Bombay High Court
Shyam Bhupatrai Ghia - Applicant vs Futura Polysters Ltd. And 2 Ors on 12 September, 2022
Author: N.J.Jamadar
Bench: N.J.Jamadar
Digitally signed
SWAROOP by SWAROOP
SHARAD
SHARAD PHADKE
PHADKE
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Date: 2022.09.12
19:53:24 +0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO.28235 OF 2021
IN
COMPANY PETITION NO.399 OF 2013
Shyam B. Ghia ... Applicant
Versus
Futura Polyesters Ltd. and Ors. ... Respondents
Dr. Veerendra Tulzapurkar, Senior Advocate with Mr. Cyrus Ardeshir, Mr. Feroze
Patel, ms. Anaisha Zachariah, Ms. Ragini Jaitha i/by Crawford Bayley and Co., for
Applicant in IAL 28235 of 2021.
Mr. Aditya Pimple, for Official Liquidator.
Mr. Akshay Patil with Ms. Neha Patil, Ms. Devika Madekar, Mr. Meghnesh Birwadkar
i/by Mr. Akshay Vijay Kamble, for Applicants in IAL 14227 of 2021, 14650 of 2021
IAL 14652 of 2021.
Mr. Mahendhar Aithe, Company Prosecutor, present.
CORAM : N.J.JAMADAR, J.
RESERVED ON : 16th MARCH, 2022
PRONOUNCED ON : 12th SEPTEMBER, 2022
P.C.:
1. The Applicant who is a former Managing Director of Futura Polyesters
Limited, a company in liquidation - Respondent No.1, has preferred this Application
under the provisions of Section 434 of the Companies Act, 2013 (the Act, 2013) for
transfer of the Company Petition to the National Company Law Tribunal (NCLT) for
being heard and decided in accordance with the provisions contained in Insolvency
and Bankruptcy Code, 2016 (IBC), purportedly with a view to explore the revival of
Respondent No.1 Company.
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2. The background facts leading to this Application can be stated as under :
2.1 Futura Polyester Ltd. (Futura) - Respondent No.1 was incorporated
under the provisions of Companies Act, 1956 (the Act, 1956). Futura was engaged in
the business of manufacture of specialty fine chemicals and polyesters. Daewoo
International Corporation Ltd. (Daewoo) - Respondent No.2 is a company
incorporated under the law of South Korea. Daewoo is engaged in the business of
supply of purified Terephthalic Acid. Korea Trade Insurance Corporation (KTIC) -
Respondent No.3, is an insurance Company.
2.2 Futura had a manufacturing unit / factory at Survey No.38/2, 39/2 and
42 of Chinnasekkadu Village, Thiruvottiyur Taluka, Thiruvallur District, Manali,
Chennai, Tamil Nadu, admeasuring 211 acres (the Company premises). To secure the
financial assistance availed by Futura, the Company premises has been mortgaged to a
Consortium of 8 Banks led by Bank of India.
2.3 During the course of its business, Futura entered into several contracts
with Daewoo for purchase of purified terephthalic acid. Those contracts were insured
by Daewoo with KTIC. An amount of USD 5,437,699.20 was due and payable by
Futura to Daewoo towards the price of the goods. However, Futura could only pay
USD 108,000 and an amount of USD 5,329,699.20 remained outstanding. Thus,
Daewoo lodged a claim with KTIC. The latter paid the said amount of USD
5,329,699.20 to Daewoo on 13th October, 2011 under the terms of the insurance policy.
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Eventually, the debt owed by Futura to Daewoo came to be assigned to KTIC.
2.4 On 27th May, 2013, Daewoo and KTIC jointly filed the Company
Petition against Futura in this Court in respect of the aforesaid debt under the
provisions of Sections 434(e) and 439 of the Act, 1956. A spate of negotiations and
settlements followed. Parties entered into settlement and consent terms. Part
payments were made. Futura found it difficult to honour the settlements arrived at
post negotiations, on multiple occasions. Ultimately, Futura was constrained to resort
to sale of company premises by sub-dividing it into plots to pay the secured creditors
and others.
2.5 On 11th October, 2014 Futura gifted land admeasuring 56.49 acres under
a Gift Deed to the Commissioner, Corporation of Chennai. Post approval, balance
company premises was initially sub-divided into 176 plots of diverse sizes and,
subsequently, into 356 plots in the month of August, 2018.
