TMI Blog2022 (9) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... ck ? If the answer is in the negative, the transfer of the proceedings to NCLT would be in furtherance of the intent of the legislature. The conduct attributed to the ex-directors, prima facie borne out from the record, can certainly be not said to be unblameworthy. Surely, the conduct of the parties must enter into judicial determination while exercising discretion - 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. While ordering transfer of the winding up proceedings to NCLT, there does not seem to be a prohibition for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 terephthalic acid. Those contracts were insured by Daewoo with KTIC. An amount of USD 5,437,699.20 was due and payable by Futura to Daewoo towards the price of the goods. However, Futura could only pay USD 108,000 and an amount of USD 5,329,699.20 remained outstanding. Thus, Daewoo lodged a claim with KTIC. The latter paid the said amount of USD 5,329,699.20 to Daewoo on 13th October, 2011 under the terms of the insurance policy. Eventually, the debt owed by Futura to Daewoo came to be assigned to KTIC. 2.4 On 27th May, 2013, Daewoo and KTIC jointly filed the Company Petition against Futura in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 immovable assets of Futura. 2.10 Eventually, on account of the default on the part of Futura, on 7 th September, 2020, a Notification was issued by the Company Registrar intimating the Official Liquidator about the order dated 22nd June, 2018 winding up Futura. Thereupon, the Official Liquidator entered into liquidation. In the process, on 14th October, 2020, the Official Liquidator took symbolic possession of the office premises of Futura. 2.11 In the intervening period, especially in between 1st April, 2019 to 30th September, 2020 the Applicant asserts, Futura entered into bonafide transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owers 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 to NCLT under Section 434 of the Act, 2013, is discretionary. In the facts of the case, according to the Official Liquidator, the Court would be justified in declining to exercise discretion against such transfer, primarily, on two counts. First, it is contested that irreversible steps have not been taken by the Official Liquidator. Second, and more prominently, the conduct of the Applicant and ex-directors of Futura disentitles them from seeking the transfer of the Petition to NCLT. 6. The Official Liquidator contends that despite the fact that Futura and its directors were fully aware that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Act, 2013 is the irreversibility of the action taken by the Liquidator in the liquidation of the Company. Assertions of the Applicant that the Official Liquidator has not taken irreversible steps are not met by the Official Liquidator by demonstrating the steps which have the elements of irreversibility. Instead, according to Dr. Tulzapurkar, the Official Liquidator is attempting to stall the transfer of the proceedings to NCLT by raising technical objections like locus of the Applicant and the alleged malafide conduct. These objections do not merit countenance in the backdrop of the object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught, 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 company despite being fully aware of the liquidation having been brought into effect on account of their own default in complying with the undertaking in the Consent Terms (X) and, thereafter, appropriated the sale proceeds indiscriminately and for the purpose for which they could not have been utilized. 17. Mr. Pimple laid emphasis on the fact that once a winding up order is passed, it operates in favour of all the creditors and all the contributories of the company as if it has been made on the joint petition of a creditor and of a contributory. In the case at hand, the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the claim of USD 5,329,699.20. The last time an installment has been paid was on 12th December 2016 and as on that date, the balance payable was USD 1,910,130.91. Not a farthing/penny has been paid after 12th December 2016. 17 Mr. Narichania made a statement that the company has got about 120 acres of land in the State of Tamilnadu and the company is making all efforts to dispose of the land and pay all creditors and there seems to be some impediment concerning the stamp duty payable for the various parcels of land. Mr. Narichania is seeking time for the company to sell those parcels o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 the primary issue of the stage at which the power under the second proviso to Section 434(1)(c) of the Act, 2013 can be exercised. The relevant part of Section 434(1)(c) of the Act, 2013 reads as under : [434. Transfer of certain pending proceedings (1) On such date as may be notified by the Central Government in this behalf - (a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under sub-section (1) of Section 10 E of the Companies Act, 1956 immediately before such date shall stand transferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 second proviso, on its plain reading, does not contain any restraint as to the transfer of a winding up proceedings pending before the Company Court to NCLT qua the stage of the proceedings. It enables any party to the proceedings relating to winding up to make an application for transfer of such proceedings. Correspondingly, discretion is vested in the Company Court to transfer such proceedings to NCLT. The last part of the proviso indicates as to what would be the effect of such transfer and the nature of the proceedings, on its transfer, to NCLT by mandating that the proceedings so transferred shall be dealt with by the Tribunal as an application for init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 three cases are entirely distinguishable and would have no application to a scenario in which a winding up order has been passed and the Official Liquidator has in fact seized the assets of the company in order to begin the process of distribution to creditors and others which would ultimately result in dissolution of the company. .. 14. What becomes clear upon a reading of the three judgments of this Court is the following : 14.1 So far as transfer of winding up proceedings is concerned, the Code began tentatively by leaving proceedings relating to winding up of companies to be transferred to NCLT at a stage as may be prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the immovable or movable properties have taken place, nothing irreversible is done which would warrant a company court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to NCLT to now be decided in accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case. (emphasis supplied) 28. From the aforesaid expositio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Official Liquidator, though disputes that no irreversible steps have been taken, yet does not divulge the steps which have an element of irreversibility. On the contrary, the Affidavit in Reply lays emphasis on the conduct of the ex-director. It does not seem that apart from taking possession of the company premises, assets and record, seeking directions against the ex-director and lodging report with CBI, for the illegal sale of the assets of the company in liquidation and alleged misappropriation of the sale proceeds, the Official Liquidator has taken any further steps in liquidation. It is specifically asserted that the Official Liquidator has yet not invited the claims fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 factor. In the Affidavit in Rejoinder, the Applicant has categorically asserted that Futura continues to hold 307 plots, admeasuring 111.34 acres of land, approximately valued at Rs.365 Crores. In contrast, the alleged unlawful alienation of 18 plots, in the intervening period, constitutes a minuscule part of the assets which Futura still holds. In my view, the extent of assets which Futura allegedly still holds, is of critical salience. In the backdrop of large parcel of land which Futura allegedly holds, the proceedings before the NCLT, have a reasonable prospect of an outcome, which may be more beneficial to all the stake holders. I am, therefore, persuaded to exercise di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 process under IBC, the order of winding up of Futura dated 22nd June, 2018, and appointment of Official Liquidator shall stand recalled, with a rider that the said order would continue to operate till an effective order is passed by NCLT under Section 13 of IBC and only, thereafter, the Official Liquidator would stand discharged. (v) It is hereby made clear that this order shall not affect the proceedings that have been initiated including the criminal complaint against the ex-directors of Futura. Nor this order shall in any manner affect the rights and/or liabilities accrued to, or incurred by, of any of the parties till the date of the passing of this order. (vi) The ob ..... X X X X Extracts X X X X X X X X Extracts X X X X
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