Bombay High Court
Psl Limited vs Jotun India Pvt. Ltd on 5 January, 2018
Bench: K.R. Sriram
1/53 CA-572-2017.doc1.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPLICATION NO.572 OF 2017
IN
COMPANY PETITION NO.434 OF 2015
PSL Limited ....Applicant/Org. Respondent
IN THE MATTER BETWEEN :
Jotun India Private Limited ....Petitioner
Vs.
PSL Limited ....Respondent
WITH
COMPANY APPLICATION (L) NO.333 OF 2017
IN
COMPANY PETITION NO.434 OF 2015
Jotun India Private Limited ....Petitioner
Vs.
PSL Limited ....Respondent
WITH
COMPANY APPLICATION (L) NO.417 OF 2017
IN
COMPANY PETITION NO.434 OF 2015
Edelweiss Asset Reconstruction Co. Ltd. ....Petitioner
Vs.
PSL India Limited
....Respondent
WITH
COMPANY PETITION NO.434 OF 2015
Jotun India Private Limited ....Petitioner
Vs.
PSL Limited
....Respondent
WITH
COMPANY PETITION NO.1048 OF 2015
SK Networks Company Ltd. & Anr. ....Petitioners
Vs.
M/s. PSL Limited ....Respondent
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2/53 CA-572-2017.doc1.
WITH
COMPANY PETITION NO.878 OF 2015
Hanwa Company Limited ....Petitioner
Vs.
PSL Limited ....Respondent
WITH
COMPANY PETITION NO.256 OF 2016
M/s. J.P. Engineering ....Petitioner
Vs.
M/s. PSL Limited ....Respondent
WITH
COMPANY PETITION NO.392 OF 2016
M/s. Bhotika Trade & Services Pvt. Ltd. ....Petitioner
Vs.
M/s. PSL Limited ....Respondent
----
Mr. Janak Dwarkadas, senior advocate a/w. Ms. Ankita Singhania,
Mr. Amir Arsiwala, Mr. Omprakash Jha and Mr. Raghav Shekhar i/b. The
Law Point for applicant/original respondent.
Mr. Zal Andhyarujina a/w. Ms. Akanksha Agarwal, Ms. Silpa Nair,
Ms. Lizum Wangdi and Mr. Akshay Aurora i/b. Trilegal for petitioner in
CP/434/2015 and for respondent in CA/572/2017.
Ms. Arundathi Venkataraman i/b. Khaitan and Co. for petitioner in
CP/878/2015.
Mr. Kunal Chheda a/w. Mr. Arsh Misra i/b. M.V. Kini and Co. for petitioner
in CP/1048/2015.
Mr. Rohit Gupta a/w. Mr. Nikhil Rajani i/b. V. Deshpande and Co. for
applicant in CAL/417/2017 (Intervenor).
----
CORAM : K.R.SHRIRAM, J.
RESERVED ON : 24th NOVEMBER, 2017
PRONOUNCED ON : 5th JANUARY, 2018
P.C.:
1 Respondent-applicant-PSL Limited, who is respondent in the
company petitions, has filed this application seeking the order dated
19th July 2017 in company application (lodging) no.333 of 2017 be
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vacated/recalled. By this non-speaking order, the Learned Company Judge
was pleased to stay the proceedings filed by respondent-applicant under
Section 10 of Insolvency and Bankruptcy Code, 2016 ("IBC") before
National Company Law Tribunal (NCLT), Ahmedabad for insolvency
resolution.
The issue which arises for consideration in the present
application is whether the Company Court has any jurisdiction to stay the
proceedings filed by a Corporate Debtor before NCLT even though a
previously instituted company petition by a creditor may have been
admitted (and therefore does not get transferred to NCLT) but where a
provisional liquidator has not been appointed.
2 On 10th March 2015 company petition no.434 of 2015 was
filed by petitioner - Jotun India Private Limited against respondent-
applicant (org. respondent) under Sections 433 and 434 of the Companies
Act, 1956, claiming an outstanding sum of Rs.7.25 Crores with interest in
respect of unpaid invoices for goods supplied. For the purpose of this
application, I am not considering the facts in other company petitions.
On 19th June 2015, respondent-applicant made a reference to
Board of Industrial and Financial Reconstruction (BIFR) under Sick
Industrial Companies (Special Provisions) Act, 1985 (SICA).
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3 On 1st December 2016 the Sick Industrial Companies (Special
Provisions) Repeal Act, 2003, ("Repeal Act") was notified, and hence SICA
came to be repealed.
Simultaneously, Insolvency and Bankruptcy Code, 2016,
("IBC") was also brought into force. Section 4(b) of the Repeal Act (as
amended by IBC) allowed a company whose reference was pending before
BIFR as on the 1st December 2016 to file before NCLT an application under
section 10 of IBC within a period of 180 days from the notification of the
Repeal Act, i.e., on or before the 31 st of May 2017 for commencement of
the corporate insolvency resolution process and for an order of
moratorium.
4 On 9th March 2017, order admitting the present company
petition no.434 of 2015 was passed. Whilst admitting the company
petition, the Learned Judge observed,
"... since all assets of the respondent company are secured assets in
favour of the secured creditors and are under their control, I do not
propose to appoint official liquidator at this stage. The petitioner will be
at liberty to apply for appointment of the official liquidator at the latter
stage if it is found that the assets of the respondent company are
jeopardized.
5 On 29th May 2017 respondent-applicant filed an application
before NCLT, Ahmedabad under section 10 of IBC, being C.P (IB) No.
37/10/NCLT/AHM/2017 ("IBC Application"), i.e., within the window of
180 days prescribed by the Repeal Act, for the commencement of the
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corporate insolvency resolution process.
In this application the fact that the above company petition
had been filed has been expressly disclosed.
6 On 18th July 2017, IBC Application made by respondent-
applicant was taken up for hearing by NCLT, Ahmedabad, and the secured
creditors to whom notice of IBC Application was given, were also heard.
After hearing the parties, NCLT, Ahmedabad, reserved the matter for orders
and directed the same to be listed on 20th July, 2017.
On the same day, petitioner herein, filed company application
(lodging) no.333 of 2017 seeking the appointment of a Provisional
Liquidator.
7 On 19th July 2017, petitioner herein, mentioned the company
application (lodging) No.333 of 2017 before this Court for the
appointment of a provisional liquidator.
After hearing the counsels, the Learned Judge was pleased to
pass an order restraining the Hon'ble NCLT, Ahmedabad, from continuing
with IBC Application and placed the company application (lodging)
No.333 of 2017 to be heard on 26 th July 2017. This order for convenience
is hereinafter referred to as "impugned order dated 19th July 2017".
8 On 20th July 2017 appeal (lodging) no.280 of 2017 was filed
by respondent-applicant challenging the order dated 19th July 2017.
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9 On 1st August 2017 order was passed by the Division Bench of
this Court in the said appeal-clarifying that the question whether the
Learned Single Judge, acting as the Company Court, had the jurisdiction to
pass the impugned order would expressly be kept open and left for
determination. Upon this express liberty, respondent-applicant withdrew
the appeal.
10 On 15th September 2017 the present application was filed for
recalling/vacating the impugned order dated 19th July 2017. This
impugned order dated 19th July 2017, according to respondent-applicant,
is an order in excess of jurisdiction conferred upon a company court and
hence is liable to be recalled/vacated.
11 The submissions of Mr. Dwarkadas, counsel for
respondent-applicant basically are as under :
(a) The stay granted by the Learned Single Judge is continuing,
and causing great prejudice to the statutory rights of respondent-
applicant and all of its creditors, whether secured, unsecured,
financial or operational, from seeking the benefit of the remedies
provided under IBC, i.e., the commencement of corporate
insolvency resolution process.
(b) IBC is a later and special statute dealing with the subject of
the insolvency resolution of corporate persons in a time bound
manner for maximisation of value of assets of such persons and to
balance the interests of all stakeholders, and is a successor statute
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to SICA. The Companies Act, 1956, which is an earlier statute
must give way to IBC (Allahabad Bank v. Canara Bank1 ).
(c) Besides, Section 238 of IBC contains an overriding provision.
There being no similar provision in the Companies Act, 2013, the
provisions of IBC must prevail over the provisions of Companies
Act, 2013.
(d) Whether a winding up petition filed in the High Court (notice
whereof has been given to respondent company) was liable to be
stayed by reason of a subsequent petition filed by another
creditor before NCLT came to be considered by Dhanuka J. in the
matter of Ashok Commercial Enterprises v. Parekh Aluminex
Ltd.2. Dhanuka J. has held that the intention of the legislature is
clear from the transfer notification dated 7th December 2016 that
both proceedings, i.e., the winding up and NCLT proceedings can
continue simultaneously.
(e) Section 63 of IBC, bars jurisdiction of Civil Court to entertain
proceedings on the issue over which NCLT has jurisdiction. This
Section is pari-materia to Section 34 of SARFAESI Act, 2002.
