Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd.
R. F. NARIMAN, J.
1. Leave granted.
2. These appeals arise out of a judgment of the Division Bench of
the Delhi High Court dated 10.10.2019 by which a Single Judge’s order
dated 14.01.2019 transferring a winding up proceeding pending before
the High Court to the National Company Law Tribunal [“NCLT”] was
upheld. The brief facts necessary to appreciate the controversy involved
in these appeals are as follows:
2.1. A winding up petition under sections 433(e) and (f), 434 and
439 of the Companies Act, 1956, being Co. Pet. No.731 of 2016 was
filed by one Shyam Metalics and Energy Limited (Respondent No.1
herein), seeking winding up of the appellant company inasmuch as for
goods supplied to the appellant company, a sum of Rs.4.55 crore was
still due. The learned Company Judge in the Delhi High Court passed
the following order in the aforesaid petition on 27.08.2018:
“ORDER
27.08.2018
1. This petition is filed under sections 433(e) and (f), 434 and 439
of the Company Act, 1956 (hereinafter referred to as ‘the Act’) seeking
winding up of the respondent company.
2. It has been pleaded in the petition that the respondent company
had approached the petitioner company for supply of Iron Pellet s. A
specified quantity of 11612.34MTs of the goods was supplied to the
respondent company. After making partial payment, a sum of
Rs.4,55,00,000/- is due and payable by the respondent company to the
petitioner. The respondent company from time to time issued 17 post-
dated cheques. However, 13 of the cheques when presented with its
bankers, were returned by the bankers unpaid. Statutory no tice was
issued on 15.06.2016 but no payments have been received by the
petitioner.
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD.
3. No reply has been filed by the respondent. On the last date of
hearing, the learned counsel for the respondent had taken time to settle
the matter with the petitioner.
4. Today, the learned counsel for the respondent company submits
that the respondent is not in a position to settle the matter on account of
the fact that the unit of the respondent is shut.
5. In these circumstances, the petition is admitted and the Official
Liquidator attached to this Court is appointed as the Liqui dator. 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 Rs.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 re spondent-
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 facilit ate the process of
winding up. It will also be open to the Official Liquidator to seek police
help in the discharge of his duties, if he considers it appropriate to do so.
The Official Liquidator to take all further steps that may be necessary in
this regard to protect the premises and assets of the respondent-company.
6. List on 09.01.2019.
7. A copy of this order be given dasti under the signatures of the
court master.”
2.2. An application was then filed before the learned Company
Judge by the State Bank of India [“ SBI”] (Respondent No. 2 herein),
being a secured creditor of the appellant company, seeking t ransfer of
the winding up petition to the NCLT in view of the fact that SBI had
filed an application under section 7 of the Insolvency and Ba nkruptcy
Code, 2016 [“Code”] which was pending before the NCLT. By order
dated 14.01.2019, the learned Company Judge transferred the winding
up petition as prayed for as follows:
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“ORDER
14.01.2019
CA No.1240/2018
1. This application is filed seeking transfer of the present petition
being Co.Pet. No.731/2016 to NCLT. This application has been filed by
State Bank of India stating that an application under section 7 of the
IBC is pending before NCLT. It has been pleaded that the r espondent
company had failed to pay outstanding dues of about Rs.722 crores t o
the applicant bank and hence this proceeding have been initiated before
NCLT. The applicant bank is also a lead bank of the consortium o f
banks which have outstanding dues of about Rs.1100 crores.
2. This court had admitted the present winding up petition on
27.08.2018 and appointed the OL as the provisional liquidator of the
respondent company.
3. The learned counsel appearing for the OL submits that the OL
has already sealed the registered office of the responden t company at
New Delhi and factory premises at Orissa. He further submits that the
OL has incurred heavy expenses in protecting the factory premises at
Orissa in the given facts and circumstances.
4. The Ex. Management however objects to transfer of this
petition. They have submitted that they have had no opportunity to defend
the proceedings before NCLT.
5. Learned counsel for SBI states that the creditors will reimburse
the expenses of the OL.
6. Section 434 of the Companies Act, 2013 reads as follows:
“[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 10E of the Companies Act, 1956 (1 of 1956),
immediately before such date shall stand transferred to the
Tribunal and the Tribunal shall dispose of such mat ters,
proceedings or cases in accordance with the provisions of this
Act;
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
(b) 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 o f
communication of the decision or order of the Company Law
Board to him on any question of law arising out of such order:
Provided that 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; and
(c) 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:
Provided that only such proceedings relating to the
winding up of companies shall be transferred to the Tribunal
that are at a stage as may be prescribed by the Cen tral
Government.
[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 corporat e
insolvency resolution process under the Insolvency a nd
Bankruptcy Code, 2016.”
7. This court has already in CP 152/2016 vide decision dated
27.9.2018 in Rajni Anand vs. Cosmic Structures Limited held
that the power under section 434(1)(c) of the Companies Act,
2013 for transfer of a petition to NCLT is discretionary a nd
has to be exercised in the facts and circumstances of the case
so as to expeditiously deal with the proceedings/winding up.
