M/S Kaledonia Jute And Fibres Pvt. … vs M/S Axis Nirman And Industries … on 19 November, 2020


Try out our Premium Member services: Virtual Legal Assistant, Query Alert Service and an ad-free experience. Free for one month and pay only if you like it.

Supreme Court of India

M/S Kaledonia Jute And Fibres Pvt. … vs M/S Axis Nirman And Industries … on 19 November, 2020

Author: V. Ramasubramanian

Bench: Hon’Ble The Justice, A.S. Bopanna, V. Ramasubramanian

                                                     1


                                                                         REPORTABLE

                                   IN THE SUPREME COURT OF INDIA
                                    CIVIL APPELLATE JURISDICTION


                                    CIVIL APPEAL NO. 3735 OF 2020
                      (Arising out of Special Leave Petition (Civil) No.5452 OF 2020)


          M/S KALEDONIA JUTE AND
          FIBRES PVT. LTD.                                          … APPELLANT(S)

                                                 VERSUS

          M/S AXIS NIRMAN AND
          INDUSTRIES LTD. & ORS.                                   … RESPONDENT(S)

                                            JUDGMENT

V. Ramasubramanian, J.

1. Leave granted.

2. Aggrieved by an order passed by the Company Court (High

Court of Allahabad), refusing to transfer the winding up petition

pending therein, to the National Company Law Tribunal (NCLT for

short), a financial creditor has come up with this appeal.

3. Heard Mr. Huzefa Ahmadi, learned senior counsel appearing

for the appellant, Mr. A.N.S. Nadkarni, learned senior counsel
Signature Not Verified

Digitally signed by
Madhu Bala
Date: 2020.11.19
14:44:56 IST

appearing for the 1st respondent­corporate debtor and Gp. Capt.
Reason:

2

Karan Singh Bhati, learned counsel appearing for the official

liquidator.

Background Facts

4. One M/s Girdhar Trading Co., the 2 nd respondent herein, filed

a petition in Company Petition No.24 of 2015 before the High Court

of Allahabad under Section 433 of the Companies Act, 1956, for the

winding up of the first respondent company, on the ground that the

Company was unable to pay its debts. The Company Court ordered

notice to the 1st respondent herein, but the 1st respondent failed to

appear before the Company Court.

5. Therefore, by an order dated 08.01.2016 the Company Court

ordered the admission of the Company Petition and also directed

publication of the advertisement of the petition in accordance with

Rule 24 of the Companies (Court) Rules, 1959. Pursuant to the said

order, the 2nd respondent herein (petitioning creditor) effected a

publication of the advertisement in the Official Gazette in Form No.

48 on 30.01.2016. Newspaper publications were also made,

indicating the date of hearing of the Company Petition as

29.02.2016.

3

6. Thereafter, the Company Court passed an order dated

10.03.2016 directing the winding up of the 1 st respondent Company

on the ground that the Company has been unable to pay its debts

and that it was just and equitable to wind up the 1st respondent

Company.

7. By the aforesaid order dated 10.03.2016, the Company Court

appointed the official liquidator attached to the High Court of

Allahabad as the Liquidator and directed him to take over the

assets and books of accounts of the Company. The order of winding

up was also directed to be advertised in Form 53 in two

newspapers, as required under Rule 113 of the Companies (Courts)

Rules 1959.

8. Thereafter, the 1st respondent filed an application for recalling

the order of winding up dated 10.03.2016. The 1 st respondent, in

order to prove their bonafides paid the entire amount due to the

petitioning creditor (the second respondent herein) along with costs.

Therefore, the petitioning creditor had no objection to the recall of

the order of winding up.

4

9. But the official liquidator opposed the application for recall on

the ground that the 1st respondent­Company owed money to various

creditors to the tune of Rs.27 Crores and that unless the said

amount is paid, the order of winding up cannot be recalled. The

Official Liquidator also submitted that he had already taken over

charge of the assets of the Company.

10. In the light of the rival contentions, the Company Court

passed an order on 22.08.2016 keeping the winding up order dated

10.03.2016 in abeyance. However, the Company Court directed the

Official Liquidator to continue to be in custody of the assets of the

Company.

