TaxTMI 
TaxTMI 
2020 (12) TMI 535
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....nding up proceeding pending before the High Court to the National Company Law Tribunal ["NCLT"] was upheld. The brief facts necessary to appreciate the controversy involved in these appeals are as follows: 2.1. A winding up petition under sections 433(e) and (f), 434 and 439 of the Companies Act, 1956, being Co. Pet. No.731 of 2016 was filed by one Shyam Metalics and Energy Limited (Respondent No.1 herein), seeking winding up of the appellant company inasmuch as for goods supplied to the appellant company, a sum of Rs. 4.55 crore was still due. The learned Company Judge in the Delhi High Court passed the following order in the aforesaid petition on 27.08.2018: "ORDER 27.08.2018 1. This petition is filed under sections 433(e) and (f), 434 and 439 of the Company Act, 1956 (hereinafter referred to as 'the Act') seeking winding up of the respondent company. 2. It has been pleaded in the petition that the respondent company had approached the petitioner company for supply of Iron Pellets. A specified quantity of 11612.34MTs of the goods was supplied to the respondent company. After making partial payment, a sum of Rs. 4,55,00,000/- is due and payab....
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....ct that SBI had filed an application under section 7 of the Insolvency and Bankruptcy Code, 2016 ["Code"] which was pending before the NCLT. By order dated 14.01.2019, the learned Company Judge transferred the winding up petition as prayed for as follows: "ORDER 14.01.2019 CA No.1240/2018 1. This application is filed seeking transfer of the present petition being Co.Pet. No.731/2016 to NCLT. This application has been filed by State Bank of India stating that an application under section 7 of the IBC is pending before NCLT. It has been pleaded that the respondent company had failed to pay outstanding dues of about Rs. 722 crores to the applicant bank and hence this proceeding have been initiated before NCLT. The applicant bank is also a lead bank of the consortium of banks which have outstanding dues of about Rs. 1100 crores. 2. This court had admitted the present winding up petition on 27.08.2018 and appointed the OL as the provisional liquidator of the respondent company. 3. The learned counsel appearing for the OL submits that the OL has already sealed the registered office of the respondent company at New Delhi and factory pr....
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.... Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016." 7. This court has already in CP 152/2016 vide decision dated 27.9.2018 in Rajni Anand vs. Cosmic Structures Limited held that the power under section 434(1)(c) of the Companies Act, 2013 for transfer of a petition to NCLT is discretionary and has to be exercised in the facts and circumstances of the case so as to expeditiously deal with the proceedings/winding up. 8. In my opinion, it would be in the interest of justice and in the interest of the respondent company and the creditors that the matter be transferred to NCLT in exercise of the discretionary powers of the court under section 434 of the Companies Act, 1956. The order appointing the OL is a recent order and not much time has elapsed since then. The OL has only taken steps to seize the office of the respondent company and the factory premises and further ....
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....BC. Continuation of two parallel proceedings - one before the Company Court for liquidation, and the other before the IBC for resolution/ revival, would serve no useful purpose. The statutory scheme found in Section 434(1)(c) clearly is that the proceedings for winding up pending before the Company Court could be transferred to the NCLT and there is no provision for transfer of proceedings from the NCLT to the Company Court. 43. We, thus uphold the impugned order passed by the Ld. Company Judge in C.A. No. 1240/2018, dated 14.01.2019 and dismiss the appeal." 3. Shri Sidharth Luthra, learned Senior Advocate appearing on behalf of the appellant company, referred to three judgments of this Court, namely, Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 ["Jaipur Metals"], Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., 2019 SCCOnLine SC 87 ["Forech"], and M/s Kaledonia Jute & Fibres Pvt. Ltd. v. M/s Axis Nirman & Industries Ltd. & Ors., 2020 SCCOnLine SC 943 ["Kaledonia"]. According to him, none of the judgments apply to the facts of the present case inasmuch as, on the facts in the present case, once a ....
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.... 5. In Swiss Ribbons (supra), this Court had occasion to deal with the raison d'être for the enactment of the Code. The judgment of this Court referred to the Statement of Objects and Reasons for the Code as follows: "25. The Statement of Objects and Reasons for the Code have been referred to in Innoventive Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC (Civ) 356] which states: (SCC pp. 421-22, para 12) "12. ... The Statement of Objects and Reasons of the Code reads as under: 'Statement of Objects and Reasons.-There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCL....
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.... 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, the Income Tax Act, 1961, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008, and the Companies Act, 2013. 5. The Code seeks to achieve the above objectives.'" (emphasis in original) The Court then went on to state: "27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. Thi....
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....from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." Having so held, the Court ended stating: "Epilogue 120. The Insolvency Code is a legislation which deals with economic matters and, in the larger sense, deals with the economy of the country as a whole. Earlier experiments, as we have seen, in terms of legislations having failed, "trial" having led to repeated "errors", ultimately led to the enactment of the Code. The experiment contained in the Code, judged by the generality of its provisions and not by so-called crudities and inequities that have been pointed out by the petitioners, passes constitutional muster. To stay experimentation in things economic is a grave responsibility, and denial of the right to experiment is fraught with serious consequences to the nation. We have also seen that the working of the Code is being monitored by the Central Government by Expert Committees that have been set up in this behalf. Amendments have been made ....
