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: Asset Sale Alone Can't Bar from NCLT Transfer for Revival
The has delivered a significant ruling clarifying that a is not precluded from seeking the transfer of to the merely because secured creditors have sold the company's assets outside the winding-up process. A Division Bench of Justices A.S. Gadkari and Kamal Khata held that such an asset sale does not, by itself, render irreversible under the .
The decision came in an appeal filed by , which opposed the transfer of concerning to the NCLT. The Single Judge had allowed the transfer on under . The High Court dismissed the appeal, rejecting the argument that the sale of the company's core assets made revival impossible.
Background of the Case
had been in since , with its net worth having eroded as early as . The company's secured creditors had sold its core assets located in Aurangabad and Pune through proceedings before the . Omkara Assets Reconstruction, the appellant, contended that these sales had fundamentally altered the company's position, making any attempt at revival under the IBC futile.
The respondent, an holding more than 50% of the company's financial debt, argued that it was legally entitled to seek a transfer of the to the NCLT. The respondent maintained that the IBC framework provided a time-bound, that could still be pursued despite the asset sales.
The Court's Reasoning
The Division Bench relied on two key precedents: and . In the latter, the had established that the transfer of depends on whether the winding up has reached an "". The applied this principle to the facts at hand.
The Bench observed that although some assets had been sold through DRT proceedings, other assets remained. Specifically, assets at Thane, Bengaluru, and Pune were in the custody of a DRT receiver, while additional assets remained with the . The court noted that only limited steps had been taken in the , and these steps had not crossed the threshold of irreversibility.
In a key passage, the court 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 does not by itself constitute an warranting refusal of transfer. We are fortified by the decision of the in A. Navin Chandra Steels Pvt. Ltd. (supra) ."
The court further underscored the rights of financial creditors, stating:
"A is entitled in law to seek a to N.C.L.T. for the . We find no justifiable reason to reject such an Application by an , particularly where the Applicant seeks to do the same in a and within the provided under the I.B.C."
The Bench also emphasised that it is ultimately for investors to decide whether would serve their interests, and that the court's role is limited to ensuring that the IBC process can be initiated where a reasonable possibility exists.
Legal Analysis
The ruling clarifies a critical point of intersection between the winding-up regime under the Companies Act and the revitalisation framework under the IBC. read with the IBC provides for the transfer of pending winding-up petitions to the NCLT for fresh consideration. The key question has always been: at what stage does a winding-up become so advanced that transfer would be pointless?
By drawing on the "" test from Action Ispat , the has provided a practical yardstick. The sale of assets by secured creditors, even if substantial, does not automatically tip the scale toward irreversibility. What matters is whether a meaningful revival remains plausible, considering all residual assets, liabilities, and the willingness of financial creditors to pursue a .
This approach aligns with the IBC's overarching objective of and promoting the revival of stressed companies as . It also respects the commercial judgment of financial creditors, who are best placed to assess the viability of a revival strategy.
Impact on Legal Practice
The decision will have far-reaching implications for insolvency practitioners and litigants. Financial creditors holding significant debt in companies that are already in winding-up can now more confidently seek transfer to the NCLT, even if secured creditors have already disposed of some assets. The ruling warns that such asset sales will not be treated as a foregone conclusion of liquidation.
From a strategic standpoint, the judgment creates a more level playing field between secured creditors acting unilaterally and financial creditors who may wish to pursue a . It also reinforces the primacy of the IBC's over .
For counsel, the case underscores the importance of adducing evidence about the extent of residual assets and the feasibility of revival. The court's reliance on the existence of assets still held by the and DRT receiver suggests that a factual inquiry into the current state of the company is essential when opposing or supporting a transfer application.
Conclusion
The 's ruling in marks a pragmatic step in the evolution of insolvency law. By holding that asset sales outside do not per se bar a from seeking NCLT transfer, the court has kept the door open for revival where a reasonable possibility exists. The appeal was dismissed without costs, and the to the NCLT remains intact, paving the way for a potential resolution under the IBC.
As the legal community continues to grapple with the interplay between the Companies Act and the IBC, this judgment reinforces the principle that the IBC's should prevail unless the winding-up has genuinely become irreversible. Financial creditors and insolvency professionals will be watching closely as the NCLT takes up the case for consideration of a revival plan.
