JAIPUR METALS & ELECTRICALS EMPLOYEES ORGANIZATION THROUGH GENERAL SECRETARY MR. TEJ RAM MEENA versus JAIPUR METALS & ELECTRICALS LTD. THROUGH ITS MANAGING DIRECTOR & ORS.
[2018] 14 S.C.R. 926, Supreme Court of India, 2018
Outcome: Leave granted
Segment: Ratio
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926                    SUPREME COURT REPORTS            [2018] 14 S.C.R.
JAIPUR METALS & ELECTRICALS EMPLOYEES
ORGANIZATION THROUGH GENERAL SECRETARY MR. TEJ
RAM MEENA
v.
JAIPUR METALS & ELECTRICALS LTD. THROUGH ITS
MANAGING DIRECTOR & ORS.
(Civil Appeal No. 12023 of 2018)
DECEMBER 12, 2018
[R. F. NARIMAN AND M. R. SHAH, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss.7, 238 –
Respondent No.1-company became a non-performing asset – Board
for Industrial and Financial Reconstruction (BIFR) was of prima
facie opinion that the company ought to be wound up and same
was forwarded to the High Court – High Court registered the case
as a Company Petition – Respondent No.3 acquired financial debts
of Respondent No.1 – After some time, respondent no.3 filed
application u/s.7 of the Code before the National Company Law
Tribunal (NCLT) stating that it had an assigned debt owed to it by
the respondent No.1 – NCLT by order dated 13.04.2018 referred to
the non-obstante clause contained in s.238 of the Code and held
that it was satisfied that the conditions of s.7 had been fulfilled and
therefore, admitted the application – High Court in company petition
and other connected matters refused to transfer the winding up
proceedings pending before it, and set aside the NCLT order dated
13.04.2018, stating that it had been passed without jurisdiction –
Propriety of – Held: Though s.434 of the Companies Act, 2013,
which relates to transfer of certain proceedings, was substituted by
the Eleventh Schedule of the Code, yet Section 434, as substituted,
appears only in the Companies Act, 2013 and is part and parcel of
that Act – This being so, if there is any inconsistency between s.434
as substituted and the provisions of the Code, the latter must prevail
– NCLT was absolutely correct in applying s.238 of the Code to an
independent proceeding instituted by a secured financial creditor,
namely, respondent no.3 – High Court was not right in stating that
the proceedings before the NCLT were without jurisdiction –
Proceedings before NCLT to be continued from the stage at which
they had been left off – On this score, therefore, the High Court
judgment set aside  – Furthermore, the company petition pending
[2018] 14 S.C.R. 926
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before the High Court cannot be proceeded with in view of s.238 of
the Code – Thus, other connected matters that are pending before
the High Court disposed of in light of the fact that proceedings
under the Code, 2016 must run their entire course – Companies
Act, 2013 – s.434 (as amended w.e.f 17.08.2018) – Sick Industrial
Companies (Special Provisions) Act, 1985 – s.20 – Companies
(Transfer of Pending Proceedings) Rules, 2016 – rr. 5(2) and 6.
Allowing the appeal, the Court
HELD: 1. It is clear that under Section 434 of the Companies
Act, 2013 as substituted by the Eleventh Schedule to the
Insolvency and Bankruptcy Code, 2016 vide notification dated
15.11.2016, all proceedings under the Act, which relate to winding
up of companies and which are pending immediately before such
date as may be notified by the Central Government in this behalf
shall stand transferred to the NCLT.  The stage at which such
proceedings are to be transferred to the NCLT is such as may be
prescribed by the Central Government.  [Para 12][938-C-D]
2. When Rules 5 and 6 of the 2016 Transfer Rules (un-
amended) are read, it is clear that three types of proceedings are
referred to. Under Rule 5(1), petitions which relate to winding
up under clause (e) of Section 433 of the Companies Act, 1956
on the ground of inability to pay debts that are pending before
the High Court are to be transferred to the NCLT in case the
petition has not been served on the respondent. They shall then
be
treated as applications under Sections 7, 8, or 9 of the Code
and dealt with in accordance with Part II of the Code. Similarly,
all petitions filed under clauses (a) and (f) of Section 433 of the
Companies Act, 1956 pending before the High Court, in which
the petition has not been served on the respondents, shall be
transferred to the NCLT. Only such petitions will continue to be
treated as petitions under the provisions of the Companies Act,
2013. The third category of cases dealt with by Rules 5 and 6 is
contained in Rule 5(2). This category relates to cases where the
BIFR has forwarded an opinion to the High Court to wind up a
company under Section 20 of the SIC Act. All such cases, whatever
be the stage, shall continue to be dealt with by the High Court in
accordance with the provisions of the SIC Act.  [Para 13]
[938-D-G]
JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.