11. While things stood thus, the appellant herein, claiming to be a

creditor of the first respondent herein, moved an application before

the NCLT, Allahabad under Section 7 of the Insolvency and

Bankruptcy Code, 2016 (for short the ‘IBC, 2016’). The claim of the

appellant herein before the NCLT was that the 1st respondent was

due and liable to pay a sum of Rs.32 lakhs and that despite

repeated demands, the 1st respondent failed to pay the said amount.
5

12. Thereafter, the appellant moved an application in Civil

Miscellaneous Application No. 23 of 2020 before the Company

Court (High court) seeking a transfer of the winding up petition to

the NCLT, Allahabad. This application was rejected by the Company

Court by a cryptic order dated 24.02.2020, on the sole ground that

the requirement of Rule 24 had already been complied with and

that a winding up order had already been passed. It is against this

order of the High court, refusing to transfer the winding up

proceedings from the Company Court to the NCLT that the financial

creditor has come up with this civil appeal.

Issues for Consideration

13. The main issues that arise for consideration in this appeal are:

(i) what are the circumstances under which a winding up

proceeding pending on the file of a High court could be transferred

to the NCLT and

(ii) at whose instance, such transfer could be ordered.

Discussion

14. Though the Companies Act, 2013 (Act 18 of 2013) received the

assent of the President on 29.08.2013 and it was published in the
6

Gazette of India dated 30.08.2013 and corrected through corrigenda

published on 01.01.2014, various provisions of the Act came into

force on various dates. While some of the provisions came into force

w.e.f. 12.09.2013, some other provisions came into force w.e.f.

01.04.2014.

15. Clauses (a) and (b) of Sub­section (1) of Section 434 as well as

Sub­section (2) of Section 434 came into force w.e.f. 01.06.2016

vide S.O.1934 (E) dated 01.06.2016. Clause (c) of Sub­section (1) of

Section 434 came into force on 15.12.2016 vide S.O. 3677(E) dated

01.12.2016.

16. It may be noted here that Section 434 as it originally stood

when the Companies Act, 2013 was enacted, was different from

what it is today. Section 434 as it was incorporated originally in the

Companies Act, 2013, was actually substituted by the Insolvency

and Bankruptcy Code, 2016 (Act 31 of 2016), which came into force

on 15.11.2016.

17. Section 434 as it stood originally in the Companies Act, 2013

(Act 18 of 2013) and Section 434 as substituted by IBC, 2016 (Act
7

31 of 2016) together with subsequent amendments thereto, are

presented in a tabular column for easy appreciation.

Sec. 434 as it was originally Sec. 434 as it was substituted
drafted in Act 18 of 2013 under IBC, Act 31 of 2016
“434. Transfer of certain [434. Transfer of certain
pending proceedings.­(1) On pending proceedings.­(1) On
such date as may be notified such date as may be notified
by the Central Government by the Central Government in
in this behalf,­ this behalf,­

(a) all matters, (a) all matters, proceedings or
proceedings or cases pending cases pending before the
before the Board of Company Board of Company Law
Law Administration (herein in Administration (herein in this
this section referred to as the section referred to as the
Company Law Board) Company Law Board)
constituted under sub­ constituted under sub­section
section (1) of section 10E of (1) of section 10E of the
the Companies Act, 1956 (1 Companies Act, 1956 (1 of
of 1956), immediately before 1956) immediately before such
such date shall stand date shall stand transferred to
transferred to the Tribunal the Tribunal and the Tribunal
and the Tribunal shall shall dispose of such matters,
dispose of such matters, proceedings or cases in
proceedings or cases in accordance with the provisions
accordance with the of this Act;

provisions of this Act;