Section 231 of IBC, specifically curtails the power of Civil Court
or any other authority to restrain any action taken or to be taken
before NCLT. This clearly curtails the power of this Court to pass
any injunction against respondent-applicant from pursuing the
pending IBC Application.
(f) The impugned order dated 19th July 2017 is clearly contrary to
the view taken in Ashok Commercial Enterprises (Supra) in as
1. (2000) 4 SCC 406 para 40/pg.427
2. Order dated 11th April 2017 in Company Petition No.136 of 2014. Alternatively, (2017) 202 Comp Cas 148 (Paragraphs
57-63)
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much as in the impugned order, primacy has been given to
winding up proceedings filed before this court. This despite the
mandate of Section 64 (2) of IBC which is an express bar against
any court granting any injunction in respect of proceedings before
NCLT. [GhanshyamSarda v. Shiv Shankar Trading Company3
and Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.4]
(g) The statutory bar against a corporate debtor from filing an
application under section 10 of IBC operates, if and only if, there
is an order of liquidation against the corporate debtor.
Mr. Dwarkadas also relied upon the following judgments:
1. Innoventive Industries Ltd. Vs. ICICI Bank and Anr.5
2. Mobilox Innovations Private Limited V/s. Kirusa
Software Private Limited6
3. National Textile Workers' Union v. P.R. Ramakrishnan
& Ors.7
4. Madura Coats Ltd. v. Modi Rubber Ltd. and Anr.,8
5. Bank of New York Mellon v. Zenith Infotech9
6. West Hills Realty Pvt. Ltd. v. Neelkamal Realtors Tower
Pvt. Ltd.10
7. Dr. Writers Food Products Private Limited11
8. Budhia Swain &Ors v. Gopinath Deb &Ors.12
3. (2015) 1 SCC 298 (para 26-28)
4. (2004) 4 SCC 311 para 41
5. (2017) SCC Online 1025
6. (2017) SCC Online SC 1154
7. (1983) 1 SCC 228)
8. (2016) 7 SCC 603
9. (2017) 5 SCC 1
10. Company Petition No. 331 of 2016 with Company Application (L) No.766 of 2016 dated 23rd December 2016 of the
Bombay High Court
11. (2007) 6 Mah LJ 422
12. (1999) 4 SCC 396
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9. Prasanta Kumar Mitra and Ors. vs. India Steam
Laundry13
10. Nahar Industrial Enterprises Ltd. vs. Hong Kong and
Shanghai Banking Corporation14
11. Rentworks India Pvt. Ltd. vs. Small Industries
Development Bank of India15
12. Cotton Corporation of India Limited vs. United
Industrial Bank Limited16
13. Real Value Appliances Ltd. vs. Canara Bank17
14. M/s. Rishabh Agro Industries Ltd. vs. P.N.B. Capital
Services Ltd.18
12 Mr. Gupta, counsel for intervenor - Edelweiss, did not make
any oral submissions but simply stated that they adopt the submissions
made by Mr. Dwarkadas. Intervenor's advocates, however, gave written
submissions and the submissions are as under :
(I) Power to stay proceedings pending before NCLT -
13 The Insolvency and Bankruptcy Code, 2016 (IBC), is a
complete code and provide mechanism to resolve the dispute, revival,
restructuring and in the event of failure of scheme, to provide for
liquidation of the assets of the company. On admission, IBC, as per Section
13. (2017) 201 CompCas 509 (Cal) paragraphs 16-23
14. (2009) 8 SCC 646
15. 2014 (4) Bom CR 114
16. (1983) 4 SCC 625
17. (1998) 5 SCC 554
18. (2000) 5 SCC 515
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14, provides for moratorium of 180 days, where all proceedings initiated
against the company gets stayed.
14 IBC provides for mechanism to consider petitioner's claims as
well. Therefore, it is not that their rights will get affected, but in fact the
right, if any, will get adjudicated. Petitioner, however, for reasons best
known to them, is averse to the same and wants the proceedings before
NCLT to be stayed.
15 The issue is whether this Court can stay proceedings before
NCLT, especially in light of the provisions of IBC, which specifically bars
such intervention? It cannot, otherwise, in light of the fact that on
admission of petition before NCLT, petition before this Hon'ble Court gets
stayed as per Section 14, it will make provisions of IBC meaningless.
16 Section 63 of IBC bars jurisdiction of Civil Courts to entertain
proceedings on the issue over which NCLT has jurisdiction. This Section is
pari-materia to Section 34 of SARFAESI Act, 2002. Section 231 of IBC,
specifically curtails the power of Civil Courts or any other authority to
restrain any action taken or to be taken before NCLT. This clearly curtails
the power of this Court to pass any injunction against the Bank/Intervenor
from pursuing the pending application.
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17 The power of this Court to pass order to restrain proceedings
before any other Court is under Section 446. The provisions of IBC, by
virtue of Section 238 of IBC will override the provisions of the Companies
Act to that extent.
18 Further, the powers of this Court, while acting as a Company
Court under Companies Act, 1956, is in exercise of its ordinary and
original jurisdiction and not any extraordinary or inherent jurisdiction. In
furtherance thereto, while acting so, this Court will not have jurisdiction to
stay the proceedings before NCLT. In fact, both the Company Court as well
as NCLT are created under the provisions of Companies Act, 2013 itself. In
order to support this contention, reference may be made to the judgment
of Official Liquidator, Uttar Pradesh v. Allahabad Bank and Ors.19.
19 In the matter of M/s. Innoventive Industries (Supra), the
Hon'ble Apex Court, after considering the provisions of IBC, more
particularly Section 238, came to a conclusion that even Statutory
Injunction under Maharashtra Relief Undertaking Act (MRU Act) will not
come in the way of Secured Creditor to initiate proceedings under IBC.
20 Similar overriding provision came up for consideration of
Hon'ble Supreme Court in the matter of Jagdish Singh Vs. Heeralal &
Ors.20 where the Apex Court has held that the provision of SARFAESI Act,
19. (2013) 4 SCC 381
20. (2014) 1 SCC 479)
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2002, will override the provisions of Civil Procedure Code and no
injunction order can be granted.
21 Further, Section 446 of the Companies Act, 1956 is not
applicable to the present petition and therefore, no leave, as stipulated
thereunder has to be obtained. This position has been settled by the
Supreme Court in the case of Allahabad Bank v. Canara Bank and Ors.21
wherein the issue of the impact of the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 ("RDB Act") on the
provisions of the Companies Act, 1956 arose. The Supreme Court has held
that leave of the Company Court is not required in order to commence
proceedings under RDB Act, for the reason that RDB Act is a special law
which would prevail over the Companies Act, 1956 being the general law
and even assuming that both the statutes are special enactments, the latter
one would prevail over the former, if the latter law contains a provision
giving an overriding effect. In the case at hand, in view of Section 34 of
RDB Act, it was held that the said Act overrides the Companies Act, to the
extent of any inconsistency between the two enactments. Therefore,
applying the ratio of this judgment to the present case, in view of Section
238 of IBC, provisions of IBC shall supersede and prevail over the
Companies Act, to the extent of any inconsistency between the two. This
judgment has been approved by a larger bench of the Supreme Court in
21. AIR 2000 SC 1535
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the case of Rajasthan State Financial Corporation v. Official
Liquidator22.
(II) Whether NCLT can entertain a petition after the order of
admission or appointment of Provisional Liquidator by Company
Court?
22 The order of admission or the order of appointment of
Provisional Liquidator, will not create any bar on filing of petition and
passing of orders by NCLT as the order of admission is merely
commencement of proceedings and not final order of winding up which is
passed under Section 481 of the Companies Act, 1956. Till the company is
ordered to be wound up, i.e., the final order is passed, NCLT can entertain
a petition or an application.
23 A similar issue had come up before the Hon'ble Supreme
Court in the case of Madura Coats Ltd. (Supra) where the Hon'ble Supreme
Court stayed the proceedings before the Company Court, in view of the
applicability of Section 15 and 22 of SICA even when the Company Court
has directed that the Company be wound up. It is not out of place to
mention that Section 15 of SICA wherein a reference to BIFR is made and
consequently, all the proceedings pending before other courts are stayed as
per Section 22 of SICA, the situation is analogous to the filing of petition
under Section 7 of IBC by virtue of which, NCLT is empowered to declare
22. (2005) 8 SCC 190
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Moratorium under Section 14 of IBC.
24 In view of the aforesaid, the legislative intent behind the
enactment of IBC is to consolidate provisions of SICA and Companies Act.
Section 15 of SICA is pari-materia to section 10 of IBC and section 22 of
SICA is similar to Section 14 of IBC.
25 IBC has been enacted to revive the Corporate Debtor by
declaring a Moratorium of various proceedings and appointing an Interim
Resolution Professional (IRP) to manage the affairs of the Corporate
Debtor. Similarly, both SICA and IBC contains non-obstante provisions to
the effect of overriding the provisions of any other law in force except as
excluded expressly. There is in fact no inconsistency between the
provisions of IBC and Companies Act. However, in the event of any
inconsistency, the provisions of IBC will prevail in view of Section 238 of
IBC. The provisions give overriding effect to any other law for time being
in force, in case of any inconsistency or conflict with respect thereof. In
view of Section 238, the judgment relied upon will apply with much
greater force. The judgment followed the law laid down in the earlier
pronouncement of Apex Court even in the matter of Real Value Appliances
Ltd. (Supra) and various High Courts took the same view.