2.6 As indicated above, after a series of settlement and consent terms,
resulting in disposal of the winding up petition, conditional upon the payment agreed
to be made under the consent terms, and revival of the Petition, in the event of default
in compliance with the condition, eventually by an order dated 22 nd June, 2018, after
recapitulating various orders passed from time to time in the Company Petition,
including several extensions granted to Futura, this Court was persuaded to allow the
Company Petition and direct the winding up of Futura and appoint the Official
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Liquidator to liquidate Futura if the entire outstanding amount of the Respondent
Nos.2 and 3 was not paid within four weeks thereof.
2.7 Futura preferred an Appeal, being Appeal No.81 of 2019, against the
winding up order dated 22nd June, 2018. By an order dated 20 th July, 2018 the Appeal
Bench directed the Official Liquidator not to take any further steps till the next date
and the said order came to be continued from time to time.
2.8 On 1st April, 2019 Consent Terms were filed before the Appeal Bench.
On 2nd April, 2019 the Appeal Bench, on the basis of the Consent Terms (X), set aside
the order dated 22nd June, 2018 so as to enable the banks (consortium of lenders) to
issue NOC for the sale of the company premises and went on to dispose off the Appeal
in accordance with the Consent Terms (X).
2.9 Under the Consent Terms, the first installment of USD 50,000 was to be
paid on or before 31st May, 2019. Futura could pay the first installment of USD
50,000 to KTIC - Respondent No.3 on 22nd July, 2019. Futura could not pay the
balance five installments in accordance with the schedule provided in the consent
terms. Under Clause 9 of the consent terms, the parties had agreed that in the event
of default or any deviation from the payment as per schedule, the order dated 22 nd
June, 2018 would stand revived and the Official Liquidator appointed. It was further
provided that the Advocate for the Respondents shall inform to the Official Liquidator
that the Appellant Company (Futura) had committed default and, thereupon, the
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Official Liquidator immediately take charge of the records as well as movable and
immovable assets of Futura.
2.10 Eventually, on account of the default on the part of Futura, on 7 th
September, 2020, a Notification was issued by the Company Registrar intimating the
Official Liquidator about the order dated 22 nd June, 2018 winding up Futura.
Thereupon, the Official Liquidator entered into liquidation. In the process, on 14 th
October, 2020, the Official Liquidator took symbolic possession of the office premises
of Futura.
2.11 In the intervening period, especially in between 1 st April, 2019 to 30th
September, 2020 the Applicant asserts, Futura entered into bonafide transactions of
sale of the plots. It is averred, 80% of the proceeds received from the sale of plots were
deposited in the escrow account of the consortium of the banks and the balance was
utilized towards payment of other creditors, workmen, statutory dues and to meet day
to day expenses of Futura.
2.12 Futura filed Interim Application (L) No.5697 of 2020 seeking extension
of the time stipulated in the consent terms (X), recorded by the Appeal Bench on 2 nd
April, 2019, and, in the interregnum, sought stay to any further action in liquidation.
By an order dated 5th November, 2020, the Appeal Bench rejected the ad-interim relief
and directed the ex-directors of Futura to (i) handover physical possession of the office
premises and records of the Appellant Company to the Official Liquidator and (ii) file
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an additional affidavit explaining how the money realised from the sales have been
expended and whether the leave of the Company court or the Official Liquidator was
sought.
2.13 On 8th December, 2020 the Appeal Bench directed the consortium to
maintain status quo in respect of the escrow account of Futura. The Applicant and
other ex-directors were directed to maintain status quo in respect of the account of
Futura.
2.14 On 20th February, 2021, the Official Liquidator filed a complaint with
Central Bureau of Investigation (CBI), pursuant to which an FIR dated 20 th February,
2021 came to be registered against the Applicant and other ex-directors of Futura.
3. In the backdrop of the aforesaid developments, the Applicant has taken
out this Application seeking transfer of the Company Petition to NCLT with the
assertion that though the Official Liquidator has taken certain steps, like, taking over
symbolic possession of the office of Futura on 14 th October, 2020, followed by physical
possession on 20th November, 2020, taking over the records of Futura, initiating action
for disclosure against the ex-directors, and lodged a complaint against the ex-directors
with CBI, resulting in registration of FIR, none of the aforesaid steps tantamount to
irreversible action in winding up.
