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2019 (10) TMI 378

..... dent and have an object different from the one envisaged under the scheme of liquidation provided in the Company Law. The former aims resolution by way of revival in a manner that benefits all stakeholders, the creditors as well as the company. Thus, the scope of the proceedings before the NCLT is wider - with the object of preserving the company and its business/ commercial activities. When transfer of winding up petition can aid in achieving the aforementioned objective, it ought to be allowed in the interest of justice. Merely because the learned Company Judge had ordered the winding up of the appellant company on 03.08.2004, it does not follow that the appellant company should necessarily be liquidated and dissolved. The other options available, namely to resolve/ revive the appellant company can and should always be explored for which purpose the NCLT is invested with jurisdiction, unless irrevocable steps towards liquidation have already been undertaken. There is no merit in the submission of the appellant that respondent No.2 not being a party to the winding up petition could not have moved the application for transfer of the proceedings to the NCLT. Firstly, the SBI- Respon .....

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..... n respect of the appellant company and he was directed to take over all the assets, books of accounts and records of the appellant company forthwith. The relevant extract of this Order reads as follows: 5. In these circumstances, the petition is admitted and the Official Liquidator attached to this Court is appointed as the Liquidator. He is directed to take over all the assets, books of accounts and records of the respondent-company forthwith. The citations be published in the Delhi editions of the newspapers Statesman (English) and Veer Arjun (Hindi), as well as in the Delhi Gazette, at least 14 days prior to the next date of hearing. The cost of publication is to be borne by the petitioner who shall deposit a sum ₹ 75,000/- with the Official Liquidator within 2 weeks, subject to any further amounts that may be called for by the liquidator for this purpose, if required. The Official Liquidator shall also endeavour to prepare a complete inventory of all the assets of the respondent-company when the same are taken over; and the premises in which they are kept shall be sealed by him. At the same time, he may also seek the assistance of a valuer to value all assets to facilitat .....

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..... premises of appellant were sealed but further exercise was yet to be carried out. The court opined that such transfer was in the interest of justice, as well as in the interest of appellant company and the creditors involved. Hence, the order admitting the petition and appointing the OL was revoked. The Ld. Company Judge ordered the transfer of the winding up proceedings to the NCLT. Submissions: 8. Learned counsel for the appellant Ms. Maneesha Dhir submitted that vide order dated 27.08.2018, the Ld. Single Judge appointed the Official Liquidator as the Liquidator of the appellant company, and directed him to take over all the assets and books/ records of the appellant company. Hence, she submits that the Court had already passed the winding up order . According to the appellant, the company stood wound up, and the company petition could not be transferred to the NCLT. 9. The submission of the appellant is that the winding up proceedings, necessarily, had to continue before the Ld. Company Judge and the Official Liquidator alone has jurisdiction to liquidate the assets of the appellant company and settle the claims of all the creditors and contributors. 10. Reliance has been plac .....

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..... tion, while holding that such proceedings could not be transferred to the NCLT. 14. Ms. Dhir also raised objection to the transfer at the instance of Respondent No. 2 (SBI), who is not a party to the winding up proceedings. She submitted that the scope of proviso to Section 434 is restricted to parties to the winding up proceedings. Thus, only a party to such proceedings, can seek the transfer of proceedings to NCLT. 15. Further, Ms. Dhir pointed out that no OL or Provisional Liquidator had been appointed in Forech India (supra) and Jaipur Metals (supra) by the Company Court. An OL was appointed in a writ petition filed by a worker s union, and not in the winding up petition. In the present case, the Ld. Company Judge had already appointed the OL, following which the assets and books of account of the appellant were seized by the OL. Therefore, transfer of the winding up proceedings to the NCLT at this stage would be impermissible. 16. Submissions have been made on behalf of the OL to support the appellant. Learned counsel submits that in Forech India (supra) and Jaipur Metals (supra), no appointment of Liquidators were made, in contrast to the instant case wherein, the OL is in po .....

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..... process under IBC seek to resolve the debts of the Company and are also aimed at its revival. 21. Mr. Srinivasan placed reliance upon the Jaipur Metals (supra), wherein, while discussing the issue of transfer of the winding up proceedings under Section 434 of the Companies Act, 1956 and Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016, the Court held that, a proceeding under section 7 of IBC is an independent proceeding which has nothing to do with the transfer of pending winding up proceedings before the High Court . It was further held that, it was open for the Respondent No.3 at any time before a winding up order is passed to apply under section 7 of the Code. Hence, it was clear that unless a final winding up order i.e. an order for dissolution of the company was passed, there was no bar against the proceedings under section 7 of the IBC. 22. Mr. Srinivasan submitted that vide order dated 27.08.2018 the Learned Co. Judge merely admitted the winding up petition, but did not pass a liquidation order. The Liquidator was given only the limited mandate to take over all the assets, book of accounts and records of the Company, to publish citations in newspa .....

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..... vertisement has been given under sub-section (1) of Section 485 of the Companies Act, 1956 but the company has not been dissolved before the 1stApril, 2017 shall continue to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959. Provided further that any party or parties to any proceedings relating to the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy 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 (31 of 2016). (2) 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 courts, to the Tribunal under this section. 26. Rule 5 of the Companies (Transfer of Pending Proceedings) Rules as amended reads as follows: (5) Transfer of pend .....