26 Even under the Companies Act, 1956, where Section 391,
provided mechanism for restructuring of the Company, various Courts
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have time and again held that petition under Section 391 of the
Companies Act, 1956 was maintainable even after order of winding up.
The Hon'ble Apex Court in the matter of Meghal Homes (P) Ltd. Vs Shree
Niwas Girni K.K. Samiti23 has, in no uncertain terms, held that the
application under Section 391 is maintainable, even after the order of
admission but before dissolution of the company.
27 Mr. Andhyarujina, counsel for petitioner opposing this
application submitted as under :
(I) Saved winding up petitions :
28 The petitions filed under Section 433 (e) of the Companies
Act, 1956 (the 1956 Act), pending in the Hon'ble High Court as on
15th December 2016 (Saved Petitions), have been saved under the
following provisions -
a. Section 434 of the Companies Act, 2013 (the 2013 Act), inter
alia, deals with the transfer of the proceedings, pending under the 1956
Act before any District Court or High Court, to the Tribunal upon its
constitution.
b. IBC, which came into effect in 2016, amended Section 434 of
the 2013 Act. Section 255 read with the Eleventh Schedule of IBC, inter
alia, amends the 2013 Act in the following manner -
23. (2007) 7 SCC 753)
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"255. Amendments of Act 18 of 2013 - The Companies Act, 2013
shall be amended in the manner specified in the Eleventh Schedule."
"The Eleventh Schedule
Amendments to the Companies Act, 2013
34. For section 434, the following section shall be substituted,
namely: --
434. Transfer of certain pending proceedings. --
(1) On such date as may be notified by the Central Government in
this behalf,--
(a) ......
(b) .....
(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:
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 Central Government.
(2) The Central Government may make rules consistent with the
provisions of this Act to ensure timely transfer of all matters,
proceedings or cases pending before the Company Law Board or the
courts, to the Tribunal under this section."
c. Further, Section 239 (1) of IBC empowers the Central
Government to make rules for carrying out the provisions of IBC and states
as follows -
"239. Power to make rules
(1) The Central Government may, by notification, make rules for
carrying out the provisions of this Code.
(2)....."
d. Therefore, in accordance with Section 434 of the 2013 Act
read with Section 239 of IBC, the Central Government issued the
Companies (Transfer of Pending Proceedings) Rules 2016 (hereinafter
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referred to as "the Transfer Rules") on 7 th December 2016. Rule 5 of the
Transfer Rules, inter alia, provided that all petitions filed under Section
433 (e) of the 1956 Act in the High Court which had not been served upon
respondent shall be transferred to NCLT and therefore, the petitions served
upon respondent-applicant, would continue under the jurisdiction of the
High Court.
e. The provisions of the Transfer Rules were discussed and
elaborated by Hon'ble Mr. Justice S. C. Gupte in the judgment dated 23 rd
December 2016 in West Hills Realty Pvt. Ltd. (Supra) and further, clarified
in his order dated 17th January 2017.
f. The Transfer Rules were amended by the Central Government
vide the Companies (Transfer of Pending Proceedings) Second Amendment
Rules, 2017 notified on 29th June 2017 (hereinafter referred to as "the
Amended Transfer Rules"). Rule 5 of the Amended Transfer Rules, inter
alia, provided that the petitions under Section 433(e) of the 1956 Act filed
against the same company (as other Saved Petitions), shall not be
transferred to the Tribunal, even if the petition has not been served on
respondent.
g. Therefore, the Transfer Rules and the Amended Transfer Rules
clearly indicate the intent of the legislature in saving the petitions pending
in the High Court, to be transferred to NCLT and thereby, creating two
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classes of petitions.
g.1 The two classes of petitions under Section 434(e) of the 1956
Act being -
(i) the Saved Petitions, i.e., petitions pending in the High Court
wherein notice was served to respondent and all other petitions
pending against the same Company in the High Court where notice
was not served to respondent.
(ii) all petitions not saved, i.e., petitions that may have been filed
in the High Court, but not served to respondent.
g.2 In terms of the petitions in class (i), the legislative intent is
that the petitions shall be dealt with and disposed of in accordance with
the 1956 Act to the complete exclusion of IBC.
g.3 In terms of the petitions in class (ii), the legislative intent is
clear that those petitions are to be transferred to NCLT and filed as
applications under Sections 7, 9 and 10 in accordance with the provisions
of IBC and the regulations thereunder.
(II) Non-obstante provision under Section 238 of IBC not applicable:
29 The provisions of the 1956 Act are not inconsistent with the
provisions of IBC in so far as the Saved Petitions are concerned and
therefore, the provisions of IBC do not override the provisions of the 1956
Act under Section 238 of IBC.
30 Upon demurrer, that there is no bar against the proceedings
continuing simultaneously before the High Court under the 1956 Act and
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NCLT under IBC and that Section 238 of IBC, as relied upon by
respondent-applicant, has no application in this present case.
30.1 In the matter of M/s. Ashok Commercial Enterprises (Supra), it
has been, inter alia, held that -
"62. In my view, it is clear that all winding up proceedings shall not
stand transferred to the NCLT. It is clear that if the service of the notice
of the Company Petition under Rule 26 of the Companies (Court)
Rules, 1959 is not complied before the 15th December 2016 such
Petitions shall stand transferred to NCLT whereas all other Company
Petitions would continue to be heard and adjudicated upon only by the
High Court. The Legislative intent is thus clear that two sets of
winding up proceedings would be heard by two different forum i.e. one
by NCLT and another by the High Court depending upon the date of
service of Petition before or after 15th December 2016. In my view,
there is thus, no embargo on this Court to hear this Petition along
with other companion Petitions, in view of the admitted position that
the notice under Rule 26 of the Companies (Court) Rules, 1959 has
been served on the respondent prior to 15th December 2016.
63. In my view, since there is no inconsistency in the provisions of the
Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013
or Companies Act, 1956 in respect of the jurisdiction of the Company
Court or of the NCLT insofar as winding up proceedings are concerned,
reliance placed by Mr. Andhyarujina, the learned Counsel appearing
for the respondent on Section 238 of the Insolvency and Bankruptcy
Code, 2016 is totally misplaced. The effect of non-obstante provision if
any in Section 238 of the Insolvency and Bankruptcy Code, 2016
would have been significant only if there would have been conflict in
aforesaid provisions and not otherwise. In my view, Mr. Sen, the
learned Counsel appearing for the petitioner is right in his submissions
that Section 238 of the Code has no application in this situation on
the ground that there is no conflict between the provisions of the Code
and the provisions of the Companies Act, 1956 or the Companies Act,
2013."
30.2 In the matter of Innoventive Industries Ltd. (Supra) (paragraph
nos.12 - 15), the Ld. Members of NCLT, Mumbai vide its order dated
27th July 2017 has held that -
"Therefore, we are of the view that Section 238 will not have any
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overriding effect over Section 433(e) proceedings pending before the
High Courts, where notice has already been served upon the
Corporate Debtor."
31 The Special Bench of NCLT, Delhi has considered the issues
raised before various co-ordinate benches of NCLT with respect to the
proceedings pending before the High Court and initiated in NCLT against
the same Company. NCLT Delhi has, vide its order dated 21 st August 2017,
escalated the following issues to a special bench to be constituted by the
Hon'ble President of NCLT, in the matter of Union Bank of India v Era
Infra Engineering Ltd.24 -
"1. Whether the process under the Insolvency and Bankruptcy Code,
2016 can be triggered in the face of the pendency of the winding up
petitions before the respective High Courts or it is to be considered as
an independent process?
2. In case the process is considered to be not independent, whether the
petition filed under the Code is required to be transferred to the
concerned High Court which is having seisin over the winding up
proceedings or await the outcome of the winding up proceedings by
adjourning it sine die?
3. Whether the Code gives any room for discretion to be exercised for
adjourning it sine die in view of the statutory mandate given under
Section 7, 9 and 10 of the Code for expeditious disposal of cases by
either admitting or rejecting it within the fixed time frame?
4. In case if the petition is adjourned sine die and if the winding up
petition is dismissed or set aside in appeal subsequently, whether there
is scope in such an eventuality for power of revival within the frame
work of the Code conferred on this Tribunal?"
(III) Respondent's submissions on the effect of Sections 63 and 64 of
IBC :
32 It is the legislative intention of the saving provisions that the
saved petitions shall proceed before the Company Court under the 1956
24. The issues have been heard by the bench constituted by the President of the NCLT and has been reserved for Orders.
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Act, as aforesaid.
33 The saving provisions of the 2013 Act, expressly state that the
Company Court shall retain its jurisdiction and powers, including the
power to stay with regard to the Saved Petitions.
