TMI Blog2018 (3) TMI 1320X X X X Extracts X X X X X X X X Extracts X X X X ..... and Vineet Arora, Advs ORDER M.M. Kumar, President Whenever any new dispensation comes into force it brings along a large number of challenges. The parties to litigation make effort to project a view point suitable to each one of them confronting the Courts with the gigantic task of implementing the provisions of a new statute rolling out the new regime in a manner as to achieve its primary object. The Insolvency Bankruptcy Code has been in force w.e.f. 1.12.2016 and it has its share of challenges which are reflected in the reference order made by the Bench comprising of Hon ble Mr. R. Varadharajan, Member (Judicial) and Hon ble Ms. Deepa Krishan, Member (Technical). To understand the challenges it would therefore, be necessary to set out the reference order dated 21.08.2017 in extenso which reads thus: No. IB-190(PB)/2017 Under section 7 Insolvency and Bankruptcy Code, 2016 IN THE MATTER OF: UNION BANK OF INDIA BRANCH OFFICE AT M-11, FIRST FLOOR, CONNAUGHT CIRCUS, NEW DELHI-110001. . Petitioner V/s Era Infra Engineering Limited 1107, INDRAPRAKASH BUILDING, 21, BARAKHAMBA ROAD, NEW DELHI -110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in relation to certain securities which it is having a first charge with the consortium of lenders as well as the personal guarantees given by the promoters of the Corporate Debtor as well as Corporate Guarantees given. (b) After due notice of the petition by the Financial Creditor on the Corporate Debtor, appearance on behalf of the Corporate Debtor/Respondent was put in and as per the representation made by the Counsel for the respondent before the Hon ble Principal Bench, NCLT which is evident vide order dated 11.07.2017 that several company petitions seeking for winding up of the Corporate Debtor is pending be fore the Hon ble High Court of Delhi and in the circumstances vide the said order of the Hon ble Principal Bench the following question has been framed, namely: Whether the process under the Insolvency and Bankruptcy Code, 2016 can be triggered in the face of the pendency of the winding up petitions or it is to be considered as an independent process? (c) For arguments of the aforesaid issue the Company Petition was listed on 25.07.2017. Since the Hon ble Principal Bench did not sit on the said date and as a Special Bench was constituted to hear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion rendered in Industrial and Commerce Bank of China v. Alok Industries Ltd. in IA No. 188 of 2017 in C.P. (LB) No.48/7/NCLT/AHM/2017rendered as recently as 18.07.2017 is similar to the view expressed as above by the Hon ble NCLT Bench, Chennai. (h) On the other hand the Hon ble Principal Bench, NCLT, New Delhi in several of its orders including the one passed in M/s. Nauvata Engineering Pvt. Ltd. v. Punj Llyods Ltd. in C.P. No. (IB)-217(PB)/2017 on 19.07.2017 has held as follows:- Learned Counsel for the respondent has brought to the notice of the Bench that winding up petition against the respondent company namely Punj Lloyds Ltd. is already pending before the Hon ble Delhi High Court and taking notice of the aforesaid fact C.P. No. 1156 of 2016 was transferred back to the Hon ble Delhi High Court. In various orders passed by this Tribunal, we have expressed the opinion that in cases where winding up proceedings are pending against a Company, then it would not be conducive for the Tribunal to trigger insolvency process against that very company as there is likelihood of conflict between the two statutory entities, namely Official Liquidator and the Insolvency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated and pending before Hon ble High Court against the Corporate Debtor . (k) However question no. (ii) as framed above by the Hon ble NCLAT has not been answered as probably it did not consider the same in view of holding that the petitioner will fall under the category of Financial Creditor as compared what was otherwise held by Hon ble NCLT and had thus remitted back the matter to NCLT, New Delhi for admission, if the papers are otherwise in order. (l) In addition, this Special Bench of NCLT in the case of M/s. Nowfloats Technologies Pvt. Ltd. v. M/s. Getit Infoservices Pvt. Ltd. in C.A. No. (IB) 45(PB)/2017 vide order dated 11.04.2017 had specifically held, where the Official Liquidator has been appointed as the Provisional Liquidator, then the recourse of the parties is to approach the Court which has thought it fit to appoint the Liquidator and not this Tribunal and that the proceedings cannot be sustained before this Tribunal without obtaining the leave of the Hon ble High Court under Section 450 of the Companies Act, 1956 for continuation of the proceedings under the Code. (m) Strictly speaking the above cases referred to are not transferred cases as contempla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd