Bombay High Court
West Hills Realty Pvt. Ltd vs Neelkamal Realtors Tower Pvt. ... on 23 December, 2016
Bench: S.C. Gupte
sat 1/15 cp 331-2016, 332-2016.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY PETITION NO.331 OF 2016
WITH
COMPANY APPLICATION (L) NO.766 OF 2016
West Hills Realty Private Ltd. ... Petitioner
Versus
Neelkamal Realtors Tower Pvt. Ltd. ... Respondent
AND
COMPANY PETITION NO.332 OF 2016
WITH
COMPANY APPLICATION (L) NO.767 OF 2016
Ravi Ghai And Another ... Petitioners
Versus
Neelkamal Realtors Tower Pvt. Ltd. ... Respondent
---------
Mr. Simil Purohit a/w Mr. Gauraj Shah, Mr. Manish Doshi, Mr. Sandip
Vimadalal i/b M/s Vimadalal & Co. for the Petitioners.
Mr. Zal Andhyarujina a/w Ms. Rujuta Patil, Ms. Niyathi Kalra and Mr.Rahul
Sabne I/b. Negandhi Shah & Himayatullah for Respondent.
--------
CORAM : S.C. GUPTE, J.
RESERVED ON : 20 DECEMBER 2016
PRONOUNCED ON : 23 DECEMBER 2016
ORDER :
These two company petitions, filed under Section 433(e) read
sat 2/15 cp 331-2016, 332-2016.doc
with Section 434 of the Companies Act, 1956, seek winding up of the
Respondent company on account of inability to pay its debts. The company
petitions, filed in April 2016, are pending admission. Under Notification
dated 7 December 2016, issued by the Central Government, all petitions
relating to winding up under clause (e) of Section 433 pending before high
Courts, and which have not been served on the Respondent as required by
Rule 26 of the Companies (Court) Rules, 1959, stand transferred to the
appropriate Bench of the National Company Law Tribunal ("NCLT")
exercising territorial jurisdiction over the mater. It is the case of the
Respondent that these petitions are covered in the mandate of the
notification and stand transferred thereunder, whilst the Petitioners submit
that the petitions having been served on the Respondent as required by Rule
26, the transfer notification does not apply to them and accordingly, this
court retains its jurisdiction over them.
2 Since the controversy involves a question which would
commonly arise in a number of petitions pending before this court, this
court thought it fit to notify the petitions on the daily cause list, calling upon
other interested parties wanting to make submissions on the issue to appear
at the hearing. Accordingly, submissions are made at the Bar not only by the
parties to these petitions, but also other interested parties whose petitions
are pending before this court.
3 The crucial question, which arises for the consideration of the
court, is : what amounts to a notice under Rule 26 of the Companies (Court)
Rules, 1959 for the purposes of transfer of pending winding up petitions
under Clause (e) of Section 433 of the Companies Act, 1956 to NCLT within
the meaning of the relevant transfer provisions.
sat 3/15 cp 331-2016, 332-2016.doc
4 To understand the context, we need to consider the historical
perspective in which the transfer notification is issued, which is set out
below :
(i) The Companies Act, 1956 ("1956 Act"), which has been holding the
field since 1 April 1956, enacts the law relating to companies and certain
other associations. It provides for different subjects including the subject of
winding up of companies and such other associations. Circumstances in
which companies may be wound up are contained in Section 433. Clause (e)
thereof provides for winding up of a company "if the company is unable to
pay its debts".
(ii) In 2013, the Parliament passed the Companies Act, 2013 ("2013
Act"), which seeks to repeal the 1956 Act. The new Act, which received the
assent of the President on 29 August 2013, consolidates and amends the law
relating to companies over the last 100 years in this country (the first Indian
Companies Act being the Act of 2013). Before the enactment of 2013 Act,
the company law administration, which consists broadly of five important
subjects, namely, (i) rectification of register of members, (ii) scheme of
compromise and arrangements, (iii) reconstruction of sick industrial
companies, (iv) oppression and mismanagement and (v) winding up, was
provided for under different statutes and executed through different forii.
