Bombay High Court
Siddharth Infra Tech Pvt. Ltd. Cin ... vs Bnc Power Project Ltd on 10 August, 2021
Bench: B.P. Colabawalla
TRANSFER PETITION NCLT.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ANJALI Digitally signed by
ANJALI TUSHAR ASWALE
TUSHAR Date: 2021.09.24
ASWALE 18:46:49 +0530
INTERIM APPLICATION (L) NO. 13530 OF 2021
IN
COMPANY PETITION NO. 708 OF 2016
Siddharth Infra Tech Pvt. Ltd. ...Applicant.
/Orig.Respondent
Vs
BNC Power Project Ltd. ... Respondent
/Orig.Petitioner
WITH
COMPANY PETITION NO. 708 OF 2016
BNC Power Project Ltd. ... Petitioner
Vs
Siddharth Infra Tech Pvt. Ltd. ...Respondent
WITH
INTERIM APPLICATION (L) NO. 5444 OF 2020
IN
COMPANY PETITION NO. 708 OF 2016
Mahavir Civil Engineering
and Services Pvt. Ltd. ... Applicant
Vs
The Jalgaon Peoples Co-operative
Bank Ltd. and ors. ... Respondents
In the matter between
BNC Power Project Ltd. ...Orig.Petitioner
Vs
Siddharth Infra Tech Pvt. Ltd. ... Respondent
WITH
INTERIM APPLICATION (L) NO. 12443 OF 2021
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BNC Power Project Ltd. ... Applicant /
Orig. Petitioner
Vs
The Official Liquidator of
Siddharth Infra Tech Pvt. Ltd. ... Respondent
WITH
INTERIM APPLICATION (L) NO. 7730 OF 2020
IN
COMPANY PETITION NO. 708 OF 2016
Prince Ramesh Shah & ors ... Applicants
In the matter between
M/s.BNC Power Project Ltd. ... Petitioner
Vs
The Official Liquidator of M/s. Siddharth
Infra Tech Pvt. Ltd. ... Respondent
WITH
INTERIM APPLICATION (L) NO. 3392 OF 2020
IN
COMPANY PETITION NO. 708 OF 2016
Mahavir Civil Engineering
and Services Pvt. Ltd. ... Applicant
Vs.
Official Liquidator of Siddharth Infra
Tech Pvt. Ltd. & anr. ... Respondents
In the matter between
BNC Power Project Ltd. ... Orig.Petitioner
Vs
Siddharth Infra Tech Pvt. Ltd. ...Orig.Respondent
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TRANSFER PETITION NCLT.docx
WITH
INTERIM APPLICATION (L) NO. 3422 OF 2021
IN
COMPANY PETITION NO. 708 OF 2016
Sunil Manakchand Kotecha ... Applicant
Vs.
Official Liquidator of Siddharth Infra
Tech Pvt. Ltd. & ors. ... Respondents
In the matter between
BNC Power Project Ltd. ... Orig.Petitioner
Vs
Siddharth Infratech Pvt. Ltd. ... Orig.Respondent
Mr. Karl Tamboly a/w Vinod Kothari, Sonal Sanap i/b. M/s.
Apex Law Partners, for the Petitioner.
Mr. Karl Shroff a/w Sheetal Prakash i/b. Kunal Chheda for the
Respondent (Sunil Kotecha-Director / Applicant).
Mr. Rashmin Khandekar, Karishni Khanna i/b. Amit Tungare,
Jill Rodricks, for the Applicant in IA(L)/5444/2020.
Mr. Girish Godbole a/w Shivani Samel i/b. Aditya P. Shirke, for
the Applicant in IA(L)/7730/2020.
Mr. Janak Dwarkadas, Senior Advocate a/w Chirag Kamdar
i/b. Nikhil Kulkarni, for Chandrakant Baliram Sonawane.
Mr. Aditya Pimple a/w Mahendhar Aithe, for the Official
Liquidator.
CORAM:- B. P. COLABAWALLA,J.
DATE :- AUGUST 10, 2021.
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P. C.:
1. Interim Application Lodg No.13530 of 2021 is filed by
the Applicant - Company (Original Respondent in the Company
Petition) to transfer the above Company Petition pending before
this Court to the National Company Law Tribunal, Mumbai (for
short the "NCLT"). This relief is sought on the basis of the 5th
proviso to Section 434 (1) (c) of the Companies Act, 2013.
2. The above Company Petition (Company Petition No.
708 of 2016) was filed by the Petitioner against the Applicant -
Company under Section 433 read with Section 434 of the
Companies Act, 1956. It was presented on 7th September, 2016 and
was filed on the basis that the Applicant - Company had not paid the
dues of the Petitioner in respect of a work order dated 15th January,
2014 and therefore ought to be wound up.
