Winding up orders to operate in favour of the creditors of a company: Supreme Court

Aggrieved by an order passed by the Company Court refusing to transfer the winding up petition for the appellant Mr. A.N.S. Nadkarni learned senior counsel appearing for the 1st respondent­corporate debtor and Gp. Capt Karan Singh Bhati learned counsel appearing for the official One M s Girdhar Trading Co. the 2nd respondent herein filed of Allahabad under Section 433 of the Companies Act 1956 for the order the 2nd respondent herein effected a 48 on 30.01.2016. Newspaper publications were also made indicating the date of hearing of the Company Petition as Thereafter the Company Court passed an order dated appointed the official liquidator attached to the High Court of Allahabad as the Liquidator and directed him to take over the up was also directed to be advertised in Form 53 in two the order of winding up dated 10.03.2016. The 1st respondent in 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 In the light of the rival contentions the Company Court 11. While things stood thus the appellant herein claiming to be a the NCLT Allahabad under Section 7 of the Insolvency and Bankruptcy Code 2016what are the circumstances under which a winding up 14. Though the Companies Act 2013received the w.e.f. 12.09.2013 some other provisions came into force w.e.f Sub­section of Section 434 came into force w.e.f. 01.06.2016 It may be noted here that Section 434 as it originally stood when the Companies Act 2013 was enacted was different from Companies Act 2013 was actually substituted by the Insolvency and Bankruptcy Code 2016which came into force 17. Section 434 as it stood originally in the Companies Act 2013 31 of 2016) together with subsequent amendments thereto are “434. Transfer of certain pending proceedings.­(1) On by the Central Government Company Law Board constituted under sub­ section of section 10E of the Companies Act 1956 immediately before such date shall transferred to the Tribunal and the Tribunal shall dispose of such matters proceedings or cases in with any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High the decision or order of the Company Law Board to him on any question of law Court may if it is satisfied that the appellant was 434. Transfer of certain pending proceedings.­(1) On such date as may be notified cases pending before the Company Law Board of Administration of section 10E of the Companies Act 1956 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 of communication of the decision or order of the Provided that the High sufficient cause from filing an from filing an appeal within filed within a further period all proceedings under the Companies Act 1956 immediately appeal within the said period allow it to be filed within a further period not exceeding c) all proceedings under the Companies Act 1956 including proceedings to arbitration reconstruction and winding up of companies pending immediately before such date before any District Court or High Court shall stand transferred to the proceed to deal with such proceedings from the stage 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 proceedings relating to cases other than winding­up for which orders for allowing or otherwise of the proceedings are not reserved by the High Court shall be transferred to the Companies Act 1956 other than the cases relating to companies that are reserved for orders allowing or from in respect of which such stands abated under this within one hundred and eighty days Provided further that no fees shall be payable for stands abated under this with 2) The Central Government may make rules consistent to ensure timely transfer of all matters proceedings or cases pending before the Company Law Board or the court to the Tribunal under relating to winding­ up of which have not been transferred from the be dealt with accordance with provisions of the Companies Act 1956 and the Companies Rules relating to cases of voluntary notice of the resolution by advertisement has been given 485 of the Companies Act been dissolved before the 1st dealt with in accordance with provisions of the Companies Act 1956 and the Companies or parties to any proceedings relating to the winding up of companies pending before the any Court immediately before the commencement of the Insolvency and Bankruptcy Code Ordinance 2018 may file an application and the Court may by order transfer such proceedings to the Tribunal an application for initiation of corporate insolvency resolution and process under the Insolvency 2) The Central Government the provisions of this Act to ensure timely transfer of all matters proceedings or cases pending before the Company side column of the above Table includes apart from what was The Companies Fourth Order 2016 published on 07.12.2016 which came iii) The Insolvency and Bankruptcy Code Act 2018 namely 26 of 2018 which b) of Sub­section deals with the right of appeal to the High 20. Be that as it may clauseof Sub­sectionis the provision proceedings relating to arbitration compromise arrangements and application to proceedings relating to arbitration compromise 21. However the first proviso to Clausewhich was not there in 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 22. Sub­section 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 of the IBC 2016 the Central Government issued a set of Rules resolution by advertisement has been given under Section 485(1) of the Companies Act 1956 but the company has not been dissolved before 01.04.2017 “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 company has not been dissolved before the 1st April 2017 of the Companies Act 1956 and the Companies other types of winding up proceedings that can be 25. The transferability by operation of law of winding up proceedings other than those covered by the 4th Proviso depends upon the stage at which they are pending before the Company 26. Apart from providing for the transfer of certain types of 27. Keeping in mind the above scheme of Section 434 let us now turn to the Rules. As stated earlier The Companies Rule 2016 were issued in exercise of the 28. The aforesaid Rules categorise the pending proceedings for winding up into three types namely proceedings for voluntary winding up covered by the fourth proviso to Clause of Sub­ winding up on the ground of inability to pay debts and All petitions relating to winding up of a company under clause of section 433 of the Act on the ground of inability to pay its debts pending before a High Court and where the petition Companies Rules 1959 shall be transferred to the Bench of the Tribunal established under sub­section of than information forming part of the records transferred in 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 Provided further that any party or parties to the petitions shall after the 1st day of July 2017 be eligible to file fresh company is not transferred to the Tribunal under this Rule and remains in the High Court and where there is another 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 31. Rule 6 of the aforesaid Rules deals with transfer of “6. Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay as required under rule 26 of the Companies 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 32. The transferability of a winding up proceeding both under the winding up petition on the respondent under Rule 26 of the Companies Rules 1959. If the winding up petition has service of the winding up petition on the respondent in terms of Rule 26 had not been completed such winding up proceedings under Rule 26 of the CompaniesRules 1959 as the stage at which a winding up proceeding can be transferred. This is because the first proviso under Clause of Sub­section of 34. Rule 26 of the Companies Rules 1959 reads as respondent if any named in the petition and on such other of the petition shall be served along with the notice of the 35. The normal requirement of Rule 26 as seen from its last limb 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 36. Due to the usage of the words “was admitted” in Form No.6 26 is of a pre­admission notice or post­admission notice in a Rules 1959 this Court pointed out in Forech India Ltd. SCR 477 5th proviso was inserted by Act 26 of 2018 the transfer of the that “any person” is an authority for the proposition that the 5th proviso to Clause of Sub­section of Section 434 could be invoked by any person who is not a party to the proceeding for 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 to“the parties to the define the expression “party”. The CompaniesRules 1959 also does not define the expression “party”. The Companies Act 2013 does not define the expression “party”. The Companies the expression “party”. Even the IBC 2016 does not define the 42. But there are certain clues inherently available in the Companies Act 1956 to indicate the persons who may come within the meaning of the expression “party to the proceedings”. The Section 447 of the Companies Act 1956 which is wording of Section 278 of the 2013 Act and the wording of if both these provisions are presented simultaneously in a Effect of winding up order.­ An order for winding up a contributories of the company joint petition of a creditor a company shall operate in favour of all the creditors and out on the joint petition of contributories of single creditor or contributory is actually treated as a order of winding up operates in favour of all the ii) Under Section 454 of the 1956 Act any person to inspect the statement of affairs submitted to the official of a liquidator into two categories namely those available with the sanction of the Tribunal and those generally This is made clear by Section 457(3) of the 1956 Act and the Company and the distribution thereof among its liquidator does something in exercise of his powers any entitled to apply to the Company Court under Section v) Section 466(1) of the 1956 Act enables any creditor to 43. Thus the proceedings for winding up of a company are body of creditors. Therefore the word “party” appearing in the 5th proviso to Clause of Sub­section 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 of Sub­section of the same before the Company Court. Once he does that he the section. Instead of asking a party to adopt such a circuitous it would be better to recognise the right of such a party to seek 45. As observed by this Court in Forech India Limited an enquiry into the application under Section 7 IBC the entire 46. Therefore we are of the considered view that the petitioner­ herein will come within the definition of the expression “party” appearing in the 5th proviso to Clause of Sub­section of that the restriction under Rules 5 and 6 of the Companies stage at which a transfer could be ordered has no to clause of sub­section of Section 434. Therefore the 47. Therefore the appeal is allowed the impugned order is set aside and the proceedings for winding up pending before the herein is ordered to be transferred to the NCLT to be taken up

Summary: A creditor or a group of creditors can be considered as a party to an application seeking transfer of case from the High Court to the National Company Law Tribunal regarding the winding up of a company. The Supreme Court bench consisting of Hon’ble Chief Justice S.A. Bobde, Hon’ble Justice A.S. Bopanna and Hon’ble Justice V. Ramasubramanian, delivered an excellent judgement regarding requirements of transferability of a case in the matter of M/S Kaledonia Jute and Fibres Pvt. Ltd. v. M/S Axis Nirman and Industries &amp; Ors. [Civil Appeal No. 3735 of 2020].   The respondents filed a petition before the High Court under Section 433 of the Companies Act, 1956, pleading for the winding up of the first respondent company as it was unable to pay debts. The court ordered the admission of the petition and directed for the publication of the advertisement of the petition in accordance with Rule 24 of the Companies (Court) Rules, 1959. Pursuant to the publication, the court directed the winding up of the company and appointed an official liquidator directing him to take over the assets and books of accounts of the Company. The respondent filed an application for recalling the order but the liquidator opposed the application on the grounds that the respondent owed money close to Rs. 27 crores to various creditors. In the light of this, the court kept the order of winding up in abeyance but directed the liquidator to continue to keep in custody the assets of the company. The appellant, who claimed to be a creditor of the respondent moved an application before the National Company Law Tribunal (NCLT) under Section 7 of the Insolvency and Bankruptcy Code, 2016, that the respondent had failed to pay a sum of Rs. 32 lakhs to the appellant despite repeated demands. The appellant moved an application seeking transfer of this case from the High Court to the NCLT which was rejected by the HC on the grounds that the requirement for winding up order had already been passed. It was against this order of the HC that the financial creditor came up with a civil appeal to the Supreme Court. The Supreme Court in its decision, reiterated the provisions relating to the transfer of case regarding winding up of company and stated that “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 Clause (a) and (f) of Section 433, shall peremptorily be transferred to the NCLT”. After this, the court dealt with who will be considered as a “party”. Section 446 of the Companies Act, 1959 states that “an order for winding up shall operate in favour of all the creditors and all of the contributors for the company as if it had been on the joint petition of a creditor and of a contributory”. Thus the court stated that winding up proceedings are actually proceedings in rem and the entire body of creditors will be a party to the same. Hence, herein the court held that the appellant was infact a party and that the transfer was not restricted by the stage of proceeding as it was covered by the 5th proviso to Section 434(1)(c) of the act.