Whereas rectification, schemes, oppression and mismanagement, and
winding up came under the 1956 Act, the subject of reconstruction of sick
companies was provided for in the Sick Industrial Companies Act, 1985.
Even under the 1956 Act, the provisions of rectification, and oppression and
mismanagement were administered by the CLB, whilst schemes and winding
sat 4/15 cp 331-2016, 332-2016.doc
up were handled by the High Courts. On the other hand, reconstruction of
sick companies came before BIFR. One of the objectives sought to be
achieved by 2013 Act is to consolidate the entire company law
administration and entrust it to a single adjudicatory body as well as
appellate forum, namely, the National Company Law Tribunal ("NCLT") and
National Company Law Appellate Tribunal ("NCLAT"). Section 1(3) of 2013
Act provides that its provisions (other than Section 1) shall come into force
on such date as the Central Government may, by notification in the
Government Gazette, appoint and different dates may be appointed for
different provisions of the Act. The whole of 2013 Act is not yet brought into
force. The Central Government has been, by separate notifications, bringing
into force different provisions of 2013 Act piecemeal.
(iii) Sections 408 and 410 of 2013, respectively, confer powers on
the Central Government to constitute NCLT and NCLAT to exercise and
discharge the powers and functions as are, or may be, conferred on them by
the Act. In exercise of these powers, the Central Government through
separate notifications issued by the Ministry of Corporate Affairs on 1 June
2016 constituted NCLT and NCLAT on 1 June 2016.
(iv) On the same day, i.e. 1 June 2016, the Central Government, in
exercise of the powers conferred by clause (a) of sub-section (1) of Section
434 of 2013 Act, by Notification, appointed 1 June 2016 as the date on
which all matters or proceedings or cases pending before the Board of
Company Law Administration ("CLB") shall stand transferred to NCLT, to be
disposed of in accordance with the provisions of 2013 Act or 1956 Act, as
the case may be.
sat 5/15 cp 331-2016, 332-2016.doc
(v) By another Notification issued on the same day, the Central
Government appointed 1 June 2016 as the date on which various provisions
of 2013 Act listed out in the Notification shall come into force. These
provisions included the relevant provisions of 2013 Act concerning
oppression and mismanagement, which was the subject till then dealt with
by the CLB under the 1956 Act.
(vi) In the meantime, in 2016, the Parliament enacted the
Insolvency and Bankruptcy Code, 2016 ("Code"). It received the assent of
the President on 28 May 2016. The Code seeks to consolidate and amend
the laws relating to reorganization and insolvency resolution inter alia of
corporate persons. The Code designates the NCLT as the adjudicating
authority for corporate persons for resolution of insolvency, liquidation and
bankruptcy. Sections 7, 8 and 9 of the Code inter alia provide for initiation
of corporate Insolvency resolution process by financial and operational
creditors.
(vii) By Notification dated 7 December 2016, the Central
Government brought into force various other provisions of 2013 Act
including provisions relating to winding up contained in that Act, with effect
from 15 December 2016.
(viii) Simultaneously, by another Notification of the same date, i.e. 7
December 2016, the Central Government, in exercise of the powers
conferred under sub-sections (1) and (2) of Section 434 made rules, called
"the Companies (Transfer of Pending Proceedings) Rules, 2016," which provide
for transfer of various proceedings pending before the High Courts to NCLT.
Insofar as we are concerned, the relevant rule, which provides for transfer of
sat 6/15 cp 331-2016, 332-2016.doc
pending winding up petitions under clause (e) of Section 433 of 1956 Act,
namely, Rule 5, is in the following terms :
"5. Transfer of pending proceedings of Winding up on the
ground of inability to pay debts - (1) All petitions relating to
winding up under clause (e) of section 433 of the Act on the
ground of inability to pay its debts pending before a High
Court, and where the petition has not been served on the
respondent as required under rule 26 of the Companies (Court)
Rules, 1959 shall be transferred to the Bench of the Tribunal
established under sub-section (4) of section 419 of the Act,
exercising territorial jurisdiction and such petitions shall be
treated as applications under sections 7, 8 or 9 of the Code, as
the case may be, and dealt with in accordance with Part II of
the Code:
Provided that the petitioner shall submit all information,
other than information forming part of the records transferred
in accordance with Rule 7, required for admission of the
petition under sections 7, 8 or 9 of the Code, as the case may
be, including details of the proposed insolvency professional to
the Tribunal within sixty days from date of this notification,
failing which the petition shall abate.