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3. It is clear that the present case relates to Rule 5(2) alone.
Despite the fact that Section 20 of the SIC Act speaks of a
company being wound up under the Companies Act, 1956 under
the just and equitable provision, which is Section 433(f) of the
Companies Act, 1956, yet, since cases that fall under Section 20
of the SIC Act are dealt with separately under Rule 5(2), they
cannot be treated as petitions that have been filed under Section
433(f) of the Companies Act, 1956, which are separately specified
under Rule 6. The High Court is therefore not correct in treating
petitions that are pursuant to Section 20 of the SIC Act as being
pursuant to Section 433(f) of the Companies Act, 1956 and applying
Rule 6 of the 2016 Transfer Rules. [Para 14][938-G-H; 939-A]
4. However, though the language of Rule 5(2) is plain
enough, it has been argued  that Rule 5 was substituted on
29.06.2017, as a result of which, Rule 5(2) has been omitted. The
effect of the omission of Rule 5(2) is not to automatically transfer
all cases under Section 20 of the SIC Act to the NCLT, as
otherwise, a specific rule would have to be framed transferring
such cases to the NCLT, as has been done in Rule 5(1). The real
reason for omission of Rule 5(2) in the substituted Rule 5 is
because it is necessary to state, only once, on the repeal of the
SIC Act, that proceedings under Section 20 of the SIC Act shall
continue to be
dealt with by the High Court. It was unnecessary
to continue Rule 5(2) even after 29.06.2017 as on 15.12.2016, all
pending cases under Section 20 of the SIC Act were to continue
to be dealt with by the High Court before which such cases were
pending. Since there could be no opinion by the BIFR under
Section 20 of the SIC Act after 01.12.2016, when the SIC Act was
repealed, it was unnecessary to continue Rule 5(2) as, on
15.12.2016, all pending proceedings under Section 20 of the SIC
Act were to continue with the High Court and would continue
even thereafter. This is further made clear by the amendment to
Section 434(1)(c), with effect from 17.08.2018, where any party
to a winding up proceeding pending before a Court immediately
before this date may file an application for transfer of such
proceedings, and the Court, at that stage, may, by order, transfer
such proceedings to the NCLT. The proceedings so transferred
would then be dealt with by the NCLT as an application for
initiation of the corporate insolvency resolution process under
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the Code. It is thus clear that under the scheme of Section 434
(as amended) and Rule 5 of the 2016 Transfer Rules, all
proceedings under Section 20 of the SIC Act pending before the
High Court are to continue as such until a party files an application
before the High Court for transfer of such proceedings post
17.08.2018. Once this is done, the High Court must transfer such
proceedings to the NCLT which will then deal with such
proceedings as an application for initiation of the corporate
insolvency resolution process under the Code. [Para 15]
[939-B-G]
5. The High Court judgment, therefore, though incorrect
in applying Rule 6 of the 2016 Transfer Rules, can still be
supported on this aspect with a reference to Rule 5(2) read with
Section 434 of the Companies Act, 2013, as amended, with effect
from 17.08.2018. [Para 16][939-H; 940-A]
6. It is clear that Respondent No. 3 has filed a Section 7
application under the Code on 11.01.2018, on which an order has
been passed admitting such application by the NCLT on
13.04.2018. This proceeding is an independent proceeding which
has nothing to do with the transfer of pending winding up
proceedings before the High Court. It was open for Respondent
No. 3 at any time before a winding up order is passed to apply
under Section 7 of the Code. [Para 17][940-B-C]
7. The contention of Respondent nos.4 and 5 that since
Section 434 of the Companies Act, 2013 is amended by the
Eleventh Schedule of the Code, the amended
Section 434 must
be read as being part of the Code and not the Companies Act,
2013, must be rejected for the reason that though Section 434 of
the Companies Act, 2013 is substituted by the Eleventh Schedule
of the Code, yet Section 434, as substituted, appears only in the
Companies Act, 2013 and is part and parcel of that Act. This being
so, if there is any inconsistency between Section 434 as substituted
and the provisions of the Code, the latter must prevail. The NCLT
was absolutely correct in applying Section 238 of the Code to an
independent proceeding instituted by a secured financial creditor,
namely, the respondent no.3. This being the case, it is difficult to
comprehend how the High Court could have held that the
proceedings before the NCLT were without jurisdiction. On this
score, therefore, the High Court judgment has to be set aside.
JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.
JAIPUR METALS & ELECTRICALS LTD.
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930                    SUPREME COURT REPORTS            [2018] 14 S.C.R.
The NCLT proceedings will now continue from the stage at which
they have been left off. Obviously, the company petition pending
before the High Court cannot be proceeded with further in view
of Section 238 of the Code. The writ petitions that are pending
before the High Court have also to be disposed of in light of the
fact that proceedings under the Code must run their entire course.
[Para 18][940-D-H]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 12023
of 2018.
From the Judgment and Order dated 01.06.2018 of the High Court
of Judicature for Rajasthan, Bench at Jaipur in S.B. Company Petition
No.19 of 2009.
Sidharth Luthra, Sr. Adv., Ms. Anushree Prashit Kapadia,
Ms. Priyanka Rathi, Advs. for the Appellant.
P. Chidambaram, Sr. Adv., Ashu Kansal, T.V.S. Raghavendra
Sreyas, Ms. Gayatri Gulati, Ms. Sneh Dhillon, Karan Batura, Siddhartha
Dave, Rishi Matoliya, Ms. Sumati Sharma, H.D. Thanvi, Ankit Sareen,
Tarun Gupta, Amit Sharma, Ankit Raj, Ms. Indira Bhakar, Ms. Nidhi
Jaswal, Ms. Ruchi Kohli, Rahul Pratap, Nikhil Nayyar, Ms. Garima Bajaj,
Surya Kant, Pranav Vyas, Ms. Priyanka Tyagi, Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. The present appeal has been filed by an employees’ union
challenging the judgment of the High Court of Judicature for Rajasthan
dated 01.06.2018, in which the High Court has refused to transfer winding
up proceedings pending before it to the National Company Law Tribunal
(“NCLT”), and has set aside an order dated 13.04.2018 of the NCLT
by which order a financial creditor’s petition under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (“Insolvency Code” or
“Code”) has been admitted.
3. This case has had a chequered history. On 30.09.1997, the
account of the Respondent No. 1 company had become a non-performing
asset, and since the company’s net worth had turned negative, a reference
was made to the Board for Industrial and Financial Reconstruction
(“BIFR”) under the Sick Industrial Companies (Special Provisions) Act,
1985 (“SIC Act”). On 26.09.2002, the BIFR was of the prima facie
opinion that the company ought to be wound up, which opinion was
forwarded to the High Court. The High Court ultimately registered the
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case as Company Petition No. 19/2009. The Alchemist Asset
Reconstruction Company Ltd. (Respondent No. 3) acquired substantially
all the financial debts of Respondent No. 1. The State of Rajasthan tried
to revive the company, but with no success. Ultimately, in a writ petition
filed by a workers’ union, being Writ Petition No. 504/2000, the High
Court, on 07.12.2017, directed the Official Liquidator to be provisionally
attached to the Court, and to join in the evaluation of the value of goods
and material lying in the factory premises of the company so that dues
of the workmen could be paid.
4. In the meanwhile, on 11.01.2018, the Respondent No. 3 herein
preferred an application under Section 7 of the Insolvency Code, stating
that it had an assigned debt of INR 356 crores owed to it by the
Respondent No. 1. Considering the fact that the debt was admitted by
the company and that till date no liquidation order had been passed in the
winding up proceedings that were pending before the High Court, the
NCLT held, referring to the non-obstante clause contained in Section
238 of the Insolvency Code, that it was satisfied that the conditions of
Section 7 had been fulfilled and that, therefore, the application should be
admitted. Accordingly, a moratorium was declared in terms of Section
14 of the Code and an interim resolution professional was appointed.
5. Meanwhile, in Company Petition No. 19/2009 and other
connected matters, being various writ petitions that
were filed by labour
unions, the High Court, by an interim order dated 26.04.2018, stayed
implementation of the order passed by the NCLT on 13.04.2018. Against
this order, a Special Leave Petition (“SLP”) was preferred in which this
Court, on 09.05.2018, dismissed the SLP as withdrawn and directed the
petitioner to make submissions before the High Court in the pending
company petition and allied matters. The High Court then passed the
impugned judgment dated 01.06.2018, in which it refused to transfer the
winding up proceedings pending before it, and set aside the NCLT order
dated 13.04.2018, stating that it had been passed without jurisdiction.
