon by Shri Manohar, is only confined to the question of grant of injunction or otherwise in view of the prohibition prescribed under subsection (2) of Section 64 of IBC and it does not provide any answer as to in what way the conflict between two enactments should be resolved and, therefore, I do not think that any useful reference to this case can be made. 38. Shri S.P. Dharmadhikari, learned Senior Advocate for the intervenor CoC, has placed his reliance upon the case of Madura Coats Limited v. Modi Rubber Limited & anr reported in (2016) 7 SCC 603 wherein it is held that whenever the reference is made to B.I.F.R. under Section 15 and 16 of the SICA, provisions of SICA would come into play and they would prevail over the provisions of the Companies Act and proceedings under Companies Act must give way to proceedings under the SICA. In my respectful submission, same analogy cannot be drawn to understand the provisions of the IBC and the Act of 1956 for the reason that IBC itself makes a room for saving of the petitions pending before the Company Court and their governance by the Act of 1956. Therefore, in my opinion, ....
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....is possible under Section 391 of the Act of 1956, the possibility depends for it to take birth only upon volition of the parties and not upon the unilateral action of any creditors or the process of law, as envisaged under the IBC. Under the IBC, the revival of a Company is possible even at the behest of a financial creditor or an operational creditor or a corporate applicant as contemplated under Sections 7,8,9 and 10 of the IBC. This resolution process, as seen from the scheme of the IBC, particularly from the provisions contained in Part II, considers as a first step the possibility of resolution of the insolvency of the Corporate Debtor as provided under Chapter II and then as a second step only, when such resolution is not possible, that it mandates through the provisions made in Chapter III that Adjudicating Authority shall pass an order requiring the Corporate Debtor to be liquidated. Chapter II, Part II of the IBC contains detailed and exhaustive provisions laying down the manner in which and the extent to which the effort to resolve the issue of insolvency of a sick company be dealt with by the Resolution Professional and Committee of Creditors and as to how the Adjudicati....
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.... of the Act of 1956 and, therefore, through the process of harmonious interpretation it has to be ensured that the Company Court uses its discretion in such matters in such a manner as would let the parties have the best of both the worlds, which is so much necessary in the interests of the sick company, its creditors and all stake holders. 44. Earlier, I have referred to the case of Innoventive Industries Ltd. (supra). In that case, it is held that the IBC is a Code complete in itself and exhaustive of the matters dealt with therein and, therefore, it is the duty of the Court to ascertain as to what is the true scope of the provisions of the IBC. If the IBC is an enactment which also allows the saved petitions to be dealt with by the provisions of the Act of 1956, one would see no difficulty in holding that the Parliament intended that true scope of the IBC should be that whatever the Courts be, they direct their efforts to secure the best of interests of the Company proposed to be liquidated and its stakeholders. This would mean that if there is an expert like Resolution Professional available for reviving the Company, he should be allowed to try his hand at that first, for reju....
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....nior Advocate for the other intervenor, that the multiplicity of litigation is required to be avoided at any cost and any grant of leave would certainly result in multiplicity of proceedings as well as pendency of parallel proceedings. He relies upon the cases of Amresh Tiwari vs. Lalta Prasad Dubey and another (2000)4 SCC 440 and State of H.P. and others vs. Surinder Singh Banolta (2006)12 SCC 484. Shri Sunil Manohar, learned Senior Advocate for the Resolution Professional disagrees. He submits that if the leave is not granted, this Court would have to get the proceeding relating to the Resolution Process transferred to it for being tried and disposed of under Section 446 (2)(a) of the Act of 1956, which would not only add to complications but also suffer from severe limitations under the Act of 1956 regarding revival of a Company and this may not augur well for the Company and its stakeholders. 48. In my view, the learned Senior Advocate for the Resolution Professional is right. The scope and ambit of the IBC as well as of the Act of 1956, would show that the nature of a proceeding carried out for resolution of the insolvency of the Corporate Debtor under the IBC is entirely dif....
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....dings by or against the company, come within the control and supervision of the winding-­up court. The winding-­up court has to decide whether it will let the suit/proceeding to continue in the court where it is pending, or it will itself adjudicate the suit/proceeding. Thus, under Section 446(1), the winding-­up court only decides about the forum where the suit has to be tried and disposed of." 50. The law so laid down by the Hon'ble Apex Court in Harihar Nath (supra) would be a clear indicator of the fact that grant of leave under Section 446 in a given case, is only for avoiding unnecessary litigation and creation of multiplicity of proceedings. 51. Converse situation that would arise from refusal of leave under Section 446 (1) of the Act of 1956, is also required to be borne in mind by us. Section 446 (2)(a) of the Act of 1956 empowers the Company Court to have jurisdiction to entertain or dispose of, amongst others, any suit or proceeding by or against the Company. The Hon'ble Apex Court in the case of Hariharnath (supra), in paragraph 20, has held that the Company Court would have to decide as to whether or not the other proceeding, in the present case t....
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....ssion wherein he has said that the present winding up proceeding be dispensed with. Therefore, whatever has been done so far by the Resolution Professional in his effort to carry forward process of resolution of insolvency of the Corporate Debtor cannot be said to be void and it would have to be taken to its logical end in accordance with law. Of course, while granting leave under Section 446(1), this Court would be under a duty to consider imposition of suitable terms as provided in this very Section. 54. Shri Bhangde, learned Advocate for the other intervenor, has also relied upon the case of Sunil Gandhi and another vs. A.N. Buildwell Private Limited, Co. APPL.(M) 115/2016, decided on 15.3.2017 to support his argument that it is only the Company Court which would have exclusive jurisdiction for adjudicating applications in relation to revival of the Company in liquidation. The view so taken by the learned Single Judge of the Delhi High Court was in the context of an application which was filed by the parties under Section 391 of the Act of 1956. No such application, in any of the Company Petitions has been filed here and, therefore, I do not think that any useful reference coul....
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....isdiction. I have already found as to how, the proceeding held so far by the NCLT could be considered only as voidable at the option of the respondent No.2, Official Liquidator, and how it has been made voidable by him, by following the latest law laid down in Harihar Nath (supra). 58. Shri Kohli, learned counsel for the workers also submits that the charge of the workers on the assets of the Corporate Debtor ranks pari passu with that of the other secured creditors in terms of Section 529(1) of the Company Act. He places his reliance upon the case of UCO Bank vs. Official Liquidator, High Court, Bombay and another (1994) 5 SCC 1 and A.P. State Financial Corporation vs. Official Liquidator (2000)7 SCC 291. The law so laid down by the Hon'ble Apex Court in these cases would have to be borne in mind by the Adjudicating Authority while taking its decision in respect of the resolution plan submitted as a result of implementation of the process of resolution of insolvency of the Corporate Debtor by the Resolution Professional. 59. In view of above, I am inclined to grant leave under Section 446(1) of the Act of 1956. However, leave to be granted would have to be in accordance with....