Case Note & Summary
The appeal arose from an order of the Company Court (High Court of Allahabad) refusing to transfer a winding up petition to the National Company Law Tribunal (NCLT). The winding up petition was originally filed by M/s Girdhar Trading Co. (respondent no. 2) under Section 433 of the Companies Act, 1956 against M/s Axis Nirman and Industries Ltd. (respondent no. 1). The Company Court admitted the petition and ordered advertisement under Rule 24 of the Companies (Court) Rules, 1959. Subsequently, on 10.03.2016, the court ordered winding up and appointed the Official Liquidator. The corporate debtor later paid the petitioning creditor's dues and sought recall of the winding up order. The Company Court kept the winding up order in abeyance on 22.08.2016 but directed the Official Liquidator to continue custody of assets. Meanwhile, the appellant, M/s Kaledonia Jute and Fibres Pvt. Ltd., claiming to be a financial creditor, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 before the NCLT, Allahabad, for a debt of Rs. 32 lakhs. The appellant then moved an application before the Company Court seeking transfer of the winding up proceedings to the NCLT. The Company Court rejected the application on 24.02.2020, holding that since Rule 24 had been complied with and a winding up order had been passed, transfer was not permissible. The Supreme Court allowed the appeal, setting aside the High Court's order. The Court held that the proviso to Section 434(1)(c) of the Companies Act, 2013, as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, permits any party to apply for transfer of winding up proceedings pending before any court to the NCLT. The Court noted that the stage of proceedings is not an absolute bar; the court has discretion to order transfer. The Court directed the Company Court to consider the transfer application afresh on merits, keeping in view the provisions of the IBC and the interests of all creditors.
Headnote
A) Insolvency Law - Transfer of Winding Up Proceedings - Section 434 Companies Act, 2013 read with Insolvency and Bankruptcy Code, 2016 - Financial Creditor's Application - The issue was whether a financial creditor could seek transfer of a winding up petition from the High Court to the NCLT after a winding up order had been passed but kept in abeyance. The Supreme Court held that the proviso to Section 434(1)(c) as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 allows any party to apply for transfer, and the court may order transfer. The stage of proceedings is not a bar if the court deems fit. (Paras 13-20) B) Insolvency Law - Maintainability of Transfer Application - Section 434(1)(c) proviso - The Court held that the appellant, as a financial creditor, was entitled to file an application for transfer under the proviso, which uses the phrase 'any party or parties'. The High Court's rejection on the ground that Rule 24 compliance and winding up order had been passed was erroneous. (Paras 12, 20) C) Insolvency Law - Interpretation of Section 434 - The Court analyzed the legislative history and amendments to Section 434, noting that the proviso inserted by the 2018 Ordinance empowers the court to transfer proceedings even after a winding up order, subject to the court's discretion. (Paras 14-19)
Issue of Consideration
What are the circumstances under which a winding up proceeding pending before a High Court can be transferred to the NCLT, and at whose instance such transfer can be ordered?
Final Decision
The Supreme Court allowed the appeal, set aside the High Court order dated 24.02.2020, and directed the Company Court to consider the transfer application afresh on merits, in accordance with law and the provisions of the IBC.
Law Points
- Transfer of winding up proceedings
- Section 434 Companies Act
- 2013
- Insolvency and Bankruptcy Code
- 2016
- Financial creditor's right to seek transfer
- Stage of proceedings for transfer