and adjudicated upon only by the High Court. The Legislative intent is thus clear that two sets of winding up proceedings would be heard by two different forum, i.e., one by NCLT and another by the High Court depending upon the date of service of Petition before or after 15th December 2016. In my view, there is thus, no embargo on this Court to hear this Petition along with other companion Petitions, in view of the admitted position that the notice under Rule 26 of the Companies (Court) Rules, 1959 has been served on the respondent prior to 15th December 2016. In my view, since there is no inconsistency in the provisions of the Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013 or Companies Act, 1956 in respect of the jurisdiction of the Company Court or of the NCLT in so far as winding up proceedings are concerned, reliance placed by Mr. Andhyarujina, the learned Counsel appearing for the respondent on Section 238 of the Insolvency and Bankruptcy Code, 2016 is totally misplaced. The effect of non obstante provisions if any in Section 238 of the Insolvency and Bankruptcy Code, 2016 would have been significant only if there would have been conflict in aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to sub section (2) of Section 419 of the Companies Act, 2013 as expeditiously as possible before the Hon ble President. Sd/- Sd/- (DEEPA KRISHAN) (R. VARADHARAJAN) MEMBER (TECHNICAL) MEMBER (JUDICIAL) 2. Reference has thus been made to the three-Member Bench in the cases of Alchemist Asset Reconstruction Company Limited v. Tirupati Buildings Offices Pvt. Ltd. and Union Bank of India, Branch Office v. Era Infra Engineering Limited. The other petitions have also been tagged with the aforesaid two petitions. 3. In order to put the issues in their proper perspective and before embarking upon to consider those issues, it is imperative to notice the seminal facts which generally confront the NCLT resulting in the emergence of these legal issues. In umpteen cases proceedings for winding up on account of inability to pay debt under Section 439 read with Section 433 (e) and Section 434 of the erstwhile Companies Act, 1956 have been initiated and have been in progress in various High Courts when the IBC was enforced w.e.f. 1.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kruptcy Code, 2016 (31 of 2016); (b) Tribunal means the National Company Law Tribunal constituted under section 408 of the Companies Act, 2013. (2) Words and expressions used in these rules and not defined, but defined in the Companies Act, 1956 (1 of 1956) (herein referred to as the Act), the Companies Act, 2013 (18 of 2013) or the Companies (Court) Rules, 1959 or the Code shall have the meanings respectively assigned to them in the respective Act or rules or the Code, as the case may be. 3. Transfer of pending proceedings relating to cases other than Winding up.-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: Provided that all those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred. 4. Pending proceeding relating to Voluntary Winding up: All applications and petitions relating to voluntary winding up of companies pending bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Company Law Tribunal Benches having jurisdiction forthwith over the cases so transferred. 8. Fees not to be paid.-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 . A perusal of the Rule 5 of the Transfer Rules would show that all petitions relating to winding up under Section 433(e) of the Companies Act, 1956 pending before the High Court were to be transferred to respective benches of NCLT as per territorial jurisdiction if the petition has not been served on the respondent as per requirement of Rule 26 of the Companies Court Rules 1959. On transfer such petitions were to be treated as applications under Section 7, 8 or 9 of the IBC and the petitioners were to furnish all information including the details of the proposed insolvency professional. All such petitioners were granted sixty days time from the date of notification failing which their petitions were to abate. Amendment extending the period 6. The Central Government through MCA issued another notification dated February 28, 2017 extending the period of sixty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en dissolved before the 1st day of April, 2017 shall continue to be dealt with in accordance with provisions of the Act. 3. In the principal rules, for rule 5, the following rule shall be substituted and shall be deemed to have been substituted with effect from the 16th day of June, 2017, namely:- 5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.