Re : Jessop & Co. Limited (In ... vs The Official Liquidator
2022 Latest Caselaw 1811 Cal/2

                                           1


                           IN THE HIGH COURT AT CALCUTTA
                              ORIGINAL JURISDICTION
                                  ORIGINAL SIDE


BEFORE:
The Hon'ble Mr. Justice Ravi Krishan Kapur

                                    CA/12/2022
                                  In CP/387/2014
                RE : JESSOP & CO. LIMITED (in liquidation) & Ors.
                                        Vs.
                  The Official Liquidator, High Court at Calcutta

For the Secured Creditor       : Mr. Ratnanko Banerji, Senior Advocate
                                 Ms. Pooja Chakraborti, Advocate
                                 Ms. Radhika Misra, Advocate
                                 Mr. Kiran Sharma, Advocate

For the Contributory           : Mr.   Krishna Raj Thaker, Advocate
                                 Mr.   Rupak Ghosh, Advocate
                                 Mr.   Chayan Gupta, Advocate
                                 Mr.   Soumyajyoti Nandy, Advocate
                                 Mr.   Niladri Banerjee, Advocate
                                 Mr.   Ashutosh Singh, Advocate

For the Official Liquidator    : Mr. Subhadip Biswas, Advocate

Heard on                       : 06.05.2022, 10.05.2022, 13.05.2022

Judgment on                    : 04.07.2022

Ravi Krishan Kapur, J.:

      1.

This application has been filed by a secured creditor (Edelweiss Asset

Reconstruction Company Ltd.) of Jessop & Company Ltd, the company

(in liquidation) seeking transfer of CP No. 387 of 2014 alongwith all

connected applications to the National Company Law Tribunal,

Kolkatta Bench (NCLT). The application has been filed under the 5th

proviso of the newly amended Section 434 (1) (c) of the Companies Act,

2013 (the Act). The section in its new avatar contemplates a party

applying to the Court, to seek transfer of proceedings relating to

winding-up of a company to the NCLT.

2. It is submitted on behalf of the applicant that by a Deed of Assignment

dated 28th March, 2014, the applicant had become a secured creditor of

the company (in liquidation). The current dues of the applicant are

approximately Rs. 424 crores. The order of winding-up was passed on

6th March, 2017. Thereafter, one of the contributories of the company

(in liquidation) had filed an application, inter alia, for framing a scheme

of repayment. By an order dated 18th May, 2017, the contributory was

permitted to take physical possession of the assets of the company (in

liquidation) and the Official Liquidator was directed to be in symbolic

possession. The order also provided that the expenses incurred for

providing security guards in respect of the assets of the company (in

liquidation) shall be borne by the contributory. By an order dated 17th

August, 2017, the contributory was also directed to bring a scheme for

payment of the dues of the creditors of the company (in liquidation).

However, admittedly till date, no scheme has been framed.

Significantly, the applicant had also filed an application being CA 172

of 2019 seeking appropriate directions for the Official Liquidator to

handover the possession of the mortgaged properties of the company

(in liquidation) to the applicant.

3. It is contended on behalf of the applicant that, in view of the amended

Section 434 (1) (c) of the Act and the 5th proviso, the applicant is

entitled to apply to this Court for transfer of the winding-up

proceedings to the NCLT. The applicant is a "party" defined under

Section 434 (1) (c) of the Act. It is also contended that a secured

creditor may stand outside the winding-up proceeding and still realise

its security dehors the winding-up proceedings. In this connection,

reliance is placed on M.K. Ranganathan Vs. State of Madras (AIR 1955

Supreme Court 604), Food Controller Vs. Cork (1923 AC 647). Moreover,

the Official Liquidator has also not taken any steps whatsoever to sell

any of the assets of the company (in liquidation) for more than five

years. There has also been no money paid to any of the creditors. In

this connection, reliance is placed on the decisions in Action Ispat &

Power (P) Ltd. Vs. Shyam Metalics & Energy Ltd. (2021) 2 SCC 641, A.

Navinchandra Steels (P) Ltd. Vs. SREI Equipment Finance Ltd. (2021) 4

SCC 435, Sicom Limited vs. Hanung Toys and Textiles Ltd. (2019) 264

DLT 400 and Alfavision Overseas Ltd. Vs. Kanak Tairdeal (India) Pvt.

