TaxTMI 
TaxTMI 
2018 (12) TMI 674
X X X X Extracts X X X X
X X X X Extracts X X X X
....t, and since the company's net worth had turned negative, a reference was made to the Board for Industrial and Financial Reconstruction ("BIFR") under the Sick Industrial Companies (Special Provisions) Act, 1985 ("SIC Act"). On 26.09.2002, the BIFR was of the prima facie opinion that the company ought to be wound up, which opinion was forwarded to the High Court. The High Court ultimately registered the case as Company Petition No. 19/2009. The Alchemist Asset Reconstruction Company Ltd. (Respondent No. 3) acquired substantially all the financial debts of Respondent No. 1. The State of Rajasthan tried to revive the company, but with no success. Ultimately, in a writ petition filed by a workers' union, being Writ Petition No. 504/2000, the High Court, on 07.12.2017, directed the Official Liquidator to be provisionally attached to the Court, and to join in the evaluation of the value of goods and material lying in the factory premises of the company so that dues of the workmen could be paid. 4. In the meanwhile, on 11.01.2018, the Respondent No. 3 herein preferred an application under Section 7 of the Insolvency Code, stating that it had an assigned debt of INR 356 crores owed to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter such omission, be continued to be dealt with by the High Court. According to them, the High Court judgment was incorrect as Rule 5, and not Rule 6, of the 2016 Transfer Rules applied. Post omission of Rule 5(2), therefore, proceedings would in any case stand transferred to the NCLT. Alternatively, they argued that in any case, the 2018 amendment made to Section 434(1)(c) added a proviso, by which any party to any winding up proceedings that are pending before a High Court may file an application for transfer of such proceedings, and the Court is then obliged to transfer such proceedings to the NCLT. They also argued that in any case, a Section 7 application made by Respondent No. 3 before the NCLT was an independent application which was correctly admitted by the NCLT, which correctly applied Section 238 of the Insolvency Code. 7. Shri Siddharth Dave, learned counsel appearing on behalf of Respondents No. 4 and 5, supported the judgment of the High Court. According to the learned counsel, even if Rule 5 of the 2016 Transfer Rules were to apply, Rule 5(2) made it clear that the present proceedings would continue before the High Court, being proceedings for winding up of a com....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ows: "255. Amendments of Act 18 of 2013.-The Companies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule." In pursuance of this Section, the Eleventh Schedule to the Code makes various amendments to the Companies Act, 2013. On 15.11.2016, with effect from 01.12.2016, Section 434 of the Companies Act, 2013 was substituted as follows: "434. Transfer of certain pending proceedings.-(1) On such date as may be notified by the Central Government in this behalf,- (a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under subsection (1) of Section 10-E of the Companies Act, 1956, immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act; (b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gs 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: Provided further that only such proceedings relating to cases 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 also that- (i) all proceedings under the Companies Act, 1956 other than the cases 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he records transferred in accordance with Rule 7, required for admission of the petition under Sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate. (2) All cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding 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. 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 sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is such as may be prescribed by the Central Government. 13. When Rules 5 and 6 of the 2016 Transfer Rules (unamended) are read, it is clear that three types of proceedings are referred to. Under Rule 5(1), petitions which relate to winding up under clause (e) of Section 433 of the Companies Act, 1956 on the ground of inability to pay debts that are pending before the High Court are to be transferred to the NCLT in case the petition has not been served on the respondent. They shall then be treated as applications under Sections 7, 8, or 9 of the Code and dealt with in accordance with Part II of the Code. Similarly, all petitions filed under clauses (a) and (f) of Section 433 of the Companies Act, 1956 pending before the High Court, in which the petition has not been served on the respondents, shall be transferred to the NCLT. Only such petitions will continue to be treated as petitions under the provisions of the Companies Act, 2013. The third category of cases dealt with by Rules 5 and 6 is contained in Rule 5(2). This category relates to cases where the BIFR has forwarded an opinion to the High Court to wind up a company under Section 20 of the SIC Act. All such cases, whateve....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the NCLT. The proceedings so transferred would then be dealt with by the NCLT as an application for initiation of the corporate insolvency resolution process under the Code. It is thus clear that under the scheme of Section 434 (as amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018. Once this is done, the High Court must transfer such proceedings to the NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code. 16. The High Court judgment, therefore, though incorrect in applying Rule 6 of the 2016 Transfer Rules, can still be supported on this aspect with a reference to Rule 5(2) read with Section 434 of the Companies Act, 2013, as amended, with effect from 17.08.2018. 17. However, this does not end the matter. It is clear that Respondent No. 3 has filed a Section 7 application under the Code on 11.01.2018, on which an order has been passed admitting such application by the NCLT on 13.04....