34 Any other reading of the saving provision, i.e., Section 434 (e)
of the 2013 Act read with IBC will render the 2013 Act as otiose and
therefore, the provisions must be interpreted in a manner to prevent the
2013 Act being otiose.
35 A harmonious and purposive construction of IBC read as a
whole must necessarily suggest and lead to the construction that Section
63 and Section 64 of IBC cannot apply to Saved Petitions.
(IV) Section 14 of IBC :
36 When an application under IBC is admitted by NCLT, a
moratorium under Section 14 of IBC is declared and all proceedings,
including the present company petition will be stayed.
In the present matter, this Court has, in exercise of its
discretionary powers, stayed the proceedings in NCLT, Ahmedabad prior to
admission of the application filed by Respondent under Section 10 of IBC.
The proceedings in NCLT have been stayed before declaration of a
moratorium under Section 14 of IBC and therefore, the question of the
effect of Section 14 on the Saved Petitions does not arise.
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37 In fact, the legislative purpose of saving these winding up
petitions along with all necessary and consequential power of the
Company Court is to give this Company Court the discretion in saved
petitions to decide whether to retain the winding up jurisdiction with
respect to such companies or to allow the Adjudicating Authority to also
deal with application with respect to such Companies.
In this context, it is also relevant, as the operational creditor
does not form a part of the Committee of Creditors under Section 21 of
IBC and the operational creditor cannot propose or initiate liquidation
proceedings against the Company, the operational creditors are in fact at a
considerable disadvantage under IBC.
Accordingly, in appropriate cases when Saved Petitions are
brought at the instance of such creditors, the Company Court may exercise
its discretion to retain such Saved Petitions and to prevent the
Adjudicating Authority from exercising its jurisdiction.
38 Assuming that such a question was to arise, it is submitted on
demurrer, that a harmonious and purposive construction of Section 14 of
IBC and the saving provisions of the 2013 Act must necessarily lead to an
interpretation that the inconsistent provisions of IBC, including the
moratorium will not apply to Saved Petitions. The effect of Section 14 of
IBC would otherwise, snatch away irreversibly the jurisdiction of the
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Company Court which is expressly saved under Section 434 of the 2013
Act irretrievably.
39 The fact that if a contrary view is taken, the jurisdiction of the
Company Court will be irretrievably lost is apparent from Section 6 to
Section 54 of IBC, which result in entering a resolution or a liquidation
under IBC. IBC has no provision to permit the Saved Petitions to revive
when the effect of the moratorium under Section 14 is taken.
(V)
The High Court shall exercise its powers under the 1956 Act to
dispose the Saved Petitions :
40 With respect to the Saved Petitions including this present
Petition, the High Court has the discretion to exercise all powers under the
1956 Act in order to hear and dispose of these proceedings. Accordingly,
the High Court has the power to stay and/or restrain proceedings initiated
or to be initiated in any other Court so that it may hear and dispose of
such Saved Petitions.
41 It is not disputed even by Respondent that the Hon'ble High
Court retains its jurisdiction and powers under the 1956 Act with respect
to the Saved Petitions.
42 It is also relevant that the Central Government vide its
notification dated 7th December 2016, issued the Companies (Removal of
Difficulties) Fourth Order, 2016 amending Section 434 of the 2013 Act,
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which, inter alia, provides that -
"2. In the Companies Act, 2013, in Section 434, in sub-section (1), in
clause (c), after the proviso, the following provisos shall be inserted,
namely:-
Provided further that only such proceedings relating to cases other
than winding-up.....:
Provided further that - (i) all proceedings under the Companies Act,
1956 other than the cases relating to winding up.......; or (ii) the
proceedings relating to winding up of companies which have not been
transferred from the High Courts;
shall be dealt with in accordance with provisions of the Companies
Act, 1956 and the Companies (Court) Rules, 1959."
43 The powers of the Company Court in this regard are plenary
as is evident from what is stated below.
a. The Company Court retains its inherent powers, as provided
by Rule 9 of the Companies (Court) Rules, 1959 -
"9. Nothing in these Rules shall be deemed to limit or otherwise affect
the inherent powers of the Court to give such directions or pass such
orders as may be necessary for the ends of justice or to prevent abuse
of the process of the Court."
b. The Company Court may exercise its powers under Sections
442 and 443 of the 1956 Act, to stay or restrain proceedings against the
company in any other Court. Section 442 reads as under:
"442. Power of Court to stay or restrain proceedings against
Company
At any time after the presentation of a winding up petition and before
a winding up order has been made, the company, or any creditor or
contributory, may-
(a) where any suit or proceeding against the company is pending in
the Supreme Court or in any High Court, apply to the Court in which
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the suit or proceeding is pending for a stay of proceedings therein; and
(b) where any suit or proceeding is pending against the company in
any other Court, apply to the Court having jurisdiction to wind up the
company, to restrain further proceedings in the suit or proceeding;
and the Court to which application is so made may stay or restrain
the proceedings accordingly, on such terms as it thinks fit."
c. It is an admitted position that Section 442 of the 1956 Act
remains valid and subsisting and was not deleted by the Companies
(Second) Amendment Act, 2002. So also, both parties before this Court
have accepted that NCLT as the adjudicating authority is a "Court" for the
purpose of Section 442 of the 1956 Act. In this regard see, M. Senthil
Kumar & Anr. vs. Sudha Mills (India) Pvt. Ltd. & Ors. 25 that the Court
can exercise its powers under Section 442 to stay or restrain proceedings
in any other "court", which has been construed as "any adjudicating
authority which is required to act judicially and is empowered to pass
orders binding on the company" including the Company Law Board.
d. Under the powers conferred under Section 443 (1) (c), the
Company Court has the power to issue any interim orders that it thinks fit
in aid of the final relief of winding up. Section 443 reads as under -
443. Powers of Tribunal on hearing petition
(1) On hearing a winding up petition, the Tribunal may -
(a) dismiss it, with or without costs; or
(b) adjourn the hearing conditionally or unconditionally; or
(c) make any interim order that it thinks fit; or
(d) make an order for winding up the company with or without costs,
25. 1995 SCC Online Mad 551
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or any other order that it thinks fit:
Provided that the Tribunal shall not refuse to make a winding up
order on the ground only that the assets of the company have been
mortgaged to an amount equal to or in excess of those assets, or that
the company has no assets.
(2).....
(3)...."
e. The powers conferred upon the Court under Sections 442 and
443 of the 1956 Act are to lend assistance to the High Court in order to
effectively exercise its powers under Sections 446 and 466 of the 1956 Act.
It was further observed in the matter of the Official Liquidator vs. Dharti
Dhan Ltd.26 that the object of the provisions is to create a right to get
speedier adjudication from the Court where the winding up proceeding is
taking place.
f. The Company Court may at the final stage of winding up,
exercise powers under Sections 446 and 466 of the 1956 Act. As can be
seen from Sections 446 and 466, the Company Court's powers are very
wide. Further, Section 466(1) empowers the Company Court at any time
after making the winding up order to stay or make an order staying any
and all proceedings in relation to the winding up for such time as the
Court thinks fit.
(VI) Impugned Order dated 19
th
July 2017 :
44 Hon'ble Mr. Justice R. D. Dhanuka and the Hon'ble Mr. Justice
26. 1977 2 SCC 166
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A. S. Gadkari have duly exercised their aforesaid discretionary powers in
passing the Orders dated 9th March 2017 (hereinafter referred to as the
"Admission Order") and 19th July 2017 (hereinafter referred to as the
"Stay Order"), respectively.
45 This Court in the Admission Order, has considered the
relevant facts and has exercised its powers under Sections 442 and 443 of
the 1956 Act restraining respondent from approaching NCLT. The Hon'ble
Judge has in context of the possibility of revival of respondent-applicant
observed that the CDR Scheme could not be implemented and that prima
facie, respondent-applicant cannot be revived.
46 Hon'ble Mr. Justice A. S. Gadkari J. has exercised powers
under Sections 442 and 443 of 1956 Act, in the Stay Order and held as
follows-
"1. Circulation is granted for 26.07.2017. To be placed high on board.
2. In the meantime the National Company Law Tribunal (NCLT),
Ahmedabad is directed not to proceed further with CP (IB) No. 37 of
2017."
(VII) Harmonious
construction of the 1956 Act, the 2013 Act and
IBC :
47 With respect to the Saved Petitions, the provisions of the 1956
Act, the 2013 Act and IBC must be read in a harmonious and purposive
manner.
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NCLT being the Adjudicating Authority under IBC, in fact
derives its powers from the provisions of the 2013 Act.
Section 5(1) of IBC defines the Adjudicating Authority as
follows -
"Adjudicating Authority for the purposes of this Part, means National
Company Law Tribunal constituted under section 408 of the
Companies Act, 2013."
The powers of the Adjudicating Authority are derived from the
provisions of the 2013 Act, under Chapter XXVII in Sections 407 - 434.