3. This Company Petition was admitted by this Court vide
its order dated 18th September, 2018. It was admitted on the basis of
an acknowledgment of debt. A cheque was also issued towards a
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down payment of Rs. 1 Crore which was dishonoured due to
insufficiency of funds. Thereafter, by an order dated 7th August,
2019 the Applicant - Company was finally wound up and the Official
Liquidator was appointed in respect of the assets and books of said
Company. Being aggrieved by this order, the Applicant - Company
filed Appeal (L) No. 412 of 2019 (Appeal No. 13/2020) before the
Division Bench of this Court. Finally, on 7th May, 2021 the Division
Bench recorded that Mr. Sunil Kotecha, an Ex-Director of the
Applicant - Company, undertook to deposit a Demand Draft in the
sum of Rs. 2.50 Crores with the Prothonotary and Senior Master on
or before 13th May, 2021. It was accordingly ordered that upon the
said amount being deposited, the impugned order dated 7th August,
2019 (winding up the Applicant - Company) would stand set aside;
but in the event there was a default, the order dated 7th August. 2019
would stand revived and the Applicant - Company would be wound
up and the Official Liquidator would take possession of the assets as
well as the statutory records of the Applicant - Company. It
transpires that though belatedly, after seeking an extension of time,
the amount of Rs. 2.50 Crores was finally deposited in this Court.
Since the monies were deposited, the Company Petition was
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remanded back for hearing and final disposal. After its remand, the
Company Petition was heard on various occasions but neither of the
parties had concluded their arguments. It is thereafter that the
present application is filed seeking a transfer of the above Company
Petition to the NCLT.
4. In this factual backdrop, Mr. Shroff, the learned counsel
appearing on behalf of the Applicant - Company (Original
Respondent Company), submitted that it is a well settled position in
law that an application for transfer of the Company Petition can be
made even by the Company that is being wound up. It is at the
discretion of this Court to grant or refuse the same. Mr. Shroff
submitted that on a consideration of the law as applicable, the
Applicant - Company has now considered its position and decided
that it would prefer filing the present transfer application having
regard to inter alia (a) the law permitting the transfer of pending
winding up Petitions to the NCLT; (b) the remedy available to the
Petitioner in the NCLT not being in any way barred or hindered; (c)
the Applicant - Company's bonafide defense; and (d) keeping in
mind the objective of the Insolvency and Bankruptcy Code, 2016 (for
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short "the IBC"), which is to try to restructure the Applicant -
Company rather than to wind it up.
5. Mr. Shroff submitted that the primary focus of the IBC
is to ensure the revival and continuation of the Corporate Debtor by
protecting it from its own management as well as from a corporate
death through the process of liquidation. He submitted that the
IBC is thus a beneficial legislation as its primary endeavour is to put
the Corporate Debtor back on its feet, as it is not merely a recovery
legislation for its creditors. The interests of the Corporate Debtor
have, therefore, been bifurcated and separated from that of its
promoters/those who are in the management of the Company in
default. He submitted that even the resolution process under the
IBC, is a process to examine whether the Corporate Debtor can be
revived in a non adversarial fashion in order to protect its interests.
He submitted that one must not lose sight of the primary objective
of the IBC which is to try and endeavour the revival of the Corporate
Debtor rather than its death. It is keeping all this in mind that
discretion ought to be exercised by this Court under the 5th proviso
to Section 434 (1) (c) of the Companies Act, 2013, was the
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submission of Mr. Shroff.
6. Mr. Shroff submitted that insofar as the transfer of
winding up proceedings are concerned, the IBC began tentatively by
leaving proceedings relating to winding up of companies to be
transferred to the NCLT at a stage that was to be prescribed by the
Central Government. This was stipulated in the Transfer Rules,
2016 which came into force w. e. f. 15th December, 2016. Rules 5 and
6 referred to three types of proceedings. Only those proceedings
which are at the stage of pre-service of notice of the winding up
petition stood compulsorily transferred to the NCLT. He submitted
that now, by virtue of the 5th proviso to Section 434 (1) (c) of the
Companies Act, 2013 the Company Court has discretionary powers
to transfer winding up petitions to the NCLT post its admission or
even petitions in which the Official Liquidator has been appointed.
He further submitted that how the discretion is to be exercised by
the Court is now no longer res integra and is clearly laid down by the
Hon'ble Supreme Court in the case of (i) Action Ispat and Power
Pvt Ltd v/s Shyam Metalics and Energy Ltd [(2021) 2 SCC
641] and (ii) A. Navinchandra Steels Pvt Ltd v/s SREI
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Equipment Finance Ltd and Ors [(2021) 4 SCC 435].
7. Mr. Shroff submitted that keeping in mind the objective
of the IBC, in winding up proceedings, where the Company Petition
has not been served in terms of Rule 26 of the Companies (Court)
Rules, 1959 (at a pre-admission stage), such winding up proceedings
are compulsorily transferable to the NCLT and are to be resolved
under the provisions of the Code. Even post the issuance of a notice
(under Rule 26) and pre-admission of a Company Petition, the same
result would ensue. However, post admission of a winding up
Petition and/or after the assets of a company sought to be wound up
become custodia-legis and are taken over by the Official Liquidator,
and nothing irreversible is done which would warrant the Company
Court staying its hands on a transfer application, the same ought to
be transferred to the NCLT. It is only in cases where winding up
proceedings having reached an irreversible stage and making it
impossible to set the clock back, that the Company Court must
proceed with the winding up of the Company, instead of transferring
the proceedings to the NCLT. He submitted that given the objective
sought to be achieved by the IBC, in the absence of an irresistible
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conclusion that corporate death is inevitable, every effort ought to
be made to resuscitate the Corporate Debtor keeping in mind the
larger public interest, which includes not only the workmen of the
Corporate Debtor, but also its creditors and the goods it produces to
enhance the economy of the country.