- (1) All petitions relating to winding up of a company under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and, where the petition has not been served on the respondent under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Companies Act, 2013 exercising territorial jurisdiction to be dealt with in accordance with Part II of the Code: Provided that the petitioner shall submit all information, other than information forming pan of the 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law . Brief Facts: 10. A brief reference to few material facts may now be made which have been taken from Union Bank of India v. Era Infra Engineering Ltd. (supra). The Union Bank of India claiming itself as Financial Creditor made a prayer for triggering the corporate insolvency resolution process in the matter of Era Infra Engineering Limited being the Corporate Debtor. The Corporate Debtor is an EPC contractor and is engaged in execution of a large construction projects like construction of highways, airports and industrial projects. It has been availing credit facility since 1990 from the Financial Creditor. The latest credit which is the bone of contention was taken in the year 2012 wherein a Working Capital Term Loan of ₹ 100 crores on standalone basis was sanctioned vide sanction letter No. IFB:CR:602.12. The loan was disbursed to the Corporate Debtor on 31.12.2012 and it was repayable with interest in 14 instalments as was agreed between the parties. A perusal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessity of going into detail arguments advanced by learned counsel for the parties is obviated because binding judgments delivered by NCLAT. Therefore we proceed to answer the questions framed accordingly. Re question No. 1 15. The core question framed by the Principal Bench and by a Division Bench that has been referred to three Members Bench is the same. When we commenced search for the answer to the core question we came across two detailed judgments rendered by learned National Company Law Appellate Tribunal (for brevity NCLAT ). 16. The first judgment has been rendered by NCLAT in the case of Forech India (P.) Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., (Company Appeal (AT) (Insolvency) No. 202 of 2017 decided on 23.11.2017). Upholding the view of the Principal Bench admitting the petition of the Financial Creditor filed under section 7 of the Code the Appellate Tribunal has rejected the argument that since a company petition for winding up was pending in the matter of Corporate Debtor no petition under section 7 of the Code would be maintainable before the Adjudicating Authority -NCLT. The reasoning adopted by the Appellate Tribunal has its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read section 94A which is as under: (94A) Winding up means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable 18. It is on that basis that the NCLAT concluded as under:- 6. Therefore, it is clear that the winding up under the Companies Act, 2013 has been treated to be liquidation under the I B Code. 7. There is no provision under the I B Code which stipulate that if a winding up or liquidation proceeding has been initiated against the Corporate Debtor, the petition under Section 7 or Section 9 against the said Corporate Debtor is not maintainable. 8. However, if a Corporate Insolvency Resolution has started or on failure, if liquidation proceeding has been initiated against the Corporate Debtor, the question of entertaining another application under Section 7 or Section 9 against the same very Corporate Debtor does not arise, as it is open to the Financial Creditor and the Operational Creditor to make claim before the Insolvency Resolution Professional/Official Liquidator. 19. However the NCLAT left the question open to be decided in an appropriate case as to whether Corporate Ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Modi Rubber Ltd. 136 SCL 502 (SC) and M/s Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 25 SCL 461 (SC). Referring to the view of Hon ble the Supreme Court the Bombay High Court held that even after winding up order is passed, the provisions of section 22 of SICA continues to apply and the court under the Companies Act, 1956 would have no power to injunct proceedings before BIFR in view of section 22 of SICA. The High Court further held that since SICA is repealed and has been replaced by IBC (section 252 read with schedule viii of IBC) the provision of IBC would prevail over the provisions of Companies Act, 2013. It was further held that reading any power with the Company Court to injunct proceedings before NCLT in cases of pending winding up would be contrary to legislative intent as section 64(2) of IBC is pari materia to section 22 of SICA (c) NCLT is not a court subordinate to the High Court and in accordance with the provisions of section 41(b) of the Specific Relief Act 1963 no injunction can be granted by the High Court against the Corporate Debtor from institution of proceedings in NCLT. In that regard reliance has been placed on the observation ..... X X X X Extracts X X X X X X X X Extracts X X X X
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