                                            (b)    any person aggrieved by
     (b)   any person aggrieved             any decision or order of the
     by any decision or order of            Company Law Board made
     the Company Law Board                  before such date may file an
     made before such date may              appeal to the High Court
     file an appeal to the High             within sixty days from the date
     Court within sixty days from           of communication of the
     the date of communication of           decision or order of the
     the decision or order of the           Company Law Board to him on
     Company Law Board to him               any question of law arising out
     on any question of law                 of such order:
     arising out of such order;                     Provided that the High
            Provided that the High          Court may if it is satisfied that
     Court may if it is satisfied           the appellant was prevented by
     that    the    appellant   was         sufficient cause from filing an
                                  8


prevented by sufficient cause         appeal within the said period,
from filing an appeal within          allow it to be filed within a
the said period, allow it to be       further period not exceeding
filed within a further period         sixty days; and
not exceeding sixty days;
                                    (c) all proceedings under the
(c)   all proceedings under         Companies Act, 1956 (1 of
the Companies Act, 1956 (1          1956), including proceedings
of       1956),       including     relating      to      arbitration,
proceedings      relating    to     compromise,        arrangements
arbitration,       compromise,      and      reconstruction       and
arrangements               and      winding up of companies,
reconstruction and winding          pending immediately before
up of companies, pending            such date before any District
immediately before such date        Court or High Court, shall
before any District Court or        stand    transferred     to    the
High Court, shall stand             Tribunal and the Tribunal may
transferred to the Tribunal         proceed to deal with such
and     the    Tribunal    may      proceedings from the stage
proceed to deal with such           before their transfer:
proceedings from the stage         Provided     that     only    such
before their transfer;             proceedings relating to the
                                   winding up of companies shall
(d)   any appeal preferred to      be transferred to the Tribunal
the Appellate Authority for        that are at a stage as may be
Industrial    and    Financial     prescribed by the Central
Reconstruction      or     any     Government:
reference made or inquiry          [Provided further that only such
pending to or before the           proceedings relating to cases
Board of Industrial and            other than winding­up, for
Financial Reconstruction or        which orders for allowing or
any proceeding of whatever         otherwise of the proceedings
nature pending before the          are not reserved by the High
Appellate      Authority    for    Court shall be transferred to
Industrial    and    Financial     the Tribunal:
Reconstruction or the Board       [Provided also that­]
for Industrial and Financial            (i)   all proceedings under
Reconstruction under the                      the Companies Act,
sick Industrial Companies                     1956 other than the
(Special Provisions) Act, 1985                cases     relating    to
(1 of 1986) immediately                       winding­up            of
before the commencement of                    companies that are
this Act shall stand abated:                  reserved for orders
     Provided that a company                  for     allowing      or
                                  9


in respect of which such                           otherwise        such
appeal or reference or inquiry                     proceedings; or
stands abated under this                   (ii)    the       proceedings
clause may make a reference                        relating to winding­
to the Tribunal under this Act                     up     of  companies
within one hundred and                             which have not been
eighty     days    from    the                     transferred from the
commencement of this Act in                        High Courts;
accordance        with     the        shall     be     dealt   with   in
provisions of this Act:               accordance with provisions of
      Provided further that no        the Companies Act, 1956 and
fees shall be payable for             the Companies (Court) Rules,
making such reference under           1959:]
this Act by a company whose           [Provided also that proceedings
appeal or reference or inquiry        relating to cases of voluntary
stands abated under this              winding up of a company where
clause.                               notice of the resolution by
                                      advertisement has been given
(2) The Central Government            under sub­section (1) of section
may make rules consistent             485 of the Companies Act,
with the provisions of this Act       1956 but the company has not
to ensure timely transfer of          been dissolved before the 1st
all matters, proceedings or           April, 2017 shall continue to be
cases pending before the              dealt with in accordance with
Company Law Board or the              provisions of the Companies
court, to the Tribunal under          Act, 1956 and the Companies
this section.”                        (Court) Rules, 1959.]
                                      [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
                                    10


                                      process under the Insolvency
                                      and Bankruptcy Code, 2016 (31
                                      of 2016).]

                                      (2) The Central Government
                                      may make rules consistent with
                                      the provisions of this Act to
                                      ensure timely transfer of all
                                      matters, proceedings or cases
                                      pending before the Company
                                      Law Board or the courts, to the
                                      Tribunal under this section.]