8. Mr. Shroff submitted that in the facts of the present case,
there are no circumstances which can be termed as irreversible for
this Court not to exercise its jurisdiction and discretion to transfer
the above Petition to the NCLT. Adverting to the facts of the present
case, he submitted that the above Company Petition was presented
before this Court on 7th September, 2016. Thereafter, the Company
Petition was admitted on 18th September, 2018 and it was finally
wound up by an order dated 7th August, 2019. Being aggrieved by
the winding up order, the Applicant - Company preferred an Appeal
before the Division Bench. The Division Bench, on 7th May, 2021,
directed the ex-director of the Applicant - Company to deposit a sum
of Rs. 2.50 Crores in this Court as a condition precedent for setting
aside the order of winding up. The deposit of Rs.2.50 Crores was
duly made before the Prothonotary and Senior Master, and hence
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the order of winding up stood set aside. Mr. Shroff submitted that
there are no circumstances in the present case which can be termed
as irreversible for this Court to withhold its powers and not exercise
its jurisdiction and discretion under the 5th proviso to Section 434
(1) (c) of the Companies Act, 2013 and transfer the above Company
Petition to the NCLT for adjudication under the provisions of the
IBC. He consequently submitted that the above Interim Application
Lodg No. 13530 of 2021 be allowed.
9. On the other hand, Mr. Tamboly, the learned counsel
appearing on behalf of the Petitioner, submitted that the present
application for transfer has not been filed for bonafide purposes but
only with the malafide intention to delay the matter. He submitted
that the Applicant - Company (the Original Respondent - Company)
is also guilty of suppression and has not approached this Court with
clean hands, and is therefore, not entitled to any discretionary
reliefs as sought for in the application.
10. Mr. Tamboly submitted that the present application is
filed by way of an afterthought after the commencement of the final
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hearing of the Petition and the admissions of the Petitioner's claims
being demonstrated in the balance-sheets of the Applicant -
Company. He submitted that it is evident from the balance sheets
from the year 2014 onwards that the Applicant - Company (Original
Respondent) has clearly admitted the debts due to the Original
Petitioner. In order to dodge the liability owed to the Petitioner and
avoid an order of winding up that the present application is filed,
was the submission of Mr. Tamboly.
11. Mr. Tamboly then pointed out the conduct of the
Applicant - Company to contend that the present application ought
to be dismissed. Mr. Tamboly submitted that the Petitioner made
supplies to the Applicant - Company under a work order dated 15th
January, 2014. The Petitioner also raised invoices thereunder
aggregating to approximately Rs. 22 Crores. Out of this entire
amount (of Rs.22 crores), between the period May 2014 and
September 2015, the Applicant - Company paid a sum of
approximately Rs. 6 Crores to the Petitioner leaving a principal
balance sum of approximately Rs. 15.98 Crores. In fact, certain
cheques were also issued between August 2014 and May 2015 which
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were dishonoured. He further submitted that the balance-sheet of
the Applicant - Company as on 31st March, 2015 disclosed the
Petitioner as a creditor of the Applicant - Company for a sum of Rs.
13.09 Crores. The balance-sheets of the Applicant - Company as on
31st March 2016, 2017 and 2018 disclosed the Petitioner as a creditor
of the Applicant - Company for the sum of Rs. 10.64 Crores. Mr.
Tamboly submitted that despite these admissions, the Applicant -
Company (Original Respondent - Company) did not pay the
Petitioner's legitimate outstandings. It is in these circumstances
that the above Company Petition came to be filed.
12. Mr. Tamboly submitted that during the course of
hearing of the admission of the above Petition, the Directors of the
Applicant - Company negotiated a settlement with the Petitioner
which culminated in an in-principle settlement by which the parties
agreed that the Applicant - Company would pay a sum of Rs. 9.6
Crores to the Petitioner towards a full and final settlement of the
Petitioner's claim. In fact, this was reported to this Court by the
counsels for both parties and time was granted to file the terms of
the settlement. However, on the next occasion, the Director of the
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Applicant - Company did not turn up to sign the engrossed consent
terms before this Court. This Court, therefore, by its order passed on
18th September, 2018 recorded the same as well as the fact that the
Applicant - Company had agreed to pay a sum of Rs. 9.6 Crores and
that the cheque issued by it for Rs. 1 Crore in furtherance of the
same, was dishonoured. It is in these circumstances that this Court
proceeded to admit the above Petition on 18th September, 2018.
13. Mr. Tamboly, submitted that this does not stop here. At
the time when the Petition was taken up for hearing and final
disposal (on 31st July, 2019), the Applicant - Company,
notwithstanding its admissions in the balance-sheets as well as the
statement recorded by this Court on 18th September, 2018, sought
to contend that only a sum of Rs.1.45 Crores was due and payable to
the Petitioner. In these circumstances, this Court recorded this
statement and directed the Applicant - Company's Director to
remain present in Court on the next date with a Demand Draft of
Rs.1.45 Crores, failing which the Applicant - Company would be
wound up. On the next date, namely, on 7th August, 2019, the
Applicant - Company sought to tender a cheque for a sum of Rs. 1.45
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Crores instead of a Demand Draft. When asked by the Court about
the reason why a Demand Draft was not brought, the Court was
informed that this was because there was no money in the bank
account of the Applicant - Company. This Court, therefore, noted
that the Applicant - Company and its Director were trying to play a
fraud upon the Court and/or the Petitioner which lead to the final
winding up order being passed on 7th August, 2019.