8. In my opinion, it would be in the interest of justice and in the
interest of the respondent company and the creditors that the
791
matter be transferred to NCLT in exercise of the discretionary
powers of the court under section 434 of the Companies Act,
1956. The order appointing the OL is a recent order and not
much time has elapsed since then. The OL has only taken
steps to seize the office of the respondent company and t he
factory premises and further exercise is yet to be carried out.
The application is allowed as above. The present petitio n is
transferred to NCLT.
CO.PET. 731/2016
9. In view of the above order, the present petition is transferred
to NCLT. All pending applications, if any, stand disposed of.
The order admitting the petition and appointing the OL as the
provisional liquidator dated 27.08.2018 stands revoked.
10. The OL will give details of necessary expenses to SBI.
The costs/expenses will be borne by SBI and also consortium
of banks. The OL will hand over the possession of the assets
as directed by NCLT.
11. Parties to appear before NCLT on 04.02.2019.”
2.3. It is from this order that the appellant company’s ap peal to
the Division Bench has been dismissed by the impugned order in which
the learned Division Bench held as follows:
“41. The process under IBC is meant to find the best possible
solution in a given case, which is beneficial to the c ompany
concerned as well as its creditors and other stakeh olders.
Therefore, in the interest of equity and justice, and keeping i n
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 t he
erstwhile management. The Learned Company Judge rightly
recalled the order of appointment of Official Liquida tor and
admission of petition, since the liquidation was at its initial stage
and the learned Company Judge was fully competent to do so.
After the passing of the winding up order, the OL ha d not
proceeded to take any effective or irreversible steps t owards
liquidation of the assets of the appellant company. All tha t he
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
appears to have done is to take possession and control of the
registered office of the appellant company and its factory premises
and its records and books.
42. Pertinently, the respondent No. 2 has already initi ated
proceedings before the NCLT in respect of the appellant company
which, in any event, would continue. The continuation of the
liquidation proceedings at the hands of the OL in terms of the
order passed by this Court would be incongruous wit h the
proceedings that the NCLT has undertaken and would undertake
under the IBC. Continuation of two parallel proceedings – one
before the Company Court for liquidation, and the other befo re
the IBC for resolution/ revival, would serve no useful pur pose.
The statutory scheme found in Section 434(1)(c) clearly is t hat
the proceedings for winding up pending before the Company Court
could be transferred to the NCLT and there is no provision for
transfer of proceedings from the NCLT to the Company Court.
43. We, thus uphold the impugned order passed by the L d.
Company Judge in C.A. No. 1240/2018, dated 14.01.2019 and
dismiss the appeal.”
3. Shri Sidharth Luthra, learned Senior Advocate appearing on
behalf of the appellant company, referred to three judgments of this
Court, namely, Jaipur Metals & Electricals Employees
Organization v. Jaipur Metals & Electricals Ltd. , (2019) 4 SCC
227 [“Jaipur Metals ”], Forech India Ltd. v. Edelweiss Assets
Reconstruction Co. Ltd., 2019 SCCOnLine SC 87 [“ Forech”], and
M/s Kaledonia Jute & Fibres Pvt. Ltd. v. M/s Axis Nir man &
Industries Ltd. & Ors. , 2020 SCCOnLine SC 943 [“ Kaledonia”].
According to him, none of the judgments apply to the facts of the present
case inasmuch as, on the facts in the present case, once a winding up
order has been passed by the Company Judge, winding up proceedings
alone must continue before the High Court and parallel proceedings under
the Code cannot continue. He argued that Jaipur Metals (supra) makes
it clear that even independent proceedings under the Code can o nly
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 (supra)
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 (supra), though a winding
793
up order had been passed on the facts of that case, the af oresaid order
had been kept in abeyance. On facts therefore, these three cas es are
entirely distinguishable and would have no application to a scenario in
which a winding up order has been passed and the Official Liquida tor
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.
4. Shri K.K. Venugopal, learned Attorney General for I ndia
appearing on behalf of SBI, countered all these submissions. According
to him, this Court has unequivocally laid down that the 5th pro viso to
section 434(1)(c) of the Companies Act, 2013 now makes it clear that a
discretion is vested in the Company Court to transfer win ding up
proceedings to the NCLT without reference to the stage of winding up.
Even post admission, according to the learned Attorney General, if no
irreversible steps have been taken, then a combined reading of the 5th
proviso to section 434(1)(c) and section 238 of the Code would lead to
the result that the winding up proceeding be transferred to the NCLT, as
not only is the Code a special enactment with a non-obsta nte clause
which would, in cases of conflict, do away with the Companies Act,
2013, but also that, given the judgment of this Court in Swiss Ribbons
Pvt. Ltd. & Anr. v. Union of India & Ors., (2019) 4 SCC 17 [“Swiss
Ribbons”], winding up is a last resort after all efforts to revive a company
fail. According to him, the discretion exercised by the Company Court
and the Division Bench has been judiciously and correctly exercis ed,
warranting no interference at our hands.