Accordingly, the writ petitions and the company petition were placed for
further orders on 05.07.2018. On 16.07.2018, this Court issued notice
and stayed the operation of the impugned judgment.
6. Shri Sidharth Luthra, learned Senior Advocate, appearing on
behalf of the appellant, and Shri P. Chidambaram, learned Senior
Advocate, appearing on behalf of Respondent No. 3, have argued that a
perusal of the Eleventh Schedule of the Code and amendments made to
the Companies Act, 2013, particularly to Section 434 therein, would show
JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.
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that all winding up proceedings pending before the High Court are to
stand transferred to the NCLT at such stage as may be prescribed by
the Central Government by rules made in this behalf. They then referred
to Rule 5 of the Companies (Transfer of Pending Proceedings) Rules,
2016 (“2016 Transfer Rules”), and in particular, to Rule 5(2) thereof.
They then argued that as Rule 5(2) was not continued on and after
29.06.2017, it would be clear that winding up of companies that are
initiated under the SIC Act cannot, after such omission, be continued to
be dealt with by the High Court.  According to them, the High Court
judgment was incorrect as Rule 5, and not Rule 6, of the 2016 Transfer
Rules applied. Post omission of Rule 5(2), therefore, proceedings would
in any case stand transferred to the NCLT. Alternatively, they argued
that in any case, the 2018 amendment made to Section 434(1)(c) added
a proviso, by which any party to any winding up proceedings that are
pending before a High Court may file an application for transfer of such
proceedings, and the Court is then obliged to transfer such proceedings
to the NCLT. They also argued that in any case, a Section 7 application
made by Respondent No. 3 before the NCLT was an independent
application which was correctly admitted by the NCLT, which correctly
applied Section 238 of the Insolvency Code.
7. Shri Siddharth Dave, learned counsel
appearing on behalf of
Respondents No. 4 and 5, supported the judgment of the High Court.
According to the learned counsel, even if Rule 5 of the 2016 Transfer
Rules were to apply, Rule 5(2) made it clear that the present proceedings
would continue before the High Court, being proceedings for winding up
of a company pursuant to Section 20 of the SIC Act. The omission of
this Rule in the amendment made to Rule 5 on 29.06.2017 would not
impact the High Court continuing to deal with this matter as the SIC Act
had been repealed with effect from 01.12.2016, and together with the
repeal, it was necessary to state that proceedings for winding up that
were initiated under Section 20 of the SIC Act would continue to be
dealt with by the High Court. Once this was stated to be so, when the
amendment was made to Rule 5, it became unnecessary to continue
with the said provision as all such proceedings are to continue to be dealt
with by the High Court on and from the date of repeal of the SIC Act.
Equally, according to the learned counsel, Section 238 of the Code has
no application as it is a non-obstante clause which interdicts a clash
between the Insolvency Code and other statutes. Inasmuch as the
amendments to Section 434 of the Companies Act, 2013 have been made
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pursuant to the Eleventh Schedule of the Insolvency Code itself, Section
238 would have no application, and, therefore, the winding up proceedings
pending before the High Court would have to reach their logical conclusion.
This being so, the High Court judgment is correct.
8. Having heard learned counsel for all parties, we first need to
deal with a preliminary objection raised by Shri Siddharth Dave. According
to the learned counsel, an appeal against the judgment dated 01.06.2018
has been filed by Respondent No. 3, and since this appeal is still pending,
we should not entertain an SLP filed at the behest of an employees’
union which is in cahoots with Respondent No. 3. Ordinarily, we would
have relegated the appellant to the Division Bench, but since the questions
raised are of importance generally, it is better that an authoritative decision
be given at the earliest. It is for this reason that we have entertained this
SLP directly against the order of a single Judge. Shri Luthra has also
pointed out that it is incorrect to say that the client that he represents is
a derecognized or unrecognized union in cahoots with Respondent No.
3, and has pointed out a certificate of registration of the said union. Be
that as it may, since this SLP raises important questions of law which
need to be decided at the earliest, we have disregarded this preliminary
objection.