14. Mr. Tamboly then submitted that this order of winding
up was challenged by the Applicant - Company by filing Appeal No.
13 of 2020. This Appeal was heard on several occasions and the
Applicant - Company (the Appellant) sought to file an application
stating that they have now got a Demand Draft in the sum of Rs. 1.45
Crores issued in the name of the Prothonotary and Senior Master.
Mr. Tamboly stated that upon receiving a copy of the same, the
Petitioner made enquiries and found that the Demand Draft which
the Applicant - Company (the Appellant) was trying to pass off as
in their custody was in fact issued by one of their Contractors and
the same had not yet been released by him and would not be released
unless the Applicant - Company (the Appellant) cleared the dues of
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the said contractor. When this was pointed out to the Appeal Court,
it called upon the Applicant - Company (the Appellant) to produce
the original Demand Draft in Court. Faced with this situation, the
Applicant - Company (the Appellant) sought to contend that the
same was with their accountant in Jalgaon and that they were
unable to produce it as he was hospitalized. The Appeal Court,
realizing that the story of the Applicant - Company was extremely
fishy, asked the Applicant - Company (the Appellant) to disclose the
details of the hospitalization. Further, considering that Applicant -
Company (the Appellant) was taking undue advantage of the matter
being heard virtually under the then prevailing SOP, the Appeal
Court directed the matter to be taken up physically and the
Applicant - Company (the Appellant) was directed to remain
present in Court. The Ex-Director of the Applicant - Company (the
Appellant) who was physically present in Court with his son,
admitted that the Demand Draft which he claimed was with his
accountant, was actually no longer in force. Be that as it may, on 7th
May, 2021, the Appeal was disposed of by consent wherein the
Applicant - Company was inter alia directed to deposit a sum of Rs.
2.50 Crores and upon the deposit being made, the impugned order
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was to stand set aside and the matter was to be remanded back for
hearing and final disposal.
15. Mr. Tamboly submitted that the only reason why the
Petitioner gave consent for the matter being remanded was because
the Company Petition was to be heard finally by the learned
Company Judge in terms of the Appeal Court order. That was the
substratum on which the Petitioner gave its consent. On 7th May,
2021, before the Appeal Court, the Petitioner herein and the
Applicant - Company (the Appellant) agreed that the above
Company Petition would be immediately taken up for final hearing
upon the Court resuming functioning after the summer break. It is
on this basis that the Petitioner agreed that the winding up order be
set aside and the matter be remanded back for a fresh hearing. Had
that not been the case, the Petitioner would never have consented to
the remand order, as there was more than sufficient material on
record for the Appeal Court to reject the Appeal and uphold the
order of winding up. Mr. Tamboly submitted that looking at these
gross facts, no discretion ought to be exercised in favour of the
Applicant - Company for transferring the above Company Petition
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to the NCLT.
16. Mr. Tamboly then submitted that the parties have
consented before the Appeal Court to have the Petition heard finally
by the Company Judge. That was the very basis on which the Appeal
was disposed of and the matter was remanded. At that stage, had
the Appellant disclosed any intention of getting the matter
transferred to the NCLT, then, the Petitioner would not have
consented to the remand and would have pressed for the Appeal to
be dismissed, both on merits and in view of the dishonest conduct
of the Applicant - Company (the Appellants before the Appeal
Court). He submitted that the present application makes a mockery
of the order passed by the Appeal Court and is yet another attempt
by the Applicant - Company to play fast and loose with the Court.
Mr. Tamboly submitted that having consented to proceed with the
final hearing of the Company Petition, the Applicant - Company is
now precluded from moving the present application for transfer.
17. Apart from the conduct of the Applicant - Company, Mr.
Tamboly submitted that even otherwise, in the facts of the present
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case, this Court ought not to exercise its discretion in favour of the
Applicant - Company as irreversible events have occurred as
contemplated in the judgment of the Supreme Court in the case of
Action Ispat and Power Pvt. Ltd. (supra). The irreversible
events, according to Mr. Tamboly, are as follows: -
(a) The first irreversible event is the alleged transfer of
shares in the joint venture in the name of one Mr.
Chandrakant Sonawane without the leave of this Court
and/or the Official Liquidator. He submitted that this
transfer was done after the presentation of the winding
up Petition. He submitted that in fact the Official
Liquidator has filed an Official Liquidator's Report No.
90 of 2020 dated 15th October, 2020 demonstrating the
illegal and collusive nature of these alleged transactions.
(b) The next irreversible event was the sale of a Duplex
Apartment No. A 502, on the 5th and 6th Floor in "OPUS
Building", in Survey No.454 PMC Gultekdi Salisbuag,
Park near Poonawala Garden, Pune ("the said flat").
Mr. Tamboly submitted that one Mr. Prince R. Shah,
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claims to be the owner of the said flat, and has furnished
copies of the agreement for sale dated 30th August, 2017
and a Deed of Assignment dated 12th October, 2018. Mr.
Tamboly submitted that the documents on record would
show that the sale of the said flat took place after the
presentation of the winding up Petition.
(c) The next irreversible event was that the Applicant -
Company has received its 53% share in the sum of Rs.