5. In Swiss Ribbons (supra), this Court had occasion to deal
with the raison d’être for the enactment of the Code. The judgment of
this Court referred to the Statement of Objects and Reason s for the
Code as follows:
“25. The Statement of Objects and Reasons for the Code have
been referred to in Innoventive Industries [Innoventive
Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 : (2018) 1 SCC
(Civ) 356] which states: (SCC pp. 421-22, para 12)
“12. … The Statement of Objects and Reasons of the Code
reads as under:
‘Statement of Objects and Reasons .—There is no single
law in India that deals with insolvency and bankruptcy. Provisions
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
relating to insolvency and bankruptcy for companies can be found
in the Sick Industrial Companies (Special Provisions) Act, 1985,
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993, the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 and the Companies
Act, 2013. These statutes provide for creation of multiple fora
such as Board of Industrial and Financial Reconstruction (BIFR),
Debts Recovery Tribunal (DRT) and National Company Law
Tribunal (NCLT) and their respective Appellate Tribu nals.
Liquidation of companies is handled by the High Courts. Individual
bankruptcy and insolvency is dealt with under the Presidency
Towns Insolvency Act, 1909, and the Provincial Insolvency Act,
1920 and is dealt with by the courts. The existing framework
for insolvency and bankruptcy is inadequate, ineffective and
results in undue delays in resolution, therefore, the prop osed
legislation.
2.The objective of the Insolvency and Bankruptcy Code,
2015 is to consolidate and amend the laws relating to
reorganisation and insolvency resolution of corporate persons,
partnership firms and individuals in a time-bound m anner
for maximisation of value of assets of such persons, to pr omote
entrepreneurship, availability of credit and balanc e the
interests of all the stakeholders including alterat ion in the
priority of payment of government dues and to establi sh an
Insolvency and Bankruptcy Fund, and matters connect ed
therewith or incidental thereto. An effective legal f ramework
for timely resolution of insolvency and bankruptcy would
support development of credit markets and encourage
entrepreneurship. It would also improve Ease of Doi ng
Business, and facilitate more investments leading to higher
economic growth and development .
3. The Code seeks to provide for designating NCLT and
DRT as the adjudicating authorities for corporate persons and
firms and individuals, respectively, for resolution of insolvency,
liquidation and bankruptcy. The Code separates commerc ial
aspects of insolvency and bankruptcy proceedings from judicial
aspects. The Code also seeks to provide for establishment of the
Insolvency and Bankruptcy Board of India (Board) for regulation
of insolvency professionals, insolvency professional agencies and
795
information utilities. Till the Board is established, the Central
Government shall exercise all powers of the Board or designate
any financial sector regulator to exercise the powers and functions
of the Board. Insolvency professionals will assist in completion of
insolvency resolution, liquidation and bankruptcy proceedings
envisaged in the Code. Information Utilities would collect, collate,
authenticate and disseminate financial information to facilitate such
proceedings. The Code also proposes to establish a fund t o be
called the Insolvency and Bankruptcy Fund of India for t he
purposes specified in the Code.
4. The Code seeks to provide for amendments in the Indian
Partnership Act, 1932, the Central Excise Act, 1944, Customs
Act, 1962, the Income Tax Act, 1961, the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993, the Financ e
Act, 1994, the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, the Sick Industrial
Companies (Special Provisions) Repeal Act, 2003, the Payment
and Settlement Systems Act, 2007, the Limited Liability Partnership
Act, 2008, and the Companies Act, 2013.
5. The Code seeks to achieve the above objectives.’”
(emphasis in original)
The Court then went on to state:
“27. As is discernible, the Preamble gives an insight into what is
sought to be achieved by the Code. The Code is first and foremost,
a Code for reorganisation and insolvency resolution of corporate
debtors. Unless such reorganisation is effected in a time-bou nd
manner, the value of the assets of such persons will de plete.
Therefore, maximisation of value of the assets of such persons so
that they are efficiently run as going concerns is anothe r very
important objective of the Code. This, in turn, will promote
entrepreneurship as the persons in management of the corporate
debtor are removed and replaced by entrepreneurs. W hen,
therefore, a resolution plan takes off and the corporate debtor is
brought back into the economic mainstream, it is able to repay its
debts, which, in turn, enhances the viability of credit in the hands
of banks and financial institutions. Above all, ultimat ely, the
interests of all stakeholders are looked after as the corporate debtor
itself becomes a beneficiary of the resolution scheme—workers
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
are paid, the creditors in the long run will be repaid in f ull, and
shareholders/investors are able to maximise their invest ment.
Timely resolution of a corporate debtor who is in the red, by an
effective legal framework, would go a long way to support t he
development of credit markets. Since more investment can b e
made with funds that have come back into the economy, business
then eases up, which leads, overall, to higher economic growt h
and development of the Indian economy. What is interesting to
note is that the Preamble does not, in any manner, r efer to
liquidation, which is only availed of as a last resort if th ere is
either no resolution plan or the resolution plans submitted are not
up to the mark. Even in liquidation, the liquidator can sell t he
business of the corporate debtor as a going concern . (See
ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar
Gupta, (2019) 2 SCC 1] at para 83, fn 3).
28. It can thus be seen that the primary focus of the legislation is
to ensure revival and continuation of the corporate debtor by
protecting the corporate debtor from its own management a nd
from a corporate death by liquidation. The Code is thus a beneficial
legislation which puts the corporate debtor back on its feet , not
being a mere recovery legislation for creditors. The intere sts of
the corporate debtor have, therefore, been bifurcat ed and
separated from that of its promoters/those who are in management.