48 After hearing the counsel for opposing parties, I am inclined to
agree with the submissions of Mr. Dwarkadas and my views are as under :
(I) Background and Object - Purpose of Insolvency Code :
49 The Hon'ble Supreme Court of India, in Innoventive Industries
Ltd. (Supra), has referred to the report of Bankruptcy Law Reforms
Committee 2015 ("Reforms Committee") in order to gain an insight into
why IBC was enacted and purpose for which it was enacted.
Briefly stated the Reforms Committee examined whether in
the case of a company which has committed a default in repaying its debt
obligations, whereas secured creditors are able to repossess the fixed assets
which are pledged with them, there are several creditors and lenders who
are not secured lender and when default takes place lenders are able to
recover only 20% of the value of debt on a Net Present Value (NPV) basis.
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In short, the Reforms Committee came to the conclusion that
those industries which do not have a strong asset base are being deprived
of credit which makes it difficult for corporates to raise finance by issuance
of long dated corporate bonds (unsecured) which are essential for most
infrastructure projects.
The Reforms Committee found that where a default occurs, an
unsecured lender was either to take the company into liquidation or to
negotiate a debt restructuring, where the creditors accept a reduced
amount on NPV basis, in the hope that negotiated value exceeds the
liquidation value.
A third possibility would be to sell the firm as a going concern
and pay off the creditors. Many hybrid structures of these broad categories
can be envisioned.
The Reforms Committee after examination came to the
conclusion that it would be better that only one forum evaluates such
possibilities and makes a decision, which in opinion of the Reforms
Committee was a "Creditors Committee", where all financial creditors have
a vote in proportion to magnitude of debt they held.
As to what should happen to a defaulting firm, in the opinion
of Creditors Committee is a business decision and only creditors should
make it. The Reforms Committee also came to the conclusion that
liquidation is not a viable solution because of delays in implementing
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liquidation process which resulted in liquidation value going down with
time on account of high economic rate of depreciation. As noted at Pg.7 of
Innoventive (supra) the Reforms Committee has stated:
"The Committee believes that there is only one correct forum for
evaluating such possibilities, and making a decision: a creditors
committee, where all financial creditors have votes in proportion to
the magnitude of debt that they hold. In the past, the laws in India
have brought arms of the government (legislature, executive or
judiciary) into this question. This has been strictly avoided by the
Committee. The appropriate disposition of a defaulting firm is a
business decision, and only the creditors should make it."
The Committee came to the conclusion that the creditors and
debtors ought to be left to decide and realise and agree on whether the
entity was facing financial failure or business failure and whether it was
capable of being revived. The most significant change being, that when a
company defaults on its debt, control of the company should shift to
creditors rather than the management who was retaining control after
default.
It is apparent from a reading of the object and purpose for
which IBC has been enacted is to set up an Insolvency and Bankruptcy
resolution process, which has to be implemented in a strict time bound
manner, by the appointment of an IRP and creation of a creditors
Committee. These are powers which can be exercised only by NCLT and
not by the Company Court. It is for this reason that pending the Insolvency
Resolution Process a moratorium is provided for under Section 14 of IBC.
Therefore, the most fundamental distinction between the
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provision of the Companies Act and IBC is, whereas, under the Companies
Act winding up would be a matter for the Court alone to decide, under
IBC, there is a paradigm shift in as much as it displaces the management of
the Company and an IRP is appointed and the Creditors Committee is left
to decide the fate of the company.
(II) Broad comparison between the provisions of SICA and IBC :
50 Prior to the enactment of IBC, SICA required, what were defined as
'Sick Industrial Companies' to file a reference before BIFR. Once a
reference was filed, the moratorium under section 22 of SICA kicked in, as
a result whereof proceedings such as winding up, execution and the like
could neither be filed nor proceeded with, if filed. SICA, however, did not
apply to all companies. It applied to only those industrial undertakings as
were set out in the Schedule of the said Act. Experience showed that SICA
though enacted with the laudatory object of revival of sick companies was
being abused by promoters, who on account of the moratorium available
under Section 22 were dragging on the proceedings either before the BIFR
or AAIFR interminably, frustrating the object and purpose of the Act and
defeating rights of creditors. IBC, on the other hand, as held by the
Hon'ble Supreme Court in the case of M/s Innoventive Industries Ltd.
(supra) and Mobilox Innovations Private Limited (supra) has certain
features which mark a healthy departure from the failings of SICA. Briefly
stated they are:
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(i) IBC applies to all companies (public and private);
(ii) Since it is now well settled that a company has various
stakeholders other than just shareholders like workmen, creditors etc. as
held in National Textile Workers' Union v. P.R. Ramakrishnan & Ors. (supra),
a company which has suffered a temporary financial set back maybe
revived, by granting it a temporary reprieve by giving it an opportunity to
put itself back on its feet.
(iii) Unlike in the case of the erstwhile winding up provisions of
the 1956 Act or the 2013 Act, where a single creditor, whose debt was
undisputed could wind up a company, thus bringing about its untimely
financial death, IBC on the other hand mandatorily requires that an
attempt at revival be made by appointing an IRP to examine whether such
a company can be revived.
(iv) The process of insolvency resolution is strictly time bound and
as held by the Supreme Court in Innoventive (supra) "speed is of essence
for the working of the bankruptcy code"27. The Supreme Court has held
that there cannot be any relaxation of the time lines prescribed in the
Code28.
(v) The initial period of attempting a resolution process is 180
days from the admission of the Petition which can be extended by a further
27. Paragraph 16 page 7
28. Paragraph 16 page 7 and Paragraph 28 page 18
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period of 90 days only if 75% of the committee of creditors consent.
(vi) What is, however, of crucial importance is that unlike SICA,
once an application filed under IBC either by a financial/operational
creditor is admitted, the Board of Directors of the company are
immediately displaced and the management of the company rests in the
hands of IRP.
(vii) The function, power and duty of an IRP is to invite from 'any
person' proposal for resolution/revival of the Company in question, which
in order to be binding upon the company and all its creditors must be
approved by a majority of 75% of the committee of financial creditors
(COC);
(viii) If on the other hand, (a) NCLT does not receive a resolution
plan under Section 30(6) of IBC, within the expiry of the insolvency
resolution process period of 180 days or its further extension by ninety
days,29 or (b) it rejects the resolution plan under 31 for non-compliance of
the requirements specified therein 30 or (c) the resolution professional
intimates NCLT that the committee of creditors decide to liquidate the
corporate debtor31 or (d) the resolution plan approved by NCLT is
contravened by the concerned corporate debtor and any person who is
prejudicially affected by such a contravention makes application and upon
29. Section 31(1)(a) of the Code
30. Section 33(1)(b) of the Code
31. Section 33(2) of the Code
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determination thereof, it is held that there has been such a
contravention,32 NCLT would pass an order of liquidation under Section 33
of IBC. NCLT is mandatorily required to pass an order of liquidation under
Section 33(b)(i) and (ii)and (iii) of IBC.
(III) IBC has Primacy :
51 As held by the Supreme Court of India in the case of Madura
Coats Ltd. (Supra), that even during the regime of SICA, SICA was held to
have primacy over the provisions of the Companies Act.
By the virtue of Section 252 of IBC, SICA stands repealed with
effect from 1st December 2016. Under section 4 (b) of the Repeal Act, all
proceedings before the BIFR/AAIFR stood abated and in respect of such
abated proceedings, provision has been made to permit a Company, to
make a reference within a period of 180 days from 1 st December 2016 to
NCLT, which reference is required to be dealt with in accordance with the
provisions of IBC.
52 In the present case, respondent-applicant had filed a reference
which was pending before BIFR prior to the repeal of SICA. Respondent-
applicant has, within the prescribed period of 180 days, made an
application to NCLT by an application under Section 10 of IBC. Of course,
counsel for petitioner made certain grievance that respondent-applicant
32. Section 33(3) of the Code
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waited until the last few days to make an application to NCLT under
Section 10 of IBC and this Court had declined to grant further time or wait
till the company applied to NCLT. In my view, these are all irrelevant so
long as the application under Section 10 was made in time.
53 It has now been held by the Supreme Court in Bank of New
York Mellon (Supra) that by virtue of Section 252 of IBC, even in the case
of a company where a winding up order has been passed, it is open to such
a company, whose reference was deemed to be pending with BIFR, to seek
remedies under IBC before NCLT.
(IV) No carving out of existing winding up proceedings :
54 Section 252 of IBC has amended the Sick Industrial
Companies (Special Provisions) Repeal Act, 2003 in the manner specified
in 8th Schedule of IBC. The 8th Schedule provides as under:
"In section 4, for sub-clause (b), the following sub-clause shall be
substituted, namely--
" (b) On such date as may be notified by the Central Government in
this behalf, any appeal preferred to the Appellate Authority or any
reference made or inquiry pending to or before the Board or any
proceeding of whatever nature pending before the Appellate Authority
or the Board under the Sick Industrial Companies (Special Provisions)
Act,1985 (1 of 1986) shall stand abated:
Provided that a company in respect of which such appeal or reference
or inquiry stands abated under this clause may make reference to the
National Company Law Tribunal under the Insolvency and
Bankruptcy Code, 2016 within one hundred and eighty days from the
commencement of the Insolvency and Bankruptcy Code, 2016 in
accordance with the provisions of the Insolvency and Bankruptcy
Code, 2016:"
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55 The effect of this substituted Section 4(b) is therefore to
confer an express power upon the company to make a reference to NCLT
under IBC within 180 days of the commencement of IBC, i.e. 1.12.2016,
which reference will be dealt with "in accordance with the provisions of
the Insolvency and Bankruptcy Code, 2016."
