TaxTMI 
TaxTMI 
2022 (9) TMI 1350
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....Insolvency and Bankruptcy Code, 2016 (IBC), purportedly with a view to explore the revival of Respondent No.1 Company. 2. The background facts leading to this Application can be stated as under : 2.1 Futura Polyester Ltd. (Futura) - Respondent No.1 was incorporated under the provisions of Companies Act, 1956 (the Act, 1956). Futura was engaged in the business of manufacture of specialty fine chemicals and polyesters. Daewoo International Corporation Ltd. (Daewoo) - Respondent No.2 is a company incorporated under the law of South Korea. Daewoo is engaged in the business of supply of purified Terephthalic Acid. Korea Trade Insurance Corporation (KTIC) - Respondent No.3, is an insurance Company. 2.2 Futura had a manufacturing unit / factory at Survey No.38/2, 39/2 and 42 of Chinnasekkadu Village, Thiruvottiyur Taluka, Thiruvallur District, Manali, Chennai, Tamil Nadu, admeasuring 211 acres (the Company premises). To secure the financial assistance availed by Futura, the Company premises has been mortgaged to a Consortium of 8 Banks led by Bank of India. 2.3 During the course of its business, Futura entered into several contracts with Daewoo for purchase of purified terepht....
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.... 2.8 On 1st April, 2019 Consent Terms were filed before the Appeal Bench. On 2nd April, 2019 the Appeal Bench, on the basis of the Consent Terms (X), set aside the order dated 22nd June, 2018 so as to enable the banks (consortium of lenders) to issue NOC for the sale of the company premises and went on to dispose off the Appeal in accordance with the Consent Terms (X). 2.9 Under the Consent Terms, the first installment of USD 50,000 was to be paid on or before 31st May, 2019. Futura could pay the first installment of USD 50,000 to KTIC - Respondent No.3 on 22nd July, 2019. Futura could not pay the balance five installments in accordance with the schedule provided in the consent terms. Under Clause 9 of the consent terms, the parties had agreed that in the event of default or any deviation from the payment as per schedule, the order dated 22nd June, 2018 would stand revived and the Official Liquidator appointed. It was further provided that the Advocate for the Respondents shall inform to the Official Liquidator that the Appellant Company (Futura) had committed default and, thereupon, the Official Liquidator immediately take charge of the records as well as movable and immovabl....
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....physical possession on 20th November, 2020, taking over the records of Futura, initiating action for disclosure against the ex-directors, and lodged a complaint against the ex-directors with CBI, resulting in registration of FIR, none of the aforesaid steps tantamount to irreversible action in winding up. 4. In the absence of such irreversible steps or irretrievable situation, according to the Applicant, the case at hand does not present a situation which would dissuade this Court to exercise discretion under the 2nd proviso to Section 434(1)(c) of the Act, 2013. As the NCLT is vested with powers under the IBC to explore the revival of the Company, which the Company Court cannot resort to, in a winding up Petition, it is in the interest of Futura as well as all the stake holders to recall the order dated 22nd June, 2018, discharge the Official Liquidator and transfer the instant Petition to NCLT, Mumbai in accordance with the 2nd Proviso to sub-clause (c) of sub-Section (1) of Section 434 of the Act, 2013. 5. The Official Liquidator has resisted the Application by filing an Affidavit in Reply. At the outset, it is contended that the power to transfer the pending proceedings t....
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....esulting in registration of FIR against the ex-directors of Futura. Thus, these circumstances, especially the conduct of ex-directors of Futura, according to the Official Liquidator, should weigh in, in declining to exercise the discretion to transfer the Company Petition. Lastly, it is contended that the Application has been preferred with an oblique motive to wriggle out of the situation brought about by the illegal acts on the part of the ex-directors of Futura. 9. The Applicant has filed an Affidavit in Rejoinder controverting the contentions in the Affidavit in Reply. 10. In the wake of the aforesaid facts and pleadings, I have heard Dr. Tulzapurkar, learned Senior Advocate, for the Applicant and Mr. Aditya Pimple, learned Counsel for the Official Liquidator, at length. With the assistance of the learned Counsel, I have perused the pleadings and the orders passed by the Company Court and the Appeal Bench, which bear upon the controversy at hand. 11. Dr. Tulzapurkar, would urge that the resistance sought to be put forth by the Official Liquidator to the transfer of the proceedings to NCLT is incomprehensible. The test for exercising discretion under Section 437 of the ....
