Case: FORECH INDIA LTD Vs. EDELWEISS ASSETS RECONSTRUCTION CO. LTD

The facts relevant for disposal of this appeal are as follows:2. A winding up petition, being No. 42 of 2014, was filed by the present appellant before the High Court of Delhi on 10.01.2014, against Respondent No. 2-Company, alleging (under Section 433(e) of the Companies Act) inability to pay dues. Notice in this petition had been served, as is recorded by an order dated 20.01.2014 of the High Court of Delhi. Further orders which have been pointed out to us by learned counsel for the appellant, have gone on to state that there is a debt or liability which is, in fact, admitted3. It was also pointed out by learned counsel for the appellant that a Reference had been made by the Company itself on 14.07.2015 to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies Act, 1985, which, according to the learned counsel for the appellant, has abated as on 11.12.2016. It transpires that another operational creditor, viz., SKF India Ltd. had filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016 (in short the Code), against Respondent No. 2, which was allowed to be withdrawn so that the aforesaid operational creditor could go to the High Court in a winding up petition which would then be heard along with the Company Petition No. 42/20144. Meanwhile, Respondent No. 1, being a financial creditor of the self- same corporate debtor, moved the National Company Law Tribunal (NCLT) in an insolvency petition filed under Section 7 of the Code sometime in May/June 2017. This petition was admitted on 07.08.2017. Against the aforesaid order, an appeal was filed by the appellant herein which was dismissed by the Appellate Tribunal, in which Section 11 of the Code was referred to, and it was held by the Appellate Tribunal that since there was no winding up order by the High Court, the financial creditors petition would be maintainable, as a result of which the appellants appeal has been dismissed.

Court's reasoning:
16. We are of the view that Rules 26 and 27 clearly refer to a pre- admission scenario as is clear from a plain reading of Rules 26 and 27, which make it clear that the notice contained in Form No. 6 has to be served in not less than 14 days before the date of hearing. Hence, the expression was admitted in Form No. 6 only means that notice has been issued in the winding up petition which is then fixed for hearing before the Company Judge on a certain day. Thus, the Madras High Court view is plainly incorrect whereas the Bombay High Court view is correct in law17. The resultant position in law is that, as a first step, when the Code was enacted, only winding up petitions, where no notice under Rule 26 of the Companies (Court) Rules was served, were to be transferred to the NCLT and treated as petitions under the Code. However, on a working of the Code, the Government realized that parallel proceedings in the High Courts as well as before the adjudicating authority in the Code would stultify the objective sought to be achieved by the Code, which is to resuscitate the corporate debtors who are in the red. In accordance with this objective, the Rules kept being amended, until finally Section 434 was itself substituted in 2018, in which a proviso was added by which even in winding up petitions where notice has been served and which are pending in the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which would then have to be transferred by the High Court to the adjudicating authority and treated as an insolvency petition under the Code. This statutory scheme has been referred to, albeit in the context of Section 20 of the SICA, in our judgment which is contained in Jaipur Metals & Electricals Employees Organization Through General Secretary Mr. Tej Ram Meena vs. Jaipur Metals & Electricals Ltd. Through its Managing Director &Ors., being a judgment by a Division Bench of this Court dated 12.12.201821. The resultant position, therefore, is that we agree with the learned counsel for the appellant that the Appellate Tribunals reasoning is not correct. Section 11 of the Code specifies which persons are not eligible to initiate proceedings under it.22. This Section is of limited application and only bars a corporate debtor from initiating a petition under Section 10 of the Code in respect of whom a liquidation order has been made. From a reading of this Section, it does not follow that until a liquidation order has been made against the corporate debtor, an Insolvency Petition may be filed under Section 7 or Section 9 as the case may be, as has been held by the Appellate Tribunal. Hence, any reference to Section 11 in the context of the problem before us is wholly irrelevant. However, we decline to interfere with the ultimate order passed by the Appellate Tribunal because it is clear that the financial creditors application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code.