35,23,10,000/- from the "Kurha Vadoda Lift Irrigation
Scheme" during the period when the Applicant -
Company was in liquidation. Mr. Tamboly submitted
that the Ex-Director of the Applicant - Company, Mr.
Sunil Kotecha, had illegally approached the statutory
authority and withdrew their share of the monies for and
on behalf of the Applicant - Company in liquidation
from the "Kurha Vadoda Lift Irrigation Scheme".
18. Mr. Tamboly submitted that all these alleged
transactions having been purportedly entered into after the filing of
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the present Company Petition and are therefore liable to be
rendered void under the provisions of the Companies Act after a
final order of winding up would be passed, and all of these monies
and properties and shares would be available to the creditors of the
Applicant - Company in winding up. It is to avoid this situation that
the above Transfer Application is filed with a malafide purpose to
avoid the obvious consequences which would follow qua these
alleged transactions in the event a final order of winding up is
passed, which according to Mr. Tamboly, is inevitable in view of the
several admissions made by the Applicant - Company.
19. Mr. Tamboly submitted that there is yet another reason
as to why the matter ought not to be transferred to the NCLT. He
submitted that Section 43 of the IBC deals with preferential
transactions and stipulates that where the liquidator or the
resolution professional, as the case may be, is of the opinion that the
corporate debtor, has at the relevant time, given a preference in
such transactions and in such manner as laid down in sub-section
(2), to any persons as referred to in sub-section (4), he shall apply
to the Adjudicating Authority for avoidance of the said preferential
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transactions and for, one or more of the orders referred to in Section
44. He submitted that if preference is given to a related party, during
the period of two years preceding the insolvency commencement
date, or given to a person other than a related party during the
period of one year preceding the insolvency commencement date,
the Liquidator or the resolution professional, as the case may be, can
make an application to avoid such a transaction/s. He submitted
that in the facts of the present case, if the matter is transferred, then
the transactions referred to above would not be eligible for
avoidance under Section 43 as they would be beyond the period of
two years and one year respectively as set out therein. He made
similar submissions with reference to Section 45 which deals with
avoidance of undervalued transactions. He submitted that
undervalued transactions can be avoided if they are made with a
person who is a related party within the period of two years
preceding the insolvency commencement date and with any other
person within a period of one year preceding the insolvency
commencement date. Mr. Tamboly submitted that by allowing the
above transfer application, the Petitioner and/or the Liquidator
and/or the resolution professional would not be able to assail the
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said under-valued transfer as they would not fall within the
stipulated time as contemplated under Sections 45 and 46 of the
IBC.
20. The last argument canvassed by Mr. Tamboly was that
an irreversible stage has been reached also because under Section
536(2) of the Companies Act, 1956, it is for the transferee to
establish, plead and prove that its transaction is bonafide and
wholly in the interest of the Applicant - Company, whereas under
the provisions of the IBC and more particularly Section 49 thereof,
the onus lies on the Liquidator and/or the resolution professional
and/or the Petitioner herein to prove that the transaction is
fraudulent. He, therefore, submitted that looking at the over all
facts of the present matter, no discretion ought to be exercised in
favour of the Applicant - Company to transfer the above Company
Petition to the NCLT. Consequently, Interim Application Lodg
No.13530 of 2021 be dismissed, was the submission of Mr. Tamboly.
21. I have heard the learned counsel for the parties at great
length and have perused the papers and proceedings in the above
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matter. Interim Application Lodg No.13530 of 2021 has been filed
by the Applicant - Company seeking a transfer of the above
Company Petition to the NCLT so that the same can be heard and
prosecuted under the provisions of the IBC. This transfer is sought
on the basis of the 5th proviso to section 434 (1) (c) of the Companies
Act, 2013. The relevant portion of the said provision reads thus:-
"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 (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....
Provided that....
Provided that....
Provided that....
Provided further that any party or parties to any proceedings
relating to the winding up of companies pending before the
any Court immediately before the commencement of the
Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018, may file an application for transfer of such proceedings
and the Court may by order transfer such proceedings to the
Tribunal and the proceedings so transferred shall be dealt
with by the Tribunal as an application for initiation of
corporate insolvency resolution process under the
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Insolvency and Bankruptcy Code, 2016 (31 of 2016)."
22. As can be seen from the aforesaid proviso, any party or
parties to any proceedings relating to the winding up of companies
pending before any Court immediately before the commencement
of the Insolvency and Bankruptcy Code (Amendment) Ordinance,
2018, may file an application for transfer of such proceedings. The
Court may by an order, transfer such proceedings to the Tribunal
and the proceedings so transferred shall be dealt with by the
Tribunal as an application for initiation of the Corporate Insolvency
Resolution Process under the Insolvency and Bankruptcy Code,
2016. The aforesaid proviso basically stipulates that the Court may
exercise its discretionary powers to transfer any winding up
proceedings to the NCLT.