4. In the absence of such irreversible steps or irretrievable situation,
according to the Applicant, the case at hand does not present a situation which would
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dissuade this Court to exercise discretion under the 2 nd proviso to Section 434(1)(c) of
the Act, 2013. As the NCLT is vested with powers under the IBC to explore the
revival of the Company, which the Company Court cannot resort to, in a winding up
Petition, it is in the interest of Futura as well as all the stake holders to recall the order
dated 22nd June, 2018, discharge the Official Liquidator and transfer the instant
Petition to NCLT, Mumbai in accordance with the 2nd Proviso to sub-clause (c) of sub-
Section (1) of Section 434 of the Act, 2013.
5. The Official Liquidator has resisted the Application by filing an Affidavit
in Reply. At the outset, it is contended that the power to transfer the pending
proceedings to NCLT under Section 434 of the Act, 2013, is discretionary. In the
facts of the case, according to the Official Liquidator, the Court would be justified in
declining to exercise discretion against such transfer, primarily, on two counts. First, it
is contested that irreversible steps have not been taken by the Official Liquidator.
Second, and more prominently, the conduct of the Applicant and ex-directors of
Futura disentitles them from seeking the transfer of the Petition to NCLT.
6. The Official Liquidator contends that despite the fact that Futura and its
directors were fully aware that there was default in compliance with the undertakings
in the Consent Terms (X) given to the Appeal Bench, no intimation was given to the
Official Liquidator about such default and consequent revival of the winding up
process. Instead, the ex-directors of Futura brazenly disposed off assets of Futura
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despite being fully cognizant of winding up having been kicked in. As the sale
transactions were entered into, even after the winding up order stood restored, those
transactions cannot be validated under Section 436(2) of the Act, 1956, through a
number of applications have been filed for validating the transactions entered into post
winding up order.
7. The alleged malafide conduct of the ex-directors of Futura was sought to
be highlighted by inviting the attention of the Court to the discrepancies in the
disclosures made by the ex-directors regarding the number of plots sold during the
period 1st April, 2020 to 30th September, 2020. Initially, it was asserted that 14 plots
were sold. Later on, the ex-directors claimed that 17 plots were sold. Still further, in
an Interim Application filed by the ex-directors in this proceedings, it was asserted that
18 plots were sold. However, no particulars of the sale of the 18 th plot have been
furnished. The Official Liquidator, thus, emphasises that the disclosures made by the
ex-directors of Futura pursuant to the orders of the Court are not true and faithful.
8. It further transpired that substantial amounts were expended from the
accounts of Futura. The Official Liquidator has also adverted to the indiscriminate
utilization of the sale proceeds by the ex-directors and credit of the amount in the
personal accounts of the ex-directors of Futura. Having regard to such blatant
illegalities, a complaint came to be lodged with CBI, resulting in registration of FIR
against the ex-directors of Futura. Thus, these circumstances, especially the conduct
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of ex-directors of Futura, according to the Official Liquidator, should weigh in, in
declining to exercise the discretion to transfer the Company Petition. Lastly, it is
contended that the Application has been preferred with an oblique motive to wriggle
out of the situation brought about by the illegal acts on the part of the ex-directors of
Futura.
9. The Applicant has filed an Affidavit in Rejoinder controverting the
contentions in the Affidavit in Reply.
10. In the wake of the aforesaid facts and pleadings, I have heard Dr.
Tulzapurkar, learned Senior Advocate, for the Applicant and Mr. Aditya Pimple,
learned Counsel for the Official Liquidator, at length. With the assistance of the
learned Counsel, I have perused the pleadings and the orders passed by the Company
Court and the Appeal Bench, which bear upon the controversy at hand.
11. Dr. Tulzapurkar, would urge that the resistance sought to be put forth by
the Official Liquidator to the transfer of the proceedings to NCLT is
incomprehensible. The test for exercising discretion under Section 437 of the Act,
2013 is the irreversibility of the action taken by the Liquidator in the liquidation of the
Company. Assertions of the Applicant that the Official Liquidator has not taken
irreversible steps are not met by the Official Liquidator by demonstrating the steps
which have the elements of irreversibility. Instead, according to Dr. Tulzapurkar, the
Official Liquidator is attempting to stall the transfer of the proceedings to NCLT by
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raising technical objections like locus of the Applicant and the alleged malafide
conduct. These objections do not merit countenance in the backdrop of the object of
vesting discretion in the Court to transfer the proceedings to NCLT, since the latter
exercises wide powers under the provisions of the IBC, which transcend beyond
liquidation, with primary focus on revival of a corporate entity, urged Dr. Tulzapurkar.
12. It was further submitted that even if the case of the Official Liquidator
regarding the steps taken post Notification issued by the Company Registrar is taken at
par, by no stretch of imagination, any element of irreversibility can be attributed to any
of those steps. At best, till date, the Official Liquidator has not taken any action which
partakes the character of a liquidatory measure, except taking possession of Company
premises and its record. In the circumstances, the resistance on the part of the Official
Liquidator is wholly uncalled for, submitted Dr. Tulzapurkar.
13. To bolster up the aforesaid submission, Dr. Tulzapurkar placed a very
strong reliance on the judgment of the Supreme Court in the case of Action Ispat and
Power Pvt. Ltd. V/s. Shyam Metalics and Energy Ltd. 1 wherein the parameters as
regards the exercise of discretion under Section 434 of the Act, 2013 were expounded.
The law enunciated in the case of Action Ispat (supra), according to Dr. Tulzapurkar,
was further clarified and the primacy of the proceedings before the NCLT was
reaffirmed in the case of A. Navinchandra Steels Pvt. Ltd. V/s. Srei Equipment
1 (2021) 2 SCC 641
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Finance Ltd. and Ors.2.
14. Dr. Tulzapurkar would further urge that the concern of the Official
Liquidator can be addressed by passing appropriate directions, like those passed by
this Court in the case of Siddharth Infra Tech Pvt. Ltd. V/s. BNC Power Project Ltd.3
to alleviate any apprehension of loss or waste of the assets of the company from the
date of the recall of the order of winding up till the NCLT passes appropriate orders
under IBC.
15. Mr. Pimple joined the issue by canvassing a submission that the
legislature has designedly vested discretion in the Court in the matter of transfer of
proceedings to NCLT under second proviso to Section 434(1)(c) of the Act, 2013.
When the court is called upon to exercise discretion, the conduct of the parties plays a
pivotal role. A party cannot be permitted to take advantage of its own wrong and
bring all the actions to naught, which were necessitated on account of malafide acts
and omissions of such party. The case at hand, according to Mr. Pimple, squarely falls
in the class of cases where wrongful conduct of the ex-directors of a company should
dissuade the Court from exercising discretion.
16. Mr. Pimple would urge that there is no quarrel with the propositions
enunciated in the cases of Action Ispat (supra) and A. Navinchandra (supra).
However, the facts in those two cases were not as gross as the facts in the case at hand,
2 (2021) 4 SCC 435
3 IA(L) 13530 of 2021 in CP 708 of 2016 dt. 10/08/2021
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in asmuch as the ex-directors of the company in liquidation brazenly alienated the
assets of the company despite being fully aware of the liquidation having been brought
into effect on account of their own default in complying with the undertaking in the
Consent Terms (X) and, thereafter, appropriated the sale proceeds indiscriminately
and for the purpose for which they could not have been utilized.
17. Mr. Pimple laid emphasis on the fact that once a winding up order is
passed, it operates in favour of all the creditors and all the contributories of the
company as if it has been made on the joint petition of a creditor and of a contributory.
In the case at hand, the workmen were left in the lurch. The sale proceeds were
selectively utilized for discharging the debts of the creditors and enriching the ex-
directors. Mr. Pimple urged, with a degree of vehemence, that the driving force
behind moving this Application is to wriggle out of the proceedings initiated against
the ex-directors including the registration of the FIR by CBI for the illegal acts. The
ex-directors again wish to be at the helm of the affairs of the Company as the transfer
of the proceedings to NCLT will entail the consequence of this Petition being treated
as an application for initiation of corporate insolvency resolution process. In the
backdrop of the wrongful acts attributable to the ex-directors, it would be hazardous to
again place the affairs of the company in the hands of ex-directors. Mr. Pimple would
urge that the workers and other contributories would stand to lose at the expense of
the creditors and ex-directors if the proceedings are transferred to NCLT.
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18. Lastly, it was submitted that the course adopted by this Court in the case
of Siddharth Infra (supra), in the light of the conduct of the ex-director, may not
constitute a reliable assurance that the assets of the company would not be dissipated.
In any event, the said order is stayed by the Division Bench in IA(L) No.23694 of 2021
in APP (L) No.23597 of 2021 in IA(L) No.13530 of 2021 in CP No.708 of 2016, by an
order dated 26th October, 2021.
19. I have given anxious consideration to the aforesaid submissions. I have
noted the facts elaborately, on purpose. To begin with, the facts justify an inference,
without risk of contradiction, that Futura and its ex-directors had a long leash.
Commitments and undertakings were made on umpteen occasions to be observed in
breach. Simply, it cannot be urged that Futura and its ex-directors had no adequate
opportunity to make amends. On the contrary, the aforesaid narration of facts would
justify an inference that numerous opportunities were squandered.
20. It would be suffice to extract few paragraphs of the order passed by this
Court on 22nd June, 2018 directing winding up of Futura. Paragraph Nos.14, 16 to 21
read as under :
"14. In my view, looking at the past conduct of the company, this is
nothing but a ruse to delay the inevitable. This amount was payable within
four months of 18th November 2014 as recorded in the order dated 7th
November 2014. Numerous extensions have been taken by the company and
quite a few revised consent terms have been entered into. Every time an
undertaking is given to the Court by the company and the undertaking has
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been repeatedly breached. Therefore, this Court has no faith in the current
offer being made by the company.
.........
16 As recorded earlier, the company has admitted its liability and
agreed to pay the debts to petitioner as per the consent terms recorded in
the order dated 7th November 2014. As per the consent terms, the company
agreed to pay a sum of USD 3,464,284.98 against the claim of
USD 5,329,699.20. The last time an installment has been paid was on
12th December 2016 and as on that date, the balance payable was USD
1,910,130.91. Not a farthing/penny has been paid after 12th December 2016.
17 Mr. Narichania made a statement that the company has got about
120 acres of land in the State of Tamilnadu and the company is making all
efforts to dispose of the land and pay all creditors and there seems to be
some impediment concerning the stamp duty payable for the various parcels
of land. Mr. Narichania is seeking time for the company to sell those parcels
of land and pay of petitioner.
18 In the order dated 6th May 2016, which is quoted above, in
paragraph 1 this Court has noted "The present application proposes a new
schedule of payment for the balance amount payable, on the basis that
certain lands belonging to the Applicant are being sold. It is submitted that
due to some pending issues with the State Government, more particularly,
concerning the stamp duty payable for sale of various parcels of land on the
basis of valuation guidelines, the sales could not be effected so far. It is
submitted that recently by an order dated 26 April 2016, the Chennai High
Court has cleared the path of the Applicant to have the conveyances
registered and go ahead with execution and registration of further
conveyances on the basis of old valuation guidelines. On these facts, this
Court is inclined to grant the extension of time applied for by the Applicant,
subject to the Applicant paying some interest for the rescheduled
installments with effect from today's date.
19 Therefore, on 6th May 2016 the company had made a statement
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to the Court that the Chennai High Court had cleared the path of the
applicant to have the conveyance registered and go ahead with execution and
registration of further conveyance and therefore, granted further extension.
From the order, it does appear that the Court was not inclined to grant any
extension but granted an extension in view of the statement made by the
company. More than two years and three months have passed since then and
today the counsel states that there are still some impediments in selling the
parcels of land in Tamilnadu. This only shows either the statement made by
the company to the Court, as recorded in the order dated 6 th May 2016, was
false or the statement being made today.
20 Therefore, I am not inclined to, even for the moment, consider
the request made by the counsel for respondent company to wait indefinitely
for the company to resolve its alleged issues with the State of Tamilnadu. As
noted above, the company had admitted its liability, agreed to pay it in
installments, has paid only a part thereof and still there is an outstanding of
almost USD 2 million.
21 I am satisfied that the company is commercially insolvent and
requires to be wound up. Therefore, company petition is allowed and
accordingly disposed in terms of prayer clauses - (a) and (b) which read as
under :
(a) that M/s. Futura Polyesters Limited be ordered to be wound up by
and under the directions of this Hon'ble Court under the provisions of the
Companies Act, 1956.
(b) that the Official Liquidator, High Court, Bombay be appointed as
the Liquidator of the said Company with all powers under the Companies Act,
1956."
21. In addition, the Consent Terms (X) presented another opportunity to
Futura. The default in compliance with the undertakings therein brought about the
result which appeared inevitable.