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..... ho had the prerogative of calling the shots, insofar it concerns the manner in which the process of liquidation and/ or revival of the appellant company should be undertaken. The stake of the creditors - more particularly the secured creditors of the appellant company, is much higher and it is their claims which would have to be first met, before turning to the ex-management. More often than not, it is the ex-management of the company under winding up/ liquidation which is responsible for the state of affairs that the company finds itself in. Thus, in our view, when the plea of a creditor - particularly the secured creditor, to transfer the proceedings to the NCLT from the Company Court is pitted against the plea of the ex-management not to do so, unless very strong reasons for accepting the plea of the ex-management are brought forth - such as a clear statutory bar, the Company Court would lean in favour of transferring the winding up proceedings pending before it to the NCLT. This is also for the reason that the scope of the proceedings before the Company Court after admission of the winding up petition is uni-directional inasmuch, as, the liquidator acts with the mandate of liqu .....

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..... panies Act) are bound to be transferred by the Company Court to the NCLT, provided the condition stipulated in clause (1) of Rule 5 of the Companies (Transfer of Pending Proceedings) Rules are satisfied, i.e. in cases where the petition has not been served on the respondent company, i.e. the company of which the winding up is sought under Rule 26 of the Companies (Code) Rules 1959. In such circumstances, the Company Court has no discretion in the matter. 30. But that is not the only category of cases in which the transfer of the winding up petition may be ordered by the Learned Company Judge. The fifth proviso to Section 434(1)(c) shows that the transfer of winding up proceedings to the Tribunal is not restricted only to the situation provided for in Rule 5(1) of the aforesaid Rules. Transfer of the pending winding up proceedings (on whichever ground preferred), could be sought by any party or parties to the proceedings. This itself shows that even the respondent in the winding up proceedings - which necessarily would include the company under winding up itself, could move an application for transfer of such proceedings, and if such an application is moved, the Court may by order t .....

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..... that the Companies Act 1956 could be treated as general law and IBC, 2016 to be a special statute to the extent of the provisions relating to revival or resolution of the company as per provision under Chapter II of the IBC. Even if the Companies Act and the IBC 2016 are considered as special statutes operating in their respective field, we are of the view that the IBC 2016 being later enactment and in view of the statement and objects and the purpose for which it was enacted, the provisions relating to revival/resolution of the company incorporated under Chapter II will have to be given primacy over the provisions of the winding up proceeding pending before the Company Courts which are referred as saved petitions. (emphasis supplied) 34. The object behind introduction of IBC, as well as its special status has been elaborated upon in paragraph 17 of Forech India (supra) as follows: 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 Go .....

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..... under IBC are independent and have an object different from the one envisaged under the scheme of liquidation provided in the Company Law. The former aims resolution by way of revival in a manner that benefits all stakeholders, the creditors as well as the company. Thus, the scope of the proceedings before the NCLT is wider - with the object of preserving the company and its business/ commercial activities. When transfer of winding up petition can aid in achieving the aforementioned objective, it ought to be allowed in the interest of justice. The court must be sensitive to the scheme and object of the Code; running of parallel proceedings will indeed be futile, create chaos and confusion as held in Jotun (supra). Reliance placed by the appellant on Jotun (supra) is misconstrued, in that it failed to appreciate the true rationale of the case, wherein the court was clearly of the opinion that the parties would benefit from such transfer, and the court would try the petition only if revival efforts by NCLT were unsuccessful. The Court observed in Jotun (supra) as follows: 45. In view of the aforestated reasoning and the case laws cited, we are of the considered opinion that the Compa .....

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..... nherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court. 38. The Supreme Court in Sudarshan Chits v. Sukumaran Pillai, AIR 1984 SC 1579 has recognized the well settled position that a winding up order once made can be revoked or recalled but till it is revoked or recalled it continues to subsist. This position was also recognized in G.T. Swamy v. M/s. Goodluck Agencies, ILR 1988 KAR 3147. The Karnataka High Court had the occasion to again deal with the aforesaid issue in Government of Karnataka v. NGEF Limited (In Liquidation), 2017 SCC Online Kar 4817. In this case, a winding up order passed 13 years earlier was recalled on 22.06.2017 in the interest of equity and justice by invoking the inherent power of the Court recognized in Rule 9 of the Company Court Rules. The Karnataka High Court held that there is no compulsion in law that the winding up must finally culminate into the dissolution order in all cases. The relevant extract from this decision reads as follows: 20. ..There is no compulsion in law that the winding up order must finally culminate into a Dissolution order .....

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..... spondent No.2 not being a party to the winding up petition could not have moved the application for transfer of the proceedings to the NCLT. Firstly, the SBI- Respondent No.2 had moved an application for impleadment. Entertainment of the application of SBI to transfer the proceedings to the NCLT itself shows that the Learned Company Judge impliedly allowed the impleadment application. Respondent No. 2 being the secured creditor of the appellant clearly has a stake in the proceedings for winding up and their impleadment was really a foregone conclusion. Thus, we reject this submission of the appellant. 41. The process under IBC is meant to find the best possible solution in a given case, which is beneficial to the company concerned as well as its creditors and other stakeholders. Therefore, in the interest of equity and justice, and keeping in mind the special nature of the IBC, if the Learned Company Judge has found it fit to transfer the winding up petition to NCLT on the application of respondent No. SBI- who is a secured creditor, this Court would not ordinarily interfere with the judgment of the Learned Company Judge, and that too, on the asking of the erstwhile management. The .....

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