Thus, the resolution process is not adversarial to the corporate
debtor but, in fact, protective of its interests. The morator ium
imposed by Section 14 is in the interest of the corporate debtor
itself, thereby preserving the assets of the corporate debtor during
the resolution process. The timelines within which the resolution
process is to take place again protects the corporate debtor’s
assets from further dilution, and also protects all its creditors and
workers by seeing that the resolution process goes thr ough as
fast as possible so that another management can, through its
entrepreneurial skills, resuscitate the corporate debtor to achieve
all these ends.”
Having so held, the Court ended stating:
“Epilogue
120. The Insolvency Code is a legislation which deals wit h
economic matters and, in the larger sense, deals with the economy
797
of the country as a whole. Earlier experiments, as we have seen,
in terms of legislations having failed, “trial” having led to repeated
“errors”, ultimately led to the enactment of the Co de. The
experiment contained in the Code, judged by the generality of its
provisions and not by so-called crudities and inequities that have
been pointed out by the petitioners, passes constitutional muster.
To stay experimentation in things economic is a grave responsibility,
and denial of the right to experiment is fraught with ser ious
consequences to the nation. We have also seen that the working
of the Code is being monitored by the Central Government by
Expert Committees that have been set up in this beh alf.
Amendments have been made in the short period in which the
Code has operated, both to the Code itself as well as to subordinate
legislation made under it. This process is an ongoing process which
involves all stakeholders, including the petitioners.
121. We are happy to note that in the working of the Code, the
flow of financial resource to the commercial sector in India ha s
increased exponentially as a result of financial debts being repaid.
Approximately 3300 cases have been disposed of by t he
adjudicating authority based on out-of-court settlements between
corporate debtors and creditors which themselves involved claims
amounting to over INR 1,20,390 crores. Eighty cases have since
been resolved by resolution plans being accepted. Of these eighty
cases, the liquidation value of sixty-three such cases i s INR
29,788.07 crores. However, the amount realised from the
resolution process is in the region of INR 60,000 crores, which is
over 202% of the liquidation value. As a result of this, Reserve
Bank of India has come out with figures which reflect these results.
Thus, credit that has been given by banks and financial institutions
to the commercial sector (other than food) has jumped up f rom
INR 4952.24 crores in 2016-2017, to INR 9161.09 crores in 2017-
2018, and to INR 13,195.20 crores for the first six months of
2018-2019. Equally, credit flow from non-banks has gone up from
INR 6819.93 crores in 2016-2017, to INR 4718 crores for the
first six months of 2018-2019. Ultimately, the total flow of
resources to the commercial sector in India, both bank and non-
bank, and domestic and foreign (relatable to the non-food sector)
has gone up from a total of INR 14,530.47 crores in 2016-2017, to
INR 18,469.25 crores in 2017-2018, and to INR 18,798.20 crores
in the first six months of 2018-2019. These figures show that the
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
experiment conducted in enacting the Code is proving to be largely
successful. The defaulter’s paradise is lost. In its place, the
economy’s rightful position has been regained. The result is that
all the petitions will now be disposed of in terms of this judgment.
There will be no order as to costs.”
6. Viewed in this backdrop, let us now examine some of the
judgments of this Court dealing with transfer of winding up p etitions
from the Company Court to be tried by the NCLT under the Code.
7. Section 255 of the Code reads as follows:
“255. Amendments of Act 18 of 2013 .—The Companies
Act, 2013 shall be amended in the manner specified in the Eleventh
Schedule.”
In pursuance of this section, the Eleventh Schedule to the Code
made various amendments to the Companies Act, 2013. They have been
set out in detail in Jaipur Metals (supra) in paragraphs 10 and 11.
Suffice it to say that the first step to transferring winding up proceedings
to the NCLT was taken by the Companies (Transfer of Pending
Proceedings) Rules, 2016 [“Transfer Rules, 2016”], which compulsorily
transferred all winding up proceedings pending before High Courts to
the NCLT at a stage prior to the service of the petition in terms of Rule
26 of the Companies (Court) Rules, 1959. By an amendment made on
17.08.2018, the 5th proviso to section 434(1)(c) was added which states
as follows:
“434. Transfer of certain pending proceedings.—(1) On such
date as may be notified by the Central Government in this behalf,—
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) all proceedings under the Companies Act, 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:
xxx xxx xxx
Provided further that any party or parties to any proceedi ngs
relating to the winding up of companies pending before any Court
799
immediately before the commencement of the Insolvency an d
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 resolut ion
process under the Insolvency and Bankruptcy Code, 2 016
(31 of 2016).”
