1. Winding up proceedings initiated under the SIC Act pending before High Court — Independent application for corporate insolvency resolution process filed under Section 7, Insolvency and Bankruptcy Code. (Para 2 , 3 , 4 )
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2018 Supreme(SC) 1247
SUPREME COURT OF INDIA
R.F. Nariman, M.R. Shah, JJ.
JAIPUR METALS AND ELECTRICALSEMPLOYEES ORGANIZATION THROUGH GENERAL SECRETARY; MR. TEJ RAM MEENA – Appellant
Versus
JAIPUR METALS AND ELECTRICALS LTD. THROUGH ITS MANAGING DIRECTOR AND OTHERS – Respondent
Civil Appeal No. 12023 of 2018 [Arising Out of SLP (Civil) No. 18598 of 2018]
Decided on : 12-12-2018
Advocates Appeared:
For the Appellant : Mr. Sidharth Luthra, Mr. Sayantam Talapatra, Mr. Pankaj Singhal, Ms. Anushree Prashit Kapadia, Advs.
For the Respondent: Mr. Tarun Gupta, Mr. P. Chidambaram, Sr. Ms. Ashu Kansal, Mr. Karan Batura, Mr. T. V. S. Raghavendra Sreyas, Mr. Nikhil Nayyar, Ms. Garima Bajaj, Mr. Amit Sharma, Mr. Ankit Raj, Ms. Nidhi Jaswal, Ms. Ruchi Kohli, Mr. Siddhartha Dave, Mr. Rishi Matoliya, r. Rahul Pratap, Mr. Surya Kant, Mr. Pranav Vyas, Mrs. Priyanka Tyagi, Advs.
For the Appellant : Mr. Sidharth Luthra, Mr. Sayantam Talapatra, Mr. Pankaj Singhal, Ms. Anushree Prashit Kapadia, Advs.
For the Respondent: Mr. Tarun Gupta, Mr. P. Chidambaram, Sr. Ms. Ashu Kansal, Mr. Karan Batura, Mr. T. V. S. Raghavendra Sreyas, Mr. Nikhil Nayyar, Ms. Garima Bajaj, Mr. Amit Sharma, Mr. Ankit Raj, Ms. Nidhi Jaswal, Ms. Ruchi Kohli, Mr. Siddhartha Dave, Mr. Rishi Matoliya, r. Rahul Pratap, Mr. Surya Kant, Mr. Pranav Vyas, Mrs. Priyanka Tyagi, Advs.
Important Points
IMPORTANT POINTS
When appeal against judgment of single Judge of the High Court is pending before Division Bench, filing SLP against same judgment is normally not admissible.
matter of liquidation of respondent Company u/s 20, SICA pending before High Court – Held, it would be governed by Rule 5(2) and will be continued to be dealt with by the High Court in accordance with the provisions of the SIC Act.
All proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018. On such application, the High Court must transfer such proceedings to the NCLT.
– Section 7 r/w section 238 – Respondent Company filing
Application u/s 7, Insolvency and Bankruptcy Code, 2016 is independent of the matter pending before High Court u/s 20, SICA and 434, Companies Act, 2013.
When appeal against judgment of single Judge of the High Court is pending before Division Bench, filing SLP against same judgment is normally not admissible.
matter of liquidation of respondent Company u/s 20, SICA pending before High Court – Held, it would be governed by Rule 5(2) and will be continued to be dealt with by the High Court in accordance with the provisions of the SIC Act.
All proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018. On such application, the High Court must transfer such proceedings to the NCLT.
– Section 7 r/w section 238 – Respondent Company filing
Application u/s 7, Insolvency and Bankruptcy Code, 2016 is independent of the matter pending before High Court u/s 20, SICA and 434, Companies Act, 2013.