56 If what petitioner contends is correct, a reference sought to be
made by a Company under the provisions of Section 252 of IBC, in a
situation where a post notice winding up petition which is governed by the
Companies Act, 1956 against the same company (and which is retained by
the Company Court), cannot be entertained by NCLT and if entertained
will be nullified.
There is no express or implied saving of any substantive
provisions of the Companies Act, 1956 to warrant this interpretation.
(V) Admission of a winding up petition does not entail stay of NCLT
proceedings :
57 It was submitted, and I agree with Mr. Dwarkadas, that
admission of the winding up petition by the jurisdictional High Court
would not mean that NCLT either loses jurisdiction or cannot exercise
jurisdiction in case of a petition which is filed by another creditor
(financial, operational or the company itself under section 10 of IBC). The
legislature is deemed to be aware of the provisions of an existing law, i.e.,
the Companies Act, whilst enacting the provisions of IBC (Competition
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Commission of India v. Steel Authority of India Ltd. and Anr.)33 as well
as the fact that company petitions that may have been filed prior to IBC
coming into force may have been admitted and pending final disposal in
the jurisdictional High Court.
58 In the transfer of proceedings rules dated 7 th December 2016
it has been provided that winding up petitions in respect of which notice
has been issued to the respondent company or which have been admitted,
as held in the unreported judgment dated 23rd December 2016 of Gupte J.
in West Hills Realty Pvt. Ltd (supra), remain with the jurisdictional high
court whereas, all other winding up petitions get transferred to NCLT.
59 If the legislature intended, that those winding up petitions, of
which the jurisdictional high court remain seized, would have primacy
over NCLT proceedings which may be filed in respect of the same company
by another creditor, the legislature would have said so, either in IBC or in
the transfer rules Notification.
60 On the contrary, the provisions of Section 64 (2) of IBC would
indicate that the legislature did not intend that the Company Court would
have the power to injunct proceedings before NCLT. Furthermore, when
IBC was enacted and the provisions of SICA were repealed by the
Notification dated 21st December 2016, companies which had filed a
33.(2010) 10 SCC 744
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reference under SICA were given a period of 180 days to file a petition
under the provisions of IBC. Thus, the period of moratorium which
operated vis-à-vis winding up proceedings as a result of Section 22 of SICA
could be continued (if found fit by NCLT) under IBC in the time prescribed
by the said Notification.
61 It is pertinent to note that on 19th June 2015, respondent-
applicant filed a reference under Section 15(1) of SICA with BIFR. This
was registered on 9th September 2015 and two hearings took place. On
1st December 2016 SICA came to be repealed. On 29 th May 2017
respondent-applicant filed its petition under Section 10 before NCLT,
Ahmedabad, i.e., within the prescribed period of 180 days.
62 In fact, the Hon'ble Supreme Court in the case of Madura
Coats Ltd. v. Modi Rubber Ltd. (supra) has held that the provisions of SICA
would prevail over the provisions of the Companies Act and proceedings
under the Companies Act must give way to proceedings under SICA.
Therefore, since SICA is repealed and replaced by IBC (S. 252 read with
VIII Schedule of IBC), the provisions of IBC should prevail over the
provisions of the Companies Act, 2013.
(VI) Effect of Repeal :
63 Section 255 read with 11th Schedule of IBC has amended the
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Companies Act 2013.
In the 11th Schedule, Clause 34 (c) provides as under:
"34. For section 434, the following section shall be substituted,
namely:--
"434. (1) On such date as may be notified by the Central Government
in this behalf,--
(a)...;
(b)...;
(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 Central Government."
64 The Notification dated 7th December 2016 issued under the
provisions of sub-sections (1) and (2) of Section 434 of the Companies Act,
2013 read with sub-section (1) of section 239 of IBC states:
"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:
...
6. Transfer of pending proceedings of Winding up matters on the
grounds other than inability to pay debts
All petitions filed under clauses (a) and (f) of section 433 of the
Companies Act, 1956 pending before a High Court and where the
petition has not been served on the respondent as required under rule
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26 of the Companies (Court) Rules, 1959 shall be transferred to the
Bench of the Tribunal exercising territorial jurisdiction and such
petitions shall be treated as petitions under the provisions of the
Companies Act, 2013 (18 of 2013)."
65 The Companies (Removal of Difficulties) Fourth Order, 2016
issued under sub-section (1) of section 470 of the Companies Act, 2013
states as under:
"1. Short title and commencement.- (1) This Order may be called the
Companies (Removal of Difficulties) Fourth Order, 2016.
(2) It shall come into force with effect from the 15th December, 2016.
2. In the Companies Act, 2013, in Section 434, in sub-section (1), in
clause (c), after the proviso, the following provisos shall be inserted,
namely:-
"...
Provided further that - (i) ...; or
(ii) the proceedings relating to winding up of companies which have
not been transferred from the High Courts;
shall be dealt with in accordance with provisions of the Companies
Act, 1956 and the Companies (Court) Rules, 1959".
66 It is clear from a reading of the aforementioned notifications
that while pre-notice winding up proceedings (transferred to NCLT) are
governed by the provisions of IBC, post notice winding up proceedings
(retained in High Court) are required to be "dealt with in accordance with
provisions of the Companies Act, 1956 and the Companies (Court) Rules,
1959".
67 The fact that post notice winding up petitions continue to be
governed by the Companies Act, 1956 only means - that to those
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proceedings it will be the Companies Act, 1956 which will apply. It does
not, however, mean that if, in a post-notice winding up petition a new
proceeding is filed under IBC, and where orders are passed by NCLT,
including under Section 14 of IBC, the consequences provided for under
IBC will not apply to post notice proceeding, whatever their stage may be.
In fact, if petitioner's arguments were to be accepted, it would
mean that there is no right available for any person covered by Section 6 of
IBC to file a proceeding under IBC, in respect of a Company, against whom
a winding up petition is retained in the High Court. Such an interpretation
is not supported by the language of IBC.
68 Further, there is express as well as an implied intention on the
part of the legislature to (i) take away the right to file winding up petitions
under the Companies Act, 1956; and (ii) to apply the provisions of IBC
without exception to all proceedings undertaken regarding insolvency
resolution and revival of companies. This is also apparent from the
peremptory and express language of Sections 14, 63 and 64 (2) of IBC.
69 It is also clear from the Companies (Removal of Difficulties)
Fourth Order that in fact what is saved are only the proceedings of winding
up pending before the jurisdictional High Court and not the Company itself
in relation to which such proceedings are saved. That is to say, such a
Company is still subject to the provisions of IBC, if invoked and only the
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post notice winding up proceedings, which are retained by the High Court,
are saved. This does not mean that IBC is inapplicable to the said
Company, if it is invoked.
70 It is clear from the above that the winding up petitions
retained by the High Court are being decided under the Companies Act,
1956 only as a transitional provision. It only provides that winding up
proceedings under Section 433 (1) (e) pending in the High Court would
continue in the High Court - Prasanta Kumar Mitra (Supra).
71 Furthermore, this transitional provision cannot in any way
affect the remedies available to a person under IBC, vis-à-vis the company
against whom a winding up petition is filed and retained in the High
Court, as the same would amount to treating IBC as if it did not exist on
the statute book and would deprive persons of the benefit of the new
legislation. This is contrary to the plain language of IBC. If the contentions
of petitioner were to be accepted, it would mean that in respect of
companies, where a post notice winding up petition is admitted or a
provisional liquidator appointed, provisions of IBC can never apply to such
companies for all times to come.
72 Even under the 29th June 2017 Notification, it is only those
petitions pending in the High Court where a notice may not have been
issued which would not get transferred, if a winding up petition against
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such a company has already been admitted. But even in such a case, there
is no express or implied bar from other creditors of such a company or the
corporate debtor from filing fresh proceedings under IBC. If at all, such
creditors/corporate debtors are barred from approaching the High Court
and not NCLT under IBC.
73 The mere fact that post notice winding up proceedings are to
be "dealt with" in accordance with the provisions of the Companies Act,
1956 does not bar the applicability of the provisions of IBC in general to
proceedings validly instituted under IBC, or does it mean that such
proceeding can be suspended.
(VII) The Company Court does not have the jurisdiction to restrain
NCLT, Ahmedabad, from proceeding with IBC Application :
74 This is clear from a perusal of the following provisions of IBC:
63. Civil court not to have jurisdiction: No civil court or authority
shall have jurisdiction to entertain any suit or proceedings in respect
of any matter on which National Company Law Tribunal or the
National Company Law Appellate Tribunal has jurisdiction under this
Code.
