Listen to this articleM/S Kaledonia Jute and Fibres Pvt. Ltd. vs. M/S
Axis Nirman and Industries Ltd.
CIVIL APPEAL No. 3735 OF 2020
decided on 19th November,2020
Bench: S.A. Bobde, A.S. Bopanna and V. Ramasubramanian
JJ.
Facts:
The petitioner filed this plea in
the Supreme Court seeking transfer of winding up proceedings against M/S
Axis Nirman and Industries Limited(hereinafter referred as M/s Axis) pending
before the Allahabad High Court to NCLT. The winding up petition was filed in
Allahabad High Court by another creditor which had sought winding up of M/s Axis
on the ground that the company was unable to pay its debts. In March 2016, the
High Court ordered the winding up of Axis and an official liquidator was appointed
to take over the assets and books of accounts of the Company. However, the
order was later kept in abeyance after M/s Axis filed an application for recall
of the order on the ground it has paid the entire amount due to the creditor.
Afterwards, Kaledonia, the creditor,
moved an application before the NCLT, Allahabad under Section 7 of the
Insolvency and Bankruptcy Code, 2016. Thereafter, Kaledonia filed an application
before the High Court seeking a transfer of the winding up petition to the
NCLT, Allahabad. This was rejected by the High Court. This led to the appeal
before Supreme Court.
Issue:
The
Supreme Court considered the following issues:
1. What are the circumstances under
which a winding up proceeding pending on the file of a High court could be
transferred to the NCLT? And,
2. at whose instance, such transfer
could be ordered?
Held:
The
Supreme Court, to answer the above questions, traversed through a maze of
provisions both under the Companies Act of 2013 as well as Companies (Transfer
of Pending Proceedings) Rules, 2016 (2016 Rules) and held that any creditor of
a company can seek transfer of winding up proceeding pending before a High
Court to National Company Law Tribunal. The Supreme Court further observed that
the words “party or parties” enshrined in the 5th proviso to Clause
(C) of Section 434(1) of the Companies Act would take within its ambit any
creditor of the company in liquidation.
The
Supreme Court further ruled that that the transferability, by operation of law,
of winding up proceedings, other than those covered by the 4th Proviso, will
depend upon the stage at which they are pending before the High Court. But in
this, the court said, is left by the law makers to be determined through
subordinate legislation, in the form of Rules. The court noted that the present
case of winding up on account of inability to pay debts was covered by Rule 5
of 2016 Rules. As per Rule 5, the transferability of a winding up proceeding is
directly linked to the service of the winding up petition on the respondent
under Rule 26 of the Companies (Court) Rules, 1959. Thus, the normal
requirement of Rule 26 is that the copy of the petition under the Act shall be
served on the respondent along with the notice of the petition.
Thus, the
Supreme Court concluded that Kaledonia will come within the definition of the
expression “party” appearing in the 5th proviso to Section 434(1)(c) of the
Companies Act, 2013 and is entitled to seek transfer of proceedings to NCLT.
SECTION
434. TRANSFER OF CERTAIN PENDING PROCEEDINGS
[Effective from
1st June 2016, except sub-section (1) (d), clause (c) of sub-section (1)
effective from 15th December, 2016]
(1) On such date as may be
notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the
Board of Company Law Administration (herein in this section referred to as the
Company Law Board) constituted under sub-section (1) of section 10E of
the Companies Act, 1956 (1 of 1956), immediately before such date shall stand
transferred to the Tribunal and the Tribunal shall dispose of such matters,
proceedings or cases in accordance with the provisions of this Act;
(b) any person aggrieved by any decision or order of the
Company Law Board made before such date may file an appeal to the High Court
within sixty days from the date of communication of the decision or order of
the Company Law Board to him on any question of law arising out of such order:
Provided that the High Court may if it is satisfied
that the appellant was prevented by sufficient cause from filing an appeal
within the said period, allow it to be filed within a further period not
exceeding sixty days; and
(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.
