Kaledonia Jute And Fibres Pvt. Ltd Vs Axis Nirman And Industries Ltd. & Ors. (Supreme Court of India)
Section 278 of the 2013 Act shows that any petition by a single creditor or contributory is actually treated as a joint petition of creditors and contributories, so that the order of winding up operates in favour of all the creditors and all the contributories.
(ii) Under Section 454 (6) of the 1956 Act, any person stating himself in writing to be a creditor shall be entitled to inspect the statement of affairs submitted to the official liquidator. If the claim of such a person to be a creditor turns out to be untrue, such a person is liable to be punished under Section 454(7) of the 1956 Act.
(iii) The powers of the liquidator are enumerated in Section 457 of the 1956 Act. Section 457 actually divides the powers of a liquidator into two categories namely (i) those available with the sanction of the Tribunal and (ii) those generally available to the liquidator. But Section 290 of the 2013 Act has done away with such a distinction. However, the 1956 Act, as well as 2013 Act make the exercise of the powers by the liquidator, subject to the overall control of the Tribunal.
This is made clear by Section 457(3) of the 1956 Act and Section 290(2) of the 2013 Act. Additionally, Section 457(3) of the 1956 Act enables any creditor or contributory to apply to the Court with respect to the exercise by the Liquidator, of any of the powers conferred by Section 457.
(iv) Section 460 of the 1956 Act and Section 292 of the 2013 Act make it clear that in the administration of the assets of the Company and the distribution thereof among its creditors, the liquidator should have regard to any directions given by resolution of creditors at any general meeting. If the liquidator does something, in exercise of his powers, any person aggrieved by such Act or decision of the liquidator, is entitled to apply to the Company Court, under Section 460(6) of the 1956 Act and Section 292(4) of the 2013 Act.
(v) Section 466(1) of the 1956 Act enables any creditor to apply for stay of all proceedings in relation to the winding up. This right can be exercised by any creditor at any time after the making of a winding up order.
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 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 Subsection (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 Subsection (1) of Section 434 would take within its fold any creditor of the company in liquidation.
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 plain 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.
As observed by this Court in Forech India Limited (supra), the object of IBC will be stultified if parallel proceedings 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.
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 Subsection (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 to the stage at which a transfer could be ordered, has no application to the case of a transfer covered by the 5th proviso to clause (c) of subsection (1) of Section 434. 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.
Therefore, the appeal is allowed, the impugned order is set aside and the proceedings for winding up pending before the Company Court (Allahabad High Court) against the first respondent herein, is ordered to be transferred to the NCLT, to be taken up along with the application of the appellant herein under Section 7 of the IBC. There will be no order as to costs.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
1. Leave granted.
2. Aggrieved by an order passed by the Company Court (High Court of Allahabad), refusing to transfer the winding up petition pending therein, to the National Company Law Tribunal (NCLT for short), a financial creditor has come up with this appeal.
3. Heard Mr. Huzefa Ahmadi, learned senior counsel appearing for the appellant, Mr. A.N.S. Nadkarni, learned senior counsel appearing for the 1st respondentcorporate debtor and Gp. Capt. Karan Singh Bhati, learned counsel appearing for the official liquidator.
Background Facts
4. One M/s Girdhar Trading Co., the 2nd respondent herein, filed a petition in Company Petition No.24 of 2015 before the High Court of Allahabad under Section 433 of the Companies Act, 1956, for the winding up of the first respondent company, on the ground that the Company was unable to pay its debts. The Company Court ordered notice to the 1st respondent herein, but the 1st respondent failed to appear before the Company Court.
5. Therefore, by an order dated 08.01.2016 the Company Court ordered the admission of the Company Petition and also directed publication of the advertisement of the petition in accordance with Rule 24 of the Companies (Court) Rules, 1959. Pursuant to the said order, the 2nd respondent herein (petitioning creditor) effected a publication of the advertisement in the Official Gazette in Form No. 48 on 30.01.2016. Newspaper publications were also made, indicating the date of hearing of the Company Petition as 29.02.2016.
6. Thereafter, the Company Court passed an order dated 10.03.2016 directing the winding up of the 1st respondent Company on the ground that the Company has been unable to pay its debts and that it was just and equitable to wind up the 1st respondent Company.
7. By the aforesaid order dated 10.03.2016, the Company Court appointed the official liquidator attached to the High Court of Allahabad as the Liquidator and directed him to take over the assets and books of accounts of the Company. The order of winding up was also directed to be advertised in Form 53 in two newspapers, as required under Rule 113 of the Companies (Courts) Rules 1959.
8. Thereafter, the 1st respondent filed an application for recalling the order of winding up dated 10.03.2016. The 1st respondent, in order to prove their bonafides paid the entire amount due to the petitioning creditor (the second respondent herein) along with costs. Therefore, the petitioning creditor had no objection to the recall of the order of winding up.
9. But the official liquidator opposed the application for recall on the ground that the 1st respondent Company owed money to various creditors to the tune of Rs.27 Crores and that unless the said amount is paid, the order of winding up cannot be recalled. The Official Liquidator also submitted that he had already taken over charge of the assets of the Company.
10. In the light of the rival contentions, the Company Court passed an order on 22.08.2016 keeping the winding up order dated 10.03.2016 in abeyance. However, the Company Court directed the Official Liquidator to continue to be in custody of the assets of the Company.
11. While things stood thus, the appellant herein, claiming to be a creditor of the first respondent herein, moved an application before the NCLT, Allahabad under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short the ‘IBC, 2016’). The claim of the appellant herein before the NCLT was that the 1st respondent was due and liable to pay a sum of Rs.32 lakhs and that despite repeated demands, the 1st respondent failed to pay the said amount.
12. Thereafter, the appellant moved an application in Civil Miscellaneous Application No. 23 of 2020 before the Company Court (High court) seeking a transfer of the winding up petition to the NCLT, Allahabad. This application was rejected by the Company Court by a cryptic order dated 24.02.2020, on the sole ground that the requirement of Rule 24 had already been complied with and that a winding up order had already been passed. It is against this order of the High court, refusing to transfer the winding up proceedings from the Company Court to the NCLT that the financial creditor has come up with this civil appeal.
Issues for Consideration
13. The main issues that arise for consideration in this appeal are:
(i) what are the circumstances under which a winding up proceeding pending on the file of a High court could be transferred to the NCLT and
(ii) at whose instance, such transfer could be ordered.
Discussion
14. Though the Companies Act, 2013 (Act 18 of 2013) received the assent of the President on 29.08.2013 and it was published in the Gazette of India dated 30.08.2013 and corrected through corrigenda published on 01.01.2014, various provisions of the Act came into force on various dates. While some of the provisions came into force w.e.f. 12.09.2013, some other provisions came into force w.e.f. 01.04.2014.
15. Clauses (a) and (b) of Subsection (1) of Section 434 as well as Subsection (2) of Section 434 came into force w.e.f. 01.06.2016 vide O.1934 (E) dated 01.06.2016. Clause (c) of Subsection (1) of Section 434 came into force on 15.12.2016 vide S.O. 3677(E) dated 01.12.2016.
16. It may be noted here that Section 434 as it originally stood when the Companies Act, 2013 was enacted, was different from what it is today. Section 434 as it was incorporated originally in the Companies Act, 2013, was actually substituted by the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016), which came into force on 15.11.2016.
17. Section 434 as it stood originally in the Companies Act, 2013 (Act 18 of 2013) and Section 434 as substituted by IBC, 2016 (Act 31 of 2016) together with subsequent amendments thereto, are presented in a tabular column for easy appreciation.