64. Expeditious disposal of applications:
(1) ...
(2) No injunction shall be granted by any court, tribunal or authority
in respect of any action taken, or to be taken, in pursuance of any
power conferred on the National Company Law Tribunal or the
National Company Law Appellate Tribunal under this Code.
231. Bar of jurisdiction: No civil court shall have jurisdiction in
respect of any matter in which the Adjudicating Authority is
empowered by, or under, this Code to pass any order and no
injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any order passed
by such Adjudicating Authority under this Code.
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75 The jurisdiction of the Company Court in relation to
proceedings under IBC is expressly barred by virtue of section 63 of IBC.
Further, by virtue of Section 64(2) of IBC, the Company Court is
prohibited from injuncting NCLT from exercising its jurisdiction under IBC.
By virtue of section 238 of IBC, it overrides the provisions of the
Companies Act, 1956. The Apex Court has, in a few cases, considered
provisions similar to Section 64 (2) of IBC. In GhanshyamSarda v. Shiv
Shankar Trading Company (supra), the Hon'ble Supreme Court considered
the bar of the Civil Court's jurisdiction under the Sick Industrial
Companies Act, 1985 ("SICA"),
Insolvency and Bankruptcy Code, 2016 Sick Industrial Companies Act, 1985
64. (2) No injunction shall be granted by 26. Bar of Jurisdiction
any court, tribunal or authority in No order passed or proposal made under
respect of any action taken, or to be this Act shall be appealable except as
taken, in pursuance of any power provided therein and no civil court
conferred on the National Company shall have jurisdiction in respect of any
Law Tribunal or the National Company matter which the Appellate Authority
Law Appellate Tribunal under this or the Board is empowered by, or
Code. under, this Act to determine and no
injunction shall be granted by any
court or other authority in respect of
any action taken or to be taken in
pursuance of any power conferred by or
under this Act.
The Hon'ble Supreme Court held that in view of the express
bar of jurisdiction contained in SICA, the jurisdiction of the Civil Court,
even to grant temporary injunctive relief is completely excluded where the
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jurisdiction of BIFR is correctly exercised. Paragraphs 29 to 31 read as
under :
"29. ...The Act is a self-contained Code and has conferred
upon the BIFR complete supervisory control over a sick
industrial company to adopt such methodology as provided
in Chapter III for detecting, reviving or winding up such sick
company. The authority to determine the existence and
extent of sickness of such company and to adopt
methodology for its revival are, in the exclusive domain of
the BIFR and by virtue of Section 26 there is an express
exclusion of the jurisdiction of the Civil Court in that behalf.
30. As laid down by this Court the Act is a complete Code in
itself. The Act gives complete supervisory control to the BIFR
over the affairs of a sick Industrial Company from the stage
of registration of reference and questions concerning status
of sickness of such company are in the exclusive domain of
the BIFR. Any submission or assertion by anyone including
the Company that by certain developments the Company
has revived itself and/or that its net worth since the stage of
registration having become positive no such scheme for
revival needs to be undertaken, must be and can only be
dealt with by the BIFR. Any such assertion or claim has to
be made before the BIFR and only upon the satisfaction of
the BIFR that a sick company is no longer sick, that such
company could be said to have ceased to be amenable to its
supervisory control under the Act. The aspects of revival of
such company being completely within its exclusive domain,
it is the BIFR alone, which can determine the issue whether
such company now stands revived or not. The jurisdiction of
the civil court in respect of these matters stands completely
excluded.
31. Unlike cases where the existence of jurisdictional fact or
facts, on the basis of which alone a Tribunal can invoke and
exercise jurisdiction, is or are doubted, stand on a different
footing from the one where invocation and exercise of
jurisdiction at the initial stage is not disputed but what is
projected is that by subsequent or supervening
circumstances the concerned Tribunal has lost jurisdiction.
In the present case the fact that the company was registered
as a sick company is not doubted nor has it been contended
that the BIFR had wrongly assumed initial jurisdiction. But
what is projected is that the net worth having become
positive the BIFR has now lost jurisdiction over the
company. In our view, the BIFR having correctly assumed
jurisdiction and when all the financial affairs of such
company were directly under the supervisory control of the
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BIFR, the power to decide whether it has since then lost the
jurisdiction or not, is also in the exclusive domain of the
BIFR. The BIFR alone is empowered to determine whether
net worth has become positive as a result of which it would
cease to have such jurisdiction. Any inquiry into such issue
regarding net worth by anyone outside the Act including
civil court, would be against the express intent of the Act
and would lead to incongruous and undesired results. The
suit as framed seeking declaration that the company was no
longer a sick company within the meaning of the Act, was
therefore not competent and maintainable. The Civil Court
was not right and justified in issuing injunction as it did.
The counsel who represented the company before the BIFR
on 04.04.2013, correctly submitted that before discharging
the company the BIFR can examine the audited balance
sheet and satisfy itself whether the net worth had turned
positive."
76 In Mardia Chemicals Ltd. (supra), the Hon'ble Supreme Court
considered the bar of jurisdiction contained in Section 34 of the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest (SARFAESI) Act, 2002 ("SARFAESI Act").
Insolvency and Bankruptcy SARFAESI Act, 2002
Code, 2016
64. (2) No injunction shall be granted by 34. Civil Court not to have jurisdiction.
any court, tribunal or authority in No civil court shall have jurisdiction to
respect of any action taken, or to be entertain any suit or proceeding in respect
taken, in pursuance of any power of any matter which a Debts Recovery
conferred on the National Company Tribunal or the Appellate Tribunal is
Law Tribunal or the National Company empowered by or under this Act to
Law Appellate Tribunal under this Code determine and no injunction shall be
granted by any court or other authority
in respect of any action taken or to be
taken in pursuance of any power
conferred by or under this Act or under
the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (51 of
1993).
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The Hon'ble Supreme Court held as follows:
"50. It has also been submitted that an appeal is
entertainable before the Debt Recovery Tribunal only after
such measures as provided in sub-section (4) of Section 13
are taken and Section 34 bars to entertain any proceeding in
respect of a matter which the Debt Recovery Tribunal or the
appellate Tribunal is empowered to determine. Thus before
any action or measure is taken under sub-section (4) of
Section 13, it is submitted by Mr. Salve one of the counsel for
respondents that there would be no bar to approach the civil
court. Therefore, it cannot be said no remedy is available to
the borrowers. We, however, find that this contention as
advanced by Shri Salve is not correct. A full reading of section
34 shows that the jurisdiction of the civil court is barred in
respect of matters which a Debt Recovery Tribunal or
appellate Tribunal is empowered to determine in respect of
any action taken "or to be taken in pursuance of any power
conferred under this Act". That is to say the prohibition covers
even matters which can be taken cognizance of by the Debt
Recovery Tribunal though no measure in that direction has so
far been taken under sub-section (4) of Section 13. It is
further to be noted that the bar of jurisdiction is in respect of
a proceeding which matter may be taken to the Tribunal.
Therefore, any matter in respect of which an action may be
taken even later on, the civil court shall have no jurisdiction
to entertain any proceeding thereof. The bar of civil court
thus applies to all such matters which may be taken
cognizance of by the Debt Recovery Tribunal, apart from
those matters in which measures have already been taken
under sub-section (4) of Section 13." (Emphasis supplied)
(VIII) No power to Injunct :
77 NCLT is not a court subordinate to the High Court and hence
as prohibited by the provisions of Section 41 (b) of the Specific Relief Act,
1963 no injunction can be granted by the High Court against a corporate
debtor from institution of proceedings in NCLT.
78 Section 41 (b) of the Specific Relief Act, 1963 states:
"41. Injunction when refused.-An injunction cannot be granted-
...
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(b) to restrain any person from instituting or prosecuting any
proceeding in a court not subordinate to that from which the
injunction is sought."
The Hon'ble Supreme Court in the case of Nahar Industrial
Enterprises Ltd. (Supra) has held that:
"92. We have held that the Tribunals are neither civil courts nor
courts subordinate to the High Court. The High Court ordinarily can
be approached in exercise of its writ jurisdiction under Article 226 or
its jurisdiction under Article 227 of the Constitution of India."
79 It has been held by this Hon'ble Court in the case of Rentworks
India Pvt. Ltd. (Supra) while considering whether DRT was subordinate to
the High Court in paragraph 19 that:
"19. It is, thus, clear that the DRT is not a court subordinate to this
court when the latter exercises its ordinary original civil jurisdiction.
If that is so, this court cannot, whilst hearing a suit in its ordinary
original civil jurisdiction, injunct any bank from prosecuting a
proceeding before the DRT."