Provided further that only such proceedings relating to cases other than
winding-up, for which orders for allowing or otherwise of the proceedings are
not reserved by the High Courts shall be transferred to the Tribunal:
Provided also that]-
(i) all proceedings under the Companies Act, 1956
other than the cases relating to winding up of companies that are reserved for
orders for allowing or otherwise such proceedings; 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”.
Provided also that proceedings relating to cases of voluntary winding up
of a company where notice of the resolution by advertisement has been given
under sub-section (1) of section 485 of the Companies Act, 1956 but the company
has not been dissolved before the 1st April, 2017 shall continue to be dealt
with in accordance with provisions of the Companies Act, 1956 and the Companies
(Court) Rules, 1959].
(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.]
Applicable
Rules
Companies
(Transfer of Pending Proceedings) Rules, 2016
[Effective from 15th
December, 2016 except Rule 4, which is effective from 1 April 2017 ]
Rule 2. Definitions.- (1) In these
rules, unless the context otherwise requires-
(a) “Code” means the Insolvency and Bankruptcy
Code, 2016 (31 of 2016);’
(b) “Tribunal” means the National Company Law
Tribunal constituted under section 408 of the Companies Act, 2013.
(2) Words and expressions used in these rules and
not defined, but defined in the Companies Act, 1956 (1 of 1956) (herein
referred to as the Act), the Companies Act, 2013 (18 of 2013) or the Companies
(Court) Rules, 1959 or the Code shall have the meanings respectively assigned
to them in the respective Act or rules or the Code, as the case may be.
Rule 3.Transfer of pending proceedings relating to cases other than
Winding up.—All proceedings under the Act, including
proceedings relating to arbitration, compromise, arrangements and
reconstruction, other than proceedings relating to winding up on the date of
coming into force of these rules shall stand transferred to the Benches of the
Tribunal exercising respective territorial jurisdiction:
Provided that all those proceedings which are
reserved for orders for allowing or otherwise of such proceedings shall not be
transferred.
[Rule 4. Pending proceeding relating to voluntary winding up.- All
proceedings relating to voluntary winding up of a company where notice of the
resolution by advertisement has been given under sub-section (1) of section 485
of the Act but the company has not been dissolved before the 1st day of April,
2017 shall continue to be dealt with in accordance with provisions of the Act.]
[Rule 5. Transfer of pending proceedings of Winding
up on the ground of inability to pay debts.– ( l ) All petitions relating
to winding up of a company 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 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 Companies Act, 2013
exercising territorial jurisdiction to be dealt with in accordance with Part ll
of the Code:
Provided that the petitioner shall submit all
information, other than information forming part of the records transferred in
accordance with rule 7, required for admission of the petition under sections
7, 8 or 9 of the Code, as the case may be, including details of the proposed
insolvency professional to the Tribunal upto 15th day of July, 2017 , failing
which the petition shall stand abated.
Provided further that any party or parties to the
petitions shall, after the 15th day of July, 2017, be eligible to file fresh
applications under sections 7 or 8 or 9 of the Code, as the case may be, in
accordance with the provisions of the Code.
Provided also that where a petition relating to winding up of a company
is not transferred to the Tribunal under this rule and remains in the High
Court and where there is another petition under clause (e) of section 433 of
the Act for winding up against the same company pending as on 15th December,
2016, such other petition shall not be transferred to the Tribunal, even if the
petition has not been served on the respondent.]
Rule 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 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).
Rule 7.Transfer of Records.- Pursuant
to transfer of cases as per these rules the relevant records shall also be
transferred by the respective high Courts to the National Company Law Tribunal
Benches having jurisdiction forthwith over the cases so transferred.
Rule 8.Fees not to be paid.- Notwithstanding
anything contained in the National Company Law Tribunal Rules, 2016, no fee
shall be payable in respect of any proceedings transferred to the tribunal in
accordance with these rules.