Calcutta High Court
Impex Ferro Tech Limited vs Auroma Coke Ltd on 17 December, 2018
Author: Sanjib Banerjee
Bench: Sanjib Banerjee, Suvra Ghosh
OD-4 & 5
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
ORIGINAL SIDE
APO No.273 of 2018
ACO No.33 of 2018
In
CP No.613 of 2016
IMPEX FERRO TECH LIMITED
Versus
AUROMA COKE LTD.
And
APO No.274 of 2018
ACO No.34 of 2018
In
CP No.613 of 2016
IMPEX FERRO TECH LIMITED
Versus
AUROMA COKE LTD.
BEFORE:
The Hon'ble JUSTICE SANJIB BANERJEE
And
The Hon'ble JUSTICE SUVRA GHOSH
Date : 17th December, 2018.
Appearance:
Mr. Ratnanko Banerji, Sr. Adv.
Mr. D. N. Sharma, Adv.
Mr. Anunoy Basu, Adv.
..for the appellant
Mr. Surojit Nath Mitra, Sr. Adv.
Ms. Manju Bhuteria, Adv.
Mr. Nirmalya Dasgupta, Adv.
Miss Pritha Basu, Adv.
..for the respondent
2
The Court : These two appeals are directed against orders dated August 9, 2018 and August 10, 2018 passed by the company Court here. The first order declined the company's prayer to transfer the creditor's winding-up proceedings to the adjudicating authority set up under the Insolvency and Bankruptcy Code, 2016. The second order admitted the creditor's petition by disregarding the defence sought to be set up by the company.
The appellant company has placed the relevant surviving provisions from the Companies Act, 1956, the relevant provisions of the Companies Act, 2013 which have been given effect to and some of the provisions of the IBC that have been gazetted and notified. The appellant has also relied on new definitions and new concepts that have opened up upon the Companies Act, 2013 and the Bankruptcy Code operating in tandem. There are now financial creditors who are distinct from operational creditors. There are interim resolution professionals who lose the interim tag once their appointments are ratified. There is also a body - another of the many tribunals set up to emasculate the Courts - which started off as the National Company Law Tribunal, but is referred to as the "Adjudicating Authority" under the IBC.
The appellant has also referred to the several amendments to the Companies Act, 2013 since it was partially first given effect to and notifications galore issued, sometimes on a monthly basis by the Central Government, to alter, amend or modify the provisions of the 2013 Act and the rules thereunder. There is at least one amendment to the Act of 2013 introduced by the Central 3 Government in exercise of the authority delegated to it by the statute for the purpose of removing difficulties.
Through the labyrinth of confusion that has been brought about in the applicable law since or about 2013 when the Companies Act, 2013 was given substantial effect to, winding-up petitions pending in Court have all been transferred to the adjudicating authority in pursuance of a Central Government notification of December 7, 2016 except those under clauses (a), (e) and (f) of Section 433 of the Companies Act, 1956 if the service under Rule 26 of the Companies (Court) Rules, 1959 in respect thereof had, by the cut-off date of December 15, 2016, been effected on the concerned company.
This authority of the Central Government to notify what matters pertaining to pending winding-up petitions would remain in Court and which other matters would go to the adjudicating authority under the IBC has been conferred by the first proviso to Section 434(1)(c) of the Act of 2013. In furtherance of such authority, the Central Government has issued further notifications including one of June 29, 2017, by which Rule 5 of its parent notification of December 7, 2016 was modified and, in respect of petitions pending in Court under Section 433(e) of the Act of 1956, new provisions were made and it is possible now for a creditor's winding-up petition which has not been served on the company to remain pending in this Court provided that a previous creditor's winding-up petition pertaining to the same company has been served on the company under Rule 26 of the Rules of 1959.
4
By a notification in respect of the amendment of the Ordinance pertaining to IBC published on June 6, 2018, a second proviso has now been incorporated in Section 434(1)(c) of the Act of 2013 providing as follows:
"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 an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016."
Under such amended provision, the appellant company had applied for transfer of the respondent creditor's winding-up petition from this Court to the tribunal or, more precisely, the adjudicating authority already in receipt of a petition pertaining to the appellant company from a financial creditor under Section 7 of the IBC. The appellant maintains that in the absence of any discretion being conferred by the relevant provision and since a regime pertaining to resolution plans has replaced the liquidation proceedings envisaged under the Act of 1956, the company Court has little discretion to refuse to transfer a matter to the adjudicating authority upon a request under such provision being made. At any rate, it is the submission of the appellant, that once the company Court sees that the process under the IBC has been put into motion by any creditor pertaining to the same company, the company Court should scarcely cling on to 5 the petition notwithstanding having the authority so to do in terms of Rule 5 or Rule 6 of the notification of December 7, 2016 that has come into effect on December 15, 2016.
