Companies Act, 2013: s.434(1)(c), fifth proviso; s.290 – Transfer of winding up proceedings from Company Court to NCLT – Permissibility of, at the stage of post admission of winding up petition – Held: In a winding up proceeding where the petition has not been served in terms of r.26 of the 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 the 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, s.290 of the Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern – So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings – It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in accordance with the provisions of the Code – In the instant case, the concurrent finding of the Company Judge and the Division Bench is that despite the fact that the liquidator has taken possession and control of the registered office of the appellant company and its factory premises and records and books, no irreversible steps towards winding up of the appellant company have otherwise taken place – This being so, Company Court correctly exercised discretion vested in it by the 5th proviso to s.434(1)(c) and transferred the winding up petition to NCLT – Companies (Transfer of Pending Proceedings) Rules, 2016 – Insolvency and Bankruptcy Code, 2016 – s.7 – Company (Court) Rules, 1959 – r.26.
Dismissing the appeals, the Court
HELD: 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. This was done by the Transfer Rules, 2016 which came into force with effect from 15.12.2016. Rules 5 and 6 referred to three types of proceedings. Only those proceedings which are at the stage of pre-service of notice of the winding up petition stand compulsorily transferred to the NCLT. 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. 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 the NCLT. [Para 11][804-A-E]
*M/s Kaledonia Jute & Fibres Pvt. Ltd. v. M/s Axis Nirman & Industries Ltd. & Ors., 2020 SCC OnLine SC 943 – relied on
2. When a petition to wind up a company is presented before the Tribunal, the Tribunal is given the power under Section 273 to dismiss it; to make any interim order as it thinks fit; to appoint a provisional liquidator of the company till the making of a winding up order; to make an order for the winding up of the company; or to pass any other order as it thinks fit. Once a winding up order is made, and a Company Liquidator is appointed, such liquidator is then to submit a report to the Tribunal under section 281. The Tribunal is then to consider the aforesaid report and fix a time limit within which the proceedings shall be completed and the company dissolved. The company’s properties shall, on the order of the Tribunal, be taken over by the Company Liquidator and be deemed to be in custodia legis – see section 283(1) and 283(2). Thereafter, the Tribunal is to settle a list of contributories under section 285. The Company Liquidator is then to make periodical reports to the Tribunal with respect to the progress of the winding up proceedings. [Paras 12, 14-17][804-F-G; 805-C-D; 807-A-C]
3. Under section 292, subject to the provisions of the Companies Act, 2013, the Company Liquidator shall, in the administration of the assets of the company and the distribution thereof among its creditors, have regard to any directions which may be given by the resolution of the creditors or contributories at any general meeting. It is only when the affairs of the company have been completely wound up that an application is to be made to the Tribunal to dissolve the company under section 302. [Paras 19, 20][809-E-G]
4. 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 the NCLT to be resolved under the Code. Even post issue of notice and pre admission, the same result would ensue. However, post admission of a winding up petition and after the assets of the company sought to be wound up become in custodia legis and are taken over by the Company Liquidator, section 290 of the Companies Act, 2013 would indicate that the Company Liquidator may carry on the business of the company, so far as may be necessary, for the beneficial winding up of the company, and may even sell the company as a going concern. So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the 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. [Para 22][810-D-H; 811-A]
5. In the facts of the present case, the concurrent finding of the Company Judge and the Division Bench is that despite the fact that the liquidator has taken possession and control of the registered office of the appellant company and its factory premises, records and books, no irreversible steps towards winding up of the appellant company have otherwise taken place. This being so, the Company Court has correctly exercised the discretion vested in it by the 5th proviso to section 434(1)(c). [Para 23][811-B-C]
Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227: [2018[ 14 SCR 926; Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., 2019 SCC OnLine SC 87; Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., (2019) 4 SCC 17: [2019] 3 SCR 535 – relied on
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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