80 In the case of Cotton Corporation of India Limited (Supra), the
Hon'ble Supreme Court has held in paragraph 9 :
"Viewed from a slightly different angle, it would appear that the legal
system in our country envisages obtaining of redressal of wrong or
relief against unjust denial thereof by approaching the court set up
for the purpose and invested with power both substantive and
procedural to do justice that is to grant relief against invasion or
violation of legally protected interests which are jurisprudentially
called rights. If a person complaining of invasion or violation of his
rights, is injuncted from approaching the court set up to grant relief
by an action brought by the opposite side against whom he has a
claim and which he wanted to enforce through court, he would have
first to defend the action establishing that he has a just claim and he
cannot be restrained from approaching the court to obtain relief. A
person having a legal right and complains of its violation or
infringement, can approach the court and seek relief. When such
person is injuncted from approaching the court, he has to vindicate
the right and then when injunction is vacated, he has to approach
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the court for relief. In other words, he would have to go through the
gamut over again: When defending against a claim of injunction the
person vindicates the claim and right to enforce the same. If
successful he does not get relief but a door to court which was bolted
in his face is opened. Why should he be exposed to multiplicity of
proceedings? In order to avoid such a situation the Legislature
enacted Section 41(b) and statutorily provided that an injunction
cannot be granted to restrain any person from instituting or
prosecuting any proceeding in a court not subordinate to that from
which the injunction is sought. ... At any rate the court is precluded
by a statutory provision from granting an injunction restraining a
person from instituting or prosecuting a proceeding in a court of
coordinate jurisdiction or superior jurisdiction. ..."
(emphasis supplied)
81 It may also be noted that apart from there being no provision
in the Companies Act, 1956 to injunct proceedings before NCLT instituted
under IBC, petitioner cannot take recourse under the inherent powers of
the High Court to support the impugned order. This argument has been
expressly rejected by the Hon'ble Supreme Court in Cotton Corporation of
India Limited (supra) while holding at paragraph 21 :
"In view of the majority decision, it must be conceded that the court
can in appropriate cases grant temporary injunction in exercise of its
inherent power in cases not covered by 0.39 C.P.C. But while
exercising this inherent power, the court should not overlook the
statutory provision which clearly indicates that injunction to restrain
initiation of proceeding cannot be granted. Section 41(b) is one such
provision. And it must be remembered that inherent power of the
court cannot be invoked to nullify or stultify a statutory provision.
..."
82 Besides there is an express bar contained in Section 64 (2) of
IBC which prevents any court, tribunal or authority from granting any
injunction in respect of any action taken, or to be taken, in pursuance of
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any power conferred on NCLT under IBC.
83 If petitioner's arguments were to be accepted it would mean
that under the Companies Act, 1956, even after a winding up petition was
admitted (or a winding up order was passed) and a reference then came to
be made to BIFR, Section 22 of SICA would not apply and the High Court
seized of the winding up petition would have the power to injunct
proceedings before BIFR. The Supreme Court in the case of Real Value
Appliances Ltd. (supra) while considering this issue and whether the High
Court had the power under the Companies Act, 1956, i.e., the very same
provisions which petitioner is now relying on to contend that proceedings
under the IBC can be injuncted, has held:
"Whether, once the BIFR had registered the reference dated 17.7.97 on
24.7.97 under Section 15 of the Act read with the Regulations, it was
permissible for the Division Bench of the High Court to pass orders on
8.8.97 vacating the stay order dated 20.12.96 and confirming the
appointment of provisional liquidator on the company side and also
whether it was permissible for another Division Bench of the High
court to appoint a Receiver on 28.7.97 in the proceedings arising out
of the suit, in view of section 22 of the Act?
...
Relying on the use of the word 'may' in Section 16(1) of the Act it has
been contended in some High Courts that the word 'may' in that
section shows that the BIFR has power to reject a reference summarily
without going into merits and that it is only when the BIFR takes up
the reference for consideration on merits under Section 16(1) that it
can be said that the 'inquiry' as contemplated by section has
commenced. It is argued that if the reference before the BIFR is only at
the stage of registration under Section 15, then section 22 is not
attracted. This contention, in our opinion, has no merit. In our view,
when Section 16(1) says that the BIFR can conduct the inquiry "in
such manner as it may deem fit", the said words are intended only to
convey that a wide discretion is vested in the BIFR in regard to the
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procedure it may follow for conducting an inquiry under Section
16(1) and nothing more. In fact, once the reference is registered after
scrutiny, it is, in our view, mandatory for the BIFR to conduct an
inquiry. If one looks at the format of the reference as prescribed in the
Regulations, it will be clear that it contains more than fifty columns
regarding extensive financial details of the Company's assets,
liabilities, etc. Indeed, it will be practically impossible for the BIFR to
reject a reference outright without calling for information/documents
or without hearing the Company or other parties. Further, the Act is
intended to revive and rehabilitate sick industries before they can be
wound up under the Companies Act, 1956. Whether the Company
seeks a declaration that it is sick or some other body seeks to have it
declared as a sick Company, it is, in our opinion, necessary that the
Company be heard before any final decision is taken under the Act. It
is also the legislative intention to see mat no proceedings against file
assets are taken before any such decision is given by the BIFR for in
the case the Company's assets are sold, or the company wound up it
may indeed become difficult later to restore the status quo ante.
Therefore, in our view, the High Court of Allahabad in Industrial
Finance Corporation v. Maharashtra Steels Ltd., AIR1988All170 , the
High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima
Steels Ltd., the High Court of Himachal Pradesh in Orissa Sponge Iron
Ltd. v. Rishab Ispat Ltd., (1993) 78 Comp. Cas 264 are right in
rejecting such a contention and in holding that the inquiry must be
treated as having commenced as soon as the registration of the
reference is completed after scrutiny and that from that time, action
against the Company's assets must remain stayed as stated in section
22 till final decisions are taken by the BIFR.
...
There can, therefore, be no difficulty in holding that after the
amendment to Regulation 19 w.e.f. 24.3.1994, once the reference is
registered and when once it is mandatory simultaneously to call for
information/documents from the informant and such a direction is
given, then inquiry under Section 16(1) must - for the purposes of
section 22 - be deemed to have commenced. Section 22 and the
prohibitions contained in it shall immediately come into play.
...
32. For the aforesaid reasons, the order passed by the Division Bench
on 28.7.97 appointing Receiver and the order passed by another
Bench of the High Court on 8.8.97 restoring the provisional
liquidator, are set aside. The Civil appeals are accordingly allowed.
There will be no order as to costs. The respondents are free, if need be,
to approach the BIFR under section 22 and section 22A of the Act for
further orders, if any, in addition to the orders already passed by the
BIFR in this behalf."
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84 It has been held in the case of M/s. Rishabh Agro Industries
Ltd. (Supra) that even after a winding up order is passed the provisions of
Section 22 of SICA apply and the Court under the Companies Act, 1956
would have no power to injunct proceedings before BIFR in view of
Section 22 of SICA:
" It is true that for invoking the applicability of Section 22 it has to be
established that an inquiry under Section 16 is pending or any scheme
referred to under Section 17 is under preparation or sanctioned
scheme is under implementation or an appeal under Section 25 to an
industrial company is pending. But it cannot be said that despite
existence of any of the aforesaid exigencies the provision of Section 22
would not be attracted after the order of winding up of the company is
passed. The words "no proceeding for winding up of the industrial
company or for execution distress or the like against any of the
properties of the industrial company or for the appointment of
receiver in respect thereof shall lie or be proceeded with further, leave
no doubt in our mind that the effect of the section would be applicable
even after the winding up order is passed as no proceeding even
thereafter can be proceeded with further under the Companies Act.
The High Court appears to have not taken note of the aforesaid words
i.e. to be proceeded with further. As the impugned judgment is based
upon wrong assumption of the provision of law and completely
ignoring the vital words noticed hereinabove, the same cannot be
sustained.
85 In view of the above since the IBC is admittedly a successor
statute to SICA, and Section 64 (2) of IBC being pari-materia to Section 22
of SICA, the argument that the Company Court has the power to injunct
proceedings before under NCLT in cases of pending winding up petitions is
entirely misplaced and contrary to legislative intent.
(IX) The Company Court has the jurisdiction to recall an earlier order :
86 As per rule 6 of the Companies (Court) Rules, 1959, the
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provisions of the Code of Civil Procedure, 1908, will apply to proceedings
under the Companies Act, 1956, unless such application would be contrary
to the express provisions of the said rules. Rule 9 of the Companies (Court)
Rules, 1959, provides that the Company Court may exercise its inherent
powers. Section 141 of the Code of Civil Procedure, 1908, makes it
applicable to all proceedings in any court of civil jurisdiction. A combined
reading will show that the Company Court has ample powers to recall any
order previously passed by it [Dr. Writers Food Products Private Limited
(supra)].
(X) An order can be recalled if it was passed without jurisdiction :
87 The Hon'ble Supreme Court of India has held that an order
may be recalled by a court or tribunal if there was an inherent lack of
jurisdiction to pass such an order [Budhia Swain &Ors v. Gopinath Deb
&Ors (supra)].
88 In the circumstances, there is no bar on NCLT, Ahmedabad
from proceeding with IBC application. This application, therefore, has to
succeed. The impugned order dated 19th July 2017 is recalled/vacated.
Company application accordingly stands disposed.
(K.R. SHRIRAM, J.)
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