Registered Office Shift Blocked as Appeals Against IBC Resolution Plan Were Pending

Jeel Kandla Service & Anr. Vs Union of India and Ors. (Calcutta High Court)

The appeal arose from a judgment of a Single Judge dismissing a writ petition challenging an order of the Regional Director, Eastern Region, Ministry of Corporate Affairs, which had permitted shifting the registered office of a company from West Bengal to Maharashtra after approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 (IBC). The principal issue before the Division Bench was whether such shifting could be allowed when multiple appeals against the approved resolution plan were pending before the National Company Law Appellate Tribunal (NCLAT).

The appellants claimed to be stakeholders in the Corporate Insolvency Resolution Process (CIRP) and had pending appeals before the NCLAT. They contended that the Regional Director acted contrary to the second proviso to Rule 30(9) of the Companies (Incorporation) Rules, 2014, which permits shifting of a registered office after approval of a resolution plan only when no appeal against that resolution plan is pending before any court or tribunal. According to them, several appeals challenging the resolution plan were pending before the NCLAT, making the statutory condition unsatisfied.

The appellants argued that the Single Judge wrongly interpreted the rule by holding that the absence of a stay on the resolution plan meant the proviso did not operate as a bar. They also contended that prejudice was irrelevant once a statutory violation was established. The appellants maintained that the Regional Director exercised jurisdiction contrary to the statutory framework and that the purpose of the 2023 amendment introducing the second proviso was to prevent shifting of registered offices while judicial challenges to resolution plans remained pending.

The respondents, including the successful resolution applicant, the company, and the Union of India, defended the order. They argued that the approved resolution plan remained binding because no stay had been granted by the NCLAT. They submitted that the Regional Director had protected the interests of creditors and workers, imposed conditions while granting approval, and ensured that pending proceedings would not be affected by the change of registered office. According to them, the IBC’s objective of corporate revival and the overriding effect of Section 238 of the IBC justified permitting the shift. They also questioned the appellants’ locus standi, contending that their claims stood dealt with under the approved resolution plan and that they no longer had the status of creditors.

Several trade unions sought intervention, supporting the respondents. They argued that implementation of the resolution plan was necessary to protect employment, industrial peace, and the company’s revival. They contended that the appellants’ claims had already been addressed under the resolution plan and that any challenge to the shifting of the registered office was an indirect attempt to obstruct implementation of the approved plan.

The Division Bench examined Section 13(4) of the Companies Act, 2013 and Rule 30 of the Companies (Incorporation) Rules, 2014. It observed that Section 13(4) requires Central Government approval for shifting a registered office from one State to another and that Rule 30 prescribes the procedure governing such approval. The Court noted that the second proviso to Rule 30(9), introduced in 2023, specifically addresses cases where management has been taken over under an approved resolution plan.

The Court held that the second proviso creates a statutory restriction on the power of the Regional Director. It interpreted the proviso to mean that shifting of the registered office may be allowed only when no appeal against the resolution plan is pending and no inquiry, inspection, or investigation is pending or initiated after approval of the plan. The Court concluded that the proviso must be strictly construed and that pendency of an appeal against the resolution plan independently operates as a bar.

According to the Court, there was no inconsistency between the IBC and the Companies (Incorporation) Rules on the issue before it. Therefore, the Regional Director was not justified in invoking Section 238 of the IBC to override the restriction contained in the second proviso to Rule 30(9). The Court found that the Regional Director had exceeded jurisdiction by treating the IBC as prevailing over the statutory restriction imposed by the Rules.

The Court further held that the Single Judge erred in giving primacy to the implementation of the resolution plan over the express language of the second proviso. It observed that the Rule did not make the embargo dependent upon grant of a stay by the appellate forum. Reading such a requirement into the Rule amounted to rewriting the provision.

On the issue of locus standi, the Court rejected the respondents’ objections. It noted that the appellants had been issued notice by the Regional Director, had participated in the proceedings, had filed objections, and were among the parties challenging the resolution plan before the NCLAT. The Court held that they were aggrieved by the Regional Director’s decision and were entitled to challenge it in writ proceedings, particularly when no alternative statutory remedy was available against that order.

The Court also found that the Single Judge overlooked the fact that appeals against the resolution plan itself were pending before the NCLAT. The pendency of such appeals attracted the embargo under the second proviso. The Court held that both the Regional Director and the Single Judge incorrectly interpreted an NCLAT order. The NCLAT had merely observed that the Regional Director could consider the application in accordance with law and had not directed that the application be allowed or that the proviso should be disregarded.

The Division Bench concluded that the Regional Director’s order was contrary to the second proviso to Rule 30(9) and therefore suffered from jurisdictional error. It held that the Rule is clear and unambiguous: when an appeal against the resolution plan is pending, or when an inquiry, inspection, or investigation is pending after approval of the plan, shifting of the registered office should not be allowed.

Accordingly, the Court allowed the appeal, set aside the judgment of the Single Judge and the order of the Regional Director, and directed that the application for shifting the registered office be kept in abeyance until the embargo under the second proviso to Rule 30(9) ceased to operate. The subsequent request for stay of the Division Bench judgment was rejected.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT