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Asset sale alone can't bar financial creditor from NCLT transfer:
The has ruled that a financial creditor can seek transfer of to the for under the even when secured creditors have sold the company's assets outside the winding up process. A Division Bench of Justices A.S. Gadkari and Kamal Khata dismissed an appeal by against a Single Judge order transferring the of to the NCLT.
Background of the Case
Patheja Forging had been in winding up since , with its net worth eroded since . The had directed winding up under the . Omkara Assets, an intervenor, objected to transferring the proceedings to NCLT, arguing that the company had crossed the . It contended that core industrial assets at Aurangabad and Pune had been sold through proceedings, making any illusory and speculative. The Single Judge, however, on , allowed an application under , transferring the winding up petition to NCLT.
Arguments Before the Division Bench
Omkara, through counsel , argued that the learned Single Judge erroneously applied the test of '.' He submitted that the company's net worth had eroded as early as , and BIFR had affirmed winding up after finding no . The sale of factory assets through DRT confirmed by statutory authorities had extinguished the base assets, leaving no possibility of reversal. He further argued that the judge misread decisions in and , and failed to conduct a .
On the other hand, , senior counsel for the respondent , representing erstwhile financial creditors holding more than 50% of the company's financial debt, submitted that the applicant was entitled in law to seek . He argued that the application was validly filed under Section 434(1)(c) and that the Single Judge had correctly appreciated both law and facts.
Court's Analysis and Legal Principles
The Division Bench found merit in the respondent's submissions and upheld the Single Judge's order. The court emphasized that a financial creditor is entitled to seek transfer of to the NCLT for , especially when the can be undertaken in a time-bound manner under the IBC framework.
Relying on the 's decision in , the court noted that the power to transfer must be exercised by examining whether winding up has reached an . Mere admission of a winding up petition, appointment of a provisional liquidator, or even possession of assets by the liquidator does not by itself constitute an irreversible position.
The court observed that in this case, the company still possesses assets at Thane, Bangalore, and Pune in the custody of a DRT receiver, and other assets at Pune and Gujarat remain with the official liquidator. The steps taken by the official liquidator were limited and could not be characterized as irreversible or amounting to .
Key Observations
The court quoted with approval from A. Navinchandra Steels Pvt Ltd , and held:
"If there exists a possibility to revive the company under the IBC framework, the sale of assets by the secured creditors standing outside the winding-up proceedings does not by itself constitute an warranting refusal of transfer."
It further noted:
"We find no justifiable reason to reject such an Application by an erstwhile financial creditor, particularly where the Applicant seeks to do the same in a and within the provided under the I.B.C."
The court also highlighted that it is for the investors to decide whether would be beneficial to their interest.
Decision
The Division Bench dismissed the appeal with no order as to costs, affirming the Single Judge's order. The interim application also stood disposed of. The decision ensures that the of Patheja Forging will now be transferred to the NCLT for consideration under the IBC, potentially opening the door for .