18. It is important to note that what is extracted in the right hand

side column of the above Table includes, apart from what was

substituted by Act 31 of 2016, a couple of amendments made to

Section 434. Those amendments were made under:­

(i) The Companies (Removal of Difficulties) Fourth
Order, 2016 published on 07.12.2016, which came
into effect on 15.12.2016;

(ii) The Companies (Removal of Difficulties) Order, 2017
published on 29.06.2017 which came into effect on
the same date; and

(iii) The Insolvency and Bankruptcy Code (Second
Amendment) Act
, 2018 namely 26 of 2018, which
came into force w.e.f. 06.06.2018.

19. A careful look at Section 434 as it stands today would show

that Clause (b) of Sub­section(1) of Section 434 has nothing to do

with what Section 434 in entirety purports to deal with. Section 434
11

in entirety purports to deal with the transfer of proceedings pending

either before the Board of Company Law Administration or before

the Company Court (the High Court or the District Court). Clause

(b) of Sub­section (1) deals with the right of appeal to the High

Court against any decision of the Company Law Board and hence

Clause (b) is actually a misfit in the scheme of Section 434.

20. Be that as it may, clause (c) of Sub­section (1) is the provision

that actually provides for the transfer of all the proceedings under

the Companies Act, 1956 pending before any District Court or High

Court, to the Tribunal. Broadly Clause (c) makes a mention about

proceedings relating to arbitration, compromise, arrangements and

reconstruction and winding up. But Clause (c) is not limited in its

application to proceedings relating to arbitration, compromise,

arrangements and reconstruction and winding up. This is due to

the usage of the words “All proceedings……including” in Clause (c).

21. However, the first proviso to Clause (c) which was not there in

the original Section 434, but which was inserted only under IBC Act

of 2016 when Section 434 was substituted, circumscribes what is

contained in the main part of Clause (c). The first proviso to Clause
12

(c) restricts the transferability of proceedings for winding up from

the High Court to the tribunal, by stipulating that only such

proceedings for winding up which are at a stage as may be

prescribed by the Central Government, be transferred to the

Tribunal.

22. Sub­section (2) of Section 434 empowers the Central

Government to make Rules consistent with the provisions of the

Act, to ensure timely transfer of all matters pending before the

Company Law Board or the Courts, to the Tribunal. Therefore, in

exercise of the power conferred by Sub­section (2) of Section 434 of

the Companies Act, 2013 read with Sub­section (1) of Section 239

of the IBC, 2016, the Central Government issued a set of Rules

known as ‘The Companies (Transfer of Pending Proceedings) Rules,

2016.

23. Before we have a look at the Rules it is necessary to note that

for the purpose of transfer, winding up proceedings pending before

the High Courts, are classified by Section 434 into two categories

namely:­
13

(a) Proceedings for voluntary winding up where notice of
resolution by advertisement has been given under
Section 485(1) of the Companies Act, 1956, but the
company has not been dissolved before 01.04.2017;
and

(b) Other types of winding up proceedings.

24. The first of the above 2 categories of cases are covered by the

fourth proviso under Clause (c) of Sub­section (1) of Section 434,

which states:

“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 1 st April, 2017
shall continue to be dealt with in accordance with provisions
of the Companies Act, 1956 and the Companies (Court)
Rules, 1959”.

Such cases of voluntary winding up covered by the above proviso

shall continue to be dealt with by the High court. It is only (i) cases

of voluntary winding up falling outside the scope of the 4 th Proviso

and (ii) other types of winding up proceedings, that can be

transferred by the High Courts to the Tribunal, subject however to

the Rules made by the Central Government under Section 434 (2).
14

25. The transferability, by operation of law, of winding up

proceedings, other than those covered by the 4 th Proviso, depends

upon the stage at which they are pending before the Company

Court. But this is left by the law makers to be determined through

subordinate legislation, in the form of Rules.

26. Apart from providing for the transfer of certain types of

winding up proceedings by operation of law, Section 434 (1)(c) also

gives a choice to the parties to those proceedings to seek a transfer

of such proceedings to the NCLT. This is under the fifth proviso to

Clause (c).

27. Keeping in mind the above scheme of Section 434, let us now

turn to the Rules. As stated earlier, The Companies (Transfer of

Pending Proceedings) Rule, 2016 were issued in exercise of the

powers conferred by Section 434 (2) read with Section 239(1) of IBC,

2016.