Subject
INSOLVENCY AND BANKRUPTCY - TRANSFER OF WINDING UP PROCEEDINGS
Act Referred
Headnote
(a) Administration of justice – Preliminary objection – Judgment of Single Judge of High Court – Appeal pending before Division Bench – Filing SLP against same judgment – Normally not admissible – However, since important questions have been raised, which require authoritative decision, SLP admitted. (Para 8)
(b) Companies Act, 2013 – Section 434 r/w section 20, Sick Industrial Companies (Special Provisions) Act, 1985 and Rule 5(2), Companies (Transfer of Pending Proceedings) Rules, 2016 – Instantly matter of liquidation of respondent Company u/s 20, SICA pending before High Court – Held, it would be governed by Rule 5(2) and will be continued to be dealt with by the High Court in accordance with the provisions of the SIC Act. (Para 13, 14)
© Companies Act, 2013 – Section 434 r/w Rule 5, Companies (Transfer of Pending Proceedings) Rules, 2016 – All proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018 – On such application, the High Court must transfer such proceedings to the NCLT – NCLT will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code. (Para 15)
(d) Insolvency and Bankruptcy Code, 2016 – Section 7 r/w section 238 – Respondent Company filing application u/s 7 seeking insolvency – Held, it is independent of the matter pending before High Court u/s 20, SICA and 434, Companies Act, 2013. (Para 17, 18)
(e) Interpretation of statute – Section 434, Companies Act, 2013 amended by Eleventh Schedule of Insolvency and Bankruptcy Code, 2016 – Amended section 434 appearing in Companies Act – Does not become part of the Code – However, in case of any inconsistency between Section 434 as substituted and the provisions of the Code, the latter must prevail. (Para 18)
Facts of the case:
The account of the Respondent No. 1 company had become a non-performing asset therefore a reference was made to the Board for Industrial and Financial Reconstruction which of the prima facie opinion that the company ought to be wound up. This opinion was forwarded to the High Court. The Alchemist Asset Reconstruction Company Ltd. (Respondent No. 3) acquired substantially all the financial debts of Respondent No. 1. Ultimately, in a writ petition filed by a workers' union, being Writ Petition No. 504/2000, the High Court, on 07.12.2017, directed the Official Liquidator to be provisionally attached to the Court, and to join in the evaluation of the value of goods and material lying in the factory premises of the company so that dues of the workmen could be paid.
In the meanwhile Respondent No. 3 preferred an application under Section 7 of the Insolvency Code, stating that it had an assigned debt of INR 356 crores owed to it by the Respondent No. 1. Considering the fact that the debt was admitted by the company and that till date no liquidation order had been passed in the winding up proceedings that were pending before the High Court, the NCLT held that it was satisfied that the conditions of Section 7 had been fulfilled and that, therefore, the application should be admitted. Accordingly, a moratorium was declared in terms of Section 14 of the Code and an interim resolution professional was appointed.
Meanwhile, in Company Petition No. 19/2009 and other connected matters the High Court, by an interim order stayed implementation of the order passed by the NCLT. The High Court refused to transfer the winding up proceedings pending before it, and set aside the NCLT order, stating that it had been passed without jurisdiction.
Supreme Court stayed the operation of the impugned judgment.
Finding of the Court:
NCLT was absolutely correct in applying Section 238 of the Code to an independent proceeding instituted by a secured financial creditor.
Result: Appeal allowed.
Legal Category Hierarchy
- insolvency and bankruptcy law
- company law
Table of Contents
2. Whether winding up proceedings under the SIC Act automatically transfer to NCLT and whether a Section 7 IBC application is maintainable during pending winding up proceedings. (Para 6 , 7 )
3. Omission of Rule 5(2) does not automatically transfer SIC Act proceedings; however, independent Section 7 applications are maintainable and override other laws via Section 238. (Para 14 , 15 , 17 , 18 )
4. Section 238 of the Insolvency and Bankruptcy Code overrides inconsistent provisions in other laws, allowing independent Section 7 applications despite pending winding up proceedings. (Para 17 , 18 )
5. Appeal allowed — High Court judgment set aside — NCLT proceedings to continue — High Court winding up proceedings stayed. (Para 18 )
6. Do winding up proceedings initiated under Section 20 of the SIC Act automatically transfer to the NCLT upon the repeal of the SIC Act?
