Bombay High Court
Siddharth Infra Tech Pvt. Ltd. Cin ... vs Bnc Power Project Ltd on 10 August, 2021
Author: B. P. Colabawalla
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
Aswale 1/38
TRANSFER PETITION NCLT.docx
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
Aswale 2/38
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.
Aswale 3/38
TRANSFER PETITION NCLT.docx 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 Aswale 4/38 TRANSFER PETITION NCLT.docx 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 Aswale 5/38 TRANSFER PETITION NCLT.docx 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 Aswale 6/38 TRANSFER PETITION NCLT.docx 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 Aswale 7/38 TRANSFER PETITION NCLT.docx 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 Aswale 8/38 TRANSFER PETITION NCLT.docx 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 Aswale 9/38 TRANSFER PETITION NCLT.docx 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 Aswale 10/38 TRANSFER PETITION NCLT.docx 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 Aswale 11/38 TRANSFER PETITION NCLT.docx 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 Aswale 12/38 TRANSFER PETITION NCLT.docx 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 Aswale 13/38 TRANSFER PETITION NCLT.docx 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 Aswale 14/38 TRANSFER PETITION NCLT.docx 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 Aswale 15/38 TRANSFER PETITION NCLT.docx 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 Aswale 16/38 TRANSFER PETITION NCLT.docx 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 Aswale 17/38 TRANSFER PETITION NCLT.docx 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 Aswale 18/38 TRANSFER PETITION NCLT.docx 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, Aswale 19/38 TRANSFER PETITION NCLT.docx 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 Aswale 20/38 TRANSFER PETITION NCLT.docx 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 Aswale 21/38 TRANSFER PETITION NCLT.docx 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 Aswale 22/38 TRANSFER PETITION NCLT.docx 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 Aswale 23/38 TRANSFER PETITION NCLT.docx 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 Aswale 24/38 TRANSFER PETITION NCLT.docx 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 Aswale 25/38 TRANSFER PETITION NCLT.docx 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 Aswale 26/38 TRANSFER PETITION NCLT.docx 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 Aswale 27/38 TRANSFER PETITION NCLT.docx 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 Aswale 28/38 TRANSFER PETITION NCLT.docx 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 Aswale 29/38 TRANSFER PETITION NCLT.docx 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. Aswale 30/38
TRANSFER PETITION NCLT.docx 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 Aswale 31/38 TRANSFER PETITION NCLT.docx 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 Aswale 33/38 TRANSFER PETITION NCLT.docx 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 Aswale 34/38 TRANSFER PETITION NCLT.docx 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 Aswale 35/38 TRANSFER PETITION NCLT.docx 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 Aswale 36/38 TRANSFER PETITION NCLT.docx 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.) Aswale 38/38