23. The reason for inserting the aforesaid proviso (the 5th
proviso) appears to be quite clear. Initially, so far as the transfer of
winding up proceedings were concerned, the Code began tentatively
by leaving proceedings relating to winding up of companies to be
transferred to the NCLT at a stage as may be prescribed by the
Central Government. This was stipulated by the Transfer Rules, 2016
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which came into force w. e. f. 15th December, 2016. Rules 5 and 6
referred to three types of proceedings. Only those proceedings
which were at the stage of pre-service of notice of the winding up
Petition stood compulsorily transferred to the NCLT. The result
thereof was that post-notice and pre-admission of winding up
Petitions, parallel proceedings would continue under both Statutes
leading to a most unsatisfactory state of affairs. It is for this reason
that the 5th proviso to Section 434 (1) (c) was introduced on the
Statute book. After the insertion of the 5th proviso, even post
admission of a winding up Petition and even after an order of the
Court appointing an Official Liquidator to take over the assets of the
Company sought to be wound up, the Company Court has the
discretion to transfer such Petition to the NCLT. The only question
that would arise is as to how this discretion is to be exercised in the
facts and circumstances of a given case.
24. As far as the exercise of discretion under the 5th proviso
to section 434(1)(c) is concerned, I find that this issue is no longer
res integra. The Supreme Court in the case of Action Ispat and
Power (supra) has clearly laid down as to how the discretion may
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be exercised. The relevant portion of this decision reads thus: -
"25. Given the aforesaid scheme of winding up under Chapter
XX of the Companies Act, 2013, it is clear that several stages
are contemplated, with the Tribunal retaining the power to
control the proceedings in a winding-up petition even after it
is admitted. Thus, in a winding-up proceeding where the
petition has not been served in terms of Rule 26 of the
Companies (Court) Rules, 1959 at a pre-admission stage, given
the beneficial result of the application of the Code, such
winding-up proceeding is compulsorily transferable to NCLT to
be resolved under the Code. Even post issue of notice and pre-
admission, the same result would ensue. However, post
admission of a winding-up petition and after the assets of the
company sought to be wound up become in custodia legis and
are taken over by the Company Liquidator, Section 290 of the
Companies Act, 2013 would indicate that the Company
Liquidator may carry on the business of the company, so far
as may be necessary, for the beneficial winding up of the
company, and may even sell the company as a going concern.
So long as no actual sales of the immovable or movable
properties have taken place, nothing irreversible is done which
would warrant a Company Court staying its hands on a
transfer application made to it by a creditor or any party to the
proceedings. It is only where the winding-up proceedings have
reached a stage where it would be irreversible, making it
impossible to set the clock back that the Company Court must
proceed with the winding up, instead of transferring the
proceedings to NCLT to now be decided in accordance with the
provisions of the Code. Whether this stage is reached would
depend upon the facts and circumstances of each case.
26. In the facts of the present case, the concurrent finding of
the Company Judge and the Division Bench [Action Ispat &
Power (P) Ltd. v. Shyam Metalics & Energy Ltd., 2019 SCC OnLine
Del 10424] is that despite the fact that the liquidator has taken
possession and control of the registered office of the appellant
Company and its factory premises, records and books, no
irreversible steps towards winding up of the appellant
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Company have otherwise taken place. This being so, the
Company Court has correctly exercised the discretion vested
in it by the 5th proviso to Section 434(1)(c). Resultantly, the civil
appeal arising out of SLP (Civil) No. 26415 of 2019 stands
dismissed."
(emphasis supplied)
25. In the aforesaid decision, the Hon'ble Supreme Court
had clearly laid down that even after a Petition for winding up a
company is admitted and even after the assets of the company
sought to be wound up become custodia-legis, so long as no actual
sales of the immovable or movable properties of the company have
taken place, or nothing irreversible has been done which would
warrant the Company Court to stay its hands on a transfer
application made to it by a creditor or any party to the proceedings,
the Company Petition should be transferred. It is only in cases where
the winding up proceedings have reached an irreversible stage, and
hence making it impossible to set the clock back, that the Company
Court must proceed with the winding up, instead of transferring the
proceedings to the NCLT to be decided in accordance with the
provisions of the IBC. To put it simply, post admission and even
after the Official Liquidator takes charge of the assets of the
company, the Company Court still has the discretion to transfer the
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Company Petition to the NCLT and would refrain from doing so only
if an irreversible situation is created as more particularly set out in
the said decision.
26. The decision of Action Ispat and Power (supra) was
once again considered by the Supreme Court in the case of A.
Navinchandra Steels (supra). The Supreme Court, after
considering its decision in Action Ispat (as well as other
decisions), inter alia held as under: -
"24. In Action Ispat [Action Ispat & Power (P) Ltd. v. Shyam
Metalics & Energy Ltd., (2021) 2 SCC 641] , this Court was faced
with a proceeding in which a winding-up petition had been
admitted by the High Court and then transferred to NCLT to
be tried as a proceeding under the IBC. After referring to the
judgments in Jaipur Metals [Employees Organization v. Jaipur
Metals & Electricals Ltd., (2019) 4 SCC 227] , Forech [Forech
(India) Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., (2019) 18
SCC 549 : (2020) 4 SCC (Civ) 286] , and Kaledonia [Kaledonia Jute
& Fibres (P) Ltd. v. Axis Nirman & Industries Ltd., (2021) 2 SCC
403] , and after setting out various sections dealing with
winding up of companies under the Companies Act, 2013, this
Court then held : (Action Ispat case [Action Ispat & Power (P)
Ltd. v. Shyam Metalics & Energy Ltd., (2021) 2 SCC 641] , SCC pp.
659 & 663-64, paras 14 and 25)
"14. What becomes clear upon a reading of the three
judgments of this Court is the following:
14.1. So far as transfer of winding-up proceedings is
concerned, the Code began tentatively by leaving
proceedings relating to winding up of companies to be
transferred to NCLT at a stage as may be prescribed by
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the Central Government.