28. The aforesaid Rules categorise the pending proceedings for

winding up into three types namely (i) proceedings for voluntary

winding up covered by the fourth proviso to Clause (c) of Sub­

section (1) of Section 434, which shall continue to be dealt with in
15

accordance with the provisions of the 1956 Act; (ii) proceedings for

winding up on the ground of inability to pay debts; and (iii)

proceedings for winding up on grounds other than inability to pay

debts.

29. Rule 4 of the aforesaid Rules deals with cases of voluntary

winding up covered by the fourth proviso to Section 434(1)(c). We

are not concerned in this case with such types of cases.

30. Rule 5 of the aforesaid Rules provides for transfer of

proceedings for winding up on the ground of inability to pay debts.

It reads as follows:

“5. Transfer of pending proceedings of Winding up on
the ground of inability to pay debts.—(1) All petitions
relating to winding up of a company under clause (c) of
section 433 of the Act on the ground of inability to pay its
debts pending before a High Court, and, where the petition
has not been served on the respondent under Rule 26 of the
Companies (Court) Rules, 1959 shall be transferred to the
Bench of the Tribunal established under sub­section (4) of
section 419 of the Companies Act, 2013 exercising territorial
jurisdiction to be dealt with in accordance with Part II of the
Code:

Provided that the petitioner shall submit all information, other
than information forming part of the records transferred in
accordance with Rule 7, required for admission of the petition
under sections 7, 8 or 9 of the Code, as the case may be,
including details of the proposed insolvency professional to
the Tribunal upto 15th day of July, 2017, failing which the
petition shall stand abated.

16

Provided further that any party or parties to the petitions
shall, after the 1st day of July, 2017, be eligible to file fresh
applications under Sections 7 or 8 or 9 of the Code, as the
case may be in accordance with the provisions of the Code:

Provided also that where a petition relating to winding up of a
company is not transferred to the Tribunal under this Rule
and remains in the High Court and where there is another
petition under Clause (e) of Section 433 of the Act for winding
up against the same company pending as on 15th December,
2016, such other petition shall not be transferred to the
Tribunal, even if the petition has not been served on the
respondent.”

31. Rule 6 of the aforesaid Rules deals with transfer of

proceedings for winding up, on grounds other than inability to pay

debts. It reads as follows:­

“6. Transfer of pending proceedings of Winding up
matters on the grounds other than inability to pay
debts.—All petitions filed under clauses (a) and (f) of section
433
of the Companies Act, 1956 pending before a High Court
and where the petition has not been served on the respondent
as required under rule 26 of the Companies (Court) Rules,
1959 shall be transferred to the Bench of the Tribunal
exercising territorial jurisdiction and such petitions shall be
treated as petitions under the provisions of the Companies
Act
, 2013 (18 of 2013).”

32. The transferability of a winding up proceeding, both under

Rule 5 as well as under Rule 6, is directly linked to the service of

the winding up petition on the respondent under Rule 26 of the

Companies (Court) Rules, 1959. If the winding up petition has
17

already been served on the respondent in terms of Rule 26 of the

1959 Rules, the proceedings are not liable to be transferred. But if

service of the winding up petition on the respondent in terms of

Rule 26 had not been completed, such winding up proceedings,

whether they are under Clause (c) of Section 433 or under Clauses

(a) and (f) of Section 433, shall peremptorily be transferred to the

NCLT.

33. In other words, Rules 5 and 6 of the Companies (Transfer of

Pending Proceedings) Rules 2016, fix the stage of service of notice

under Rule 26 of the Companies (Court) Rules, 1959, as the stage

at which a winding up proceeding can be transferred. This is

because the first proviso under Clause (c) of Sub­section (1) of

Section 434 enables the Central Government to prescribe the stage

at which proceedings for winding up can be transferred and sub­

section (2) of section 434 confers rule making power on the Central

Government.

34. Rule 26 of the Companies (Court) Rules, 1959 reads as

follows:

18

“Service of petition­ Every petition shall be served on the
respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge
or the Registrar may direct. Unless otherwise ordered, a copy
of the petition shall be served along with the notice of the
petition.”