8. The Court in Jaipur Metals (supra) was directly concerned
with a special category of cases dealt with by Rule 5(2) of the aforesaid
Transfer Rules which was omitted later on. Despite the omi ssion, the
Court applied this Rule, read with the amendment made to section 434
of the Companies Act, 2013 on 17.08.2018, stating:
“17. However, though the language of Rule 5(2) is plain enough,
it has been argued before us that Rule 5 was substituted on 29-6-
2017, as a result of which, Rule 5(2) has been omitted. The effect
of the omission of Rule 5(2) is not to automatically tran sfer all
cases under Section 20 of the SIC Act to NCLT, as otherwise, a
specific rule would have to be framed transferring such cases to
NCLT, as has been done in Rule 5(1). The real reason for omission
of Rule 5(2) in the substituted Rule 5 is because it is necessary to
state, only once, on the repeal of the SIC Act, that proce edings
under Section 20 of the SIC Act shall continue to be dealt with by
the High Court. It was unnecessary to continue Rule 5(2) even
after 29-6-2017 as on 15-12-2016, all pending cases under Section
20 of the SIC Act were to continue to be dealt with by the Hig h
Court before which such cases were pending. Since there coul d
be no opinion by the BIFR under Section 20 of the SIC Act after
1-12-2016, when the SIC Act was repealed, it was unnecessary
to continue Rule 5(2) as, on 15-12-2016, all pending proceedings
under Section 20 of the SIC Act were to continue with the High
Court and would continue even thereafter. This is further made
clear by the amendment to Section 434(1)( c), with effect from
17-8-2018, where any party to a winding-up proceeding pending
before a court immediately before this date may file an application
for transfer of such proceedings, and the Court, at that stage,
may, by order, transfer such proceedings to NCLT. The proceedings
so transferred would then be dealt with by NCLT as an application
for initiation of the corporate insolvency resolution process under
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
the Code. It is thus clear that under the scheme of Section 43 4
(as amended) and Rule 5 of the 2016 Transfer Rules, all
proceedings under Section 20 of the SIC Act pending before the
High Court are to continue as such until a party files an application
before the High Court for transfer of such proceedings post 17-8-
2018. Once this is done, the High Court must transfer s uch
proceedings to NCLT which will then deal with such proceedings
as an application for initiation of the corporate insolvency resolution
process under the Code.
18. The High Court judgment, therefore, though incorrect in
applying Rule 6 of the 2016 Transfer Rules, can still be supported
on this aspect with a reference to Rule 5(2) read with Section 434
of the Companies Act, 2013, as amended, with effect from 17-8-
2018.”
In a significant passage, the Court then went on to hold:
“19. However, this does not end the matter. It is clear that
Respondent 3 has filed a Section 7 application under the Code on
11-1-2018, on which an order has been passed admitting such
application by NCLT on 13-4-2018. This proceeding i s an
independent proceeding which has nothing to do with the transfer
of pending winding-up proceedings before the High Court. It was
open for Respondent 3 at any time before a winding-up order is
passed to apply under Section 7 of the Code. This is clear from a
reading of Section 7 together with Section 238 of the Code which
reads as follows:
“238. Provisions of this Code to override other
laws.—The provisions of this Code shall have effect,
notwithstanding anything inconsistent therewith contained in
any other law for the time being in force or any inst rument
having effect by virtue of any such law.”
The Court therefore finally held:
“20. … We are of the view that NCLT was absolutely correct in
applying Section 238 of the Code to an independent proceeding
instituted by a secured financial creditor, namely, the Alchemist
Asset Reconstruction Company Ltd. This being the case, it i s
difficult to comprehend how the High Court could have held that
the proceedings before NCLT were without jurisdiction. On this
801
score, therefore, the High Court judgment has to be set as ide.
NCLT proceedings will now continue from the stage at which
they have been left off. Obviously, the company petition pending
before the High Court cannot be proceeded with further in view
of Section 238 of the Code. The writ petitions that are pendi ng
before the High Court have also to be disposed of in light of the
fact that proceedings under the Code must run their entire course.
We, therefore, allow the appeal and set aside the High Court’ s
judgment [Jaipur Metals and Electricals Ltd., In re , 2018 SCC
OnLine Raj 1472].”
9. In Forech (supra), this Court, after setting out the aforesaid
Rules and the 5th proviso to section 434(1)(c), then held:
“16. We are of the view that Rules 26 and 27 clearly refer to a
pre-admission scenario as is clear from a plain reading of Rules
26 and 27, which make it clear that the notice contained in Form
No. 6 has to be served in not less than 14 days before the date of
hearing. Hence, the expression “was admitted” in Form No. 6
only means that notice has been issued in the winding up petition
which is then “fixed for hearing before the Company Judge” on a
certain day. Thus, the Madras High Court view is plainly incorrect
whereas the Bombay High Court view is correct in law.
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 unde r the
Code. However, on a working of the Code, the Government
realized that parallel proceedings in the High Courts as well as
before the adjudicating authority in the Code would stultify the
objective sought to be achieved by the Code, which is to resuscitate
the corporate debtors who are in the red. In accordance with this
objective, the Rules kept being amended, until finally Section 434
was itself substituted in 2018, in which a proviso was added by
which even in winding up petitions where notice has been served
and which are pending in the High Courts, any person could apply
for transfer of such petitions to the NCLT under the Code, which
would then have to be transferred by the High Court to the
adjudicating authority and treated as an insolvency petition under
the Code. This statutory scheme has been referred to, albeit in
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
the context of Section 20 of the SICA, in our judgment which is
contained in Jaipur Metals & Electricals Employees
Organization Through General Secretary Mr. Tej Ram
Meena v. Jaipur Metals & Electricals Ltd. Through its
Managing Director, being a judgment by a Division Bench of
this Court dated 12.12.2018.”