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....s or waste of the assets of the company from the date of the recall of the order of winding up till the NCLT passes appropriate orders under IBC. 15. Mr. Pimple joined the issue by canvassing a submission that the legislature has designedly vested discretion in the Court in the matter of transfer of proceedings to NCLT under second proviso to Section 434(1)(c) of the Act, 2013. When the court is called upon to exercise discretion, the conduct of the parties plays a pivotal role. A party cannot be permitted to take advantage of its own wrong and bring all the actions to naught, which were necessitated on account of malafide acts and omissions of such party. The case at hand, according to Mr. Pimple, squarely falls in the class of cases where wrongful conduct of the ex-directors of a company should dissuade the Court from exercising discretion. 16. Mr. Pimple would urge that there is no quarrel with the propositions enunciated in the cases of Action Ispat (supra) and A. Navinchandra (supra). However, the facts in those two cases were not as gross as the facts in the case at hand, in asmuch as the ex-directors of the company in liquidation brazenly alienated the assets of the co....
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....its ex-directors had no adequate opportunity to make amends. On the contrary, the aforesaid narration of facts would justify an inference that numerous opportunities were squandered. 20. It would be suffice to extract few paragraphs of the order passed by this Court on 22nd June, 2018 directing winding up of Futura. Paragraph Nos.14, 16 to 21 read as under : "14. In my view, looking at the past conduct of the company, this is nothing but a ruse to delay the inevitable. This amount was payable within four months of 18th November 2014 as recorded in the order dated 7th November 2014. Numerous extensions have been taken by the company and quite a few revised consent terms have been entered into. Every time an undertaking is given to the Court by the company and the undertaking has been repeatedly breached. Therefore, this Court has no faith in the current offer being made by the company. ......... 16 As recorded earlier, the company has admitted its liability and agreed to pay the debts to petitioner as per the consent terms recorded in the order dated 7th November 2014. As per the consent terms, the company agreed to pay a sum of USD 3,464,284.98 against....
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....made today. 20 Therefore, I am not inclined to, even for the moment, consider the request made by the counsel for respondent company to wait indefinitely for the company to resolve its alleged issues with the State of Tamilnadu. As noted above, the company had admitted its liability, agreed to pay it in installments, has paid only a part thereof and still there is an outstanding of almost USD 2 million. 21 I am satisfied that the company is commercially insolvent and requires to be wound up. Therefore, company petition is allowed and accordingly disposed in terms of prayer clauses - (a) and (b) which read as under : (a) that M/s. Futura Polyesters Limited be ordered to be wound up by and under the directions of this Hon'ble Court under the provisions of the Companies Act, 1956. (b) that the Official Liquidator, High Court, Bombay be appointed as the Liquidator of the said Company with all powers under the Companies Act, 1956." 21. In addition, the Consent Terms (X) presented another opportunity to Futura. The default in compliance with the undertakings therein brought about the result which appeared inevitable. 22. This propels me to th....
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....ency and Bankruptcy Code, 2016 (31 of 2016); Provided further that on such proceedings relating to cases other than winding up, for which orders are 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: Provided also that proceedings relating to cases of voluntary winding up of a company where notice of the resolution by advertisement has been given under sub-section (1) of Section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1st April, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959." 23. We are concerned with the second proviso. The....