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22. This propels me to the primary issue of the stage at which the power
under the second proviso to Section 434(1)(c) of the Act, 2013 can be exercised. The
relevant part of Section 434(1)(c) of the Act, 2013 reads as under :
[434. Transfer of certain pending proceedings
(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 10 E
of the Companies Act, 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,
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 :
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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 (31 of 2016);
Provided further that on such proceedings relating to cases other
than winding up, for which orders are 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."
23. We are concerned with the second proviso. The second proviso, on its
plain reading, does not contain any restraint as to the transfer of a winding up
proceedings pending before the Company Court to NCLT qua the stage of the
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proceedings. It enables any party to the proceedings relating to winding up to make an
application for transfer of such proceedings. Correspondingly, discretion is vested in
the Company Court to transfer such proceedings to NCLT. The last part of the
proviso indicates as to what would be the effect of such transfer and the nature of the
proceedings, on its transfer, to NCLT by mandating that the proceedings so
transferred shall be dealt with by the Tribunal as an application for initiation of
corporate insolvency resolution process. From the text of the second proviso, there
does not seem to be any prohibition for the transfer of the proceedings to NCLT, even
post the winding up order.
24. At this juncture, a useful reference can be made to the judgment of the
Supreme Court in the case of Action Ispat (supra). In the said case, the order of
transfer was passed post winding up order and appointment of liquidator. A
submission was made that once a winding up order was passed by the Company Court,
the winding up proceedings alone must continue before the High Court and parallel
proceedings under the IBC cannot continue before the NCLT. The Supreme Court
did not accede to this submission.
25. After adverting to the previous pronouncements including the judgment
in the case of Swiss Ribbons (P) Ltd. V/s. Union of India4, wherein the object behind
the enactment of IBC was expounded, the Supreme Court ruled in clear and explicit
4 (2019) 4 SCC 17
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terms that the Company Court can exercise discretion vested in it, by Section 434 of
the Act, 2013, to transfer the proceedings even post admission of a winding up Petition
and appointment of company liquidator to take over the assets of the company.
26. In order to correctly understand the principles culled out in paragraph 14
of the judgment, it may be also necessary to note the submissions canvassed on behalf
of the Appellant therein, noted in paragraph 2, of the said judgment.
Paragraphs 2 and 14 read as under :
"2. Shri Sidharth Luthra, learned Senior Advocate appearing on
behalf of the Appellant company, referred to three judgments of this Court,
namely, Employees Organization V. Jaipur Metals & Electricals Ltd. 5 ("Jaipur
Metals"), Forech (India) Ltd. V. Edelweiss Assets Reconstruction Co. Ltd.6
("Forech"), and Kaledonia Jute & Fibres (P) Ltd. V. Axis Nirman & Industries
Ltd.7 ("Kaledonia"). According to him, none of the judgments apply to the
facts of the present case inasmuch as, on the facts in the present case, once a
winding up order has been passed by the Company Judge, winding up
proceedings alone must continue before the High court and parallel
proceedings under the Code cannot continue. He argued that Jaipur Metals
makes it clear that even independent proceedings under the Code can only
continue when the stage is before a winding up order is passed, which was
the case on the facts before the Court. Likewise, in Forech also, the stage of
the winding up proceeding was post service of notice of the winding up
petition and before a winding up order was passed, as a result of which the
5th proviso to Section 434(1)(c) of the Companies Act, 2013 was applied.
Likewise, in Kaledonia, though a winding up order had been passed on the
facts of that case, the aforesaid order had been kept in abeyance. On facts
5 (2019) 4 SCC 227
6 (2019) 18 SCC 549 : (2020) 4 SCC (Civ) 286
7 (2021) 2 SCC 403
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therefore, these three cases are entirely distinguishable and would have no
application to a scenario in which a winding up order has been passed and
the Official Liquidator has in fact seized the assets of the company in order
to begin the process of distribution to creditors and others which would
ultimately result in dissolution of the company.
........
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 the
Central Government.
14.2 This was done by the Transfer Rules, 2016 (supra) 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, 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 the case is how is such
discretion to be exercised ?" (emphasis supplied)
27. Elucidating answer to the moot question as to how such a discretion is to
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be exercised, the Supreme Court considered the provisions contained in Chapter XX
of the Companies Act, 2013, which deals with the winding up of the Companies, and
thereafter, expounded the law which bears upon the exercise of the discretion qua the
stage of the proceedings in winding up before the Company Court. The test
enunciated by the Supreme Court is that of "irreversible action'. Till such stage of
irreversibility is reached, the proceedings can be transferred to NCLT as it would be in
furtherance of the object of enactment of IBC.
