TRANSFER OF PENDING PROCEEDINGS TO NATIONAL COMPANY LAW TRIBUNAL UNDER SECTION 434 OF COMPANIES ACT, 2013

[Mr. M. GOVINDARAJAN]

Section 434 of the Companies Act, 2013 (‘Act’ for short) provides for the transfer of certain proceedings to National Company Law Tribunal (‘Tribunal’ for short).  Section 434 (1) (a) provides that all matters, proceedings or cases pending before the Board of Company Law Administration (‘CLB’ for short) constituted under sub-section (1) of section 10E 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.  Section 434 (1)(b) provides that 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 of law arising out of such order.  The High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days.

Section 434(2) provides that the Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the court, to the Tribunal under this section.

The provisions of Section 434(1)(a) and 434(1)(b) and Section 434(2) came into effect from 01.06.2016.

Section 434(1)(c) provides that all proceedings under the Companies Act, 1956 (1 of 1956), including proceedings 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.  This sub section will come into effect from 15.12.2016.

Section 239(1) of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) gives powers to the Central Government to make rules for carrying out the provisions of this code.

Rules

In exercise of the powers conferred under Section 434 (1) and 434(2) and Section 209(1) of the Code the Central Government made ‘The Companies (Transfer of Pending Proceeding) Rules, 2016 (‘Rule’ for short) which came into effect from 15.12.2016 except Rule 4, which will come into effect from 01.04.2017.

Rule 3 provides that all proceedings under the Act, including proceedings relating to arbitration, compromise, arrangements and reconstruction, other than proceedings relating to winding up on the date of coming into force of these rules shall stand transferred to the Benches of the Tribunal exercising respective territorial jurisdiction.  All those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred.

Rule 5 (1) provides that all petitions relating to winding up under Section 433 (e) of Companies Act, 1956 on the ground of inability to pay its debts pending before a High Court and where the petition has 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.  Such petitions shall be treated as applications under Section 7, 8 or 9 of the Code and dealt with in accordance with Part II of the Code.  The petitioner shall submit all information, other than information forming part of the records transferred, required for admission of the petition under the Code, including details of the proposed insolvency professional to the Tribunal within 60 days from the date of this notification, failing which the petition shall abate. 

Rule 5(2) provides that all cases where the opinion has been forwarded by BIFR, 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, pursuance 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.

Rule 6 provides that all petitions filed under-

• Section 433(a) – if the company has, by resolution, resolved that the company be wound up by the Tribunal; and
• Section 433(f) – if the Tribunal is of the opinion that it is just and equitable that the company should be wound up

Pending before a High Court and where the petition has not been served on the respondent shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Act.

Rule 7 provides that pursuant to the transfer of cases the relevant records shall also be transferred by the respective High Courts to the Tribunal having jurisdiction forthwith over the cases so transferred. 

Rule 8 provides that notwithstanding anything contained in the National Company Law Tribunal Rules, 2016 no fee shall be payable in respect of any proceedings transferred to the Tribunal in accordance with these rules.

Removal of Difficulties

Difficulties have arisen regarding continuation of provisions of the Companies Act, 1956 for-

• those proceedings relating to cases other than winding up that are reserved for orders for allowing or otherwise; and
• those winding up cases which would not be transferred to Tribunal and be proceeded with by High Courts on account of commencement of the corresponding provisions under the Act or under the Code.

Difficulties have also arisen regarding transfer of proceeding relating to case other than winding up where hearings have been completed and only pronouncement of order is pending or is reserved since their transfer to Tribunal may result into delay and rights of parties to the proceedings are likely to be affected prejudicially.

In order to remove the difficulties the Government made the order vide ‘the Companies (Removal of Difficulties) Fourth Order, 2016’ with came into effect from 15.12.2016.  The order provides for insertion of proviso after Section 434(1)(c)-

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 that-

• 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
• the proceedings relating to winding up of companies which have not been transferred from the High Courts

shall be dealt with in accordance with the provisions of the Act, 1956 and Companies (Court) Rules, 1959.