35. The normal requirement of Rule 26, as seen from its last limb

is that the copy of the petition under the Act shall be served on the

respondent along with the notice of the petition, unless otherwise

ordered. The notice of the petition, required under Rule 26 to be

served along with the copy of the petition, should be in Form No.6,

due to the mandate of Rule 27.

36. Due to the usage of the words “was admitted” in Form No.6,

there was a confusion as to whether the service referred to in Rule

26, is of a pre­admission notice or post­admission notice, in a

winding up proceeding. Different High Courts took different views.

Eventually, this Court settled the position in Forech India Ltd. vs.

Edelweiss Assets Reconstruction Co. Ltd.1 by holding “that Rules

26 and 27 clearly refer to a pre­admission scenario.”

37. After so interpreting Rules 26 and 27 of the Companies (Court)

Rules, 1959, this Court pointed out in Forech India Ltd. (supra)

1 2019 (2) SCR 477
19

that “when the Code was enacted, only winding up petitions where

no notice under Rule 26 was served, were to be transferred to NCLT

and treated as petitions under the Code”. However, after Section 434

was substituted by a new provision under Act 31 of 2016 and the

5th proviso was inserted by Act 26 of 2018, the transfer of the

winding up proceedings, even at the instance of the party or parties

to the proceedings became permissible. This change of position was

also noted by this Court in Forech India Limited(supra).

38. But while noting the change of position after the insertion of

the 5th proviso through Act 26 of 2018, this Court indicated in para

17 of the Judgment as though “any person could apply for transfer

of such petitions to the NCLT under the Code”. Taking advantage of

this, it is contended by the learned senior counsel for the petitioner

that “any person” (and not necessarily a party to the proceeding)

could apply for transfer.

39. But we do not think that the decision in Forech India

Limited (supra) is an authority for the proposition that the 5 th

proviso to Clause (c) of Sub­section (1) of Section 434 could be

invoked by any person who is not a party to the proceeding for
20

winding up. The 5th proviso which we have already extracted uses

the words “any party or parties to any proceedings relating to

the winding up of companies pending before any Court.”

40. In other words, the right to invoke the 5th proviso is

specifically conferred only upon the parties to the

proceedings. Therefore, on a literal interpretation, such a right

should be held to be confined only to“the parties to the

proceedings.”

41. That takes us to the next question as to who are “the parties

to” the winding up proceedings. The Companies Act, 1956 does not

define the expression “party”. The Companies (Court) Rules, 1959

also does not define the expression “party”. The Companies Act

2013 does not define the expression “party”. The Companies

(Transfer of pending proceedings) Rules, 2016 also does not define

the expression “party”. Even the IBC, 2016 does not define the

expression “party”.

42. But there are certain clues inherently available in the

Companies Act, 1956, to indicate the persons who may come within
21

the meaning of the expression “party to the proceedings”. The

provisions which contain such clues are as follows:

(i) Section 447 of the Companies Act, 1956, which is

equivalent to Section 278 of the Companies Act, 2013 states

that an order for winding up shall operate in favour of all

the creditors and of all the contributories of the company

as if it has been made on the joint petition of a creditor

and of a contributory. There is a small change between the

wording of Section 278 of the 2013 Act and the wording of

Section 447 of the 1956 Act. This change may be appreciated,

if both these provisions are presented simultaneously in a

tabular column:

Section 447 of 1956 Act Section 278 of 2013 Act

Effect of winding up order.­ Effect of winding up order. ­
An order for winding up a The order for the winding up of
company shall operate in favour a company shall operate in
of all the creditors and of all the favour of all the creditors and
contributories of the company all contributories of the
as if it has been made on the company as if it had been made
joint petition of a creditor out on the joint petition of
and of a contributory. creditors and contributories.

22

Section 278 of the 2013 Act shows that any petition by a

single creditor or contributory is actually treated as a

joint petition of creditors and contributories, so that the

order of winding up operates in favour of all the

creditors and all the contributories.

(ii) Under Section 454 (6) of the 1956 Act, any person

stating himself in writing to be a creditor shall be entitled

to inspect the statement of affairs submitted to the official

liquidator. If the claim of such a person to be a creditor turns

out to be untrue, such a person is liable to be punished under

Section 454(7) of the 1956 Act.