Paragraph 25 illuminates the path. It 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
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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)
28. From the aforesaid exposition, it becomes abundantly clear that the
touchstone, on which irreversibility is to be judged, is also indicated by observing that
so long as no actual sale of the immovable or movable assets of the company in
liquidation takes place, nothing irretrievable can be said to have been done which
would preclude the Company Court from exercising discretion to transfer the
proceedings to NCLT.
29. In other words, the Company Court called upon to exercise the
discretion has to pose unto itself a question; whether the winding up proceedings have
progressed to such a stage of irreversibility as to render it impossible to set the clock
back ? If the answer is in the negative, the transfer of the proceedings to NCLT would
be in furtherance of the intent of the legislature.
30. The enunciation of law in the case of Action Ispat (supra) was reiterated
in the case of A. Navinchandra (supra) with the following observations :
"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
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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 petition should trump any
subsequent attempt at revival of the company through a Section 7 or Section
9 petition filed under the IBC." (emphasis supplied)
31. In the light of the aforesaid enunciation of the position in law, the issue which
essentially wrenches to the fore is the nature of the action taken by the Official
Liquidator, post the winding up order stood restored, consequent to the default on the
part of Futura to comply with the undertakings in the Consent Terms (X). Has the
Official Liquidator progressed in liquidation to such a stage as would render setting the
clock back impossible ?
32. In paragraph 13 of the Application, the Applicant has adverted to the
steps which according to the Applicant, the Official Liquidator has taken, commencing
from taking over symbolic possession, to physical possession, to seeking disclosure
against ex-director and lodging of a complaint with CBI. In the Affidavit in Reply, the
Official Liquidator, though disputes that no irreversible steps have been taken, yet does
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not divulge the steps which have an element of irreversibility. On the contrary, the
Affidavit in Reply lays emphasis on the conduct of the ex-director. It does not seem
that apart from taking possession of the company premises, assets and record, seeking
directions against the ex-director and lodging report with CBI, for the illegal sale of
the assets of the company in liquidation and alleged misappropriation of the sale
proceeds, the Official Liquidator has taken any further steps in liquidation. It is
specifically asserted that the Official Liquidator has yet not invited the claims from the
creditors and workers. It is nobody's case that the Official Liquidator has initiated
steps for the sale of assets of the company in liquidation, much less, actual sale.
33. In the aforesaid view of the matter, I am afraid to accede to the
submission of Mr. Pimple that the Official Liquidator has taken steps which can be
said to be irreversible. Viewed through the prism of the object of the transfer of the
proceedings to NCLT, where the emphasis is on revival of the corporate entity, I am
inclined to agree with the submission of Dr. Tulzapurkar that irreversible situation has
not been reached in the instant winding up proceedings.
34. This takes me to the thrust of the challenge on behalf of the Official
Liquidator rested in the conduct of the ex-directors. Undoubtedly, the ex-directors
cannot feign ignorance of the liquidation having been set in, on account of their default
in payment to the Respondent Nos.2 and 3 as per the agreed schedule, of which they
were fully aware. Yet the ex-directors went on to sell the assets of the company in
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liquidation. Though, at this juncture, it may not be appropriate to delve into the
allegations of misappropriation of the sale proceeds, especially when a prosecution is
lodged against the ex-directors, yet the fact remains that the sale proceeds were
appropriated, for which the ex-directors owe an explanation.
35. The conduct attributed to the ex-directors, prima facie borne out from
the record, can certainly be not said to be unblameworthy. Surely, the conduct of the
parties must enter into judicial determination while exercising discretion. However, I
am not persuaded to agree with the submission of Mr. Pimple that for the sole reason
of alleged blameworthy conduct of the Applicant and ex-directors, the Court would be
justified in declining to exercise the discretion to transfer the proceedings to NCLT.
Acceding to such submission would amount to taking a constricted view of the matter,
losing sight of beneficial object of transfer of the proceedings to NCLT.
36. The matter can be looked at from a slightly different perspective. The
conduct of the parties to proceedings or for that matter, the ex-directors of the
company, may not always be of determinative significance. When a situation comes to
such a pass that the Company Court considers it appropriate to order winging up of a
company, more often than not, such a situation would be brought about by
mismanagement and improper conduct of the persons who were in charge of the
affairs of the company or, in the least, imprudent decisions. Thus, to urge that such
conduct of the parties should dissuade the Court from exercising the discretion, would
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deprive the creditors, contributors and other stake holders from the benefits which the
insolvency resolution process under IBC affords.