Resultantly, the Court thereafter held:
“22. This Section is of limited application and only bars a corporate
debtor from initiating a petition under Section 10 of the Code in
respect of whom a liquidation order has been made. Fr om a
reading of this Section, it does not follow that until a liquidation
order has been made against the corporate debtor, an Insolvency
Petition may be filed under Section 7 or Section 9 as the case
may be, as has been held by the Appellate Tribunal. Hence, any
reference to Section 11 in the context of the problem before us is
wholly irrelevant. However, we decline to interfere wit h the
ultimate order passed by the Appellate Tribunal because it is clear
that the financial creditor’s application which has been admitted
by the Tribunal is clearly an independent proceeding which must
be decided in accordance with the provisions of the Code.
23. Though, we are not interfering with the Appellate Tribunal’s
order dismissing the appeal, we grant liberty to the appellant before
us to apply under the proviso to Section 434 of the Companies
Act (added in 2018), to transfer the winding up proceeding pending
before the High Court of Delhi to the NCLT, which can then be
treated as a proceeding under Section 9 of the Code.”
10. In Kaledonia (supra), the question which arose before the
Court arose after a winding up order had been passed, but which h ad
been kept in abeyance by the Company Court. The vexed question before
the Court was whether the expression “any person could apply for transfer
…” contained in paragraph 17 of the judgment of this Court in Forech
(supra) would refer to persons who are not parties to the proceeding.
This Court, after setting out section 278 of the Companies Act , 2013,
then held:
“44. Thus, the proceedings for winding up of a company are
actually proceedings in rem to which the entire body of creditors
is a party. The proceeding might have been initiated by one or
more creditors, but by a deeming fiction the petition is treated as
803
a joint petition. The official liquidator acts for and on behalf of the
entire body of creditors. Therefore, the word “ party” appearing
in the 5th proviso to Clause (c) of Sub-section (1) of section 434
cannot be construed to mean only the single petitioning creditor or
the company or the official liquidator. The words “party or parties”
appearing in the 5th proviso to Clause (c) of Sub-section (1) of
Section 434 would take within its fold any creditor of the company
in liquidation.
45. The above conclusion can be reached through another method
of deductive logic also. If any creditor is aggrieved by any decision
of the official liquidator, he is entitled under the 1956 Act to
challenge the same before the Company Court. Once he does
that, he becomes a party to the proceeding, even by the pl ain
language of the section. Instead of asking a party to adopt such a
circuitous route and then take recourse to the 5th proviso to section
434(1)(c), it would be better to recognise the right of such a party
to seek transfer directly.
46. As observed by this Court in Forech India Limited (supra),
the object of IBC will be stultified if parallel procee dings are
allowed to go on in different fora. If the Allahabad High Court is
allowed to proceed with the winding up and NCLT is allowed to
proceed with an enquiry into the application under Section 7 IBC,
the entire object of IBC will be thrown to the winds.
47. Therefore, we are of the considered view that the petitioner-
herein will come within the definition of the expression “party”
appearing in the 5th proviso to Clause (c) of Sub-section (1) of
Section 434 of the Companies Act, 2013 and that the petitioner is
entitled to seek a transfer of the pending winding up proceedings
against the first respondent, to the NCLT. It is important to note
that the restriction under Rules 5 and 6 of the Companies
(Transfer of Pending Proceedings) Rules, 2016 relating t o
the stage at which a transfer could be ordered, has no
application to the case of a transfer covered by th e
5th proviso to clause (c) of sub-section (1) of Section 4 34.
Therefore, the impugned order of the High court rejecting the
petition for transfer on the basis of Rule 26 of the Companies
(Court) Rules, 1959 is flawed.”
(emphasis in original)
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
11. What becomes clear upon a reading of the three judgments of
this Court is the following:
(i) 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 b e prescribed
by the Central Government.
(ii) This was done by the Transfer Rules, 2016 (supra) which
came into force with effect from 15.12.2016. Rules 5 and 6 referred to
three types of proceedings. Only those proceedings which are at the
stage of pre-service of notice of the winding up petition stand compulsorily
transferred to the NCLT.
(iii) The result therefore was that post notice and pre a dmission
of winding up petitions, parallel proceedings would continue under both
statutes, leading to a most unsatisfactory state of affairs. This led to the
introduction of the 5th proviso to section 434(1)(c) which, as has been
correctly pointed out in Kaledonia (supra), is not restricted to any
particular stage of a winding up proceeding.
(iv) Therefore, what follows as a matter of law is that even post
admission of a winding up petition, and after the appointme nt of a
Company Liquidator to take over the assets of a company sought to be
wound up, discretion is vested in the Company Court to transfer such
petition to the NCLT. The question that arises before us in this case is
how is such discretion to be exercised?