No. Such proceedings continue before the High Court. They only transfer to the NCLT if a party files an application for transfer under the amended Section 434 of the Companies Act, 2013. (Para 15 , 16 )
7. Can a financial creditor file a Section 7 application under the Insolvency and Bankruptcy Code while winding up proceedings are pending before a High Court?
Yes. A Section 7 application is an independent proceeding. It can be filed at any time before a winding up order is passed. (Para 17 )
8. How does Section 238 of the Insolvency and Bankruptcy Code interact with the Companies Act, 2013?
Section 238 provides that the Code overrides any inconsistent provisions in other laws. Since Section 434 is part of the Companies Act, the Code prevails in case of inconsistency. (Para 17 , 18 )
JUDGMENT
R.F. Nariman, J.
Leave granted.
2. The present appeal has been filed by an employees' union challenging the judgment of the High Court of Judicature for Rajasthan dated 01.06.2018, in which the High Court has refused to transfer winding up proceedings pending before it tothe National Company Law Tribunal ("NCLT"), and has set aside an order dated 13.04.2018 of the NCLT by which order a financial creditor's petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("Insolvency Code" or "Code") has been admitted.
3. This case has had a chequered history. On 30.09.1997, the account of the Respondent No. 1 company had become a non-performing asset, and since the company's net worth had turned negative, a reference was made to the Board for Industrial and Financial Reconstruction ("BIFR") under the Sick Industrial Companies (Special Provisions) Act, 1985 ("SIC Act"). On 26.09.2002, the BIFR was of the prima facie opinion that the company ought to be wound up, which opinion was forwarded to the High Court. The High Court ultimately registered the case as Company Petition No. 19/2009. The Alchemist Asset Reconstruction Company Ltd. (Respondent No. 3) acquired substantially all the financial debts of Respondent No. 1. The State of Rajasthan tried to revive the company, but with no success. Ultimately, in a writ petition filed by a workers' union, being Writ Petition No. 504/2000, the High Court, on 07.12.2017, directed the Official Liquidator to be provisionally attached to the Court, and to join in the evaluation of the value of goods and material lying in the factory premises of the company so that dues of the workmen could be paid.
4. In the meanwhile, on 11.01.2018, the Respondent No. 3 herein preferred an application under Section 7 of the Insolvency Code, stating that it had an assigned debt of INR 356 crores owed to it by the Respondent No. 1. Considering the fact that the debt was admitted by the company and that till date no liquidation order had been passed in the winding up proceedings that were pending before the High Court, the NCLT held, referring to the non-obstante clause contained in Section 238 of the Insolvency Code, that it was satisfied that the conditions of Section 7 had been fulfilled and that, therefore, the application should be admitted. Accordingly, a moratorium was declared in terms of Section 14 of the Code and an interim resolution professional was appointed.
5. Meanwhile, in Company Petition No. 19/2009 and other connected matters, being various writ petitions that were filed by labour unions, the High Court, by an interim order dated 26.04.2018, stayed implementation of the order passed by the NCLT on 13.04.2018. Against this order, a Special Leave Petition ("SLP") was preferred in which this Court, on 09.05.2018, dismissed the SLP as withdrawn and directed the petitioner to make submissions before the High Court in the pending company petition and allied matters. The High Court then passed the impugned judgment dated 01.06.2018, in which it refused to transfer the winding up proceedings pending before it, and set aside the NCLT order dated 13.04.2018, stating that it had been passed without jurisdiction. Accordingly, the writ petitions and the company petition were placed for further orders on 05.07.2018. On 16.07.2018, this Court issued notice and stayed the operation of the impugned judgment.
6. Shri Sidharth Luthra, learned Senior Advocate, appearing on behalf of the appellant, and Shri P. Chidambaram, learned Senior Advocate, appearing on behalf of Respondent No. 3,have argued that a perusal of the Eleventh Schedule of the Code and amendments made to the Companies Act, 2013, particularly to Section 434 therein, would show that all winding up proceedings pending before the High Court are to stand transferred to the NCLT at such stage as may be prescribed by the Central Government by rules made in this behalf. They then referred to Rule 5 of the Companies (Transfer of Pending Proceeding
