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In The Matter Of Shree Shyam Cotspin Ltd ... vs Unknown on 20 February, 2023

Author: Sanjeev Narula

Bench: Sanjeev Narula

                          $~CP-22
                          *    IN THE HIGH COURT OF DELHI AT NEW DELHI
                          +         CO.PET. 318/2003 & CO.APPL. 3893/2015, CO.APPL. 2531/2016,
                                    CO.APPL. 3632/2016, CO.APPL. 1122/2019, CO.APPL. 400/2022,
                                    CO.APPL. 759/2022, OLR 67/2017

                                    IN THE MATTER OF SHREE SHYAM COTSPIN LTD PH
                                                                                 ..... Petitioner
                                                 Through: Mr. Dinkar Singh, Mr. Gagan Garg
                                                           and Mr. Rohit Singh, Advocates for
                                                           Pegasus ARC.
                                                           Ms. Isha Khanna, Advocate for Ms.
                                                           Sangeeta Chandra, Standing Counsel
                                                           for OL.
                                                           Mr. Sameer Rohatgi, Mr. Manohar
                                                           Malik, Mr. Deepak Biswas and Mr.
                                                           Kartikey Singh, Advocates for ex-
                                                           management.

                                    CORAM:
                                    HON'BLE MR. JUSTICE SANJEEV NARULA
                                                 ORDER

% 20.02.2023 CO.APPL. 627/2022 (for transfer of proceedings to NCLT)

1. Mr. Ashish Garg, ex-Director and shareholder of Shree Shyam Cotspin Ltd. PH [hereinafter, "the Company"], has filed the instant application under the fifth proviso (sic) to Section 434(1)(c) read with Section 290 of the Companies Act, 2013 for transfer of present winding-up proceedings to the National Company Law Tribunal, Delhi ["NLCT"], relying upon the judgment passed by the Supreme Court in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd.1 1 (2021) 2 SCC 641.

2. Mr. Sameer Rohatgi, counsel for Applicant, urges that since no irreversible steps have been taken towards the winding up of the Company, the Court must exercise its discretion vested under the aforesaid provisions and transfer the matter to NCLT. The Insolvency and Bankruptcy Code, 2016 ["IBC"] was enacted to ensure revival of the corporate debtor and prevent a corporate death by liquidation. If the present petition is transferred to NCLT, corporate insolvency process would set in, which would bring the Company back on its feet. IBC is a beneficial legislation and not just a mere recovery tool for the creditors.

3. On the other hand, Mr. Dinkar Singh, counsel for the creditor/ Pegasus Assets Reconstruction Pvt. Ltd. [hereinafter, "Pegasus"] firstly questions the locus standi of the Applicant and alleges that he is not a shareholder and has no interest in the Company. On a demurrer, he strongly opposes the application, contending that the same is not maintainable as Applicant - Ex-Director/ shareholder of the Company, is not entitled to file an application for transfer. Referring to the provisions invoked by Applicant, he argues that the expression "any party or parties to any proceeding relating to the winding up of companies" contained therein does not include a shareholder/ ex-Director. The same should be read to include only persons entitled to file an application under Sections 7, 8 and 10 of the IBC. That apart, he submits that in the present case, proceedings are already at an advanced stage and it would be wholly inappropriate to transfer the present proceedings to NCLT at this juncture.

4. The Court has considered the aforenoted contentions. Before Signature Not Verified Digitally Signed CO.PET. 318/2003 Page 2 of 6 By:SAPNA SETHI Signing Date:22.02.2023 20:24:03 adverting to the issue at hand, it would be apposite to briefly take note of the preceding proceedings/ facts:

4.1. On 10th June, 1999, the Company filed a reference before the Board for Industrial and Financial Reconstruction ["BIFR"] under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ["SICA"].2 The BIRF declared the Company as a 'sick company' vide order dated 11th November, 1999. 4.2. In light of BIRF's recommendation under Section 20(1) of SICA dated 13th February, 2003, the Court directed winding up of the Company and appointed the Official Liquidator ["OL"] as the Liquidator, vide order dated 08th December, 2004. 4.3. On 24th January, 2005, direction was issued to Allahabad Bank to issue sale proclamation and invite bids from the public. However, since SDM, Sonepat had placed locks on the Company's property, Allahabad Bank was unable to proceed with the sale. Thus, on 14th July, 2005, the Court ordered SDM to remove the said locks and redirected issuance of sale proclamation.