37. Lastly, the prospect of insolvency resolution under IBC is also a relevant
factor. In the Affidavit in Rejoinder, the Applicant has categorically asserted that
Futura continues to hold 307 plots, admeasuring 111.34 acres of land, approximately
valued at Rs.365 Crores. In contrast, the alleged unlawful alienation of 18 plots, in the
intervening period, constitutes a minuscule part of the assets which Futura still holds.
In my view, the extent of assets which Futura allegedly still holds, is of critical
salience. In the backdrop of large parcel of land which Futura allegedly holds, the
proceedings before the NCLT, have a reasonable prospect of an outcome, which may
be more beneficial to all the stake holders. I am, therefore, persuaded to exercise
discretion in favour of the Applicant to transfer the proceedings to NCLT.
38. At this juncture, the Court is confronted with the issue of orders to be
passed to address the situation in the interregnum. The apprehension of Mr. Pimple,
in the backdrop of the alleged acts and omissions on the part of the ex-directors,
cannot be said to be wholly unfounded. A simple order of restraining Futura and its
ex-directors from dealing with the assets of the Company may not commend itself. I
am mindful of the fact that under the proviso, the legislature has indicated the
consequences which the transfer entails, namely, deemed application for initiation of
corporate insolvency resolution process under IBC.
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39. At this stage, it may be useful to note the orders which may be passed by
NCLT upon an application for initiation of corporate insolvency resolution process.
Under Section 7 of IBC, a financial creditor may file an application for initiating
corporate insolvency resolution process against the corporate debtor. Section 9
provides for initiation of corporate insolvency resolution process at the instance of an
operational creditor. Section 13 of the IBC provides that an adjudicating authority,
after admission of the Application under Section 7 or 9 or Section 10, shall, by an
order - (a) declare a moratorium for the purposes referred to in Section 14; (b) cause a
public announcement of the initiation of corporate insolvency resolution process and
call for the submission of the claims under section 15; and (c) appoint an interim
resolution professional in the manner as laid down in Section 16.
40. In my view, while ordering transfer of the winding up proceedings to
NCLT, there does not seem to be a prohibition for continuing the position as it obtains
in the winding up proceedings before the Company Court as an interim measure, till
the time NCLT passes an appropriate order under Section 13 of IBC. Lest the interest
of the company and all the stake holders would be a casualty, especially in a case like
the present one, where the instantaneous setting aside of the order of winding up and
putting the ex-directors again at the helm of the affairs of the company is fraught with
imminent risk.
41. I am, therefore, inclined to direct that the winding up order would
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continue to operate despite the transfer of the proceedings to NCLT till an effective
order is passed by NCLT under Section 13 of the IBC and only, thereafter, the Official
Liquidator would stand discharged. Hence, the following order :
ORDER
(i) The Interim Application stands allowed.
(ii) Company Petition No.299 of 2013 stands transferred to NCLT,
Mumbai.
(iii) NCLT, Mumbai shall consider the instant Petition as an application for initiation of corporate insolvency resolution process under the IBC.
(iv) In order to enable NCLT to initiate corporate insolvency resolution process under IBC, the order of winding up of Futura dated 22 nd June, 2018, and appointment of Official Liquidator shall stand recalled, with a rider that the said order would continue to operate till an effective order is passed by NCLT under Section 13 of IBC and only, thereafter, the Official Liquidator would stand discharged.
(v) It is hereby made clear that this order shall not affect the proceedings that have been initiated including the criminal complaint against the ex- directors of Futura. Nor this order shall in any manner affect the rights and/or liabilities accrued to, or incurred by, of any of the parties till the date of the passing of this order.
(vi) The observations made hereinabove, may not be construed as an SSP 28/29 ial 28235 of 2021.doc expression of opinion on the said rights and/or liabilities and the courts and authorities shall determine the same uninfluenced by any of the aforesaid observations which are confined to the consideration of the question of transfer of the proceedings to NCLT.
(vii) Liberty to the parties including Official Liquidator to move for appropriate directions consequential to the order of transfer of proceedings.
( N.J.JAMADAR, J. ) SSP 29/29