Case: Jotun India Private Limited &amp; Others Vs. Psl Limited

2. On 10th March 2015 company petition no.434 of 2015 was filed by petitioner Jotun India Private Limited against respondentapplicant (org. respondent) under Sections 433 and 434 of the Companies Act, 1956, claiming an outstanding sum of Rs.7.25 Crores with interest in respect of unpaid invoices for goods supplied. For the purpose of this application, I am not considering the facts in other company petitions.On 19th June 2015,made a reference to Board of Industrial and Financial Reconstruction (BIFR) under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).3. On 1st December 2016 the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, (Repeal Act) was notified, and hence SICA came to be repealed.Simultaneously, Insolvency and Bankruptcy Code, 2016, (IBC) was also brought into force. Section 4(b) of the Repeal Act (as amended by IBC) allowed a company whose reference was pending before BIFR as on the 1st December 2016 to file before NCLT an application under section 10 of IBC within a period of 180 days from the notification of the Repeal Act, i.e., on or before the 31st of May 2017 for commencement of the corporate insolvency resolution process and for an order of moratorium.4. On 9th March 2017, order admitting the present company petition no.434 of 2015 was passed. Whilst admitting the company petition, the Learned Judgesince all assets of the respondent company are secured assets in favour of the secured creditors and are under their control, I do not propose to appoint official liquidator at this stage. The petitioner will be at liberty to apply for appointment of the official liquidator at the latter stage if it is found that the assets of the respondent company are jeopardized.5. On 29th May 2017filed an application before NCLT, Ahmedabad under section 10 of IBC, being C.P (IB) No. 37/10/NCLT/AHM/2017 (IBC Application), i.e., within the window of 180 days prescribed by the Repeal Act, for the commencement of the corporate insolvency resolution process.In this application the fact that the above company petition had been filed has been expressly disclosed.6. On 18th July 2017, IBC Application made bywas taken up for hearing by NCLT, Ahmedabad, and the secured creditors to whom notice of IBC Application was given, were also heard. After hearing the parties, NCLT, Ahmedabad, reserved the matter for orders and directed the same to be listed on 20th July, 2017.On the same day, petitioner herein, filed company application (lodging) no.333 of 2017 seeking the appointment of a Provisional Liquidator.7. On 19th July 2017, petitioner herein, mentioned the company application (lodging) No.333 of 2017 before this Court for the appointment of a provisional liquidator.After hearing the counsels, the Learned Judge was pleased to pass an order restraining the Honble NCLT, Ahmedabad, from continuing with IBC Application and placed the company application (lodging) No.333 of 2017 to be heard on 26th July 2017. This order for convenience is hereinafter referred to as impugned order dated 19th July 2017.8. On 20th July 2017 appeal (lodging) no.280 of 2017 was filed by respondentapplicant challenging the order dated 19th July 2017.9. On 1st August 2017 order was passed by the Division Bench of this Court in the saidthat the question whether the Learned Single Judge, acting as the Company Court, had the jurisdiction to pass the impugned order would expressly be kept open and left for determination. Upon this express liberty,withdrew the appeal.10. On 15th September 2017 the present application was filed for recalling/vacating the impugned order dated 19th July 2017. This impugned order dated 19th July 2017, according to respondentapplicant, is an order in excess of jurisdiction conferred upon a company court and hence is liable to be recalled/vacated.