14.2. This was done by the Transfer Rules, 2016
[Companies (Transfer of Pending Proceedings) Rules,
2016] which came into force with effect from 15-12-
2016. Rules 5 and 6 referred to three types of
proceedings. Only those proceedings which are at the
stage of pre-service of notice of the winding-up petition
stand compulsorily transferred to NCLT.
14.3. The result therefore was that post notice and
pre-admission of winding-up petitions, parallel
proceedings would continue under both statutes,
leading to a most unsatisfactory state of affairs. This led
to the introduction of the 5th proviso to Section
434(1)(c) which, as has been correctly pointed out
in Kaledonia [Kaledonia Jute & Fibres (P) Ltd. v. Axis
Nirman & Industries Ltd., (2021) 2 SCC 403] , is not
restricted to any particular stage of a winding-up
proceeding.
14.4. Therefore, what follows as a matter of law is
that even post admission of a winding-up petition, and
after the appointment of a Company Liquidator to take
over the assets of a company sought to be wound up,
discretion is vested in the Company Court to transfer
such petition to NCLT. The question that arises before
us in this case is how is such discretion to be exercised?
***
25. Given the aforesaid scheme of winding up under
Chapter XX of the Companies Act, 2013, it is clear that
several stages are contemplated, with the Tribunal
retaining the power to control the proceedings in a
winding-up petition even after it is admitted. Thus, in a
winding-up proceeding where the petition has not been
served in terms of Rule 26 of the Companies (Court)
Rules, 1959 at a pre-admission stage, given the
beneficial result of the application of the Code, such
winding-up proceeding is compulsorily transferable to
NCLT to be resolved under the Code. Even post issue of
notice and pre-admission, the same result would ensue.
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However, post admission of a winding-up petition and
after the assets of the company sought to be wound up
become in custodia legis and are taken over by the
Company Liquidator, Section 290 of the Companies Act,
2013 would indicate that the Company Liquidator may
carry on the business of the company, so far as may be
necessary, for the beneficial winding up of the
company, and may even sell the company as a going
concern. So long as no actual sales of the immovable or
movable properties have taken place, nothing
irreversible is done which would warrant a Company
Court staying its hands on a transfer application made
to it by a creditor or any party to the proceedings. It is
only where the winding-up proceedings have reached a
stage where it would be irreversible, making it
impossible to set the clock back that the Company
Court must proceed with the winding up, instead of
transferring the proceedings to NCLT to now be decided
in accordance with the provisions of the Code. Whether
this stage is reached would depend upon the facts and
circumstances of each case."
25. A conspectus of the aforesaid authorities would show that
a petition either under Section 7 or Section 9 IBC is an
independent proceeding which is unaffected by winding-up
proceedings that may be filed qua the same company. Given
the object sought to be achieved by the IBC, it is clear that only
where a company in winding up is near corporate death that
no transfer of the winding-up proceeding would then take
place to NCLT to be tried as a proceeding under the IBC. Short
of an irresistible conclusion that corporate death is inevitable,
every effort should be made to resuscitate the corporate
debtor in the larger public interest, which includes not only the
workmen of the corporate debtor, but also its creditors and
the goods it produces in the larger interest of the economy of
the country. It is, thus, not possible to accede to the argument
on behalf of the appellant that given Section 446 of the
Companies Act, 1956/Section 279 of the Companies Act, 2013,
once a winding-up petition is admitted, the winding-up
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petition should trump any subsequent attempt at revival of
the company through a Section 7 or Section 9 petition filed
under the IBC. While it is true that Sections 391 to 393 of the
Companies Act, 1956 may, in a given factual circumstance, be
availed of to pull the company out of the red, Section 230(1) of
the Companies Act, 2013 is instructive and provides as follows:
"230. Power to compromise or make arrangements with
creditors and members.--(1) Where a compromise or
arrangement is proposed--
(a) between a company and its creditors or any class of
them; or
(b) between a company and its members or any class of
them,
the Tribunal may, on the application of the company or of any
creditor or member of the company, or in the case of a company
which is being wound up, of the liquidator, appointed under this
Act or under the Insolvency and Bankruptcy Code, 2016, as the
case may be, order a meeting of the creditors or class of creditors,
or of the members or class of members, as the case may be, to
be called, held and conducted in such manner as the Tribunal
directs.
Explanation.--For the purposes of this sub-section,
arrangement includes a reorganisation of the company's
share capital by the consolidation of shares of different classes
or by the division of shares into shares of different classes, or
by both of those methods."
What is clear by this Section is that a compromise or
arrangement can also be entered into in an IBC proceeding if
liquidation is ordered. However, what is of importance is that
under the Companies Act, it is only winding up that can be
ordered, whereas under the IBC, the primary emphasis is on
revival of the corporate debtor through infusion of a new
management.
26. On facts also, in the present case, nothing can be said to
have become irretrievable in the sense mentioned in para 25
of Action Ispat [Action Ispat & Power (P) Ltd. v. Shyam Metalics &
Energy Ltd., (2021) 2 SCC 641]."