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....ndments 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 made various amendments to the Companies Act, 2013. They have been set out in detail in Jaipur Metals (supra) in paragraphs 10 and 11. Suffice it to say that the first step to transferring winding up proceedings to the NCLT was taken by the Companies (Transfer of Pending Proceedings) Rules, 2016 ["Transfer Rules, 2016"], which compulsorily transferred all winding up proceedings pending before High Courts to the NCLT at a stage prior to the service of the petition in terms of Rule 26 of the Companies (Court) Rules, 1959. By an amendment made on 17.08.2018, the 5th proviso to section 434(1)(c) was added which states as follows: "434. Transfer of certain pending proceedings.-(1) On such date as may be notified by the Central Government in this behalf,- (a) xxx xxx xxx (b) xxx xxx xxx (c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immedia....
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....c), with effect from 17-8- 2018, where any party to a winding-up proceeding pending before a court immediately before this date may file an application for transfer of such proceedings, and the Court, at that stage, may, by order, transfer such proceedings to NCLT. The proceedings so transferred would then be dealt with by 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 17-8-2018. Once this is done, the High Court must transfer such proceedings to NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code. 18. 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 amend....
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....pression "was admitted" in Form No. 6 only means that notice has been issued in the winding up petition which is then "fixed for hearing before the Company Judge" on a certain day. Thus, the Madras High Court view is plainly incorrect whereas the Bombay High Court view is correct in law. 17. The resultant position in law is that, as a first step, when the Code was enacted, only winding up petitions, where no notice under Rule 26 of the Companies (Court) Rules was served, were to be transferred to the NCLT and treated as petitions under the Code. However, on a working of the Code, the Government realized that parallel proceedings in the High Courts as well as before the adjudicating authority in the Code would stultify the objective sought to be achieved by the Code, which is to resuscitate the corporate debtors who are in the red. In accordance with this objective, the Rules kept being amended, until finally Section 434 was itself substituted in 2018, in which a proviso was added by which even in winding up petitions where notice has been served and which are pending in the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which....
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.... body of creditors is a party. The proceeding might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition. The official liquidator acts for and on behalf of the entire body of creditors. Therefore, the word "party" appearing in the 5th proviso to Clause (c) of Sub-section (1) of section 434 cannot be construed to mean only the single petitioning creditor or the company or the official liquidator. The words "party or parties" appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 would take within its fold any creditor of the company in liquidation. 45. The above conclusion can be reached through another method of deductive logic also. If any creditor is aggrieved by any decision of the official liquidator, he is entitled under the 1956 Act to challenge the same before the Company Court. Once he does that, he becomes a party to the proceeding, even by the plain language of the section. Instead of asking a party to adopt such a circuitous route and then take recourse to the 5th proviso to section 434(1)(c), it would be better to recognise the right of such a party to seek transfer directly. ....
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....tition, and after the appointment of a Company Liquidator to take over the assets of a company sought to be wound up, discretion is vested in the Company Court to transfer such petition to the NCLT. The question that arises before us in this case is how is such discretion to be exercised? 12. The Companies Act, 2013 deals with winding up of companies in a separate chapter, being Chapter XX. When a petition to wind up a company is presented before the Tribunal, the Tribunal is given the power under Section 273 to dismiss it; to make any interim order as it thinks fit; to appoint a provisional liquidator of the company till the making of a winding up order; to make an order for the winding up of the company; or to pass any other order as it thinks fit - see section 273(1). 13. Sections 278 and 279 of the Companies Act, 2013 then follow, which state: "278. Effect of winding-up order.-The order for the winding-up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories." "279. Stay of suits, etc., on winding-up order.-(1) When a winding-up orde....
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....; (j) details of legal cases filed by or against the company; and (k) any other information which the Tribunal may direct or the Company Liquidator may consider necessary to include. (2) The Company Liquidator shall include in his report the manner in which the company was promoted or formed and whether in his opinion any fraud has been committed by any person in its promotion or formation or by any officer of the company in relation to the company since the formation thereof and any other matters which, in his opinion, it is desirable to bring to the notice of the Tribunal. (3) The Company Liquidator shall also make a report on the viability of the business of the company or the steps which, in his opinion, are necessary for maximising the value of the assets of the company. (4) The Company Liquidator may also, if he thinks fit, make any further report or reports. (5) Any person describing himself in writing to be a creditor or a contributory of the company shall be entitled by himself or by his agent at all reasonable times to inspect the report submitted in accordance with this section and take copies thereof or extracts ther....
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....ployees or any other claimant and distribute sale proceeds in accordance with priorities established under this Act; (h) to inspect the records and returns of the company on the files of the Registrar or any other authority; (i) to prove rank and claim in the insolvency of any contributory for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rateably with the other separate creditors; (j) to draw, accept, make and endorse any negotiable instruments including cheque, bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if such instruments had been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business; (k) to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the ....
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....he company shall be dissolved accordingly. (3) The Tribunal shall, within a period of thirty days from the date of the order,- (a) forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company; and (b) direct the Company Liquidator to forward a copy of the order to the Registrar who shall record in the register relating to the company a minute of the dissolution of the company. " 21. Where a company has been dissolved, such dissolution may be set aside within a period of two years from the date of such dissolution under section 356 of the Companies Act, 2013. 22. Given the aforesaid scheme of winding up under Chapter XX of the Companies Act, 2013, it is clear that several stages are contemplated, with the Tribunal retaining the power to control the proceedings in a winding up petition even after it is admitted. Thus, in a winding up proceeding where the petition has not been served in terms of Rule 26 of the Companies (Court) Rules, 1959 at a pre- admission stage, given the beneficial result of the application of the Code, such winding up proceeding is compulsorily tr....