Court's reasoning:
37. In fact, the legislative purpose of saving these winding up petitions along with all necessary and consequential power of the Company Court is to give this Company Court the discretion in saved petitions to decide whether to retain the winding up jurisdiction with respect to such companies or to allow the Adjudicating Authority to also deal with application with respect to such Companies.In this context, it is also relevant, as the operational creditor does not form a part of the Committee of Creditors under Section 21 of IBC and the operational creditor cannot propose or initiate liquidation proceedings against the Company, the operational creditors are in fact at a considerable disadvantage under IBC.Accordingly, in appropriate cases when Saved Petitions are brought at the instance of such creditors, the Company Court may exercise its discretion to retain such Saved Petitions and to prevent the Adjudicating Authority from exercising its jurisdiction.38. Assuming that such a question was to arise, it is submitted on demurrer, that a harmonious and purposive construction of Section 14 of IBC and the saving provisions of the 2013 Act must necessarily lead to an interpretation that the inconsistent provisions of IBC, including the moratorium will not apply to Saved Petitions. The effect of Section 14 of IBC would otherwise, snatch away irreversibly the jurisdiction of the Company Court which is expressly saved under Section 434 of the 2013 Act irretrievably.39. The fact that if a contrary view is taken, the jurisdiction of the Company Court will be irretrievably lost is apparent from Section 6 to Section 54 of IBC, which result in entering a resolution or a liquidation under IBC. IBC has no provision to permit the Saved Petitions to revive when the effect of the moratorium under Section 14 is taken.(V) The High Court shall exercise its powers under the 1956 Act to dispose the Saved PetitionsWith respect to the Saved Petitions including this present Petition, the High Court has the discretion to exercise all powers under the 1956 Act in order to hear and dispose of these proceedings. Accordingly, the High Court has the power to stay and/or restrain proceedings initiated or to be initiated in any other Court so that it may hear and dispose of such Saved Petitions.41. It is not disputed even by Respondent that the Honble High Court retains its jurisdiction and powers under the 1956 Act with respect to the Saved Petitions.50. Prior to the enactment of IBC, SICA required, what were defined asIndustrial Companies to file a reference before BIFR. Once a reference was filed, the moratorium under section 22 of SICA kicked in, as a result whereof proceedings such as winding up, execution and the like could neither be filed nor proceeded with, if filed. SICA, however, did not apply to all companies. It applied to only those industrial undertakings as were set out in the Schedule of the said Act. Experience showed that SICA though enacted with the laudatory object of revival of sick companies was being abused by promoters, who on account of the moratorium available under Section 22 were dragging on the proceedings either before the BIFR or AAIFR interminably, frustrating the object and purpose of the Act and defeating rights of creditors. IBC, on the other hand, as held by the Honble Supreme Court in the case of M/s Innoventive Industries Ltd. (supra) and Mobilox Innovations Private Limited (supra) has certain features which mark a healthy departure from the failings of SICA.As held by the Supreme Court of India in the case of Madura Coats Ltd. (Supra), that even during the regime of SICA, SICA was held to have primacy over the provisions of the Companies Act.By the virtue of Section 252 of IBC, SICA stands repealed with effect from 1st December 2016. Under section 4 (b) of the Repeal Act, all proceedings before the BIFR/AAIFR stood abated and in respect of such abated proceedings, provision has been made to permit a Company, to make a reference within a period of 180 days from 1st December 2016 to NCLT, which reference is required to be dealt with in accordance with the provisions of IBC.52. In the present case,had filed a reference which was pending before BIFR prior to the repeal of SICA.has, within the prescribed period of 180 days, made an application to NCLT by an application under Section 10 of IBC. Of course, counsel for petitioner made certain grievance thatwaited until the last few days to make an application to NCLT under Section 10 of IBC and this Court had declined to grant further time or wait till the company applied to NCLT. In my view, these are all irrelevant so long as the application under Section 10 was made in time.53. It has now been held by the Supreme Court in Bank of New York Mellon (Supra) that by virtue of Section 252 of IBC, even in the case of a company where a winding up order has been passed, it is open to such a company, whose reference was deemed to be pending with BIFR, to seek remedies under IBC before NCLT.In the transfer of proceedings rules dated 7th December 2016 it has been provided that winding up petitions in respect of which notice has been issued to the respondent company or which have been admitted, as held in the unreported judgment dated 23rd December 2016 of Gupte J. in West Hills Realty Pvt. Ltd (supra), remain with the jurisdictional high court whereas, all other winding up petitions get transferred to NCLT.59. If the legislature intended, that those winding up petitions, of which the jurisdictional high court remain seized, would have primacy over NCLT proceedings which may be filed in respect of the same company by another creditor, the legislature would have said so, either in IBC or in the transfer rules Notification.60. On the contrary, the provisions of Section 64 (2) of IBC would indicate that the legislature did not intend that the Company Court would have the power to injunct proceedings before NCLT. Furthermore, when IBC was enacted and the provisions of SICA were repealed by the Notification dated 21st December 