Ltd. (2019) SCC Online MP 5012. It is further submitted that there are

no other circumstances which warrant this Court retaining the

winding-up proceedings. On the contrary, it would only enure to the

benefit of all parties involved that the proceedings be transferred to

NCLT and be brought to their logical conclusion.

4. On behalf of one of the contributories, namely Indo Wagon Engineering

Ltd., it is submitted that the petitioner is not a party to the winding-up

proceedings and hence is not entitled to seek transfer of proceedings to

the NCLT. It is further alleged that in the absence of any application

pending under the Insolvency Code before the NCLT, there is no

question of transferring of these proceedings to the NCLT. It is further

submitted that there is no power vested in the NCLT to consider an

application for framing of a scheme for repayment of the creditors of

the company (in liquidation). It is also submitted that irreversible steps

have taken place in the form of payments having been made to security

agencies and the pendency of an application under Section 466 of the

Act filed by the contributory and the pending application for framing of

a scheme in respect of the company (in liquidation). All these steps are

irreversible in nature and would severely prejudice the rights of the

contributory. Reliance is also placed on the judgment reported in Union

of India Vs. Amrit Lal Manchanda and Anr (2004) 3 SCC 75 to contend

that, the peculiar facts of a case would make a world of difference

between the conclusions in two cases. Thus, the decision reported in

Action Ispat (Supra) and A. Navinchandra Steels (P) Ltd. (Supra) are

distinguishable. Pursuant to directions by this Court, a Status Report

has also been filed by the Official Liquidator which confirms that none

of the assets of the company (in liquidation) have been sold.

5. By an amendment dated 7th August, 2018 the 5th proviso to Section

434 (1) (c) of the Act was added which provided as follows:-

"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 further that 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 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 on application for initiation of corporate insolvency resolution process under the Insolvency and bankruptcy Code, 2016 (31 of 2016)"

6. In Action Ispat & Power (P) Ltd. vs. Shyam Metalics & Energy Ltd.

(2021) 2 SCC 641, the Hon'ble Supreme Court held as follows:-

"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 sale 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. (emphasis supplied).

Significantly, in the facts of the aforesaid decision, the

concurrent finding of the Company Judge and the Division

Bench was that despite the fact that in the liquidation

proceedings, the Official Liquidator had taken possession and

control of the registered office and the factory premises,

records and books no irreversible steps towards winding

upon of the company had otherwise taken place. The ratio in

Action Ispat & Power (P) Ltd. (supra) has subsequently been

followed in A. Navinchandra Steels (P) Ltd. vs. SREI Equipment

Finance Ltd. (2021) 4 SCC 435.

7. In Maheswary Ispat Ltd. And Alaknanda Sponge Private Limited vs.

Official Liquidator, High Court, Calcutta (Unreported decision of the High

Court at Calcutta dated 17.5.2022 in C P 560 of 2011) this Court has

held as follows:-

"Ordinarily, there is a strong presumption that Civil Courts have jurisdiction to decide all questions of civil nature. The exclusion of jurisdiction of Civil Courts must either be explicitly expressed or clearly implied. In my view, the section does not contemplate proceedings being automatically transferred to the Tribunal. There is an element of discretion which the Company Court retains in respect of pending proceedings whether to exercise the power to transfer or not depending on the facts and circumstances of each case. The only test as laid down by the Supreme Court is whether any irreversible situation has arisen warranting the Court to stay its hands and not transfer the proceeding to the NCLT. However, the clear legislative intent is to oust the jurisdiction of the Court and transfer all proceedings to the Tribunal (except in limited cases) with the ultimate object to resuscitate the corporate debtors who are in the red and in some cases to prevent

parallel proceedings."

8. In the newly introduced Insolvency regime and after the aforesaid

amendments to the Act, there is a radical change in the approach

whilst dealing with companies in liquidation. It is true that there is no

automatic transfer of all proceedings pending for winding-up of a

company to the NCLT. In fact, there is an element of discretion which

the Company Court retains in respect of pending winding-up

proceedings even post amendment. However, such discretion has to be

exercised in the facts and circumstances of each case. (Sicom Limited

vs Hanung joys and Textiles Ltd. (2019) 26 DLJ 400) Alfavision Overseas

Ltd. vs Kanak Fairdeal (India) Pvt. Ltd., 2019 SCC online MP 5012).

