Case: M/S KALEDONIA JUTE AND FIBRES PVT. LTD.     Vs. M/S AXIS NIRMAN AND  INDUSTRIES LTD. &amp; ORS.

4. One M/s Girdhar Trading Co., the 2nd 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 29.02.2016.6. Thereafter, the Company Court passed an order dated 10.03.2016 directing the winding up of the 1st 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 1st 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.9. But the official liquidator opposed the application for recall on the ground that the 1st respondent-Company 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.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.

Reasoning:
19. A careful look at Section 434 as it stands today would show that Clause (b) of Sub-section(1) of Section 434 has nothing to do with what Section 434 in entirety purports to deal with. Section 434 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 Sub-section (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 Sub-section (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 (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. Sub-section (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 Sub-section (2) of Section 434 of the Companies Act, 2013 read with Sub-section (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, 2016.32. 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 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 Sub-section (1) of Section 434 enables the Central Government to prescribe the stage at which proceedings for winding up can be transferred and subsection (2) of section 434 confers rule making power on the Central Government.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 pre-admission notice or post-admission 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. 2019 (2) SCR 477 by holding that Rules 26 and 27 clearly refer to a pre-admission scenario.37. After so interpreting Rules 26 and 27 of the Companies (Court) Rules, 1959, this Court pointed out in Forech India Ltd. (supra) 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 5 th 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.39. But we do not think that the decision in Forech India Limited (supra) is an authority for the proposition that the 5th proviso to Clause (c) of Sub-section (1) of Section 434 could be invoked by any person who is not a party to the proceeding for 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 tothe parties to the 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.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 Sub-section (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 Sub-section (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 5th proviso to section 434(1)(c), 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 petitionerherein will come within the definition of the expression party appearing in the 5th proviso to Clause (c) of Sub-section (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 5th proviso to clause (c) of sub-section (1) of Section 434. Therefore, the 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.