(2)All cases where opinion has been forwarded by Board for
Industrial and Financial Reconstruction, for winding up of a
company to a High Court and where no appeal is pending, the
proceedings for winding up initiated under the Act, pursuant to
section 20 of the Sick Industrial Companies (Special Provisions)
Act, 1985 shall continue to be dealt with by such High Court in
accordance with the provisions of the Act."
5 As we have noticed above, for operation of Rule 5, the crucial
question is, whether or not the petition has been served on the Respondent
"as required under Rule 26 of the Companies (Court) Rules, 1959". That
brings us to the requirement of Rule 26 and service of petitions thereunder.
It is contended on behalf of the Respondent herein and others who argue for
transfer of the petitions, led by Mr.Andhyarujina, that the service of the
petition contemplated by Rule 26 is a post-admission service. It is submitted
sat 7/15 cp 331-2016, 332-2016.doc
that the service of a petition under Rule 26 contemplates a simultaneous
service of the notice of the petition, which, as Rule 27 provides, must be in
Form No.6 given under the Rules. That form, in turn, is clearly to be served
after the petition is admitted by the court. In fact, submit learned Counsel,
there is no rule under the Companies (Court) Rules, 1959, which requires a
pre-admission notice of the petition to the Respondent. On the other hand, it
is contended by the Petitioners and others who oppose transfer, led by
Mr.Purohit, that service of the petition under Rule 26 and notice of the
petition under Rule 27 are two entirely different matters. Every petition is
required to be served on the Respondent, if any, named in the petition and
such other person/s as the Act or the Rules may provide or as the Court or
Registrar may direct. It is submitted that this requirement of Rule 26 is
without reference to the admission of the petition. In any event, it it
submitted that in these petitions, there are specific directions issued by the
Registrar to serve the petition on the Respondent. The service of the
petitions, in the premises, effected by the Petitioners' advocates on the
Respondent in the present case is service under Rule 26.
6 To appreciate these submissions and decide the controversy, we
need to consider Rules 26 to 29, Form No.6, and Rules 96 and 98 of the
Companies (Court) Rules, 1959, which are quoted below :
"26. Service of petition - Every petition shall be served on the respondent,
if any, named in the petition and on such other persons as the Act or these
rules may require or as the Judge or the Registrar may direct. Unless
otherwise ordered, a copy of the petition shall be served along with the
notice of the petition.
27. Notice of petition and time of service - Notice of every petition
required to be served upon any person shall be in Form No. 6, and shall,
unless otherwise ordered by Court or provided by these Rules, be served not
less than 14 days before the date of hearing.
sat 8/15 cp 331-2016, 332-2016.doc
"Provided always that such notice when by the Act or under these Rules is
required to be served on the Central Government, the same shall, unless
otherwise ordered by the court, be served not less than 28 clear days before
the date of hearing."
28. Service on company -
(1) Where a petition is presented against a Company, it shall be
accompanied by a notice of the petition in the prescribed form together
with a copy of the petition for service on the company and an envelope
addressed to the company at its registered office or its principal place of
business and sufficiently stamped for being sent by registered post for
acknowledgement. The Registrar shall immediately on the admission of the
petition send the notice together with the copy of the petition to the
company by registered post.