The principal ground cited by the respondent creditor in response is that till such time that a petition filed under the IBC is admitted by the adjudicating authority in receipt thereof, there can be no question of the company Court transferring a creditor's winding-up petition that was validly carried to this Court and the preservation whereof has been provided for by the Act of 2013 and the first proviso to Section 434(1)(c) thereof read with the Central Government notification of December 7, 2016. It is the contention of the creditor that since such creditor had the choice of approaching this Court at the relevant point of time and since the law as it stands has preserved the creditor's right to enforce its remedies in the company Court, such creditor should not be banished to a disagreeable forum as the adjudicating authority or the NCLT, particularly, when such creditor opposes the application for transfer. It is the further submission of the creditor that there may be many a slip between the cup and the lip and, prior to the admission of a petition by the adjudicating authority under the IBC, if an order of transfer is made by the company Court in respect of proceedings validly pending before it, there may be a situation where the transfer of the valid proceedings has taken place but the petition before the IBC is not admitted. In such a scenario, the creditor who was in Court would be seriously prejudiced since such creditor had not wanted to carry its petition before the tribunal but was forced to take it there by virtue of some other proceedings 6 having been lodged before the adjudicating authority, which proceedings do not get admitted.
According to the appellant, the scenario referred to by the creditor is of no consequence since the creditor, by virtue of such status, will always be entitled to invoke the jurisdiction of the adjudicating authority under the IBC and entitled to pursue its claim whether under Section 7 or under Section 8 of IBC or the like provisions.
It is true that unlike Section 24 of the Civil Procedure Code, 1908 or Clause 13 of the Letters Patent, 1865, the second proviso to Section 434(1)(c) of the Act of 2013 does not indicate any parameters for the exercise of any discretion by the company Court in allowing or refusing to allow the transfer of proceedings validly brought and pending before it. Once so much is noticed, it must be said that the provision for transfer requires a case by case analysis of the grounds of balance of convenience and the like to be undertaken by the company Court before directing or refusing to direct the transfer of any pending proceedings. However, the right to invoke the transfer provision, it must be noticed, has been restricted to a party or parties to the proceedings and, in such light, it may not be invoked by any other who may have interest in the proceedings but may not be a party thereto. Again, the interpretation of the word "parties" will carry a different meaning in respect of references under Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 that remain pending in company Courts.
7
For the present purpose, the legal question that has arisen in the context of the impugned order is whether the mere filing of a petition by a financial creditor under Section 7 of the IBC in respect of a company should prompt the company Court in seisin of a creditor's petition against the same company to transfer such pending proceedings to the adjudicating authority under the IBC. There are several situations which can arise. Either party - meaning the creditor or the company - may apply in such a situation or, in the post-admission stage, any other creditor may apply and assert that since the matter has partaken a representative character, any other creditor of the company would be deemed to be a party within the meaning of that word first used in the second proviso to Section 434(1)(c) of the Act of 2013. It could also be that at a pre-admission stage both the company and the creditor jointly apply or one of them applies and the other consents. Even in such a scenario, the Court has to apply its mind to see whether any other is sought to be prejudiced by such consent. It is possible, after the June 29, 2017 notification pertaining to the Companies (Transfer of Pending Proceedings) Rules, 2016, that because a previous creditor's petition has been served on the company, a subsequent petition pertaining to the same company filed before December 15, 2016 also remains in the company Court and does not stand transferred to the tribunal or the adjudicating authority under the IBC. In such a case, if the original creditor, whose petition has already been served on the company, and the company were to consent to their matter being transferred to the tribunal, irrespective of whether the tribunal is in receipt of any other proceedings pertaining to the 8 company, the other creditor whose petition has not been served on the company by December 15, 2016 ought also to be heard before an order is made for the transfer or otherwise of the first petition. This is because the transfer of the first petition should ordinarily result in even the second petition being transferred; or else, there may not only be a conflict of decisions, but also a conflict of processes undertaken for the liquidation or the insolvency resolution process of the same company under two completely different schemes under the 1956 Act and the IBC of 2016.
What may be acceptable, however, in such a situation is that the company Court is satisfied that proceedings under the IBC are firmly in place before transferring a pending creditor's or like petition (under clauses (a) and (f) of Section 433 of the Act of 1956) to the tribunal in terms of the second proviso to Section 434(1)(c) of the Act of 2013. It is possible that the very admission of a financial creditor's petition by the adjudicating authority under the IBC simultaneously triggers off of a moratorium of all other proceedings pertaining to the same company including the pending proceedings before the company Court. But the company Court should be sure that the proceedings before the tribunal or adjudicating authority are firmly in place before transferring the proceedings pending before it when the transfer is resisted by the creditor who has brought the petition before the company Court. It is possible that by virtue of the related provisions of the IBC, an order of admission would imply the immediate appointment of interim resolution professionals and the consequential suspension of authority of other adjudicating fora in respect of matters 9 pertaining to the concerned company; but so be it. Once a petition has been validly brought before a sovereign forum of a Court and the person who has brought such petition resists the transfer thereof, the company Court as part of such sovereign system will not require the suitor before it to be banished to another forum where the larger proceedings have not yet taken shape.