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27. Applying the test laid down by the Supreme Court in the
aforesaid decisions, I have to now see whether any irreversible event
has taken place which would warrant me to stay my hands and not
transfer the above Company Petition to the NCLT. At the outset,
and before I proceed further, I would like to mention that from the
facts narrated above, the conduct of the Applicant - Company,
through its Ex-Director-Mr. Sunil Kotecha, is reprehensible, to say
the least. Their conduct has been recorded in several orders passed
by this Court. I also find that the Applicant - Company has clearly
admitted its liability (at least to the extent of Rs.9.6 crores) as
recorded by this Court in its order dated 18th September, 2018.
28. Be that as it may, and dehors the conduct of the
Applicant - Company, I have to decide whether or not the above
Company Petition should be transferred to the NCLT in order to give
the Applicant - Company one last opportunity to be revived. In the
facts of the present case, I am unable to agree with Mr. Tamboly that
simply because the Applicant - Company entered into certain
transactions after the presentation of the winding up petition, the
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same results in any irreversible event. It is not as if that those
transactions cannot be assailed under the provisions of the IBC
before the NCLT. In fact, Section 49 of the IBC specifically deals
with transactions entered into by the corporate debtor in order to
defraud the creditors and inter alia stipulates that where the
corporate debtor has entered into an undervalued transaction as
referred to in sub-section (2) of Section 45 and the Adjudicating
Authority is satisfied that such transaction was deliberately entered
into by such corporate debtor, (a) for keeping assets of the corporate
debtor beyond the reach of any person who is entitled to make a
claim against the corporate debtor; or (b) in order to adversely affect
the interests of such a person in relation to the claim; then the
Adjudicating Authority may:- (i) pass an order restoring the position
as it existed before such a transaction took place as if the transaction
had not been entered into; and (ii) pass an order protecting the
interests of persons who are victims of such transactions. This
Section, therefore, clearly provides for a remedy for avoiding
transactions, which in the opinion of the Petitioner, are fraudulent
and undervalued. Merely because Section 536 (2) of the Companies
Act, 1956 puts the onus on the transferee to show that the
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transaction entered into by the Company was bonafide and in the
interest of the Company, whereas under Section 49 of the IBC the
onus would lie on the Liquidator or the Resolution Professional or
the Petitioner, as the case may be, to show that the transaction is
fraudulent, would not in any way result in any irreversible situation
requiring the Company Court to stay its hands and not transfer the
Petition to the NCLT. The Supreme Court in the decision of Action
Ispat (supra) as well as in A. Navinchandra Steels (supra)
have clearly spelt out that looking at object of the IBC and it being a
beneficial legislation to ensure revival of the corporate debtor rather
than its death, transfer of a winding up Petition to the NCLT should
be the norm and only in very limited circumstances (as set out in the
aforesaid decisions), should the Company Court decline to transfer
the winding up Petition. This being the situation and finding that
an adequate remedy is available under the IBC to assail the
transactions which are enumerated above by Mr. Tamboly, I do not
think that these contentions would in any way hinder this Court
from transferring the above Company Petition to the NCLT.
29. In view of the foregoing discussion, Interim Application
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Lodg No.13530 of 2021 is allowed and it is ordered that the above
Company Petition, namely Company Petition No. 708 of 2016 is
transferred to the NCLT, Mumbai. The NCLT, Mumbai is directed
to treat the above Petition as an application for initiation of the
Corporate Insolvency Resolution Process under the Insolvency and
Bankruptcy Code, 2016. In order to enable the NCLT, Mumbai to
initiate the Corporate Insolvency Resolution Process under the
Insolvency and Bankruptcy Code, 2016, the order of admission of
the above Petition is recalled/revoked.
30. I must mention that the Division Bench of this Court,
whilst remanding the above Company Petition to the learned single
Judge for hearing and final disposal (by its order dated 7th May,
2021), had passed certain protective directions. In my opinion,
those will have to be continued. It is accordingly directed that
subject to any order passed by the NCLT, Mumbai:-
(i) The Applicant - Company / its Directors shall not
sell, alienate, encumber, part with possession or
create any third party rights and/or interests in
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respect of any of the immovable / fixed assets of
the said Company;
(ii) If any amounts are received / recovered by the
Applicant - Company or its directors pursuant to
its ongoing / completed project/s, the same shall
be deposited by the directors in a separate account
specially opened for this purpose and the amounts
deposited therein shall not be used without the
permission of the NCLT.
(iii) A statement of the amounts recovered/received by
the Applicant - Company / its directors and
deposited in the said separate bank account shall
be placed before the NCLT on the date when the
matter is called out before the NCLT. A copy of the
same shall be provided to the Advocate for the
Petitioner.
31. It is clarified that the NCLT will be at liberty to vacate
and/or modify the above protective directions after hearing the
parties concerned. Interim Application Lodg No.13530 of 2021 is
accordingly disposed of. However, in the facts and circumstances of
the case, there shall be no order as to costs.
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32. In view of the fact that the above Company Petition is
now ordered to be transferred to the NCLT, nothing survives in the
other Applications listed above and the same are disposed of
accordingly.
33. This order shall not preclude any of the Applicants in the
above Interim Applications to make appropriate applications before
the NCLT, if they are otherwise entitled to in law. If any such
application is made, the same shall be decided on its own merits and
in accordance with law.
34. This order will be digitally signed by the Private
Secretary/Personal Assistant of this Court. All concerned will act on
production by fax or email of a digitally signed copy of this order.
(B. P. COLABAWALLA, J.)
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