12. The Companies Act, 2013 deals with winding up of companies
in a separate chapter, being Chapter XX. When a petition to wind up a
company is presented before the Tribunal, the Tribunal is given the power
under Section 273 to dismiss it; to make any interim order as it thinks fit;
to appoint a provisional liquidator of the company till the making of a
winding up order; to make an order for the winding up of the company;
or to pass any other order as it thinks fit – see section 273(1).
13. Sections 278 and 279 of the Companies Act, 2013 then follow,
which state:
“278. Effect of winding-up order.—The order for the winding-
up of a company shall operate in favour of all the creditors and all
contributories of the company as if it had been made out on the
joint petition of creditors and contributories.”
805
“279. Stay of suits, etc., on winding-up order .—(1) When a
winding-up order has been passed or a provisional liquidator has
been appointed, no suit or other legal proceeding s hall be
commenced, or if pending at the date of the winding-up order,
shall be proceeded with, by or against the company, except with
the leave of the Tribunal and subject to such terms as the Tribunal
may impose:
Provided that any application to the Tribunal seeking leave under
this section shall be disposed of by the Tribunal within sixty days.
(2) Nothing in sub-section (1) shall apply to any proceeding pending
in appeal before the Supreme Court or a High Court.”
14. Once a winding up order is made, and a Company Liquidator
is appointed, such liquidator is then to submit a report to the Tribunal
under section 281 as follows:
“281. Submission of report by Company Liquidator .—
(1) Where the Tribunal has made a winding-up order or appointed
a Company Liquidator, such liquidator shall, within sixty days from
the order, submit to the Tribunal, a report containing the following
particulars, namely:—
(a) the nature and details of the assets of the company
including their location and value, stating separately the
cash balance in hand and in the bank, if any, and the
negotiable securities, if any, held by the company:
Provided that the valuation of the assets shall be obtained
from registered valuers for this purpose;
(b) amount of capital issued, subscribed and paid-up;
(c) the existing and contingent liabilities of the company
including names, addresses and occupations of its
creditors, stating separately the amount of secured and
unsecured debts, and in the case of secured debts,
particulars of the securities given, whether by the
company or an officer thereof, their value and the dates
on which they were given;
(d) the debts due to the company and the names, addresses
and occupations of the persons from whom they are
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
due and the amount likely to be realised on account
thereof;
(e) guarantees, if any, extended by the company;
(f) list of contributories and dues, if any, payable by them
and details of any unpaid call;
(g) details of trademarks and intellectual properties, if any,
owned by the company;
(h) details of subsisting contracts, joint ventures an d
collaborations, if any;
(i) details of holding and subsidiary companies, if any;
(j) details of legal cases filed by or against the company ;
and
(k) any other information which the Tribunal may direct or
the Company Liquidator may consider necessary to
include.
(2) The Company Liquidator shall include in his report the manner
in which the company was promoted or formed and whether in
his opinion any fraud has been committed by any person in its
promotion or formation or by any officer of the company in relation
to the company since the formation thereof and any other matters
which, in his opinion, it is desirable to bring to the notice of the
Tribunal.
(3) The Company Liquidator shall also make a report on th e
viability of the business of the company or the steps which, in his
opinion, are necessary for maximising the value of the assets of
the company.
(4) The Company Liquidator may also, if he thinks fit, make any
further report or reports.
(5) Any person describing himself in writing to be a creditor or a
contributory of the company shall be entitled by himself or by his
agent at all reasonable times to inspect the report submi tted in
accordance with this section and take copies thereof or ex tracts
therefrom on payment of the prescribed fees.”
807
15. The Tribunal is then to consider the aforesaid report and fix a
time limit within which the proceedings shall be completed a nd the
company dissolved, which time limit may be revised – see section 282(1).
16. Importantly, the company’s properties shall, on the order of
the Tribunal, be taken over by the Company Liquidator and be deemed
to be in custodia legis – see section 283(1) and 283(2).
17. Thereafter, the Tribunal is to settle a list of contributories under
section 285. The Company Liquidator is then to make periodical reports
to the Tribunal with respect to the progress of the winding up proceedings
as follows:
“288. Submission of periodical reports to Tribunal.—(1) The
Company Liquidator shall make periodical reports to the Tribunal
and in any case make a report at the end of each quarter w ith
respect to the progress of the winding-up of the company in such
form and manner as may be prescribed.
(2) The Tribunal may, on an application by the Company Liquidator,
review the orders made by it and make such modifications as it
thinks fit.”