2016, companies which had filed a reference under SICA were given a period of 180 days to file a petition under the provisions of IBC. Thus, the period of moratorium which operatedwinding up proceedings as a result of Section 22 of SICA could be continued (if found fit by NCLT) under IBC in the time prescribed by the said Notification.61. It is pertinent to note that on 19th June 2015,filed a reference under Section 15(1) of SICA with BIFR. This was registered on 9th September 2015 and two hearings took place. On 1st December 2016 SICA came to be repealed. On 29th May 2017filed its petition under Section 10 before NCLT, Ahmedabad, i.e., within the prescribed period of 180 days.62. In fact, the Honble Supreme Court in the case of Madura Coats Ltd. v. Modi Rubber Ltd. (supra) has held that the provisions of SICA would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under SICA. Therefore, since SICA is repealed and replaced by IBC (S. 252 read with VIII Schedule of IBC), the provisions of IBC should prevail over the provisions of the Companies Act, 2013.It is clear from a reading of the aforementioned notifications that while prenotice winding up proceedings (transferred to NCLT) are governed by the provisions of IBC, post notice winding up proceedings (retained in High Court) are required to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.67. The fact that post notice winding up petitions continue to be governed by the Companies Act, 1956 only means that to those proceedings it will be the Companies Act, 1956 which will apply. It does not, however, mean that if, in awinding up petition a new proceeding is filed under IBC, and where orders are passed by NCLT, including under Section 14 of IBC, the consequences provided for under IBC will not apply to post notice proceeding, whatever their stage may be.In fact, if petitioners arguments were to be accepted, it would mean that there is no right available for any person covered by Section 6 of IBC to file a proceeding under IBC, in respect of a Company, against whom a winding up petition is retained in the High Court. Such an interpretation is not supported by the language of IBC.68. Further, there is express as well as an implied intention on the part of the legislature to (i) take away the right to file winding up petitions under the Companies Act, 1956; and (ii) to apply the provisions of IBC without exception to all proceedings undertaken regarding insolvency resolution and revival of companies. This is also apparent from the peremptory and express language of Sections 14, 63 and 64 (2) of IBC.69. It is also clear from the Companies (Removal of Difficulties) Fourth Order that in fact what is saved are only the proceedings of winding up pending before the jurisdictional High Court and not the Company itself in relation to which such proceedings are saved. That is to say, such a Company is still subject to the provisions of IBC, if invoked and only the post notice winding up proceedings, which are retained by the High Court, are saved. This does not mean that IBC is inapplicable to the said Company, if it is invoked.70. It is clear from the above that the winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. It only provides that winding up proceedings under Section 433 (1) (e) pending in the High Court would continue in the High Court Prasanta Kumar Mitra (Supra).71. Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC,the company against whom a winding up petition is filed and retained in the High Court, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation. This is contrary to the plain language of IBC. If the contentions of petitioner were to be accepted, it would mean that in respect of companies, where a post notice winding up petition is admitted or a provisional liquidator appointed, provisions of IBC can never apply to such companies for all times to come.72. Even under the 29th June 2017 Notification, it is only those petitions pending in the High Court where a notice may not have been issued which would not get transferred, if a winding up petition against such a company has already been admitted. But even in such a case, there is no express or implied bar from other creditors of such a company or the corporate debtor from filing fresh proceedings under IBC. If at all, such creditors/corporate debtors are barred from approaching the High Court and not NCLT under IBC.73. The mere fact that post notice winding up proceedings are to be dealt with in accordance with the provisions of the Companies Act, 1956 does not bar the applicability of the provisions of IBC in general to proceedings validly instituted under IBC, or does it mean that such proceeding can be suspended.The jurisdiction of the Company Court in relation to proceedings under IBC is expressly barred by virtue of section 63 of IBC. Further, by virtue of Section 64(2) of IBC, the Company Court is prohibited from injuncting NCLT from exercising its jurisdiction under IBC. By virtue of section 238 of IBC, it overrides the provisions of the Companies Act, 1956. The Apex Court has, in a few cases, considered provisions similar to Section 64 (2) of IBC. In GhanshyamSarda v. Shiv Shankar Trading Company (supra), the Honble Supreme Court considered the bar of the Civil Courts jurisdiction under the Sick Industrial Companies Act, 1985It may also be noted that apart from there being no provision in the Companies Act, 1956 to injunct proceedings before NCLT instituted under IBC, petitioner cannot take recourse under the inherent powers of the High Court to support the impugned order. This argument has been expressly rejected by the Honble Supreme Court in Cotton Corporation of India Limited (supra) while holding at paragraph 21 :In view of the majority decision, it must be conceded that the court can in appropriate cases grant temporary injunction in exercise of its inherent power in cases not covered by 0.39 C.P.C. But while exercising this inherent power, the court should not overlook the statutory provision which clearly indicates that injunction to restrain