4.4. Pursuant to the above-noted, three bids were received by Allahabad Bank and five were received in the Court, of which the bid of PP Homes and Infrastructure Private Limited [hereinafter, "Auction Purchaser"] was accepted on 29th September, 2005. 4.5. Despite acceptance of the bid, Allahabad Bank could not hand over physical possession of the Company's assets to Auction Purchaser in view of notification dated 28th November, 2002 under Section 6 of the Right to Fair Compensation and Transparency in Signature Not Verified Digitally Signed CO.PET. 318/2003 Page 3 of 6 By:SAPNA SETHI Signing Date:22.02.2023 20:24:03 Land Acquisition, Rehabilitation and Resettlement Act, 2013 issued by the Government of Haryana. Subsequently, on an application filed by Auction Purchaser, the Court directed Allahabad Bank to refund the entire money deposited with interest, to Auction Purchaser vide order dated 05th December, 2014.3 4.6. The acquisition of the Company's land has not been challenged by Applicant and Allahabad Bank continued to pursue alternative remedies of recovery. In OA No. 398A/98, the DRT vide order dated 20th April, 2012, issued a recovery certificate in favour of Allahabad Bank and against the Company, including Applicant herein, for recovery of Rs. 6,51,54,168/- with interest. 4.7. By way of Assignment Deed dated 27th September, 2013, Allahabad Bank assigned debt of the Company to Pegasus, who was later substituted as a party.4 Subsequent thereto, Pegasus took possession of the Company's entire assets and undertook further steps for sale thereof.

5. In Action Ispat (Supra), the Supreme Court has observed that proceedings may be transferred by a company court to NCLT so long as nothing 'irreversible' is done in winding-up proceedings. Relevant portion of the judgement is extracted hereinbelow:

"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 2 The same was registered as Case No. 159/1999.

CO. APPL. 1576/2005.

Vide order dated 05th December, 2014.

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"

[Emphasis Supplied]

6. It would be pertinent to note that in Action Ispat (Supra), the petition was transferred to NCLT because at the time when such an application was made, not much time had lapsed since appointment of the OL therein and moreover, steps for seizure of company's factory premises had not been initiated. It is for this reason that the Court had opined that no effective or irreversible steps had been taken by the OL. In the present case, as noted above, the sale of Company's assets was effected, but the possession could not be transferred to the Auction Purchaser due to acquisition proceedings. Further, as it manifests, possession of the Company's entire plant and machinery presently vests with Pegasus, and its land has been acquired by Signature Not Verified Digitally Signed CO.PET. 318/2003 Page 5 of 6 By:SAPNA SETHI Signing Date:22.02.2023 20:24:03 the Government of Haryana. In the afore-noted backdrop of the case, with no assets available for satisfying dues of the sole creditor - Pegasus, the Court is of the opinion that winding-up proceedings have progressed to an irreversible stage, and it would not be beneficial to transfer the same to NCLT. Mr. Rohatgi also argued that there is a possibility that the land may be de-notified. The Court however cannot decide the application on presumptions which have no basis. The Company has already been wound up; liquidation proceedings have advanced significantly and it is thus not possible to set the clock back.

7. Therefore, without delving into the question as to whether the Applicant, as a shareholder of the Company, has the locus to file present application or not, the Court is of the opinion that in the instant case for the facts recounted above, there is no good reason to transfer present winding up proceedings before NCLT.

8. Application is dismissed.

CO.PET. 318/2003 & CO.APPL. 3893/2015, CO.APPL. 2531/2016, CO.APPL. 3632/2016, CO.APPL. 1122/2019, CO.APPL. 400/2022, CO.APPL. 759/2022, OLR 67/2017

9. List on 10th July, 2023.

SANJEEV NARULA, J FEBRUARY 20, 2023 d.negi Signature Not Verified Digitally Signed CO.PET. 318/2003 Page 6 of 6 By:SAPNA SETHI Signing Date:22.02.2023 20:24:03