18. Section 290 is important because it lays down the powers and
duties of the Company Liquidator as follows:
“290. Powers and duties of Company Liquidator .—
(1) Subject to directions by the Tribunal, if any, in this regard, the
Company Liquidator, in a winding-up of a company by the Tribunal,
shall have the power—
(a) to carry on the business of the company so far as may
be necessary for the beneficial winding-up of the
company;
(b) to do all acts and to execute, in the name and on behalf
of the company, all deeds, receipts and other documents,
and for that purpose, to use, when necessary, the
company’s seal;
(c) to sell the immovable and movable property and
actionable claims of the company by public auction or
private contract, with power to transfer such property
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
to any person or body corporate, or to sell the same in
parcels;
(d) to sell the whole of the undertaking of the company as a
going concern;
(e) to raise any money required on the security of the assets
of the company;
(f) to institute or defend any suit, prosecution or other legal
proceeding, civil or criminal, in the name and on behalf
of the company;
(g) to invite and settle claim of creditors, employees or any
other claimant and distribute sale proceeds in accordance
with priorities established under this Act;
(h) to inspect the records and returns of the company on
the files of the Registrar or any other authority;
(i) to prove rank and claim in the insolvency of any
contributory for any balance against his estate, and to
receive dividends in the insolvency, in respect of that
balance, as a separate debt due from the insolvent, and
rateably with the other separate creditors;
(j) to draw, accept, make and endorse any negotiable
instruments including cheque, bill of exchange, hundi or
promissory note in the name and on behalf of the
company, with the same effect with respect to the liability
of the company as if such instruments had been drawn,
accepted, made or endorsed by or on behalf of the
company in the course of its business;
(k) to take out, in his official name, letters of administration
to any deceased contributory, and to do in his official
name any other act necessary for obtaining payment of
any money due from a contributory or his estate which
cannot be conveniently done in the name of the company,
and in all such cases, the money due shall, for the purpose
of enabling the Company Liquidator to take out the letters
of administration or recover the money, be deemed to
be due to the Company Liquidator himself;
809
(l) to obtain any professional assistance from any person
or appoint any professional, in discharge of his duties,
obligations and responsibilities and for protection of the
assets of the company, appoint an agent to do any
business which the Company Liquidator is unable to do
himself;
(m)to take all such actions, steps, or to sign, execute and
verify any paper, deed, document, application, petition,
affidavit, bond or instrument as may be necessary,—
(i) for winding-up of the company;
(ii) for distribution of assets;
(iii) in discharge of his duties and obligations and
functions as Company Liquidator; and
(n) to apply to the Tribunal for such orders or directions as
may be necessary for the winding-up of the company.
(2) The exercise of powers by the Company Liquidator under
sub-section (1) shall be subject to the overall control of the Tribunal.
(3) Notwithstanding the provisions of sub-section (1), the Company
Liquidator shall perform such other duties as the Tribunal m ay
specify in this behalf.”
19. Under section 292, subject to the provisions of the Companies
Act, 2013, the Company Liquidator shall, in the administration of t he
assets of the company and the distribution thereof among its creditors,
have regard to any directions which may be given by the resolution of
the creditors or contributories at any general meeting – see section 292(1).
20. It is only when the affairs of the company have been completely
wound up that an application is to be made to the Tribunal to dissolve the
company under section 302, which is set out hereinbelow:
“302. Dissolution of company by Tribunal .—(1) When the
affairs of a company have been completely wound up, the
Company Liquidator shall make an application to the Tribunal for
dissolution of such company.
(2) The Tribunal shall on an application filed by the Company
Liquidator under sub-section (1) or when the Tribunal is of the opinion
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
that it is just and reasonable in the circumstances of the case that an
order for the dissolution of the company should be made, make an order
that the company be dissolved from the date of the order, and the company
shall be dissolved accordingly.
(3) The Tribunal shall, within a period of thirty days from the date
of the order,—
(a) forward a copy of the order to the Registrar who shall record
in the register relating to the company a minute of th e
dissolution of the company; and
(b) direct the Company Liquidator to forward a copy of the order
to the Registrar who shall record in the register relati ng to
the company a minute of the dissolution of the company. “
21. Where a company has been dissolved, such dissolution may
be set aside within a period of two years from the date of such dissolution
under section 356 of the Companies Act, 2013.
22. Given the aforesaid scheme of winding up under Chapter XX
of the Companies Act, 2013, it is clear that severa l stages are
contemplated, with the Tribunal retaining the power to c ontrol the
proceedings in a winding up petition even after it is admitted. Thus, in a
winding up proceeding where the petition has not been served in terms
of Rule 26 of the Companies (Court) Rules, 1959 at a pre-admis sion
stage, given the beneficial result of the application of the Code, such
winding up proceeding is compulsorily transferable to the NCLT to be
resolved under the Code. Even post issue 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 wo und 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, in stead of
811
transferring the proceedings to the 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.
23. In the facts of the present case, the concurrent finding of the
Company Judge and the Division Bench is that despite the fact that the
liquidator has taken possession and control of the registered off ice of
the appellant company and its factory premises, records and books, no
irreversible steps towards winding up of the appellant c ompany have
otherwise taken place. This being so, the Company Court has correctly
exercised the discretion vested in it by the 5th proviso to section 434(1)(c).
Resultantly, civil appeal arising out of SLP (Civil) No.26415 o f 2019
stands dismissed.
Civil Appeal Nos. 4042-4043 of 2020 (arising out of SLP
(Civil) Nos. 2033-2034 of 2020):
Given the fact that the matter has been transferred by t he High
Court to the NCLT to verify the necessary facts and circums tances of
the case, after which relief can be given to the appellant herein, we do
not find any reason to interfere with the aforesaid order. The appeals
are therefore dismissed.
ACTION ISPAT AND POWER PVT. LTD. v. SHYAM METALICS
AND ENERGY LTD. [R. F. NARIMAN, J.]
Devika Gujral Appeals dismissed