(2) Every petition and, save as otherwise provided by these Rules or by an
order of Court, every application, shall unless presented by the Company,
be served on the company at its registered office, or if there is no registered
office, at its principal or last known principal place of business, by leaving a
copy thereof with an officer or employee of the company, and in case no
such person is available, in such manner, as the Judge or Registrar may
direct, or, by sending a copy thereof by prepaid registered post addressed to
the company at its registered office, or, if there is no registered office, at its
principal or last known principal place of business, or to such person and at
such address as the Judge or Registrar may direct.
Where the company is being wound-up, the petition or application shall
also be served on the liquidator, if any, appointed for the purpose of
winding-up the affairs of the company.
29. Petitioner to effect service -
Save as otherwise provided by these Rules and subject to any directions of
the Judge or Registrar, the petitioner, applicant or any other person having
the conduct of proceedings in Court, shall be responsible for the service of
all notices, summons and other processes and for the advertisement and
publication of notices, required to be effected by these Rules or by order of
Court."
sat 9/15 cp 331-2016, 332-2016.doc
Form No.6
(In Winding-up matters)
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY PETITION NO. ....... OF .......
In the matter of Companies Act, 1956;
And
In the matter __________________
(Full title as per proceeding)
To,
Name and address of the
Respondent Company.
TAKE NOTICE THAT Petition under Section ........... of
the Companies Act, 1956 for winding-up of the abovenamed
Company presented by ............. the Petitioner on --/--/200 is
admitted pursuant to Order dated --/--/200 and the same is
now fixed for hearing before the Company Judge on --/--/200 at
11:00 O'Clock in the forenoon or soon thereafter.
If you desire to support or to oppose the said Petition at
the hearing, you should give notice thereof in writing to the
Advocates for the Petitioners mentioned below so as to reach
the Advocate for the Petitioner/s not later than five days before
the date fixed for hearing of the said Petition and appear at the
hearing in person or by an Advocate/s, who is entitled to
practice in this Hon'ble Court. If you wish to oppose the said
Petition, the grounds of opposition or a copy of your Affidavit,
should be furnished with your notice to the Advocate/s for the
Petitioner/s mentioned below.
Copies of the Petition and the Affidavit-in Support thereof
are enclosed.
Dated this ...... day of ..... 200..
For Registrar (O.S.)/
Prothonotary and Senior Master
S E A L E R
This ..... day of ....., 200..
Encl : Copies of the Petition and
Affidavit-in support thereof.
(Name and Address of the
Advocate/s for the Petitioner/s)
** Docket is required.
sat 10/15 cp 331-2016, 332-2016.doc
96. Admission of petition and directions as to advertisement -
Upon the filing of the petition, it shall be posted before the Judge in
Chambers for admission of the petition and fixing a date for the hearing
thereof and for directions as to the advertisements to be published and the
persons, if any, upon whom copies of the petition are to be served. The
Judge may, if he thinks fit, direct notice to be given to the company before
giving directions as to the advertisement of the petition.
98. Copy of petition to be furnished -
Every contributory or creditor of the company shall be entitled to be
furnished by the petitioner or by his advocate with a copy of the petition
within 24 hours of his requiring the same on payment of the prescribed
charges."
It may be noted at the outset that Rules 26 to 29, quoted above,
come within Part-I entitled "GENERAL", whereas Rules 96 and 98 are under
Part III entitled "WINDING-UP". It is also important to note that the rules
concerning winding up contained in Part III do not provide for compulsory
service of the petition or its notice on the Respondent company, though they
provide for the discretion in the Judge in chambers hearing the petition for
admission to direct a notice to be given to the company before issuing
directions as to the advertisement of the petition. So also, there is no
provision for either the time or manner of such service in Part III. For these
matters, therefore, we need to go to the general provisions contained in Rule
26 to 29. Indeed, a Division Bench of our court in the case of Modern Dekor
Painting Contracts Pvt.Ltd. vs. Jenson & Nicholson (India) Ltd. 1 has held
that the rules contained in part III in relation to winding up being silent in
regard to the form in which notice is to be given, it is necessary to look to
the other provisions in the Company (Court) Rules, 1959 in order to
ascertain whether there is any provision for giving notice to the company
and other persons and the form in which such notice is to be given and
those provisions are contained in Rules 27, 28, 29 and 31 read with Form
1 1983 MhLJ 485
sat 11/15 cp 331-2016, 332-2016.doc
No.6. The Division Bench categorically rejected the submission of Counsel in
that case that Rules 27, 28, 29 and 31 do not apply to a winding up petition.