9. Section 255 of the Insolvency Code reads as follows:
“255. Amendments of Act 18 of 2013.—The
Companies Act,
2013 shall be amended in the manner specified in the Eleventh
Schedule.”
In pursuance of this Section, the Eleventh Schedule to the Code
makes various amendments to the Companies Act, 2013. On 15.11.2016,
with effect from 01.12.2016, Section 434 of the Companies Act, 2013
was substituted as follows:
“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;
JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.
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(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:
(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.”
On and from 17.08.2018, by an amendment made to the Eleventh
Schedule of the Code, Section
434 was substituted as follows:
“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
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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:
Provided further that only such proceedings relating to cases
other than winding up, for which orders for 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:
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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).
(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.”
10. On 07.12.2016, in exercise of powers under Section 434 of
the Companies Act, 2013 read with Section 239 of the Insolvency Code,
the Companies (Transfer of Pending Proceedings) Rules, 2016, came
into force with effect from 01.04.2017. What is of relevance for decision
in the present case is Rules 5 and 6 of the 2016 Rules, which are set out
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 under clause (e) 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 as
required under Rule 26 of the Companies (Court) Rules, 1959
shall be transferred to the Bench of the Tribunal established under
sub-section (4) of Section 419 of the Act, exercising territorial
jurisdiction and such petitions shall be treated as applications under
Sections 7, 8 or 9 of the Code, as the case may be, and 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
within sixty days from date of this notification, failing which the
petition shall abate.
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(2) All cases where opinion has been forwarded by Board for
Industrial and Financial Reconstruction, for winding up of a
company to a High Court and where no appeal is pending, the
proceedings for winding up initiated under the Act, pursuant to
Section 20 of the Sick Industrial Companies (Special Provisions)
Act, 1985 shall continue to be dealt with by such High Court in
accordance with the provisions of the Act.
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).”
11. By an amendment dated 29.06.2017, Rule 5 was then
substituted 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 under clause (e) 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 sub-
section (4) of Section 419 of the Companies Act, 2013 exercising
territorial jurisdiction and such petitions shall be treated as
applications under Sections 7, 8 or 9 of the Code, as the case may
be, and 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:
Provided further that any party or parties to the petition shall,
after the 15th day of July, 2017, be eligible to file fresh applications
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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.”
12. It is clear that under Section 434 as substituted by the Eleventh
Schedule to the Code vide notification dated 15.11.2016, all proceedings
under the Companies Act, 2013 which relate to winding up of companies
and which are pending immediately before such date as may be notified
by the Central Government in this behalf shall stand transferred to the
NCLT.  The stage at which such proceedings are to be transferred to
the NCLT is such as may be prescribed by the Central Government.
13. When Rules 5 and 6 of the 2016 Transfer Rules (un-amended)
are read, it is clear that three types of proceedings are referred to. Under
Rule 5(1), petitions which relate to winding up under clause (e) of Section
433 of the Companies Act, 1956 on the ground of inability to pay debts
that are pending before the High Court are to be transferred to the
NCLT in case the petition has
not been served on the respondent. They
shall then be treated as applications under Sections 7, 8, or 9 of the Code
and dealt with in accordance with Part II of the Code. Similarly, all
petitions filed under clauses (a) and (f) of Section 433 of the Companies
Act, 1956 pending before the High Court, in which the petition has not
been served on the respondents, shall be transferred to the NCLT. Only
such petitions will continue to be treated as petitions under the provisions
of the Companies Act, 2013. The third category of cases dealt with by
Rules 5 and 6 is contained in Rule 5(2). This category relates to cases
where the BIFR has forwarded an opinion to the High Court to wind up
a company under Section 20 of the SIC Act. All such cases, whatever
be the stage, shall continue to be dealt with by the High Court in
accordance with the provisions of the SIC Act.
14. It is clear that the present case relates to Rule 5(2) alone.
Despite the fact that Section 20 of the SIC Act speaks of a company
being wound up under the Companies Act, 1956 under the just and
equitable provision, which is Section 433(f) of the Companies Act, 1956,
yet, since cases that fall under Section 20 of the SIC Act are dealt with
separately under Rule 5(2), they cannot be treated as petitions that have
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been filed under Section 433(f) of the Companies Act, 1956, which are
separately specified under Rule 6. The High Court is therefore not correct
in treating petitions that are pursuant to Section 20 of the SIC Act as
being pursuant to Section 433(f) of the Companies Act, 1956 and applying
Rule 6 of the 2016 Transfer Rules.