9. The sole test laid down in the decision of Action Ispat (Supra) as

followed in A. Navinchandra Steels (P) Ltd. (Supra) is whether an

irreversible situation has arisen warranting the Court to stay its hands

and not transfer the proceeding to the NCLT. In my view, there are no

facts whatsoever which justify the conclusion of an irreversible

situation having arisen in the facts of the case. The company was

directed to be wound-up on the 6th March, 2017. Thereafter, one of the

contributories, namely Indo Wagon Engineering Ltd. had obtained

diverse orders from Court whereby they continued to be in possession

of the assets of the company (in liquidation). Admittedly, till date there

is no scheme for repayment of the outstanding dues of the creditors

which has been framed. No other steps have taken place by the Official

Liquidator in aid of winding-up of the company. The aggregate dues of

the applicant are in excess of Rs. 400 crores. Notwithstanding orders of

this Court, the security agencies have also not been paid by the

contributory. The Official Liquidator is not in possession of any of the

assets company (in liquidation) far less having made any attempt to sell

them. The stalemate or impasse which has been created by the

contributory and the inaction of the Official Liquidator only strengthens

the case of the applicant in seeking transfer of the proceedings to the

NCLT on the ground that no irreversible situation has arisen justifying

this Court to retain jurisdiction.

10. Section 434 (1)(c) provides that "any party" to "any proceeding"

"relating to the winding up of a company" may file an application for

transfer to the NCLT. A proceeding for winding-up is a proceeding in

rem which enures to the benefit of all creditors, such a proceeding may

be initiated by one or more creditors but is treated as a joint petition. It

is well settled that a secured creditor may choose to stand outside the

winding-up proceeding and enforce its security dehors the winding-up

proceeding (Palmer's Company Precedents, Volume I Page No. 415, M.K.

Rangathan vs State of Madras (AIR 1955 SC 604 at Para 15-16, Food

Controller vs Cork [1923] AC 647). Thus, the fact that the petitioner has

chosen to stand outside the winding-up proceeding does not mean that

the petitioner is not a party within the meaning of Section 434 (1) (c) of

the Act or is disentitled from making this application.

11. I also do not find any merit in the objection raised by the contributory

that a petition under Section 7 and Section 9 of the Insolvency and

Bankruptcy Code 2016 (the Code) should be pending before the NCLT,

prior to directing transfer of the winding-up proceedings to the NCLT.

Neither is this legislative intent nor is this pre-condition borne out

from the language of the newly amended section. Accordingly, I do not

find any merit in this submission and the same is rejected. I also do

not find any force in the submission that a scheme for repayment of

the creditors of the company (in liquidation) cannot be considered by

the NCLT. Section 230 (1) of the Companies Act contemplates that a

Scheme of Compromise and Arrangement may be submitted under the

provisions of the Code. Moreover, Rule 2B of the IBBI (Liquidation

process Regulation) 2016 read with 230 of the Companies Act, 2013

now governs the process for submitting a scheme for compromise or

arrangement. Under Section 29A of the Insolvency and Bankruptcy

Code, the promoters are disqualified from framing of a scheme of the

company. Accordingly, this submission on behalf of the contributory is

also rejected. I also do not find any merit in the submission that the

fact that some moneys have been paid by the contributory would

create an irreversible situation which justifies these proceedings being

transferred to the NCLT. None of these grounds make it impossible to

set the clock back compelling the Company Court to proceed which the

winding-up of the company instead of transferring the proceeding to

the NCLT. All such issues can always be decided by the NCLT during

the course of winding-up. Hence, there is no impossible situation

arisen which justifies this Court retaining this winding-up proceeding.

It is to be remembered that, the jurisdictional change brought about in

the amended Section 434 (1) (c) makes it clear that it is now obligatory

for the Court (in the absence of any irreversible or exceptional

circumstances) to transfer the proceedings to the NCLT. This is the

clear legislative intent. In fact, to continue with the winding-up

proceedings in the absence of an irreversible situation would in my

view, tantamount to committing a jurisdictional error. The decision

relied on by the contributory, Union of India vs. Amrit Lal Manchanda

and Anr. (2004) 3 SCC 75 is distinguishable and inapplicable to the

facts of this case.

12. In view of the aforesaid, I direct that this Company Petition being CP

No. 387 of 2014 and all applications filed therein stand transferred

forthwith to the National Company Law Tribunal Kolkata.

13. CA No. 12 of 2022 stands allowed.

14. The Department shall treat CP No. 387 of 2014 and all applications

filed therein are disposed of insofar as the records of this Court are

concerned.

(Ravi Krishan Kapur)