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....C 227 ("Jaipur Metals"), Forech (India) Ltd. V. Edelweiss Assets Reconstruction Co. Ltd. (2019) 18 SCC 549 : (2020) 4 SCC (Civ) 286 ("Forech"), and Kaledonia Jute & Fibres (P) Ltd. V. Axis Nirman & Industries Ltd. (2021) 2 SCC 403 ("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 winding up order has been passed by the Company Judge, winding up proceedings alone must continue before the High court and parallel proceedings under the Code cannot continue. He argued that Jaipur Metals makes it clear that even independent proceedings under the Code can only continue when the stage is before a winding up order is passed, which was the case on the facts before the Court. Likewise, in Forech also, the stage of the winding up proceeding was post service of notice of the winding up petition and before a winding up order was passed, as a result of which the 5th proviso to Section 434(1)(c) of the Companies Act, 2013 was applied. Likewise, in Kaledonia, though a winding up order had been passed on the facts of that case, the aforesaid order had been kept in abeyance. On facts therefore, these thr....
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....nce of the object of enactment of IBC. Paragraph 25 illuminates the path. It reads thus : "25. 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 transferable to NCLT to be resolved under the Code. Even post issue of notice and pre-admission, the same result would ensue. However, post admission of a winding up petition and after the assets of the company sought to be wound up become in custodia legis and are taken over by the Company Liquidator, Section 290 of the Companies Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern. So long as no actual sales of ....
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....conomy of the country. It is, thus, not possible to accede to the argument on behalf of the appellant that given Section 446 of the Companies Act, 1956/Section 279 of the Companies Act, 2013, once a winding up petition is admitted, the winding up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC." (emphasis supplied) 31. In the light of the aforesaid enunciation of the position in law, the issue which essentially wrenches to the fore is the nature of the action taken by the Official Liquidator, post the winding up order stood restored, consequent to the default on the part of Futura to comply with the undertakings in the Consent Terms (X). Has the Official Liquidator progressed in liquidation to such a stage as would render setting the clock back impossible ? 32. In paragraph 13 of the Application, the Applicant has adverted to the steps which according to the Applicant, the Official Liquidator has taken, commencing from taking over symbolic possession, to physical possession, to seeking disclosure against ex-director and lodging of a complaint with CBI. In the Affidavit in Reply, the Offici....
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....leged blameworthy conduct of the Applicant and ex-directors, the Court would be justified in declining to exercise the discretion to transfer the proceedings to NCLT. Acceding to such submission would amount to taking a constricted view of the matter, losing sight of beneficial object of transfer of the proceedings to NCLT. 36. The matter can be looked at from a slightly different perspective. The conduct of the parties to proceedings or for that matter, the ex-directors of the company, may not always be of determinative significance. When a situation comes to such a pass that the Company Court considers it appropriate to order winging up of a company, more often than not, such a situation would be brought about by mismanagement and improper conduct of the persons who were in charge of the affairs of the company or, in the least, imprudent decisions. Thus, to urge that such conduct of the parties should dissuade the Court from exercising the discretion, would deprive the creditors, contributors and other stake holders from the benefits which the insolvency resolution process under IBC affords. 37. Lastly, the prospect of insolvency resolution under IBC is also a relevant fact....
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....T, there does not seem to be a prohibition for continuing the position as it obtains in the winding up proceedings before the Company Court as an interim measure, till the time NCLT passes an appropriate order under Section 13 of IBC. Lest the interest of the company and all the stake holders would be a casualty, especially in a case like the present one, where the instantaneous setting aside of the order of winding up and putting the ex-directors again at the helm of the affairs of the company is fraught with imminent risk. 41. I am, therefore, inclined to direct that the winding up order would continue to operate despite the transfer of the proceedings to NCLT till an effective order is passed by NCLT under Section 13 of the IBC and only, thereafter, the Official Liquidator would stand discharged. Hence, the following order : ORDER (i) The Interim Application stands allowed. (ii) Company Petition No.399 of 2013 stands transferred to NCLT, Mumbai. (iii) NCLT, Mumbai shall consider the instant Petition as an application for initiation of corporate insolvency resolution process under the IBC. (iv) In order to enable NCLT to initiate corporate insolvency resolution ....