TaxTMI 
TaxTMI 
2026 (2) TMI 1166
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....r. Siddhartha Jha, AOR. JUDGMENT PER K. VINOD CHANDRAN, J. 1. Judicial impropriety vis-a-vis financial rectitude is the moot question arising in this appeal in the context of the proceedings pending under the Companies Act, 1956 and that initiated under the Insolvency and Bankruptcy Code, 2016 (for short, the IBC). The Stressed Assets Stabilization Fund of the bank who financed respondent No. 2, approached the Adjudicating Authority under the IBC, the Company Law Tribunal, for initiating Corporate Insolvency Resolution Proceedings (CIRP) for recovery of an amount of Rs. 154,33,12,274/- with future interest; on the principal of Rs. 10,60,00,000/- disbursed by way of two term loans on 05.04.1999 and 12.12.2000; the default having commenced from 01.01.2003. Respondent No. 2 resisted the claim on the grounds of pending proceedings with respect to a Scheme of Arrangement (SOA) under Sections 391 to 394 of the Companies Act before the Punjab and Haryana High Court and alleged suppression of such fact before the Adjudicating Authority. 2. The Tribunal observed that respondent No. 2 failed to establish compliance with the provisions of Section 391 of the Companies Act and notic....
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....itted that IBC has been interpreted as a measure, balancing the realization of debts; public funds, to a reasonable extent while ensuring that the industry/ enterprise is not driven to sure death. The SOA under the Companies Act having become defunct by the deliberate omissions of respondent No. 2 and the debt having risen astronomically; the existence of which cannot be disputed, it was perfectly proper for the Adjudicating Authority to have initiated the CIRP under the IBC. The Appellate Authority erred in having kept the application under Section 7 in abeyance, thus suspending the moratorium and putting the tottering industry back in the hands of the management which was responsible for its downfall. 5. Ms. Purti Gupta, learned Counsel appearing for the respondent, on the other hand, urged that the order impugned is not liable to be interfered with, especially since it promotes judicial discipline and has not rejected the application under the IBC. The Adjudicating Authority having been informed of the approval of the SOA under the Companies Act ought not to have initiated the CIRP. It is pointed out that the decisions wherein the proceedings under the IBC were allowed to be ....
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....sanction obtained from the Judge has to be filed with the Registrar within 14 days from the date of such order under Rule 81 which alone brings into effect the SOA as provided under the Act. The respondent Company's inaction to move the second motion was brought to its notice by Annexure A-2 dated 12.03.2009, requiring the second motion to be filed immediately, failing which withdrawal of consent to the SOA was also threatened. On the continued inaction by Annexure A-3 dated 03.07.2009, after almost a year, the creditors withdrew their consent to the SOA. 9. It was much later, on 23.07.2019 that Annexure A-5 order was passed by the High Court in the second motion said to have been filed by the respondent in the year 2009. The filing of the second motion was also not within the time provided under the Rules. In any event the SOA based on the dues as on 2008, as has been argued by the appellant herein, would have become completely unenforceable in the year 2019. This is especially so when the creditors had initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, SARFAESI Act) and also approache....
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....the Resolution at the meeting of creditors which approved the SOA along with the report of the Chairperson was taken on record by the High Court on 25.07.2008. Admittedly, no application by way of a second motion was filed before the High Court within seven days therefrom, as is required under Rule 78. The order sanctioning the SOA by the High Court was on 23.07.2019 in an application filed in the year 2009 by CP No. 89 of 2009, definitely way beyond the prescribed time. There is no plausible explanation offered by the respondent for the delay of almost ten years in moving the Court for sanction of the scheme, the terms of which would have definitely become redundant by mere passage of time. Yet again, it has to be noticed that even the order dated 23.07.2019 prescribed a period of 30 days within which the order had to be filed before the Registrar of Companies, which was also not done. The recall of the order dated 23.07.2019 came about on 11.07.2022, after three years in an application filed by the Stressed Assets Stabilization Fund in the year 2019 numbered as CA 158 of 2019 in CP No. 89 of 2009. In the intervening three years there was no filing done, of the order purportedly s....
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....6 which came into effect on 15.12.2016. Rule 3 required all pending proceedings related to cases other than winding up to be transferred to the Tribunal, but the proviso carved out an exception insofar as those proceedings which are reserved for orders for allowing or otherwise, which proceedings were not required to be transferred. The Division Bench found that since the learned Company Judge had reserved orders on 25.10.2016 in a composite petition, insofar as one of the prayers made with respect to dispensation of meetings was finally allowed; what remained for consideration was only the sanction of the SOA on merits. The Division Bench found no reason to transfer it to the Tribunal since the application filed fell clearly within the exception carved out in the Rules of 2016 and the second proviso to Section 434(1)(c) of the Companies Act, 2013. The Division Bench also proceeded to consider the sanction by themselves rather than sending it back to the Company Judge due to the delay occasioned in the consideration of the SOA. 15. Applying the dictum of the said decision to the present case, herein the meeting was convened, and the Chairperson had filed the report before the Hi....
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....ady noticed that the SOA of 2008 never came into operation and the sanction in the year 2019 was without jurisdiction and after it had become redundant and inoperable for sheer passage of time, the terms of which having not been complied with by the respondent company. 18. A. Navinchandra Steels (P) Ltd. v. Srei Equipment Finance Ltd. (2021) 4 SCC 435 was sought to be distinguished on the ground that therein a liquidation proceeding was pending. The learned Judges in the cited decision looked at the earlier decisions on the subject and reiterated that the "IBC is a special statute dealing with revival of companies that are in the red, winding up only being resorted to in case all attempts of revival fail" (sic para 16). It was also held that the Companies Act is a general statute with reference to the IBC, which has the status of a special statute; prevailing, in the event of conflict especially by virtue of Section 238 of the IBC. Therein, a secured creditor of the Corporate Debtor had, in enforcement of its debt by mortgage, sold a property, while standing outside the winding-up proceedings of the Company Court. This sale was the subject matter of a proceeding in the High Cour....
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....tion 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. While it is true that Sections 391 to 393 of the Companies Act, 1956 may, in a given factual circumstance, be availed of to pull the company out of the red, Section 230(1) of the Companies Act, 2013 is instructive and provides as follows: "230. Power to compromise or make arrangements with creditors and members.-(1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held a....