8 Coming now to Rules 26 to 29, even a cursory reading of these
rules makes it clear that the rules treat the two subjects, namely, service of
petition and notice of petition, differently. Service of petition implies service
on the respondent or other person, as the case may be, of a copy of the
petition, whereas notice of the petition connotes notice of the hearing of the
petition before the court. Rule 26 provides for service of petition, whilst
Rule 27 provides for notice of petition. Rule 28 provides for the manner in
which service is to be effected on the company, whereas Rule 29 casts the
responsibility for all services required to be effected by the Rules or by
orders of court or registrar on the petitioner.
9 Mr.Andhyarujina submitted that the mandate of Rule 26 is that
a petition has to be served on the respondent and other persons only if the
Act or Rules may require or if the Judge or Registrar may direct and that in
default, every service of the petition must be accompanied by service of the
notice of the petition. He then follows it up with his next submission that
such notice of the petition is required to be in Form No.6, which clearly
provides for a notice post-admission. He finally sums it up by submitting
that every service of the petition under Rule 26 is, therefore, necessarily a
post-admission service. There is a distinct fallacy in this argument. First of
all, if a petition had to be served on the respondent as well as other persons
only as and if the Act or the Rules may require or the Judge or the Registrar
may direct, there was no need to make any separate provision for such
service in Rule 26. The Act or the Rules or the order of the Judge or the
Registrar, as the case may be, anyway would have provided for the same. A
sat 12/15 cp 331-2016, 332-2016.doc
separate provision for such service would make little sense. Secondly, even
lexicologically the structure of the sentence in Rule 26 providing for such
service does not support the interpretation suggested by Mr.Andhyarujina. A
correct reading of Rule 26 implies that the requirement of service of petition
is provided for in Rule 26 itself. It contains two commands, namely, (i)
every petition shall be served on the respondent, if such respondent be
named in the petition, and (ii) every petition shall be served on such other
person as the Act or the Rules may require or as the Judge or the Registrar
may direct. In other words, if a respondent is named in the petition, the
requirement of service of the petition on such respondent is the requirement
of Rule 26 itself. One does not have to go to the other provisions of the Act
or the Rules or the orders of the Judge or the Registrar for such
requirement. There is one more circumstance provided in Rule 26 where
service of the petition needs to be made, i.e. when a notice of the petition is
to be served. The last sentence of Rule 26 provides that when a notice of the
petition is to be served on the respondent or any other person then, unless
otherwise ordered, a copy of the petition shall also be served. Rule 26 has no
reference to the order of admission of the petition. Rules 27 and 28, on the
other hand, make it clear that they together form the requirement of service
of the notice of the petition on the respondent company after the petition is
admitted and provide for the time and manner of such service. Rule 29, on
the other hand, fixes the responsibility of any service under the Rules or
directions of the court or the Registrar on the petitioner. The scheme of
these four rules, thus, suggests that whereas service of the petition is
mandatory on the respondent and, if the Act or the Rules provide or the
Judge or the Registrar directs, on such other person/s, whereas notice of the
petition on the respondent is obligatory only in the event of admission of the
petition. So also, other persons are entitled to notice of the petition only if
sat 13/15 cp 331-2016, 332-2016.doc
the Act or the Rules require or the Judge or the Registrar directs. In case of
any service, whether service of the petition or of the notice of the petition, it
is the petitioner who must execute it.