Once the proceedings under the IBC have been admitted, the company Court should yield to the more modern mechanism under the IBC in view of the obvious legislative intent apparent. It was because the liquidation proceedings envisaged by the 1956 Act were found to be less than ideal, that an entirely different scheme has been put in place by the IBC in 2016. Thus, once proceedings pertaining to a company have been admitted by the IBC and the merits of such proceedings are to be gone into for the purpose of the preparation of a resolution plan, the proceedings pending before the company Court should ordinarily be transferred to the tribunal or adjudicating authority. It is true that such transfer, according to the appellant herein, makes no difference since the company Court would already have lost its jurisdiction, by virtue of the moratorium envisaged in the IBC, to adjudicate on the creditor's claim; but the company Court would be well within its rights to decline a transfer till the proceedings before the adjudicating authority under the IBC stand admitted.
Again, the discretion of the company Court will also vary from matter to matter and whether the proceedings before the adjudicating authority have been brought by a financial creditor or by an operational creditor. The company Court may, ordinarily, lean more towards transfer once a financial creditor has brought 10 a much larger debt than that of the creditor before the company Court for resolution before the adjudicating authority under the IBC. The company Court may not tilt towards transfer as much if the creditor before the adjudicating authority is another operational creditor or who has an exposure which is similar or comparable to the exposure of the creditor already before the company Court.
It must also be remembered that creditor's winding-up petitions form only one of three classes of winding-up proceedings preserved before the company Court under the first proviso to Section 434(1)(c) of the Act read with the Central Government notification of December 7, 2016. The other two classes of winding-up petitions, though they are filed much less and are even rare species, are petitions under clause (a) of Section 433 of the Act of 1956 and under Clause (f) thereof for just and equitable winding-up.
A recent unreported judgment of the Bombay High Court has been cited by the appellant for the recognition therein that in such a scenario, where a financial creditor's petition pertaining to the same company has been filed before the adjudicating authority under the IBC, the company Court should transfer the pending creditor's winding-up petition to the tribunal. Indeed, the Bombay High Court noticed the possibility that the financial creditor's petition may not be admitted by the tribunal; but went on to hold that in such a case, the creditor's petition can be re-transferred to the company Court. Such view is exceptionable and does not appeal since there is no statutory provision for re-transfer. It is possible, however, to recall the order of transfer upon noticing that the reason for transferring the creditor's petition from the company Court was subsequently 11 invalidated upon the financial creditor's petition not being admitted by the tribunal. But, with respect, it would be more appropriate not to effect the transfer at all till such time that the financial creditor's petition is admitted by the tribunal; whatever may be the legal consequences of such admission. In any event a moratorium may mean the creditor's petition in the company Court cannot be proceeded with; a moratorium may not imply that the company Court may lose its authority to transfer the creditor's petition to the tribunal.
In fine, there is no ground to disagree with the order impugned dated August 9, 2018 by which the company's petition for transfer of the respondent's winding-up proceedings to the National Company Law Tribunal has been declined by the company Court here.
The other appeal pertains to the order of August 10, 2018 by which the petition has been admitted. The parties report that advertisements have already been published, though nothing turns on such publication; since the order of admission, if it were to be set aside in course of the present proceedings, would render the advertisements meaningless.
The claim was on account of price of goods sold and delivered and it is evident that a statutory notice was issued by the creditor on March 15, 2016 to which no reply was issued by the company. In the affidavit used before the company Court, two lines of defence were indicated : that the company had reservations as to the quality of the goods supplied, and in several letters issued by the company about a year or two prior to the statutory notice being issued under Section 434 of the Act of 1956, the company had duly recorded its 12 reservations; and, that because there was an en masse resignation of employees at or about the time that company received the statutory notice of March 15, 2016, no immediate reply could be issued to the creditor.
The company Court disbelieved the excuses proffered for the company failing to respond to the statutory notice. The company Court observed that a bland statement regarding en masse resignation was made without any material to try and support the same. Once the company Court disbelieved the reason for the company not furnishing a reply to the statutory notice, the first line of defence became irrelevant since the conduct of the company had to be regarded to be that it chose not to reply and, in choosing not to reply to the statutory notice, the company is deemed to have abandoned the previous reservation that it may have indicated in its earlier letters as to the quality of the supply effected by the creditor.
As a consequence, the company Court appropriately found that there was no legitimate defence that was indicated and there was no issue that was required to go to trial for the claim to be relegated to a suit or for security to be called for. In the light of the case made out by the creditor and the complete lack of defence on the part of the appellant herein, the order dated August 10, 2018 cannot be interfered with and the order of admission is held to have been justifiably passed.
As a result, neither appeal holds and the orders impugned dated August 9, 2018 and August 10, 2018 are affirmed.
13
APO No. 273 of 2018 and APO No. 274 of 2018 along with ACO No. 33 of 2018 and ACO No. 34 of 2018 stand dismissed.
There will, however, be no order as to costs.
(SANJIB BANERJEE, J.) (SUVRA GHOSH, J.) bp./sg.