(iii) The powers of the liquidator are enumerated in Section

457 of the 1956 Act. Section 457 actually divides the powers

of a liquidator into two categories namely (i) those available

with the sanction of the Tribunal and (ii) those generally

available to the liquidator. But Section 290 of the 2013 Act

has done away with such a distinction. However, the 1956

Act, as well as 2013 Act make the exercise of the powers by

the liquidator, subject to the overall control of the Tribunal.
23

This is made clear by Section 457(3) of the 1956 Act and

Section 290(2) of the 2013 Act. Additionally, Section 457(3) of

the 1956 Act enables any creditor or contributory to apply to

the Court with respect to the exercise by the Liquidator, of

any of the powers conferred by Section 457.

(iv) Section 460 of the 1956 Act and Section 292 of the 2013

Act make it clear that in the administration of the assets of

the Company and the distribution thereof among its

creditors, the liquidator should have regard to any directions

given by resolution of creditors at any general meeting. If the

liquidator does something, in exercise of his powers, any

person aggrieved by such Act or decision of the liquidator, is

entitled to apply to the Company Court, under Section

460(6) of the 1956 Act and Section 292(4) of the 2013 Act.

(v) Section 466(1) of the 1956 Act enables any creditor to

apply for stay of all proceedings in relation to the winding

up. This right can be exercised by any creditor at any time

after the making of a winding up order.

24

43. Thus, the proceedings for winding up of a company are

actually proceedings in rem to which the entire body of creditors is

a party. The proceeding might have been initiated by one or more

creditors, but by a deeming fiction the petition is treated as a joint

petition. The official liquidator acts for and on behalf of the entire

body of creditors. Therefore, the word “party” appearing in the 5th

proviso to Clause (c) of Sub­section (1) of section 434 cannot be

construed to mean only the single petitioning creditor or the

company or the official liquidator. The words “party or parties”

appearing in the 5th proviso to Clause (c) of Sub­section (1) of

Section 434 would take within its fold any creditor of the company

in liquidation.

44. The above conclusion can be reached through another method

of deductive logic also. If any creditor is aggrieved by any decision of

the official liquidator, he is entitled under the 1956 Act to challenge

the same before the Company Court. Once he does that, he

becomes a party to the proceeding, even by the plain language of

the section. Instead of asking a party to adopt such a circuitous

route and then take recourse to the 5 th proviso to section 434(1)(c),
25

it would be better to recognise the right of such a party to seek

transfer directly.

45. As observed by this Court in Forech India Limited (supra),

the object of IBC will be stultified if parallel proceedings are allowed

to go on in different fora. If the Allahabad High Court is allowed to

proceed with the winding up and NCLT is allowed to proceed with

an enquiry into the application under Section 7 IBC, the entire

object of IBC will be thrown to the winds.

46. Therefore, we are of the considered view that the petitioner­

herein will come within the definition of the expression “party”

appearing in the 5th proviso to Clause (c) of Sub­section (1) of

Section 434 of the Companies Act, 2013 and that the petitioner is

entitled to seek a transfer of the pending winding up proceedings

against the first respondent, to the NCLT. It is important to note

that the restriction under Rules 5 and 6 of the Companies

(Transfer of Pending Proceedings) Rules, 2016 relating to the

stage at which a transfer could be ordered, has no

application to the case of a transfer covered by the 5 th proviso

to clause (c) of sub­section (1) of Section 434. Therefore, the
26

impugned order of the High court rejecting the petition for transfer

on the basis of Rule 26 of the Companies (Court) Rules, 1959 is

flawed.

47. Therefore, the appeal is allowed, the impugned order is set

aside and the proceedings for winding up pending before the

Company Court (Allahabad High Court) against the first respondent

herein, is ordered to be transferred to the NCLT, to be taken up

along with the application of the appellant­herein under Section 7 of

the IBC. There will be no order as to costs.

……………………………..CJI
(S.A. BOBDE)

……………………………….J.

(A.S. BOPANNA)

………………………………..J.

(V. RAMASUBRAMANIAN)

New Delhi
November 19, 2020



Source link