15. However, though the language of Rule 5(2) is plain enough, it
has been argued before us that Rule 5 was substituted on 29.06.2017, as
a result of which, Rule 5(2) has been omitted. The effect of the omission
of Rule 5(2) is not to automatically transfer all cases under Section 20 of
the SIC Act to the NCLT, as otherwise, a specific rule would have to be
framed transferring such cases to the NCLT, as has been done in Rule
5(1). The real reason for omission of Rule 5(2) in the substituted Rule 5
is because it is necessary to state, only once, on the repeal of the SIC
Act, that proceedings under Section 20 of the SIC Act shall continue to
be dealt with by the High Court. It was unnecessary to continue Rule
5(2) even after 29.06.2017 as on 15.12.2016, all pending cases under
Section 20 of the SIC Act were to continue to be dealt with by the High
Court before which such cases were pending. Since there could be no
opinion by the BIFR under Section 20 of the SIC Act after 01.12.2016,
when the SIC Act was repealed, it was unnecessary to continue Rule
5(2) as, on 15.12.2016, all pending proceedings under Section 20 of the
SIC Act were to
continue with the High Court and would continue even
thereafter. This is further made clear by the amendment to Section
434(1)(c), with effect from 17.08.2018, where any party to a winding up
proceeding pending before a Court immediately before this date may
file an application for transfer of such proceedings, and the Court, at
that stage, may, by order, transfer such proceedings to the NCLT. The
proceedings so transferred would then be dealt with by the NCLT as an
application for initiation of the corporate insolvency resolution process
under the Code. It is thus clear that under the scheme of Section 434 (as
amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under
Section 20 of the SIC Act pending before the High Court are to continue
as such until a party files an application before the High Court for transfer
of such proceedings post 17.08.2018. Once this is done, the High Court
must transfer such proceedings to the NCLT which will then deal with
such proceedings as an application for initiation of the corporate
insolvency resolution process under the Code.
16. The High Court judgment, therefore, though incorrect in
applying Rule 6 of the 2016 Transfer Rules, can still be supported on this
JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.
JAIPUR METALS & ELECTRICALS LTD. [R. F. NARIMAN, J.]
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aspect with a reference to Rule 5(2) read with Section 434 of the
Companies Act, 2013, as amended, with effect from 17.08.2018.
17. However, this does not end the matter. It is clear that
Respondent No. 3 has filed a Section 7 application under the Code on
11.01.2018, on which an order has been passed admitting such application
by the NCLT on 13.04.2018. This proceeding is an independent
proceeding which has nothing to do with the transfer of pending winding
up proceedings before the High Court. It was open for Respondent No.
3 at any time before a winding up order is passed to apply under Section
7 of the Code. This is clear from a reading of Section 7 together with
Section 238 of the Code which reads as follows:
“238. Provisions of this Code to override other laws.—The
provisions of this Code shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time
being in force or any instrument having effect by virtue of any
such law.”
18. Shri Dave’s ingenious argument that since Section 434 of the
Companies Act, 2013 is amended by the Eleventh Schedule of the Code,
the amended Section 434 must be read as being part of the Code and not
the Companies Act, 2013, must be rejected for the reason that though
Section 434 of the Companies Act, 2013 is substituted by the Eleventh
Schedule of the Code, yet Section 434, as substituted, appears only in
the
Companies Act, 2013 and is part and parcel of that Act. This being
so, if there is any inconsistency between Section 434 as substituted and
the provisions of the Code, the latter must prevail. We are of the view
that the NCLT was absolutely correct in applying Section 238 of the
Code to an independent proceeding instituted by a secured financial
creditor, namely, the Alchemist Asset Reconstruction Company Ltd. This
being the case, it is difficult to comprehend how the High Court could
have held that the proceedings before the NCLT were without jurisdiction.
On this score, therefore, the High Court judgment has to be set aside.
The NCLT proceedings will now continue from the stage at which they
have been left off. Obviously, the company petition pending before the
High Court cannot be proceeded with further in view of Section 238 of
the Code. The writ petitions that are pending before the High Court
have also to be disposed of in light of the fact that proceedings under the
Code must run their entire course. We, therefore, allow the appeal and
set aside the High Court’s judgment.
Ankit Gyan
Appeal allowed.