initiation of proceeding cannot be granted. Section 41(b) is one such provision. And it must be remembered that inherent power of the court cannot be invoked to nullify or stultify a statutory provision.Besides there is an express bar contained in Section 64 (2) of IBC which prevents any court, tribunal or authority from granting any injunction in respect of any action taken, or to be taken, in pursuance of any power conferred on NCLT under IBC.83. If petitioners arguments were to be accepted it would mean that under the Companies Act, 1956, even after a winding up petition was admitted (or a winding up order was passed) and a reference then came to be made to BIFR, Section 22 of SICA would not apply and the High Court seized of the winding up petition would have the power to injunct proceedings before BIFR. The Supreme Court in the case of Real Value Appliances Ltd. (supra) while considering this issue and whether the High Court had the power under the Companies Act, 1956, i.e., the very same provisions which petitioner is now relying on to contend that proceedings under the IBC can be injuncted, has held:Whether, once the BIFR had registered the reference dated 17.7.97 on 24.7.97 under Section 15 of the Act read with the Regulations, it was permissible for the Division Bench of the High Court to pass orders on 8.8.97 vacating the stay order dated 20.12.96 and confirming the appointment of provisional liquidator on the company side and also whether it was permissible for another Division Bench of the High court to appoint a Receiver on 28.7.97 in the proceedings arising out of the suit, in view of section 22 of theon the use of the word may in Section 16(1) of the Act it has been contended in some High Courts that the word may in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under Section 16(1) that it can be said that the inquiry as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under Section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when Section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the Gauri procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Companys assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and rehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or some other body seeks to have it declared as a sick Company, it is, in our opinion, necessary that the Company be heard before any final decision is taken under the Act. It is also the legislative intention to see mat no proceedings against file assets are taken before any such decision is given by the BIFR for in the case the Companys assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation v. Maharashtra Steels Ltd., AIR1988All170 , the High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima Steels Ltd., the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishab Ispat Ltd., (1993) 78 Comp. Cas 264 are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Companys assets must remain stayed as stated in section 22 till final decisions are taken by thecan, therefore, be no difficulty in holding that after the amendment to Regulation 19 w.e.f. 24.3.1994, once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must for the purposes of section 22 be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play.For the aforesaid reasons, the order passed by the Division Bench on 28.7.97 appointing Receiver and the order passed by another Bench of the High Court on 8.8.97 restoring the provisional liquidator, are set aside. The Civil appeals are accordingly allowed. There will be no order as to costs. The respondents are free, if need be, to approach the BIFR under section 22 and section 22A of the Act for further orders, if any, in addition to the orders already passed by the BIFR in this behalf.84. It has been held in the case of M/s. Rishabh Agro Industries Ltd. (Supra) that even after a winding up order is passed the provisions of Section 22 of SICA apply and the Court under the Companies Act, 1956 would have no power to injunct proceedings before BIFR in view of Section 22 of SICA:It is true that for invoking the applicability of Section 22 it has to be established that an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or sanctioned scheme is under implementation or an appeal under Section 25 to an industrial company is pending. But it cannot be said that despite existence of any of the aforesaid exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed. The words "no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court appears to have not taken note of the aforesaid words i.e. to be proceeded with further. As the impugned judgment is based upon wrong assumption of the provision of law and completely ignoring the vital words noticed hereinabove, the same cannot be sustained.85. In view of the above since the IBC is admittedly a successor statute to SICA, and Section 64 (2) of IBC being parimateria to Section 22 of SICA, the argument that the Company Court has the power to injunct proceedings before under NCLT in cases of pending winding up petitions is entirely misplaced and contrary to legislative intent.(IX) The Company Court has the jurisdiction to recall an earlier orderAs per rule 6 of the Companies (Court) Rules, 1959, the provisions of the Code of Civil Procedure, 1908, will apply to proceedings under the Companies Act, 1956, unless such application would be contrary to the express provisions of the said rules. Rule 9 of the Companies (Court) Rules, 1959, provides that the Company Court may exercise its inherent powers. Section 141 of the Code of Civil Procedure, 1908, makes it applicable to all proceedings in any court of civil jurisdiction. A combined reading will show that the Company Court has ample powers to recall any order previously passed by it [Dr. Writers Food Products Private Limited (supra)].(X) An order can be recalled if it was passed without jurisdictionThe Honble Supreme Court of India has held that an order may be recalled by a court or tribunal if there was an inherent lack of jurisdiction to pass such an order [Budhia Swain. Gopinath Deb