10 As a matter of fact, as held by our court in the case of Modern
Dekor Painting Contracts (supra) as well as the earlier case of Extrusion
Processes Pvt.Ltd. vs. Jivabhai Marghabhai Patel2, there is no right in a
company to be issued a notice before a petition is admitted or the court fixes
the date of hearing. The Companies (Court) Rules do not provide for any
such notice, though it is permissible for the Judge or the Registrar to require
such notice to be given to the company. In fact, as the Supreme Court in the
case of National Conduits (P.) Ltd. vs. S.S. Arora3 has observed, when a
petition is filed before a High Court for winding up of a company under the
orders of the court, the High Court has three options. It may (i) issue
notice to the company to show cause why the petition should not admitted;
or (ii) admit the petition, fix a date for hearing and issue a notice to the
company before giving directions about advertisement of the petition; or
(iii) may admit the petition, fix the date of hearing of the petition, order that
the petition be advertised, and direct that the petition be served upon
persons specified in the order. Whereas the requirements of Rules 27 and 28
of a post-admission notice of the petition to the company are absolute, the
requirement of a notice at the stage of admission or before advertisement of
the petition as provided in Rule 96, is a matter of discretion of the court. As
held by the Allahabad High Court in the case of U.P. Twiga Fiberglass Ltd.
vs. Parekh Marketing P. Ltd.4, Rule 26 is general in nature and does not
control the requirement of Rule 96 to serve the "company". The notice to the
company in Rule 96 is not required to be issued in any prescribed form. The
2 1966 Company Cases (Vol.XXXVI) 60
3 1967 Company Cases (Vol.XXXVII) 786
4 1986 Company Cases (Vo.59) 886
sat 14/15 cp 331-2016, 332-2016.doc
company has only to be apprised of the fact that a petition for winding up
has been filed. Such notice may be accompanied with a copy of the petition.
11 Mr.Andhyarujina and Mr.Madon submitted that the proviso to
Rule 5 makes it clear that petitions to be transferred to NCLT must be at a
pre-admission stage, since the proviso in terms requires the petitioner to
submit all information required for admission of the petition under Section
7, 8 or 9 of the Code, as the case may be, within 60 days from the date of
the transfer notification. Whilst it is true that the petitions that are to be
transferred to NCLT must be at a pre-admission stage, the proviso does not
imply that every petition at the pre-admission stage ought to be transferred
to NCLT. All winding up petitions admitted by High Courts would have
necessarily complied with the requirement of service under Rule 26,
whereas petitions pending admission might or might not have complied with
the requirement of such service. Those petitions, which are pending
admission and which have been served on the respondent as required under
Rule 26, shall continue to remain in the High Court pending their admission,
whilst the petitions pending admission, which have not been served on the
Respondent as required under Rule 26, shall be transferred to, and
considered for admission under Section 7, 8 or 9 of the Code by, NCLT. That
clearly appears to be the mandate of the transfer notification, particularly,
Rule 5 thereof.
12 In fact, if anything, the argument that Rule 26 contemplates a
post-admission notice and only in the event such notice is actually served on
the respondent that the petition shall stand transferred to NCLT, will lead to
a peculiar situation. It will mean that those petitions, which are admitted
and where notice of the petition is not served on the respondent pursuant to
the order of admission, will stand transferred to NCLT and will be taken up
sat 15/15 cp 331-2016, 332-2016.doc
for admission once again by requiring the petitioners in those petitions to
furnish information for admission of the petitions under Section 7, 8 or 9 of
the Code, as the case may be. That would be clearly anomalous.
13 In the premises, it follows that every winding up petition under
clause (e) of Section 433 which is pending before the High Court and which
is not served by the petitioner on the respondent company shall stand
transferred to NCLT under Rule 5 of the Companies (Transfer of Pending
Proceedings) Rules, 2016. If such pending petition is served by the
petitioner on the respondent, the petition will continue to be dealt with by
this court and the applicable provisions will be the provisions of 1956 Act.
14 As I have noticed above, these petitions, which have been
served by the Petitioners on the Respondent in pursuance of the acceptance
order, are to be treated as served as required under Rule 26 of the
Companies (Court) Rules 1959. Accordingly, these petitions shall not be
transferred to NCLT and shall continue to be dealt with by this court in
accordance with the provisions of 1956 Act.
(S.C. Gupte, J.)
